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LUKOIL Overlooks Something Significant

'SpecialPromService', an oilfield service company partially owned by LUKOIL (MOEX: LKOH), has widened its operations following investments of approximately 30 billion rubles last year. This corporate entity generated revenue of 20 billion rubles, matching revenues of industry giants, according...

Expansion of oilfield service company, 'Specialpromservice', predominantly owned by LUKOIL (MOEX:...
Expansion of oilfield service company, 'Specialpromservice', predominantly owned by LUKOIL (MOEX: LKOH), has been marked. With an influx of nearly 30 billion rubles in investments last year, the company reported revenue of 20 billion rubles, mirroring the figures of leading competitors. This internal service is touted to enhance oil production management and speed up work commencement, according to analysts.

LUKOIL Overlooks Something Significant

Reimagining the Oil Game: The burgeoning empire of "SpecialPromService"

Hop on board as we delve into the spinning yarn of "SpecialPromService," an oilfield service company that's making waves in the industry. This babies-with-the-bathwater enterprise, co-owned by LUKOIL (MOEX: LKOH) (49.5%), has been growing like a weed, raking in an impressive 20.4 billion rubles in revenue last year.

The company's strength lies in its diverse offerings, including contracts for drilling, well construction, and repair, as well as services for drilling rig installation, repair, and dismantling. Last year alone, "SpecialPromService" received a hefty 29.9 billion rubles in investments, mainly used to procure equipment and vehicles.

With its boots firmly on the ground at Kostuskovskoye, Pyakhyakhinskoye, Las-Yeganskoye, Severo-Gubkinskoye, Sandibinskoye, and Sredne-Nazymskoye fields, "SpecialPromService" has quickly clawed its way up the ranks, rivaling heavyweights like "Petro Well Technologies," "Akros," and "Samotlorneftepromkhim."

Now, hold tight, as we zoom back in time to October 2023, when "SpecialPromService" first burst onto the scene. LUKOIL maintains a 49.5% stake in the company through LLC "K.N. Holding," with the remaining majority (50.5%) under the management of UK "Lerta Capital" and ZPIF "Triumfator."

As you might've guessed, both LUKOIL and "SpecialPromService" are as tight-lipped as a wellhead during a winter storm, refusing to comment on this promising venture. However, on its VKontakte page, "SpecialPromService" bills itself as a "specialized enterprise for drilling and well development" for LUKOIL – Western Siberia, a significant player in LUKOIL's Russian oil production (around 40%).

So, what's the secret behind this meteoric rise? Dmitry Kasatkin, managing partner of Kasatkin Consulting, points a finger at internal transfers within the group as the possible culprit of "SpecialPromService's" staggering first-year revenues. The question remains, though—will this trend of in-house oil services become the industry's new norm?

The Great Oil Services Land Grab

As we look around the oilfield service realm, we see the majors steadily slowing down their revenue growth. However, the question remains: will the share of internal services for large oil companies expand or contract in the coming years?

According to Mr. Kasatkin, the current trend is driven by economic challenges such as high interest rates, competition, sanctions, the exit of foreign providers, and asset acquisitions. However, he predicts that the future may see a shift towards a shared pool of reliable external contractors that can adapt to the ever-changing landscape.

Contrarily, Vitaly Mikhalchuk, head of the management consulting department at DRT, foresees an increase in the share of in-house oil services for large oil companies, up from 41% in 2023 to 55% by 2030. With this trend in mind, he warns of increased price competition, which could exacerbate the financial hardships of independent contractors, potentially accelerating consolidation processes.

Olga Semenova

Bonus Insights:

Economic Diversification and Global Impact:Developing in-house oil services not only aids economic diversification but also paves the way for higher production of gasoline, diesel, and petrochemical products, potentially leading to economic growth. Furthermore, reduced reliance on Western technologies may alter global market dynamics and rivalry among oil service providers.

Russian Oil Services Escalation Timeline:Beginning in the pre-2000s, countries like Russia primarily focused on oil production, with little involvement in downstream activities like oil services. The 2000s-2010s saw the emergence of companies like Gazprom and Lukoil, which concentrated on core oil and gas production. However, the need for economic diversification, technological sovereignty, and geopolitical resilience has accelerated the expansion of in-house oil services in the 2020s.

  1. In the increasingly competitive oil-and-gas industry, the rapid expansion of "SpecialPromService" – a company co-owned by LUKOIL and UK "Lerta Capital" – signals a possible shift towards the use of more in-house services, potentially diverting from relying on external contractors.
  2. Amid the economic challenges, such as high interest rates, competition, sanctions, the exit of foreign providers, and asset acquisitions, the share of internal oil services for large companies might witness a significant increase, as predicted by Vitaly Mikhalchuk of DRT, potentially leading to increased price competition and financial hardships for independent contractors.

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