Eurasia Drilling 2014 Sales to Fall on Rosneft, Weaker Ruble

Eurasia Drilling Co., Russia’s largest oil services provider, expects sales to fall this year because of a weaker ruble and the loss of business with OAO Rosneft.

Eurasia Drilling will move 80 percent of the rigs currently hired by Rosneft to other clients this year, according to a statement today from the Moscow-based company. The remaining 20 percent will continue to work for Rosneft, Russia’s largest oil producer.

State-run Rosneft is seeking to develop its own services arm and cut costs for drilling, bringing it into competition with Eurasia. Rosneft has grown to account for about 40 percent of Russian oil production after it bought the country’s third-largest producer, TNK-BP, last year.

“2014 is shaping up to be a year of consolidation as we adjust our client mix and face the business risk environment in the coming months,” Chief Executive Officer Alexander Djaparidze said in the statement.

Eurasia expects to “increase significantly” its activity with OAO Lukoil, its main customer and Russia’s second-largest producer, and OAO Gazprom Neft as the Rosneft drilling volumes drop, the company said. The company sees growth returning in 2015 and beyond, according to the statement.

Eurasia Drilling will continue to buy drilling rigs, ordering another 14 for delivery this year and next year at an average of $15 million per rig, Chief Financial Officer Richard Anderson said in a conference call with journalists today. Those rigs will mainly replace old rigs, he said.

Significant Discounts

The 30 drilling rigs with Rosneft at the end of last year will shrink to 6 rigs by the end of this year after Rosneft sought significant discounts for services, Tom O’Gallagher, vice president for marketing and investor relations said. Other customers, mainly Gazprom Neft, have already contracted and committed to 25 rigs, O’Gallagher said.

Revenue rose 8 percent to $3.49 billion last year as net income rose 13 percent to $432 million, Eurasia said. The share of horizontal drilling in its portfolio will grow by 15 percent in 2014.

Russia’s ruble had weakened to 35.5915 to the dollar at 1:30 p.m .in Moscow from 32.835 on Dec. 30.

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