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. Last Updated: 07/27/2016

OMZ Acquires Shipyard in Drive Toward Caspian

United Heavy Machinery, or OMZ, announced Thursday it has snapped up an Astrakhan shipyard as part of a drive to meet demand for offshore drilling platforms in the Caspian Sea.

"We've nearly reached our goal to acquire all the necessary capacity to build offshore drilling platform oil rigs in the Caspian Sea," OMZ financial director Mikhail Kosolapov said in a statement.

OMZ took 20 percent of the SSRZ III International shipyard in a share swap and paid in cash another stake of about 50 percent, said OMZ spokesman Andrei Onufriyev. The share swap involved a small portion of the 10 percent of OMZ's stock that are held as treasury shares, which OMZ set aside to use to make strategic investments.

Onufriyev would not provide further details about the deal.

He said OMZ valued the shipyard at several million dollars.

SSRZ III International generated revenues of 190 million rubles ($6.5 million) and a net profit of 24.7 million rubles in 2001, which OMZ said adhered to its strategy of buying only profitable companies.

Approval of the deal by the Anti-Monopoly Ministry is pending, Onufriyev said.

Analysts praised the merger. "It's very logical," said Yelena Sakhnova, transport analyst at United Financial Group. "It's the last link in a logical chain of acquisitions in order to occupy that niche in the market."

In May, OMZ paid $15 million for U.S. platform design company Friede & Goldman. It also owns the KB Korall engineering company in Ukraine and manufacturers Krasnoye Sormovo and Nizhegorodsky Teplokhod, both located on the Volga River, which flows into the Caspian Sea.

With the acquisition of the Astrakhan shipyard, OMZ can now assemble prefabricated blocks into full platforms on site, thus lowering costs.

Onufriyev said OMZ's transportation costs will be significantly lower than the usual 15 percent of the cost of a platform.

Drilling platforms cost from $200 million to $300 million each, and OMZ sees demand for eight to 10 in the Caspian region. Platforms have a 20-to 30-year life span.

"OMZ has a strong position in the Caspian because it is the only platform company that can supply there and Caspian oil projects appear to be developing," said Vladimir Titkov, metals and machinery analyst at Renaissance Capital. Titkov said another plus is that the business is less politically sensitive than some of OMZ's other activities -- namely, nuclear power plants and submarines.

OMZ has not yet signed any contracts for full drilling platforms, although it already designs, engineers and builds separate components and can now do subcontracting at the shipyard. "It's like choosing on a restaurant menu," Onufriyev said.

OMZ expects that the first contracts will be signed for entire offshore drilling platforms by 2005.

OMZ said it already controls about 60 percent of the domestic market for oil rig construction. There are no other domestic producers of offshore drilling platforms.