Le Lézard
Classified in: Mining industry, Oil industry
Subject: SVY

European Business Review: A Potentially Damaging "Bidding War" has Broken out for Ownership of One of Russia's Most Prized Economic Assets

BRUSSELS, November 10, 2017 /PRNewswire/ --

In this article ( http://www.europeanbusinessreview.eu/page.asp?pid=2255 ) published on the European Business Review on November 10, 2017, Martin Banks notes that the Eurasia Drilling Company (EDC), a large Russian onshore and offshore drilling company covering some 16% of the Russian market, has attracted the attention of several foreign investors to acquire its stakes.

The author argues that EDC is currently the target for two major suitors. The glittering prize for any eventual victor is easy to see: control of a big - and independent - player in the lucrative oil service market. The biggest offer so far has come from Schlumberger, a US company, which for the second time is trying to strike a deal to acquire 51% stakes of EDC. The deal has to be validated by the Russian Federal Antimonopoly Service (FAS), which has expressed concern.

The author reports indeed Russia's deputy Prime Minister Arkady Dvorkovich's declarations stating that the approval of any Schlumberger deal would be delayed due to the "unpredictable situation" regarding western sanctions against Russia: the fear is that sanctions could force EDC to halt its operations soon after any deal.

The second offer to invest $150 million in Eurasia Drilling Company comes from a joint investment fund composed of the Russian Direct Investment Fund (RDIF), Russia-China Investment Fund (RCIF) and investors from the Middle East, among them Saudi Arabian Saudi Aramco.

However, this new application is also controversial: the big concern is that such a deal will change the energy landscape and significantly increase the foreign presence in Russia's domestic energy markets. Indeed, latest data reveals the full scale to which foreign investors have now got a foothold in the highly lucrative Russian energy market.

The author remarks that the Tyumen Association of Oil and Gas Industry estimates that the share of foreign players in the national oil and gas market in Russia has grown six-fold from 2002 to 2012 and now accounts for no less than 65 per cent of the entire market.

Subsequently, the author reminds that it is not the first time that Schlumberger, already controlling some 11 per cent of the Russian oil service market, has tried to seize effective control of EDC in September 2015.

A successful Schlumberger bid now would increase the American company's investment stake in Russia to some 29 per cent. Schlumberger was rebuffed on the two previous occasions for much the same reason: rising fears that Russia was fast becoming a "honeypot" for overseas energy investors.

The author argues the spectre of another foreign presence on the energy scene in Russia does not sit easily with the authorities in Russia, who point to the "America-first" mantra being peddled by President Trump in the United States. Since his election, President Trump has made no secret of the fact that he will pursue a robust protectionist trade agenda. The appointment as Secretary of State of Rex Tillerson, formerly chief executive of oil giant Exxon Mobil also denotes renewed relevance of the energy sector in the US and has added to the uncertainty about future American energy policy, not just in Russia but around the world.

The author reports the declaration of one leading Brussels-based energy expert to the publication: "The feeling is that what is good for the US, that is, protecting its own markets, is good for other countries too and that includes Russia. Such developments and especially the sudden and unexpected introduction into the equation of Saudi Arabia - a country previously absent in the Russian energy market sector - have raised real and perfectly understandable concern among the country's energy experts and authorities."

The author concludes that with serious question marks against both the two current bids, the future of EDC remains unclear: however, as the Russian authorities are particularly keen to avoid yielding control of one of the country's most prized energy assets, it will not be a surprise if another would-be suitor emerges.

Find the full article here: http://www.europeanbusinessreview.eu/page.asp?pid=2255

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