By Selina Williamsin London And Alexander Kolyandrin Moscow
Schlumberger Ltd., the world's biggest oil-services company by
market value, said on Tuesday it has agreed to acquire a minority
stake in Eurasia Drilling Co., Russia's largest onshore drilling
firm, for about $1.7 billion.
The move represents an unusually large investment by a
U.S.-listed company in a firm involved in the development of
Russia's oil industry at a time of high tensions between Moscow and
the West. The investment also comes as oil prices have more than
halved since last summer, dragging down shares in the oil-services
sector and spurring consolidation elsewhere.
The deal presents risks for Schlumberger. While much of the
Russian energy industry isn't subject to specific sanctions,
Western governments have targeted the industry and, if tensions
with Moscow don't cool, restrictions could expand. Schlumberger's
move also comes when both lower oil prices and sanctions have put a
big cloud over the oil-drilling ambitions of Russian producers.
Moscow continues to pump oil furiously, amid a global glut that
has helped sink world prices. But many of Russia's older wells may
become uneconomic if prices continue to fall, or stay low for a
long period.
Still, some industry players have used the lower prices to their
advantage, especially at the deal table. In November, U.S.-based
Halliburton Co. agreed to buy rival oil-field services company
Baker Hughes Inc. for $35 billion.
Schlumberger's Chief Executive Paal Kibsgaard said in a
conference call Friday that the company saw lots of opportunities
for mergers and acquisitions following the drop in oil prices.
EDC's shares had fallen around 60% last year, as its two biggest
customers--Russian independent oil company Lukoil and
Gazpromneft--came under sanctions. The driller has also come under
pressure from lower oil prices and the steep drop in the value of
the ruble. While EDC gets paid in the Russian currency, it often
buys equipment on global markets in dollars.
EDC reported Monday a 19% year-on-year decline of drilling
volumes in December, while its overall drilling for the fourth
quarter declined 16% from the same period of 2013.
Schlumberger's move extends a strategic alliance between the two
companies that has been in place since 2011. That deal enabled the
two to work together to deploy a range of drilling and
well-engineering services to customers in the Russian conventional
drilling market, Schlumberger said in its statement Tuesday.
EDC is the largest provider of drilling services in Russia. It
also provides offshore drilling services in the Caspian Sea where
it operates a number of jack-up rigs.
"The deal thus signals to us that the Western firm is taking an
opportunity to strengthen its presence in the regional market,"
Moscow- based Otkritie brokerage said.
Under the terms of the deal, the main shareholders in EDC, which
was listed on the London Stock Exchange via global depository
receipts, will take the company private.
Following the delisting, Schlumberger will acquire a 45.65%
stake in EDC for $22 per share, an 81% premium to EDC's closing
price on Monday. Schlumberger has an option to purchase the
remaining shares in EDC during a two-year period, starting three
years from the deal's close, which is expected in the first quarter
of this year.
Write to Selina Williams at selina.williams@wsj.com and
Alexander Kolyandr at Alexander.Kolyandr@wsj.com
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