Intelligence

OFS firms feel aftershocks after Saudis pull back expansion

byJoseph Gyure, Editor, Enverus Intelligence

SLB has reaffirmed its 2024 financial guidance, part of an effort by international oilfield services companies to reassure investors after the Saudi Ministry of Energy called off plans to increase its maximum sustainable capacity by 1 MMbo/d to 13 MMbo/d by 2027. OFS companies have been counting on international activity to support them in 2024 as North American activity stagnates, stressing the resilience of Middle East NOCs.

The announcement, during the U.S. overnight Jan. 29, sent several OFS stocks into a tailspin. On Jan. 30, Weatherford International closed 12.51% lower, SLB 7.24% lower, NOV 5.52% lower and Valaris 6.17% lower. Halliburton, which is more U.S. focused than its rivals, wasn’t spared, dipping just 1.02% Jan. 30, but ending the week down 6.98%.

Baker Hughes was more resilient, dipping 2.2% Jan. 30 and falling only 3.48% on the week. Investors even punished Transocean (down 12.26% on the week) and Seadrill (down 5.45%) even though neither company has rigs in the Middle East.

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The Saudi ministry’s reversal would seem to have no near-term impact on global crude supply, as the projects affected were years down the road. Saudi Arabia also hasn’t produced near its current capacity of 12 MMbo/d since late 2019.

The kingdom has also been the leader in OPEC+ cuts. Its current production quota is 8.978 MMbo/d, which includes the voluntary 1 MMbo/d cut announced in November.

One of the immediate casualties of Saudi retrenchment was onshore. Saudi Aramco was expected to award $5 billion in EPC contracts early this year for onshore facilities to support the expansion of the offshore Safaniya oil field, but those efforts are unlikely to proceed. The expected winners were not U.S. companies but India’s Larsen & Toubro and South Korea’s Hyundai Engineering & Construction.

The Saudi pullback stood in contrast to prior comments from the OFS Big Three, which all reported their earnings calls in January. For example, Baker Hughes CEO Lorenzo Simonelli said Jan. 24, “We see no deviation from the long-term development plans set in place amongst some of the world’s largest NOCs,” though he acknowledged global economic uncertainty and geopolitical risk.

“Although we have witnessed short-term commodity price fluctuate over the past few months, long-cycle investment in the Middle East offshore and gas markets remain decoupled from short-term pricing,” SLB CEO Olivier Le Peuch said during the company’s Jan. 19 earnings call. Halliburton CEO Jeff Miller on a Jan. 23 earnings call predicted that the Middle East/Asia region would experience the greatest increases in activity in 2024, with other regions following close behind.

Now OFS firms are making the argument that the end of Saudi expansion is an outlier in a healthy international market instead of the “patient zero” of a looming contagion. Even with the ministry’s action, OFS companies believe Saudi activity will continue to grow in 2024.

CEOs of SLB and NOV still expect growth in Saudi Arabia during 2024.

“Our understanding is that all ongoing oil and gas projects remain intact and that only two offshore oil increment projects not yet started will be suspended,” Le Peuch said in a Jan. 30 statement. “Our forecast for significant growth for 2024 in the kingdom remains intact. Looking ahead, the combination of our revenue mix in the kingdom, which is weighted toward onshore and the expanding gas market, and our unique market position in other countries in the Middle East will continue to support the multi-year growth cycle in the region.”

The offshore and international markets are in the midst of an upcycle that should last for several years, NOV CEO Clay Williams said in his company’s Feb. 2 earnings call. Investors seemed unconvinced, as NOV shares slid 11.23% that day on a mix of the Saudi scare, a rising capex budget, and a slight reduction of its EBITDA forecast on North American weakness.

“We still expect the kingdom to remain quite busy as it drills to stem declines in conventional oil wells and it drills to develop unconventional gas,” Williams said in the earnings call. “We expect our revenues in 2024 there to continue to grow.”

During a Feb. 7 earnings call, Weatherford CEO Girish Saligram said his company expects the Saudi move will have a “negligible impact on our projections. Our position in Saudi Arabia is mostly onshore, and while offshore represents a tangible opportunity, it is not one that we have factored in significantly into our multi-year outlook.”

He added that Saudi Arabia represents less than 10% of company revenue. On that reassurance and a positive 4Q23 earnings report, Weatherford shares had regained by mid-day Feb. 7 more than half of the losses suffered in the week ended Feb. 2.

About Enverus Intelligence Publications 
Enverus Intelligence Publications presents the news as it happens with impactful, concise articles, cutting through the clutter to deliver timely perspectives and insights on various topics from writers who provide deep context to the energy sector. 

Joseph Gyure, Editor, Enverus Intelligence

Joseph Gyure, Editor, Enverus Intelligence

Joseph Gyure has covered midstream and oilfield services since 2017 and joined Enverus from PLS. He previously worked at ICIS, the Houston Chronicle, and the Waco Tribune-Herald. Joseph is a graduate of the University of Texas at Austin.

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