Two of the world's largest oilfield services companies, SLB Ltd and Baker Hughes, stated on Friday that they anticipate an increase in oil and gas exploration and production spending. Ongoing conflicts in the Middle East have tightened global supplies, underscoring the necessity for energy investment, particularly in North America.
Hostilities involving the U.S., Israel, and Iran have disrupted approximately 20% of global oil shipments that typically transit the Strait of Hormuz and have halted around 9 million barrels per day of oil production. This has forced Asian and European nations to urgently seek alternative supplies. The conflict has also brought into sharp focus the need for energy security and supply diversification.
The CEO of Baker Hughes remarked during an earnings call, "Expanding global production capacity and ensuring it meets rising demand will require increased upstream investment." He added that investment decisions related to North American liquefied natural gas projects could accelerate.
The CEO of SLB Ltd noted that once tensions ease, many countries are likely to prioritize supply diversification and invest in exploration. He projected increased investment in projects across North America and Latin America, including deepwater offshore markets, and expects post-conflict oil prices to remain above pre-conflict levels.
**Declining Revenue in the Middle East**
Despite the positive outlook, current disruptions in the Middle East have impacted both companies' performance. Due to force majeure declared on Qatari gas exports, along with production constraints and safety concerns affecting operations in Iraq and other offshore activities in the region, SLB Ltd's revenue in the Middle East and Asia fell by 10% in the first quarter to $2.69 billion. The company anticipates the conflict will reduce second-quarter earnings per share by 6 to 8 cents sequentially.
Baker Hughes' revenue in the region declined by 19% during the same period to $1.15 billion. The Middle East is the largest market for both companies, accounting for more than one-third of their quarterly revenue.
Halliburton, which reported earnings earlier this week, indicated that its Middle Eastern revenue dropped by 12.7%, primarily due to reduced activity in Saudi Arabia and a decline in drilling-related services in Qatar. The company warned that disruptions caused by the Iran conflict and the closure of the strait could lower current-quarter earnings per share by 7 to 9 cents. Rerouting supply chains has increased logistics costs and raw material prices.
However, analysts expect that post-conflict repairs to energy infrastructure will generate demand for the industry. Energy research firm Rystad Energy estimates that related repair costs could reach as high as $58 billion.
Analysts at Melius Research stated, "We anticipate a seasonal global recovery, and as the conflict subsides, activity in the Middle East will also rebound. Given the shift in oil market fundamentals resulting from the Middle East conflict, 2027 and 2028 are expected to be strong growth years."
Earnings reports showed that SLB Ltd's quarterly net profit decreased by 5.6% to $752 million, while Baker Hughes' adjusted net profit rose by 12% to $573 million. Shares of Baker Hughes climbed to their highest level since 2007, and SLB Ltd's stock also reached its highest point since 2023.