SLB and Baker Hughes expect oil exploration expenditure to rise as the Iran war disrupts supplies
SLB and Baker Hughes, two of the top oilfield service companies, said Friday that they expected to spend more on oil exploration and production as the Middle East conflict has impacted?global oil supplies, highlighting a?need? for investment. This is especially true in North America. The U.S. and Israeli war against Iran has halted the flow of 20% of world oil through the Strait of Hormuz, which is now closed. This has also shut down 9 million barrels of oil production per day. As a result, Asian and European countries are scrambling to find supplies. The war has also brought attention to energy security and the importance of diversifying supply.
Lorenzo Simonelli said that there is a need to increase upstream investments in order to meet the growing demand and expand global production capacity. He also noted that he believes investment decisions in North America for liquefied gas projects could be accelerated.
Once the conflict has subsided, many countries will prioritize supply diversification, and invest in exploration, said SLB CEO Olivier Le Peuch. He added that he anticipates an increase in investment in North America and Latin America projects, including deepwater offshore markets.
Le Peuch, SLB's Le Peuch, said that SLB expects the oil price to be higher after the war.
Oilfield service firms offer equipment, services, and labor to companies who explore and produce oil and natural gas.
MIDDLE-EAST REVENUE?DECLINES SLB’s revenue in the Middle East and Asia fell 10% to $2.69bn in the first quarter, due to disruptions caused by Qatar declaring force majeure for gas exports as well as production restrictions and security concerns across the region.
The conflict is expected to reduce earnings in the second quarter by 6-8 cents per share, although revenue from overseas markets will offset some of that impact.
Baker Hughes revenue in the Middle East fell 19% in the last quarter to $1.15billion. Both companies' largest market is the Middle East, which accounted for more than a third their quarterly revenue.
Baker Hughes shares rose to $68.61 - the highest level since 2007. SLB shares rose to $56.55, their highest level since 2023.
Halliburton - which released its results this week - said that Middle East revenues fell by 12.7% due to lower activity in Saudi Arabia, and reduced drilling services in Qatar. The company warned that disruptions due to the Iran conflict and the closure of the Strait could reduce current-quarter earnings by 7-9 cents. It said that rerouting of supplies had increased raw material and logistics prices. Analysts expect that post-war repair of energy-related infrastructure will generate demand for the industry. Rystad Energy has estimated repair costs of up to $58 billion.
"We expect seasonal recovery around the globe and a resurgence in activity in the Middle East, as the conflict?winds down." James West, an expert at Melius Research, said that 2027 and 2028 will be "strong years" of growth due to a change in the oil market fundamentals caused by the Middle East conflict.
SLB's quarterly net income dropped 5.6%, to $752 millions. Baker Hughes' adjusted net income rose 12%, to $573million.
(source: Reuters)
