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Schlumberger Scraps Plan to Pursue Eurasia Extension Deal

Zacks Equity Research
Updated

Oilfield services giant Schlumberger Limited’s SLB share price increased marginally on the announcement that it will not pursue a $1.7 billion deal to purchase a minority stake in Russia’s largest driller – Eurasia Drilling Company Limited – after the deal expires on Sep 30, 2015.

The agreement had been deferred due to a lack of regulatory approvals. Schlumberger now intends to focus on other merger and acquisition opportunities instead.

Relations between Russia and the U.S. have remained highly strained since the Cold War over Kremlin’s support for separatists in Ukraine. The main successor to the KGB, Russia’s Federal Security Service, was apprehensive of Houston and Paris-based Schlumberger gaining too much influence over the nation’s oil-services market and hence, had delayed the deal. Notably, the Russian market makes up about 5–7% of Schlumberger’s global sales.

Per the initial phase of the deal agreed upon in January, Eurasia founder Alexander Djaparidze and other core investors intended to repurchase the company’s shares from its minority investors for $22 each. Subsequently, that 46.45% stake in Eurasia would have been sold by the Djaparidze-led group to Schlumberger, which would then have had an option to purchase the rest after three years. However, the oil price plunge changed Schlumberger’s view regarding ownership of the stake.

Schlumberger is a leading oilfield services company, providing technology, project management and information services to the global oil and gas industry.

In the international arena, the company is aiming for continued margin improvement from the Middle East/Asia and Europe/CIS/ Africa regions. Russia, Middle East, Sub-Saharan Africa, China and Australia, in particular, are expected to boost growth in the coming quarters.

Schlumberger carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same space are Alon USA Partners, LP ALDW, Braskem S.A. BAK and ReneSola Ltd SOL. All these stocks sport a Zacks Rank #1 (Strong Buy).

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