Baker Hughes Sets Up Shop In Russia With Sibneft For The Long Haul

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Baker Hughes Incorporated (NYSE:BHI) (Houston, Texas) has signed an agreement with the Russian company Sibneft (RTS: SIBN) (Moscow, Russia) to provide well drilling and production products and services for the Noyabrsk area of Western Siberia and to support Sibneft's rapid upstream expansion.

Under the terms of the master service agreement, Baker Hughes is expected to drill horizontal and multilateral wells and perform sidetracks. Sibneft next year plans to carry out over 100 sidetracks which will significantly enhance well productivity.

In 2001 Sibneft, Russia's fifth largest oil producer, almost doubled net income. Profit rose to $1.31 billion from $674.8 million in 2000. Revenue rose by 49% to $3.58 billion. The revenue figures were boosted by buy-outs of three of the trading companies that market a percentage of Sibneft's crude. While other Russian majors reported declining profits in 2001 Sibneft boosted profit margins from 28% to 37% and boosted oil output by 20% to 408,000 bpd. The company has arranged a $450 million loan from Citigroup, BNP Paribas and Westdeutsche Landesbank Girozentra, which it plans to increase to $686 million during this year. The loan has the longest term of any export finance received in recent years by a Russian oil company.

Baker Hughes intends to establish an operational center at Sibneft's upstream base in Boyars and the two companies have agreed to set up a joint engineering group. Included in the wide range of equipment Baker Hughes is expecting to supply to Sibneft for re-entry, directional and multi-lateral wells are over 1,000 submersible pumps already delivered.

Sibneft has just completed its first well at the West Ozyornoye gas field, located in the eastern Russian region of Chukotka. The deposit is the first pure gas field to be developed by the company and is in line with the company's intention to strengthen the gas component of its business. Gas will be delivered to the power station at the regional capital of Anadyr via a recently completed 104 kilometer pipeline. The field's serves are estimated at 6 billion cubic meters and production is targeted at 120 billion cubic meters per year. Sibneft had proven gas reserves of 40.8 billion cubic meters at the beginning of 2002 with another 28.1 billion cubic meters 'probable and possible'.

Baker Hughes has supplied drilling, completion and production equipment to the petroleum industry in the Russian Federation for more than a decade. The agreement with Sibneft represents the first service contract for which the company will establish support bases and build the necessary operations capability to support multiple projects in Russia.