Weatherford Sells Stake In Russia’s Borets For $400 Million

To buy 38.5% stake in joint venture with Russian electric submersible pump manufacturer.

Weatherford International Ltd. (NYSE: WFT), displeased with its joint venture with Russia’s Borets International Ltd., an electric submersible pump manufacturer, has sold back its 38.5% stake for $400 million.

The sale represents a valuation of about 8.5 times this year’s estimated earnings before interest, taxes, depreciation and amortization (EBITDA), said James Crandell, managing director of Cowen and Co. LLC. The deal consists of $370 million in cash and a $30 million promissory note.

Borets is the third-largest electric submersible pump company worldwide behind Baker Hughes and Schlumberger.

“We believe that Weatherford is working on its own electric submersible pump product line, which would be integrated into its artificial lift product offering,” Crandell said.

Proceeds of the sale will be for debt reduction. The partnership “focused on supporting our North and Latin American customers” with 14 regional service support centers, Borets said.

“Initially established as a joint venture between the two companies, Borets enjoys a strong strategic relationship with Weatherford International,” the company’s website says. “By combining unique and differentiating products, joining R&D staffs with diverse expertise, and importing best practices and lessons-learned from around the globe, Borets-Weatherford is poised to be your preferred ESP provider.”

But Crandell said the transaction “did not surprise us as Weatherford has not been happy with the joint venture for some time.”

Crandell rates Weatherford as “Outperform,” with risks including lumpy margins due to project pass-through, excess start-up costs, cost overruns or further deterioration of international integrated project management economics.

Most oilfield services companies also have ongoing legal investigations under the Foreign Corrupt Practices Act. All of these investigations carry the risk of large fines or rulings that may dramatically change its business operation in various regions. The company also announced it has also parted ways with John Briscoe, CFO, effective Sept. 12.

“This has been in the works for several months,” Crandell said. “Briscoe joined Weatherford as chief accounting officer just over two years ago and was appointed chief financial officer in March 2012. This is also not a surprise to us and is not indicative that there are renewed financial concerns at the company.”