LONDON: A rebound in drilling in the Gulf is helping to boost business for beleaguered oilfield services contractors emerging from a four-year work drought.
Saudi Aramco and other national oil companies are stepping up oilfield investment as efforts by OPEC and non-OPEC oil exporters to limit production have helped to support the oil price since January 2017. That in turn is spurring investment in oilfield services which some analysts say is desperately needed to prevent future price shocks should global demand increase.
Aramco, which in the past has outsourced vast amounts of oilfield work to overseas contractors, wants to bring more such work to the Kingdom to help economic diversification efforts and create jobs.
“Over the past few years, Saudi Aramco has taken major steps to localize oilfield services in the Kingdom, starting with drilling services, through establishing two rig operations joint ventures, one for onshore drilling and the other for offshore drilling,” said Ziad Al-Murshed, the executive director of new business development at Saudi Aramco.
He was speaking at the launch this week of a joint venture with National Oilwell Varco (NOV) that will make as many as 10 high specification drilling rigs at a yard in Ras Al-Khair, supporting about 1.000 jobs.
Rebounding investment in drilling is helping to improve the outlook for a number of contractors that were hit hard by the sharp decline in the oil price since mid-2014, that led to thousands of job losses across the industry and a freeze on new investments.
Contractors including UK-listed Wood Group and Petrofac have reported big regional wins in recent weeks while industry giants Schlumberger and Halliburton are also seeing a pickup in some key markets.
Britain’s Wood Group said on Thursday that its first-half revenues rose on increased demand for its oilfield equipment and services.
Wood CEO Robert Watson said that activity remained “robust” on projects such Saudi Aramco’s Marjan field and for SABIC which is developing an integrated crude oil to chemicals complex in the Kingdom in joint venture with Aramco. The UK-listed company also said that its work with Basra Gas was also on the increase.
Petrofac, the UAE-based rig builder that lists its shares in London this week announced it had won a number of contract extensions worth more than $110 million in Iraq.
Four years of weak oil prices have hit oilfield services contractors hard and some of the industry’s major players are now warning that oil and gas companies are storing up future problems by not investing in critical infrastructure — meaning they will not be able to boost production as quickly as needed to meet demand growth.
That in turn could lead to oil price spikes, they say.
“It is, therefore, becoming increasingly likely that the industry will face growing supply challenges over the coming year and a significant increase in global E&P investment will be required to minimize the impending deficit,” said Schlumberger Chairman Paal Kibsgaard in April.
Schlumberger reported a 4 percent decline in earnings across the Middle East and Asia for the first quarter compared to a year earlier. It blamed the performance on lower drilling and hydraulic fracturing — better known as “fracking.”
Still, the mood in the industry appears to be warming up as it enters the third quarter of the year and contractors such as Schlumberger are reporting a steady stream of contracts from the region.
It was recently awarded a three-year drilling contract to provide rigs and well construction services for 70 onshore oil wells in different fields.
