Oilfield services companies are paying as much as three times their usual logistics costs in the Middle East, with fuel expenses doubling and labor costs climbing by as much as 40%, as the Iran war continues to disrupt equipment deliveries and project operations.
Executives speaking Tuesday at the ADIPEC energy conference in Abu Dhabi described mounting financial pressure from the nine-month conflict, which has damaged infrastructure, forced employee evacuations, and made moving equipment through the Strait of Hormuz increasingly difficult.
Alessandro Bernini, CEO of Italian engineering company Maire, said logistics costs on some Middle Eastern contracts have tripled, while labor expenses have risen between 30% and 40%.
Those increases are cutting into contractors’ margins and raising the cost of completing energy projects. Bernini warned that the additional expenses would eventually contribute to higher energy prices and inflation.
For Saipem, another Italian energy contractor, the problem is getting equipment to its destination in the first place.
“We have been sitting outside Hormuz for months,” CEO Alessandro Puliti told the conference.
National Energy Services Reunited (NESR), which operates across Saudi Arabia, the UAE, Kuwait, Oman and Iraq, has been storing materials in warehouses for longer periods to protect against supply interruptions. Those precautions come with additional costs that contractors often cannot recover.
“You eat it most of the time,” NESR CEO Sherif Foda said.
Recent earnings reports show how uneven the industry’s recovery has been.
SLB reported a 9% sequential increase in third-quarter Middle East and Asia revenue to $2.81 billion, although the figure remained 6% below year-earlier levels. The company said Middle Eastern activity recovered during the quarter before renewed disruptions emerged in September.
Baker Hughes reported $1.26 billion in Middle East and Asia oilfield services revenue, down 13% from a year earlier, partly reflecting a business divestiture.
Higher oil prices have encouraged additional drilling activity in some markets, creating more work for service providers. But the equipment, personnel, and transportation needed to perform that work have become considerably more expensive.
For contractors already committed to Middle Eastern projects, the immediate question is how much of those additional costs they can pass along to customers.
By Julianne Geiger for Oilprice.com
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