China Oilfield Services: Kremlin Blocks STU Stake Buy

China Oilfield Services Ltd. (2883.HK) said Thursday the Russian government blocked its plan to buy a controlling stake in STU, an oil services unit of OAO TNK-BP (TNBP.RS).

China Oilfield Services had been awaiting final approval from the Russian government since February to acquire the stake for around CNY100 million (US$13.8 million).

"The Russian government told us in October that it wouldn't give us the approval," said an official at China Oilfield Services, who declined to be named. "But it didn't tell us why."

The official said the size of the failed deal is insignificant compared with the Chinese company's net asset value of CNY9.48 billion as of June 2007.

China Oilfield Services has said repeatedly it is looking to take controlling stakes in its overseas acquisitions. A Moscow-based petroleum analyst, who asked not to be named, said the rejection was logical as the Russian government wants to retain a very high level of control over its energy resources.

"The Russian government, of course, welcomes foreign investment, but there must be a Russian partner which holds a controlling stake in those assets," the analyst said.

"Sometimes the foreign investors are forced to reduce their stakes, so that they could stay in the project," he added.

Early 2007, state-run Gazprom OAO (GSPBEX.RS) took a 55% stake in the Sakhalin-2 project, one of the world's largest liquefied natural gas projects, by forcing Royal Dutch Shell PLC (RDSB) to cut its stake to 27.5% from more than 50%. Shell acquired its stake in the 1990s.

Also last year, Russia's Federal Anti-Monopoly Service turned down Siemens AG's (SI) plan to raise its stake in OAO Silovye Mashiny, the country's biggest turbine maker by output, to more than 50% from about 25% on security grounds.

STU is based in the Orenburg region in the south of Russia's Urals.

TNK-BP, a joint venture that incorporates BP PLC's (BP) assets in Russia, has 43 units engaged in oil field services, including drilling, well servicing, maintenance and electricity transmission. It has said it plans to eventually withdraw from services provision, which it sees as a noncore operation.

TNK-BP's core business is oil and gas exploration and refining.

Copyright (c) 2008 Dow Jones & Company, Inc.


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