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Schlumberger waits for approval from Russia’s Federal Antimonopoly Service

Oilfield service giant Schlumberger (ticker: SLB) is quickly approaching the most recent deadline for the acquisition of Russian oilfield service company Eurasia Drilling Company (ticker: EDC). The deal was originally announced in January, despite the increasingly strict sanctions from the West on Russia for its involvement in Crimea, and the fall of oil prices.

The deadline for closing the deal has been pushed back several times as Schlumberger waits to hear a final decision from the Russian Federal Antimonopoly Service (FAS), with the latest deadline set for September 30. Schlumberger remained tight-lipped about the transaction when asked about the approaching deadline by Russian news agency TASS.

“We are unable to comment on progress in talks and we will also refrain from speculation on the potential outcome of the deal,” the company told TASS.

Under the terms of the deal, Schlumberger would acquire 45.65% of EDC for roughly $1.7 billion. EDC will de-list from the London Stock Exchange and buy out its shares from minority stockholders. Schlumberger will extend a loan for the shares redemption to the majority shareholders of the company. Schlumberger will pay approximately $22 per share of EDC, representing an 81% premium to EDC’s closing share price before the deal was announced.

The largest co-owners of EDC are Alexander Dzhaparidze with a 30.2% stake and Alexander Putilov with a 22.4% stake. Dzhaparidze is also EDC’s general director.

Russia’s FAS said earlier that the government commission on foreign investments may consider the transaction for mid-October of this year. Completing the deal is impossible without the consent of the FAS and the foreign investments commission, which has not yet sanctioned the deal either.

Combined company could capture up to 50% of the Russian market

EDC is the largest drilling contractor in the Commonwealth of Independent States (CIS), and the only Russian independent offshore contractor, according to the company. When combined with Schlumberger, the world’s largest oilfield service company, the combined entity can occupy up to 50% of the market, reports TASS.

The deal was initially endorsed by Russia’s FAS, but appears to have irked people in a position of power, a senior government official told Reuters under the condition of anonymity. Tom O’Gallagher, vice president and head of marketing and investor relations at EDC, agreed that the problems faced by the merger were political.

“If we knew what the issues were, we would be able to fix them. But we don’t know what the concerns are. So it is rather (a) more political than practical thing,” he told TASS.

Igor Artemyev, head of the FAS, said in March that one of the conditions being discussed for approval of the deal includes the sale of Schlumberger’s stake to a Russian investor if further western sanctions prevented the company from operating in Russia, reported The Wall Street Journal.

Currently, sanctions do not affect EDC’s business because it is focused on conventional drilling.

EDC has already pushed back the deadline on the deal more than once as the two oilfield service companies continue to wait for approval for the antimonopoly service. Whether or not the FAS will decide before the end of the month to approve the deal remains to be seen, but the Russian government has been trying to move away from western companies, Yana Yakovleva, head of Moscow-based Business Solidarity, said.

“In the end, the party line to substitute imports will hit the effectiveness of domestic oil and gas production,” she said.


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