Schlumberger Revamps Deal to Buy Largest Russian Oil Driller

Updated on
  • Company agrees to buy 51% of Russia’s Eurasia Drilling
  • Similar deal failed in 2015 on opposition from Russian state

Schlumberger Ltd., the world’s largest oilfield-services provider, has revamped a deal to buy Russia’s biggest drilling company, less than two years after a similar plan was scuppered amid opposition from the nation’s regulators.

Schlumberger plans to buy 51 percent of Eurasia Drilling Co., the two companies said late Thursday in statements that didn’t disclose the terms. The deal would be one of the largest investments by a U.S. company into Russia since sanctions were imposed in 2014.

"I warmly welcome Schlumberger as our majority shareholder,” EDC Chief Executive Officer Alexander Djaparidze said in the company’s statement. “It builds on our strategic alliance with Schlumberger since 2011.”

The deal, announced before the release of Schlumberger’s second-quarter results on Friday, comes as lawmakers in Washington debate fresh sanctions on Russia’s energy industry. EDC’s core business is drilling wells for conventional fields in Russia, which do not fall under western sanctions targeting Arctic, deepwater and shale-oil projects.

"Despite what’s happening in Washington, corporate America still sees the opportunity in Russia and very much wants to be engaged in Russia," said Chris Weafer, partner at Macro Advisory in Moscow. "With a very powerful company like Schlumberger taking such a strong position in the Russian oil sector, Russia effectively now has another lobbyist in the U.S. against sanctions."

Also see: Schlumberger stays ahead of tenuous oil recovery

Schlumberger, based in Houston and Paris, had planned to buy 45.65 percent of EDC for $1.7 billion in 2015, with an option to acquire the rest at a later stage. The deal failed after Russian authorities delayed approval for almost eight months. As relations with the U.S. soured over Ukraine, Russia’s Federal Security Service, the main successor to the KGB, was concerned Schlumberger would have too much influence over the country’s oil-services market. EDC decided to go private shortly after that.

“It would be curious to see how Russia will react this time,” said Alexander Kornilov, an oil analyst at Moscow-based Aton. “Could be that the companies have had some preliminary consultations with officials and got some positive signals before they decided to set foot in the deal again.”

The deal will again require approvals from Russian regulators. Russia’s Federal Anti-monopoly Service, which should be first to assess the deal, hasn’t received any request from the companies yet, its press official said by email. 

Weafer said the fact the deal had been announced suggested it had the blessing of the Russian government, showing it wanted to “continue developing this sector and bring in foreign technology.”

Cooperation Welcomed

Kremlin spokesman Dmitry Peskov, commenting on the deal, told reporters on Friday that Russia was open to cooperation. 

“Russia was, is and will be interested in cooperation with foreign investors in all possible areas, except for the most sensitive ones,” he said. “And even in these areas there are possibilities to cooperate.”

Eurasia, which holds about a 20 percent share of the Russian oil-drilling market, in June also agreed “on investments” from China and the Middle East, led by the state-run Russian Direct Investment Fund. This plan is still in place, EDC said without elaborating.

The involvement of state-run RDIF as an investor in the company may help smooth the process for Schlumberger’s investment to be approved by Russian regulators, according to a person familiar with the discussions.

(Updates with analyst comment in fifth paragraph.)
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