Saipem Loses $2.2 Billion Gazprom Deal for Black Sea Link

Saipem SpA, Italy’s biggest oil-services contractor, lost a $2.2 billion contract to lay a Russian natural-gas pipeline under the Black Sea after its fleet waited seven months for the work to start.

Russia’s OAO Gazprom canceled the deal because it couldn’t agree with Saipem on terms, Sergei Kupriyanov, a spokesman for the Moscow-based company, said Thursday by phone.

Saipem had expected to start work on the project, called Turkish Stream, in June. The contract had been transferred from the scrapped South Stream pipeline, which was abandoned at the end of last year as Russia’s relations with the European Union soured over the conflict in Ukraine.

Saipem, controlled by Italian oil producer Eni SpA, confirmed the cancellation in a statement on Thursday, citing a contractual clause of “termination for convenience.”

The shares slumped as much as 6.6 percent to 8.19 euros in Milan trading, the lowest intraday price in five months. The stock was at 8.32 euros as of 11:23 a.m. local time, extending its decline this year to 5.1 percent.

The cancellation comes only a week after Russia approved access for Saipem’s ships to lay pipes in the Black Sea. The government is keen to press ahead with the Turkish Stream project, which it sees as an alternative to South Stream and would run to Turkey instead of through Bulgaria, bypassing Ukraine. Nevertheless, people with knowledge of the matter said talks between Russia and Turkey have stalled.

New Contractors

Gazprom plans to start talks with potential new contractors for the work soon, it said in a statement on Wednesday. Kupriyanov declined to comment on when construction could begin.

The Russian company has already been paying Saipem to provide two pipe-laying ships, people with knowledge of the matter said in March. Gazprom declined to comment on the costs. Kommersant newspaper reported that Saipem was getting about 25 million euros ($27.6 million) a month as its vessels stood idle.

The Turkish Stream contract would have added about 85 million euros to the company’s earnings before interest, taxes and other items in 2015 and 150 million euros next year, Sanford C. Bernstein & Co. forecast in May.

Saipem said its agreement with Gazprom allowed for “compensation determined in accordance with the terms and conditions of the contract.”

The Milan-based company had been given two contracts for work on South Stream, valued at a total of 2.4 billion euros. The largest was transferred to the Turkish Stream project.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE