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Russian state-owned Rosneft, the most productive oil company in the world, is buying the land drilling operations of Weatherford International in Russia and Venezuela in a deal that’s viewed as a benefit both sides.
For Weatherford, the deal, expected to be closed in the autumn, will mean shedding some of its less profitable enterprises. As one analyst, Brad Handler of Jeffries Group LLC, told Bloomberg News, the company already has been “purging non-core businesses,” and will make $500 million in the process.
Weatherford is an oil and gas services and equipment company founded in Texas and based in Geneva. Earlier this year, it said it wanted to sell off $1 billion of its assets, including some in Russia, as part of a corporate turnaround plan.
At that time, CEO Bernard Duroc-Danner, issued a statement explaining the company’s strategy, saying, “Although our Russian business will be half its present size, the operations will be much leaner, intensely focused on our core product lines, and therefore more profitable.”
Weatherford lately has been focusing on its revenues. The company has recently profited from the increased oil and gas drilling in Canada and the United States, but simultaneously has been under financial pressure because of slow international growth and a rise in one-time charges for its services.
Rosneft, meanwhile, has been focusing on increasing its own drilling to cut costs. Already in 2014 it bought oil rigs from VTB Group while competitors Lukoil, Gazprom Neft and TNK-BP have sold their rigs. Rosneft CEO Igor Sechin said in a statement on July 14, “The deal fully complies with the adopted Rosneft strategy of the development of in-house service business.”
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The Russian rig operations that Rosneft is buying include 61 land drilling crews and a fleet of workover rigs, so called because they are brought in to rescue oil wells that have failed to respond to traditional drilling. The Venezuela operations include six conventional land drilling rigs.
Weatherford said its rig operations generate roughly half its current revenue in Russia and about one-third in Venezuela. The remaining revenue comes from the company's core oil and gas field services, which in both countries have consistently produced generous profits, the company said.
In February, Weatherford announced its intention to sell its land drilling operations and use the proceeds to pay down its debt, and that it would sell off a variety of non-core operations. The next month it sold its pipeline and specialty service arm to another oil-services company, Baker Hughes Inc., for $250 million.
In a statement on July 14, Duroc-Danner said Weatherford’s turnaround initiative is going according to plan. “After the recent divestment of our pipeline business [to Baker Hughes], this sale [of rigs to Rosneft] is the second step in our efforts to divest our non-core businesses,” he said, adding that the company intends to sell more assets in the coming months.
By Andy Tully of Oilprice.com
Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com