Oil Service Business Booming in Russia

In the booming Russian oilfield services market, the line between east and west is blurring.

High oil prices and European demand for natural gas have transformed Russia’s once-sleepy oilfield services sector into a $13 billion business that could become the world’s second-largest market by 2011. Two spheres compete for that business, which includes finding and producing both oil and gas: small Russian companies that perform routine drilling and well servicing, and international giants that take the lead on more complex jobs.
Recently, those two worlds have started to collide. A pair of three-year-old Russian companies, Integra Group and Eurasia Drilling Co., have grown into heavyweights in the sector, with combined revenue of at least $2 billion, or roughly equal to the combined Russian business of international giants such as Schlumberger Ltd. and Halliburton Co. Now, the Russian firms are looking at the next step _ one that is likely to put them into more direct competition with the Western companies. They have a long way to go to match the technical mastery of the international service firms, but both claim their lower costs and ties to Russian producers will allow them to keep their leading positions.

The stakes are growing every year _ just for Russia to keep production steady at 9.8 million barrels of oil a day, the country’s largest producers are expected to increase spending on services by 15 percent annually, according to consultants Douglas-Westwood. With about 70 percent of the market still controlled by subsidiaries of the producers or tiny regional firms, analysts see strong growth potential for both international giants and companies like Integra.

“What you see in Russia is an oilfield service market that is still very fragmented, a lot of inefficient small companies with inefficient management,” said Igor Kurinnyy, an analyst with ING in London. “The idea of a company with Western style management trying to achieve best practices should work.”

Houston Chronicle