Russian Government would allow acquisition of up to 49% of EDC by Schlumberger

The Government Commission on Foreign Investments Monitoring has agreed to grant Schlumberger permission to acquire a blocking stake in the largest Russian oilfield service company Eurasia Drilling Company (EDC), said Igor Artemyev, head of the Federal Antimonopoly Service (FAS) of the Russian Federation. Schlumberger is allowed to buy up to 49% of EDC, while the sale of the controlling stake is no longer considered, reports “Kommersant” business newspaper.

“The commission has made a preliminary decision that it would not allow Schlumberger to acquire the controlling interest in EDC, which is 50% + one share. However, it would consider granting permission to buy a blocking stake, which is 25% + one share, or even 49% of the company. The Commission instructed the Federal Antimonopoly Service to hold the relevant negotiations with Schlumberger,” said Igor Artemyev cited by Interfax news agency.

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EDC rig in Russia. Image credit: EDC

Mr Artemyev also noted that sale of the blocking stake will be accompanied by a number of conditions, though less stringent than the 11 conditions that FAS previously imposed in regard to acquiring the controlling stake.

Both FAS and the Ministry of Natural Resources of Russia have pointed out, that EDC works at ‘strategic’ oilfields, and thus Schlumberger should guarantee that EDC’s business would not be affected by any possible U.S. sanctions. The Ministry of Natural Resources also insisted that Schlumberger should sell its stake in EDC to a strategic investor in the event of tightening the U.S. sanctions against Russian oil and gas sector. In March 2018 FAS reported that Schlumberger had accepted this condition.

With over 7,000 wells drilled annually, Russian drilling market remains very attractive to foreign service providers. According to industry experts, by buying a stake in EDC, Schlumberger wanted to reduce the risks of the total loss of the Russian market in case of tightening of U.S. sanctions or Russia imposing counter-sanctions on American businesses working in the country, reports “Kommersant”. In this case, the company would be able to provide at least some of its services in Russia via EDC. At the same time, the Russian government is fully aware that the Russian oil and gas industry is highly dependent on Western technologies, especially in the high-tech segment of drilling services. We believe this to some extent explains why the government took a surprisingly cooperative stance, allowing the American company to acquire a significant stake in this strategically important asset.

According to Mr Artemyev, the Commission of Foreign Investments has also asked FAS to consider Schlumberger’s offer together with the offer of the Russian Direct Investment Fund (RDIF) that plans to buy 16% of EDC. “At the moment we discuss a scenario that Schlumberger acquires 25% + one share if the company agrees to the price and other conditions. Then it is possible that RDIF and the UAE would get 16%. 25% plus 16% is a good configuration. It doesn’t give away control in the company but potentially can bring millions of dollars and even one billion of dollars,” says Igor Artemyev.

The Russian Direct Investment Fund earlier reported that the investment consortium formed to acquire a minor stake in EDC consists of the Russian-China Investment Fund (formed by RDIF and China Investment Corporation), China-Eurasian Economic Cooperation Fund (CEF) and several Middle-Eastern funds, including Mubadala from UAE.

The major shareholders of EDC are Alexander Dzhaparidzhe (about 31% of shares) and a former director of Rosneft Alexander Putilov (22.4%). The former was included in so-called ‘Putin list’ published by the U.S. Treasury Department in January 2018. Both are said to be willing to sell their stakes in EDC.

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