UPDATE 2-Eurasia Drilling net profit up, gets new Lukoil deal

Tue Apr 2, 2013 7:28am EDT

* Net income rises 35 pct to $382 mln in 2012

* EBITDA up 31 percent to $790 mln

* Revenues rise 17 percent to $3.2 bln

* Says signed new drilling, production deal with LUKOIL

* Horizontal drilling down 2 percent in 2012

By Vladimir Soldatkin

MOSCOW, April 2 (Reuters) - Russia's top oilfield services company Eurasia Drilling (EDC) said on Tuesday its 2012 net income jumped 35 percent year-on-year to $382 million as oil firms fought output declines at depleted fields.

The company also said it had signed a new agreement with Russia's second-largest oil producer Lukoil for onshore drilling and completion operations, running through to the end of 2015.

Last year, Lukoil accounted for 57 percent of the total metres drilled by EDC, with state oil major Rosneft its second-largest customer with 24 percent.

"For the next three-year period we've committed to drill 7.5 million metres. That's a minimum," Chief Financial Officer Richard Anderson told a conference call about the Lukoil deal. That is just down from 8 million metres drilled for Lukoil over the last three years.

EDC's London-traded shares rose by more than 2 percent in early trading before easing back to trade 1.4 percent higher by 1115 GMT.

The group's revenues increased 17 percent to $3.2 billion last year, while earnings before interest, taxation, depreciation and amortisation (EBITDA) rose 31 percent to $790 million, slightly above prior guidance.

"Outstanding performance in all our business segments enabled us to achieve another year of record financial and operational results in 2012," Alexander Djaparidze, EDC's chief executive officer, said in a statement.

As Russia's biggest driller, EDC reflects trends throughout the oil industry, which is struggling with declines in West Siberia and the cost and risk of developing new reserves in remote Eastern Siberia and the Arctic.

The potential for the company, which acquired Schlumberger's Russian drilling assets in April 2011, is seen in 'tight' oil production, which may add around 2 million barrels per day to total Russian oil production, the world's largest at 10.46 million barrels per day, analysts estimate.

New tax incentives for hard-to-recover oil are due to be implemented next year.

SLOW HORIZONTAL DRILLING

Last year, the company was slow with horizontal drilling, which is technically more challenging and more expensive than conventional vertical drilling but taps hydrocarbon reservoirs more effectively and yields better flows.

Companies mostly use the method to increase productivity at mature fields, which account for over 80 percent of Russia's total oil resource base.

EDC said horizontal metres drilled in 2012 were down by about 2 percent to 862,000 metres.

"It was just that the company got more orders for vertical drilling," Gazprombank analyst Alexander Nazarov said.

In January the company said its total metres drilled rose 26.6 percent to 6.05 million metres in 2012, a record result for Eurasia Drilling, after Russian oil companies stepped up operations.

As a result, the company's Russian market share rose to around 29 percent last year from 25 percent in 2011.

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