- Lack of regulatory approvals stalled the $1.7 billion deal
- Company will focus on other acquisition opportunities
Schlumberger Ltd. will not pursue a $1.7 billion agreement to buy a minority stake in Russia’s largest driller Eurasia Drilling Co. beyond Sept. 30 after a lack of regulatory approvals stalled the deal.
The world’s largest oilfield services provider will instead focus on other merger and acquisition opportunities, it said in a statement Thursday.
Relations between Russia and the U.S. are the worst since the Cold War over the Kremlin’s support for separatists in Ukraine. Russia’s Federal Security Service, the main successor to the KGB, was holding up the deal on concerns that Schlumberger, based in Houston and Paris, would have too much influence in Russia’s oil-services market.
“Schlumberger was ready to drop a $2 billion anchor in the country, now who knows if they won’t find better opportunities elsewhere,” Artem Konchin, an oil analyst at Otkritie Capital, said by telephone Thursday. “Schlumberger could have played a role in lobbying Russia’s economic interests amid sanctions” on the export of some drilling technology and equipment to the country, he said.
The approvals required for the deal were legal, Kremlin spokesman Dmitry Peskov told reporters on a conference call Friday. “There’s a certain framework to approve foreign investments in line with the law. Those are not voluntary requests.”
Schlumberger’s decision to pull out was a commercial decision, Peskov said.
The Russian market represents about 5 to 7 percent of global sales for the company, said James West, an analyst at Evercore ISI in New York.
“They are already large in Russia so I don’t think they needed to have Eurasia,” West said Thursday in an e-mail. “It’s also becoming clearer that sanctions may continue for longer than originally envisioned.”
Schlumberger’s decision doesn’t make Russia’s energy industry less attractive to investors, said the nation’s Energy Minister Alexander Novak.
“I don’t think our investment climate has deteriorated,” Novak told reporters at a briefing in Moscow. “Foreign capital is here, foreign companies. We talk constantly.”
Eurasia Drilling, created after Russia’s second-largest oil producer Lukoil PJSC spun off its drilling arm, has grown to become the nation’s largest driller. It’s also the dominant supplier of jack-up rigs used in the Caspian Sea for exploration.
Under the initial phase of the deal agreed in January, Eurasia founder Alexander Djaparidze and other core investors agreed to buy out minority shareholders in the company for $22 a share. The Djaparidze-led group would then sell that 46.45 percent stake in Eurasia to Schlumberger, which would then have an option to acquire the rest after three years.
Schlumberger’s view might have changed after oil prices failed to hold a rebound in the second quarter, Konchin said. With lower oil prices now expected to last for longer, “$22 a share might have looked a bit rich.”