Geotech will gain control over the assets of Integra and Schlumberger

Consolidation of the Russian oilfield services market continues. The American Schlumberger, which has already merged part of its assets with Eurasia Drilling, is now merging its geophysical and seismic enterprises with Integra and Geotech, co-owned by Gennady Timchenko. The new joint venture will occupy about 60% of the Russian market and will become one of the world's largest players worth about $700 million. Geotek shareholders will gain control in it, and the most promising direction will be shelf development.

Oil service companies Integra, Geotech and the American Schlumberger will combine their assets in Russia in the field of geophysics and seismic research. The merger will take place on the basis of IG Seismic Services (IGSS, a joint venture between Integra and Schlumberger). The main shareholder of the merged enterprise will be Geotech Oil Services Holding Limited (52%), which will contribute 99% of Geotech Holding CJSC to the joint venture. Thus, the owner of the Geoteka blocking stake, Gennady Timchenko, will receive about 13%, the company’s management, headed by its creator Nikolai Levitsky, will receive about 27%. Integra's share in IGSS will decrease from 75% to 36%, Schlumberger's share from 25% to 12%.

Schlumberger is the largest Western oil service company operating in Russia. It owns about 10% of the Russian oilfield services market (the share of all foreign companies is 15%).

Geotech was founded in 2007. According to its own data, it occupies 35% of the Russian seismic exploration market, it owns 82 geological exploration parties. The company is also engaged in exploration drilling (38 drilling rigs). The company does not disclose its main financial indicators, but, according to its representative, revenue from geophysical work is about $400 million.

Integra is one of the leading Russian oilfield service and engineering companies, founded in 2004. Since February 2007, Integra GDRs have been traded on the London Stock Exchange. In the first half of 2011, the company made a net profit for the first time in its history ($12.9 million according to IFRS).

It is assumed that Integra and Schlumberger will contribute all their geophysical assets that were previously part of IGSS, and Geotech Holding will contribute all geophysical divisions, including Naryan-Marseismorazvedka, Severgeofizika, Central Geophysical Expedition, Sibneftegeofizika " and others. The merger will take place through an additional issue of IGSS in the amount necessary to buy out 99% of Geotech Holding, without the use of cash. The deal must be approved by an extraordinary meeting of Integra shareholders on December 5. After this, the merger of assets will be considered by the Federal Antimonopoly Service.

“We are pleased to participate in the creation of the largest geophysical company in the world, combining the recognized leadership of Integra and Geotek in Russia with the unique expertise of Schlumberger,” Clovis Reuther, Chairman of the Board of Volga Resources, told Kommersant. He is confident that the company can achieve high positions in international markets. The representative of Geotek also noted that IGSS is counting on expanding its business not only in Russia, but also in the world.

Who will lead the merged company has not yet been decided, but, according to Interfax, Geotech may be represented by Nikolai Levitsky, Integra by its executive vice president for geophysics Mario Rusev. Following the merger, IGSS will be listed on the London Stock Exchange without a subsequent placement. Listing will close in September 2012. The company does not rule out a further IPO, but “the decision will depend on the state of the market.”

According to calculations by Vitaly Kryukov from IFD-Capital, after the merger the companies will receive about 60% of the Russian market. He notes that it is difficult to evaluate the new company, since “the oil services business is opaque.” But based on annual revenues, the combined business "could be worth up to $700 million," the analyst says. However, Vyacheslav Bunkov from Aton, also based on revenue, estimates the company at $350 million.

According to Mr. Kryukov, one of the reasons for the merger could be the prospect of working on the Arctic shelf. In February, Geotek signed a memorandum on the creation of a joint venture with the French CGGVeritas, and the purpose of its creation was declared precisely as entry into the seismic market in the Arctic. To this end, the French side promised to “provide for the use” of Geoteka two ice-class vessels for seismic exploration. At the time of signing the agreement, Gennady Timchenko was already a shareholder not only of Geotek, but also of NOVATEK, which had repeatedly declared its desire to begin exporting energy resources along the Arctic Northern Sea Route and even carried tankers along it with gas condensate.

Olga Mordyushenko, Dmitry Belikov

Gennady Timchenko will study geophysics and seismic