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Schlumberger to acquire 46% stake in Russia’s Eurasia Drilling for $1.7 bln

Last updated: 09:28 20 Jan 2015 EST, First published: 10:28 20 Jan 2015 EST

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Schlumberger (NYSE:SLB), the world’s biggest oil-services company by market value, has agreed to acquire a 46 percent stake in Eurasia Drilling, Russia’s largest onshore drilling firm, for about $1.7 billion.

Schlumberger, based in Houston and Paris, will pay $22 a share for the minority holding in London-traded Eurasia Drilling (LON:EDCL), according to a statement today.

Schlumberger has an option to buy the rest of the company’s shares three years after the deal closes.

As part of the deal, Eurasia will delist its shares from the London Stock Exchange.

By buying into Russia’s largest driller, Schlumberger is putting aside concerns about economic sanctions and the state of the country’s economy. The deal comes as the slide in the crude price to less than $50 a barrel spurs consolidation in the services industry as demand for rigs drops and oil producers lean on suppliers to drive down costs.

"The agreement extends the successful long-term relationship enjoyed by the two companies within the strategic alliance signed in 2011, which has enabled deployment of a range of drilling and well engineering services to customers in the Russia land conventional drilling market," Schlumberger said in the statement.

Shares of Schlumberger dropped 2.1 percent to $79.61 at 10:24 a.m. in New York. The stock has lost 29 percent in the past three months.

Eurasia Drilling is the largest provider of onshore drilling services in Russia, as measured by the number of meters drilled, providing onshore integrated well construction services and work-over services. The company also provides offshore drilling services in the Caspian Sea and is the largest provider of such services in the sectors where it operates based on the number of jack-up drilling rigs.

Shares in Eurasia Drilling have fallen 71 per cent in the past 12 months in the face of the weakening Russian economy and increased competition from the likes of state oil producer Rosneft.

The deal's announcement comes as Schlumberger said weak oil prices meant it had to cut back on its workforce. Schlumberger has said performance moving forward needed to be based on transformation and changes in the way it works.

Although there were signs that global oil demand would increase, Schlumberger said growth in global gross domestic product has "softened," leading to uncertainty in 2015.

The transaction will not result in any violation of the sanctions imposed against Russia, Reuters reported, citing a source close to the deal.

Russia is the world's leading oil producer, with output hitting a post-Soviet high at an average of 10.58 million barrels per day last year, but the Western sanctions pose an increasing threat to this key source of the country's revenue.

Along with Halliburton (NYSE:HAL), Schlumberger is one of the largest foreign oilfield services companies operating in Russia.

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