AKER SOLUTIONS COULD MISS

Aker Solutions ASA (AKSO), the offshore engineering company controlled by billionaire Kjell Inge Roekke, could miss opportunities to expand into Russia's Arctic region if Europe and the U.S. uphold sanctions on the country.

"If the political situation continues and the sanctions are long-term, they will mean lost market opportunities," Chairman Oeyvind Eriksen said in Oslo yesterday. While the Fornebu, Norway-based company isn't currently involved in any large projects in Russia, it's "ready to consider" opportunities when the restrictions are lifted, he said.

Aker Solutions, which has experience of the Arctic through projects it's worked on off Norway, is seeking to expand into new markets as the company splits to focus on its subsea and engineering businesses to cut costs and improve shareholder returns. The company's owners, which include Roekke's investment company Aker ASA (AKER) and the Norwegian state, approved the split at a meeting in Oslo yesterday.

"Russia is one of the world's biggest oil and gas producers, with large resources not least in the Arctic region, which is part of the core competence of Aker Solutions," said Eriksen. "I hope the political situation is clarified quickly, and not only for commercial reasons."

Sanctions announced by the European Union and U.S. are targeting Russia's energy, finance and defense industries as the conflict between pro-Russian separatists and Ukrainian government forces escalates and after a Malaysian Airline System Bhd (MAS) civilian jet was shot down in eastern Ukraine.

Profit Margins

While Norway isn't a part of the EU, it will comply with the sanctions, the government said this week.

Sales from Norwegian oil-service companies to Russia amounted to less than 5 billion kroner ($810 million) in 2012, according to a government-commissioned report last year by industry consultant Rystad Energy AS. That represents less than 3 percent of their turnover outside Norway and less than 1 percent of the total.

Aker Solutions gained 0.5 percent to 92.15 kroner as of 12:02 p.m. in Oslo, while Aker fell 0.4 percent to 227 kroner.

The sanctions, which include a ban on the transfer of technology for deepwater and Arctic oil exploration and production, come just as Rosneft OAO (ROSN), Russia's biggest oil company, prepares to drill about 40 exploration wells in its largely untapped Arctic waters. Those wells are being drilled with partners including Exxon Mobil Corp. and Norway's Statoil ASA (STL), the biggest customer of Aker Solutions.

'Small Bonanza'

"It's potentially very serious" for Norwegian suppliers of services ranging from ice management to medical response and platform engineering that could miss out on exploration and other developments, said Haakon Skretting, regional director for Russia at industry group INTSOK, which promotes the Norwegian oil industry abroad. Exxon and Rosneft's first well in the Kara Sea will cost $700 million.

"If they find a big oil field there this summer, it could be the start of a small bonanza, an adventure," Skretting said in a phone interview. "The real concern here is that the Norwegian industry wouldn't be able to take part in that."

Seismic surveyors, which map the seabed in search of oil and gas deposits, may also miss business in Russia, Petroleum Geo-Services ASA spokesman Tore Langballe said in a phone interview. Lysaker, Norway-based PGS has "limited exposure" to Russia with activities in the country representing less than 5 percent of sales, he said.

Seismic Plans

"Large seismic programs are planned in Russia in the coming years," he said. "This kind of sanctions will have implications for the industry, that in turn will have implications for us."

While France's Technip SA (TEC), which is involved in the Yamal liquefied natural gas project in Russia's Arctic, has said sanctions will hurt profit margins, they probably won't boost competition in the global oil-services market, Aker Solutions' Eriksen said.

"The sanctions will impact companies that have built large organizations and production capacity in Russia," he said. "Our competitors won't realistically be able to employ that capacity to increase competition in other regions."

bloomberg.com