U.S. multinational Schlumberger Ltd, the world's largest oil services company, will take ownership of Russia's largest onshore drilling firm, Eurasia Drilling Company (EDC), in a mammoth deal worth some $1.7 billion. No date for the acquisition, which was announced in July 2017, has been set, however.
If the deal does finalize, it will be the biggest Russian oil investment in the sanctions' era. The U.S. Department of the Treasury has to approve the deal, however, and this isn't guaranteed.
Sources said Schlumberger is on the brink of concluding this milestone Russia deal, which will give it access to the massive Russian market despite the hostile relations between the United States and Russia brought about by U.S. sanctions seeking to punish Russia for seizing the Crimea and waging war against the legitimate Ukrainian government. Then, there's Russia's military role in the bloody Syrian Civil War.
Sources said Schlumberger initially planned to gain immediate and full control over EDC's equity. Following opposition from Russia, Schlumberger then agreed to a first-round buy-out of 51 percent. It later reduced this share to 47 percent, or the equivalent of $1.7 billion.
Schlumberger had to content with less than a majority share because Moscow was concerned about the potential loss of an influential element of Russia's oil sector to an American firm. The silver lining for Schlumberger is that a second-round of talks in three years will give it a shot at the remaining 54 percent.
Schlumberger, however, demurred but made a new offer later on. Talks then descended into limbo.
Schlumberger was confident of acquiring EDC without too much fuss because Alexander Dzhaparidze, one of the co-owners of EDC, has sold his oil services-related company, Petroalliance, to Schlumberger in 2003.
In 2011, EDC and Schlumberger forged a strategic alliance with several cross-acquisition of each other's Russian assets. This rosy picture changed with the imposition of U.S. sanctions in 2014 punishing Russia for invading Crimea.
Analysts said that despite the geopolitical mess, EDC remains interested in Schlumberger as a buyer. For its part, Schlumberger wants EDC to give a massive boost to its presence, and profits, in Russia.
Analysts affirm a deal of some sorts will emerge at some point despite intermittent political opposition from Moscow. The Kremlin, however, has displayed encouraging signs favoring the deal over the past few weeks.
Russia is conditioning the deal on Schlumberger granting its rights to part of its technologies to a Russian entity. This caveat is based on the assumption Schlumberger will flee Russia due to upcoming American sanctions. The specific Schlumberger technologies to be retained by Russia are still a matter for negotiations.
EDC owns one of the largest fleets of onshore drilling units in the world. It tags itself as the "premier supplier" of services to the Caspian Sea region, home to some of the world's larger oil and gas fields. EDC is not under sanctions by the U.S. Department of State.
