As Kommersant found out, one of the largest transactions in the Russian oilfield services market - the sale of about 31% in Novomet to a consortium of RDIF and Saudi Aramco for 7.5 billion rubles - is likely to fail. The RDIF claims that the deal is “suspended” due to changes in macroeconomic conditions. But, according to several sources of Kommersant, it collapsed at the end of 2019 due to the position of Rosneft, a major Novomet customer. The head of the oil company, Igor Sechin, has traditionally opposed cooperation with the Saudi oil industry. It is now almost impossible for foreigners to buy assets in the oilfield services sector, this has a bad effect on the investment climate, experts say.
A consortium of RDIFs, Saudi Aramco and the Public Investment Fund (PIF) will most likely not be able to acquire a stake in Rusnano (30.76%) in Novomet, a Russian oilfield services company, Kommersant sources in the oil industry said. A deal worth 7.5 billion rubles. was ripped off at the end of 2019, they say.
According to Kommersant’s sources, the head of Rosneft, Igor Sechin, opposed the acquisition of Novomet by Saudi companies.
Rosneft and Novomet did not comment.
Novomet specializes in the production of pumping and downhole equipment. The company's revenue for 2019 increased by 8.7%, to 25 billion rubles. In 2018, 55% of the company's revenues came from the Russian and CIS markets, the rest came from far abroad. About half of Russian orders came from Rosneft and Gazprom Neft, Maxim Perelman, Novomet CEO, said last year. According to him, the founders of the company own a 49.9% stake, Rusnano - 30.76%, the rest are from Baring Vostok and Russia Partners investment funds.
Negotiations with the Saudis on joining Novomet began in 2018 amid close cooperation between Russia and Saudi Arabia to limit oil production within the framework of OPEC +.
The deal could become one of the largest in the Russian oilfield services market, as well as the first investment of Saudi companies in the Russian energy sector. Igor Sechin is known as a consistent opponent of cooperation between Russia and Saudi Arabia in the oil sector, including the restriction of production. Rosneft publicly welcomed Russia's withdrawal from the OPEC + agreement on March 6.
RDIF and RUSNANO acknowledge problems with the Novomet deal, but deny its collapse.
The RDIF told Kommersant that the parties suspended the deal “due to market uncertainty”: “Information about the breakdown of negotiations is not true, the parties are reviewing the parameters.” Rusnano told Kommersant that on March 18, the board of directors will discuss the new configuration of the deal to sell its stake in Novomet, “taking into account the changing macroeconomic situation.” Rusnano continues negotiations on the sale of its stake with relevant investors interested in the strategic development of the company, the company said. “In the event of successful completion of negotiations and the necessary corporate decisions, the transaction will be closed before the end of the second quarter of 2020,” Rosnano said. “In addition, Novomet shareholders are considering alternative scenarios for the development of the company without changing the main investors.”
Formally, there have been no obstacles to the deal for more than three months. In October last year, during a visit by Vladimir Putin to Saudi Arabia, the parties announced the approval of binding documents, and in November, the transaction committee was approved by the foreign investment committee. Rusnano announced the plans of the parties to close it before the end of 2019. Oil prices, which could affect the Novomet estimate, fell below $ 60 per barrel only at the end of January.
According to Kommersant’s sources in the industry, Novomet has recently lost access to Rosneft’s new tenders for oilfield services and equipment supply, but continues to service old contracts.
The companies do not comment on this. Last year, Rusnano reported on negotiations to sell its stake in Novomet to large oil companies. Rosneft was also interested in the asset, but the offer was rejected, says one of Kommersant’s interlocutors. Since 2014, Rosneft has been engaged in the consolidation of oilfield service assets in the Russian market.
In recent years, it has been almost impossible for foreign business to buy large assets in the Russian oilfield services. Halliburton in 2017 offered $ 1 billion for 100% of Novomet, but the foreign investment committee did not consider the deal. Two attempts by Schlumberger to invest in Eurasia Drilling Company, Russia's largest drilling company, were similarly blocked. According to Kommersant’s sources, in this case, Igor Sechin also opposed the deal, while the Russian government was worried about the potential influence of the US authorities on Schlumberger’s decisions.
“It is unfortunate that the deal with the Saudis does not take place, since it would serve to benefit not only the company itself, but also the entire Russian economy,” said Karen Dashyan of Advance Capital. He adds that joining Novomet would be an incentive for the development of economic and political ties between the Russian Federation and Saudi Arabia. According to the expert, after a series of failed transactions in the Russian oilfield services market, foreign investors will be more wary of buying such assets in the Russian Federation.