US Oil Giant Schlumberger Just Struck A $1.7 Billion Deal In Russia

US oil-services company Schlumberger just invested in Russia’s largest onshore drilling firm.

Schlumberger, the world’s biggest oil-services company by market cap, announced on Tuesday that it agreed to acquire a minority stake in Russia’s Eurasia Drilling Company, the largest provider of onshore drilling services in Russia.

Three things are immediately striking about the deal:

  1. This is an unusually loud investment by a US company in a Russian oil company following the sanctions imposed on Russia after the annexation of Crimea.
  2. The investment comes at a time when oil prices have plunged over the past few months.
  3. Schlumberger just last week announced that it would lay off 9,000 employees following what the company called, “lower commodity pricing and anticipated lower exploration and production spending in 2015.”

The agreement also extends a long-term strategic alliance between the two companies, which has “enabled deployment of a range of drilling an well engineering services to customers in the Russia land conventional drilling market.”

With this deal, Schlumberger faces several uncertainties: there’s a possibility that Western-Russian relations will further deteriorate. Additionally, lower oil prices, sanctions, and the plummeting ruble have increased the risks to Russia’s economy.

Over the past year, Eurasia’s shares fell by 60% after its two biggest customers, Lukoil and Gazprom Neft, came under sanctions.

Eurasia saw a 19% year-over-year drop in drilling volume for December, and its overall drilling for the fourth quarter declined by 16% for the same period of 2013, according to the Wall Street Journal.

However, neither Eurasia, nor its biggest shareholders, founder Alexander Djaparidze and co-owner Alexander Putilov, are currently under sanctions.

Djaparidze also has history with Schlumberger, as back in 2003 he sold the Russian oil field services company PetroAlliance (primarily focused on Iraq and Kurdistan) to Schlumberger.

A year later in 2004, Djaparidze bought drilling assets from Russia’s OAO Lukoil and founded Eurasia Drilling, according to Bloomberg.

As for the Russian oil industry, this deal could serve to ease some pain after the plunging oil prices and sanctions bruised the sector.

Most notably, although Rosneft discovered an oil base comparable to the resource base of Saudi Arabia in the Arctic, drilling was halted since the company can’t continue its joint exploration project with Exxon following the sanctions.

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