The transfer of Russian assets of Eurasia Drilling Company to the Russian Federation encountered problems

The transfer of Russian assets of Eurasia Drilling Company (EDC) to Russian jurisdiction has encountered problems. According to Kommersant, the drilling company Razvitie, the largest stake of which is owned by the family of the ex-head and main shareholder of LUKOIL Vagit Alekperov, continues to consolidate the assets of EDC and buys a large drilling contractor of LUKOIL in the Caspian Sea, BKE Shelf. But EDC has not yet been able to obtain permission to sell assets.

The drilling company (BC) Razvitie wants to join the offshore drilling contractor BKE Shelf, which is part of EDC, several sources in the industry told Kommersant. EDC was created in 2004 by Alexander Japaridze on the basis of LUKOIL’s drilling assets and has maintained a close relationship with the oil company. Last year, EDC already sold to Development its largest asset, the Eurasia drilling company, as well as another contractor (VMU, which installs drilling rigs). EDC did not answer Kommersant.

BC “Development” was created in April 2022. The largest shareholder is the Strategic Development Holding (35.5%) of the family of LUKOIL founder Vagit Alekperov, who resigned as head of the company in April 2022 amid sanctions. Other major shareholders of BC are the heirs of the former head of the board of directors of LUKOIL Ravil Maganov (32.3%), Salih Gadzhiev (18.4%), Dzhevan Cheloyants (11.5%). Kommersant’s source called Mr. Gadzhiev close to the founder of EDC, Alexander Japaridze.

According to one of Kommersant’s sources, the purchase of BKE by a Russian legal entity was justified by the fact that Western sanctions imposed in May 2022 limited the ability for European companies to finance and supply equipment to the Russian Federation. BKE’s parent company was Cypress Oilfield Holdings. “Without the deal, the company would have problems,” he explains.

According to the Cyprus register (available from Kommersant), as of May 2022, the largest owner of EDC was the Strategic Development Holding (26.4% through the Cypriot Verinato), another 8.9% was owned by Mr. Alekperov’s Topaz Opportunities and 18.3% by Mr. from Patrimony D Trust, which is allegedly associated with Alexander Japaridze. Ravil Maganov directly owned 9.2% of EDC. Thus, as a result of the transaction, the main shareholders of EDC retained their participation in BKE through a Russian legal entity.

BKE Shelf LLC is owned by the Cypriot BKE Oilfield Service Holdings. BKE Shelf’s revenue according to RAS decreased by 22% at the end of 2022, to RUB 6.4 billion. The company received 1.2 billion rubles. net profit against a loss of 1 billion rubles. a year earlier. BKE Shelf is a major drilling contractor for LUKOIL on the Caspian shelf and operates four drilling platforms. In addition to BKE Shelf, EDC includes metal structures manufacturer Kliver LLC (slightly less than 25% from Schlumberger), which it also intends to sell. EDC outside the Russian Federation maintains several drilling rigs in Iraq.

Although EDC was able to quickly sell BKE, when exiting BKE Shelf and Cleaver, problems arose related to obtaining permission for the transaction from Russian regulators. Permissions from Russian antimonopoly authorities were received in the summer of 2022, EDC claims, but the transactions required preliminary permission from the President of the Russian Federation and the Legal Commission.

“Russian legislation on counter-sanctions does not specify the time frame for consideration of applications, so we have been waiting for approval for the sale of the two above-mentioned subsidiaries for about a year,” EDC notes. In July, the United States included BKE in the SDN list, after which EDC assured that the company was no longer associated with BKE and intended to change its name to avoid confusion.

To sell shares in a company owned by a foreign person from an unfriendly state (Cyprus), he needs to obtain the approval of a government commission, notes KSK Group lawyer Alexander Sharapov. The law does not regulate the period for consideration of applications for approval of such transactions. In addition, the commission itself decides whether the permit will be unlimited or limited, the lawyer notes. This means that if the transaction is not completed before the expiration of such permission, it will need to be obtained again. According to Ani Tangyan, a senior lawyer at Better Chance’s corporate law practice, Cleaver is included in the special list of fuel and energy companies and its sale requires the consent of the president, while BKE Shelf LLC requires the consent of the government.

Dmitry Kozlov