Oilfield service firms may suffer Russia earnings hit, analysts say

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Schlumberger (SLB -2.7%), Halliburton (HAL -3.4%) and Baker Hughes (BKR -3.2%) all turn sharply lower following reports from J.P. Morgan Chase and Citigroup that say earnings for the oilfield service providers likely will be impaired from working in Russia; ETF: OIH

As reported by Bloomberg, J.P. Morgan estimates Russia makes up as much as 8% of total sales for Schlumberger, and Citi says the company's margins in the country are in the high teens in Russia; JPM says Baker Hughes has the second highest exposure to Russia, while Halliburton gets as much as 2% of revenue from the country.

The companies have not disclosed any change in plans for their Russian operations, but "even if the Big 3 will be able to legally continue work in Russia, it is possible that pressure could mount from shareholders to exit the country," according to JPM analyst Arun Jayaram.

However, "with sanctions so far largely sparing Russia's energy sector, we believe that most operations of the Big 3 in Russia will continue for the time being," Jayaram writes.

U.S. WTI crude oil futures have topped $100/bbl Tuesday, its highest level since July 2014.

Comments

[Weather Man]

Local fuel supplier in central MN predicting $4.50 reg and $6.50 diesel by late summer. Add $2.00 onto those for CA.

[Yo, Ed]

We need oil sanctions on Russia. If your going to do sanctions, do it right.

[Letterhead6]

Wow. My take would be that American companies are helping Russia with its war machine. I'm not sure why they're not out. There's going to be some pain. Just has to be that way.

[VictorN]

the best hope for HAL is doing more completion work on domestic fields.

[Weather Man]

Otherwise known as whistling past the grave. The pressure will keep mounting.

[nicholas__t01]

At some point the goofball in the white house will have to beg our oil and gas producers to ramp up production... may happen tonight if he remembers to show up.

So I would expect HAL to continue to do well either way. SLB has more exposure in Russia and that will hurt a bit.

[Bright spot]

@nicholas__t01 I agree with your statement.
Oil production in Russia will suffer.
HAL will actually pick up with increased drilling in the USA.

[cenc]

well, that all makes perfect sense. If oil production is being cripled in Russia, these companies will obviously never be in demand anywhere else with oil over $100 a barrel.

[Seriol]

@cenc Indeed. Also, losing Russian oil will surely cause other countries to cut back e&p in sympathy.

[John - is as is]

@Seriol
I agree with you (in that E&P elsewhere will pick up).
I’m afraid there are still plenty out there though that are spinning it the other way. “We didn’t go big enough with green energy, and so the war is our fault.”

I think we both know that the world will speak the truth with their money - allocating more funds in the near term to oil and gas.

[Johnny Skyhook]

Big 3 were due for a dip anyway. There are still plays in the service sector bargain bin but you have to know where to look. I added a bit more to my overweight $FTI which is probably the last for now, and also $DRQ, $SMHI and $SUBCY, which I will keep adding to as opportunity presents itself, while rotating out a bit from some hefty gains in E&Ps.

Both within and out of services, I think allied plays in offshore wind farms and carbon capture make sense at the moment, and I've also been slowly building some longer term positions in $AKOWF and $AKCCF.

[John - is as is]

@Johnny Skyhook
Does FTI have any current projects in Russia or with Russian companies? I didn’t see anything in the October investor presentation. I know Technip Energies has Russia projects, but FTI is almost completely divested now.
It appears FTI is being sold on the news by association, so I added as well.

[Johnny Skyhook]

@John - is as is It's a good question and I was wondering that myself.

I am trying to learn more but my guess is TechnipFMC probably does have some exposure but it doesn't seem to be anything they have emphasized in the last couple of quarters. Middle East, Latin America and North America seem to be priority areas at the moment.

I know they had a large contract in Russia to design a $10 billion LNG plant slated for 2023 but that pre-FEED contract ended in 2020, during the period they were spinning off Technip Energies.

As a global company any time a region closes it it doesn't seem like a good thing for them in general, but to the best of my knowledge it isn't a major disruption on any inbound contracts that I am aware of. It seems to be getting dragged down by association, but I will post if I learn anything to the contrary.

However, Technip Energies, the construction and engineering business that split off previously is pretty exposed though, and they released this statement a short while back:

investors.technipenergies.com/...

[John - is as is]

@Johnny Skyhook
Thanks!

[ISTJ Investor]

As long as the Germans and other Europeans continue to buy Russian natural gas, and oil, as they are doing today, it doesn't make much sense to suggest/demand that the companies that provide technical support services for this energy flow withdraw.

[New Adams]

"most operations of the Big 3 in Russia will continue for the time being," Jayaram writes."

Until they are out. Russia beginning a new hot war will cause companies to chose sides, for the West or for Dictators.

[TheSeeker515]

2% for HAL, big deal. I want them out of there.

[WD216]

@TheSeeker515 Well good for you, mister moral high ground

[Yo, Ed]

@TheSeeker515 Likewise, 2% for HAL ain't no big thang.

[day_dreamer]

@WD216 Good for you Theseeker515… moral high ground is the proper position. As a Halliburton employee I want HAL out of Russia too.