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China Oilfield in talks to buy major stake in Russian firm

CNOOC

China Oilfield Services is in talks to buy a majority stake in a Russian onshore services provider in its first acquisition of an overseas peer.

The move could help realise a goal to raise the share of the company's overseas operations to 30 per cent of turnover in 2008 from an expected 17 per cent this year and about 3.5 per cent in 2002.

Chen Weidong, an executive vice-president of the dominant oilfield services provider in offshore China, said although the 17 per cent to be achieved this year is short of the original target of 25 per cent, the company is still confident of making 30 per cent.

'We have not changed our goal for 2008, as we plan to make up for the shortfall through mergers and acquisitions, co-investments and co-operation with foreign firms,' Mr Chen said.

The company first attempted an overseas acquisition in August for Apexindo Pratama Dutaan, an Indonesian oil services firm with onshore and offshore capabilities.

However, Apexindo's parent, oil-to-power producer Medco Energi International, dropped a plan to sell its stake.

Mr Chen said China Oilfield would like to follow some western companies that have successfully moved into Russia, such as industry leader Schlumberger three years ago.

He declined to name the Russian company China Oilfield is having talks with, only saying that it is not a major player such as Integra or Eurasia.

Mr Chen also said that the potential deal is 'not that significant in size'.

He would not predict when the deal might be closed but said: 'I have already been [in Russia] three times, and I will be there soon again.'

Mr Chen also said China Oilfield had previously bought some technology from Russia. 'They are not as good as the Chinese when it comes to [equipment] manufacturing but they have some unique drilling theory and methodology,' he said.

More than 800 drilling rigs are in use in Russia, compared with more than 1,000 in China, 2,000 in North America and 1,000 in the rest of the world, according to Mr Chen.

He said he is not too worried about political opposition as services providers are less sensitive buys than resources producers.

'It's a bit like exporting blue jeans and televisions to a new market; we have concerns about the legal system and cultural differences,' he said. 'But if we hit some problems in the process, we would not be surprised.'

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