(Reuters) – Top oilfield services companies SLB and Baker Hughes said on Friday they expect higher spending on oil exploration and production, as tighter global supplies driven by the Middle East conflict highlight the need for investment, particularly in North America. The U.S.-Israeli war with Iran has halted 20% of the world’s oil that usually flows through the now-closed Strait of Hormuz and shut in 9 million barrels a day of oil production, causing Asian and European countries to scramble for supplies. It has also focused attention on energy security and the need for supply diversity.
“There is a growing need for increased upstream investment to expand global production capacity and ensure we can meet rising demand,” Lorenzo Simonelli, CEO of Baker Hughes, said in a post-earnings conference call, adding he sees a potential acceleration of investment decisions for liquefied natural gas projects in North America.
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Many countries will likely prioritize supply diversification and invest in exploration once the conflict subsides, SLB CEO Olivier Le Peuch said, adding he expects increased investment in projects in North America and Latin America, including in deepwater offshore markets.
SLB expects oil prices to trade at higher levels after the war than before it, Le Peuch said.
Oilfield services firms provide equipment, services and labor to companies that explore and produce oil and gas.
MIDDLE EAST REVENUE DECLINES
SLB’s revenue from the Middle East and Asia dropped 10% in the first quarter to $2.69 billion, hurt by disruptions due to Qatar declaring force majeure on gas exports, as well as production constraints and security concerns in Iraq and offshore operations across the region.
The company expects the conflict to hit second-quarter earnings by 6 to 8 cents per share sequentially, with revenue from international markets offsetting some of the impact.
Baker Hughes’ revenue declined 19% to $1.15 billion in the region in the quarter. The Middle East is both companies’ biggest market and accounted for over a third of their quarterly revenue.
Baker Hughes shares climbed to $68.61, the highest since 2007. SLB shares climbed to $56.55, the highest since 2023.
Halliburton, which reported results earlier this week, said Middle East revenue fell 12.7%, hurt by lower activity in Saudi Arabia and reduced drilling-related services in Qatar. It warned disruptions caused by the Iran war and the strait’s closure could cut current-quarter earnings per share by 7 to 9 cents. Rerouting supplies has increased logistics costs and raw material prices, it said. However, analysts expect post-war repairs to energy-linked infrastructure to generate demand for the sector. Rystad Energy has projected as much as $58 billion in repair costs.
“We anticipate seasonal recoveries around the world and a resurgence of activity in the Middle East as the conflict winds down. 2027 and 2028 are expected to be strong years of growth given the change in oil market fundamentals due to the Middle East conflict,” said James West, an analyst at Melius Research.
SLB’s net income fell 5.6% to $752 million during the quarter, while adjusted net income attributable to Baker Hughes rose 12% to $573 million.
Reporting by Vallari Srivastava, Arunima Kumar and Pooja Menon in Bengaluru, Arathy Somasekhar in Houston, Editing by Sriraj Kalluvila, Nathan Crooks, Rod Nickel
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