China Oilfield Services Ltd encountered a setback in its first overseas acquisition after the Russian government rejected its takeover of a local counterpart.

COSL, Asia's largest oilfield services provider, planned to acquire STU from Russia's TNK-BP for US$10 million. The purchase was seen as a small but important step to help COSL expand into the massive US$10 billion Russian drilling service market.

The two firms had agreed on the acquisition, which had also gained approval from the Chinese government, but the plan fell to pieces at the final phase.

"The Russian government didn't tell us the reason for the rejection, and we won't continue with the acquisition plan," said Chen Weidong, executive vice president of the dominant Chinese oil drilling service provider.

"The project involved only US$10 million, so the failure had no impact on our business. We are working on other bigger projects with foreign companies," Chen said without revealing details.

The Shanghai-listed company gained 3.12 percent to 29.10 yuan yesterday.

"Many countries, including Russia, have a tight grip on energy-related industries as the resources are non-renewable, so it's hard for foreign companies to tap into the local market," said Orient Securities analyst Wang Jing.

COSL, an arm of top Chinese offshore oil producer CNOOC Group, is a leading global integrated oil services firm. It earned 604 million yuan in third-quarter net profits last year.

(Shanghai Daily January 25, 2008)