Saudi Arabia Hands Out Oil & Gas Production Well Contracts to SLB during War

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

SLB nabbed a multi-well contract in Saudi Arabia. The company reported a downturn in Middle East revenue because of the conflict raging in the Middle East.

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SLB to Deliver More Than 450 Wells for Saudi Aramco

U.S. upstream services firm SLB, formerly Schlumberger, said Friday it was awarded multi-well construction contracts in Saudi Arabia. The Kingdom is still caught on the cross-fire of the war in the Middle East.

While offering few project or financial specifics, SLB said Friday that it secured four integrated well construction contracts that would support further oil and gas developments in Saudi Arabia. Based on the contract, SLB said it aims to deliver more than 450 wells within the next three years, with the possibility for add-ons later in the contract life.

According to Industrial Info Resources data, there are more than 400 active capital Oil & Gas Production projects in Saudi Arabia, with a total investment value of nearly US$41 billion.

"The granting of these advanced large-scale well-building programs to SLB reflects Aramco's confidence in our integrated model and capabilities," said Steve Gassen, a vice president at SLB, in a Thursday, September 24, press release.

In its earnings report for the second quarter, released July 24, SLB said its activity in the Middle East was curbed by the conflict, with the company reporting a 4% decline in regional revenue from the first quarter and 14% year-on-year.

At the time, the company said it was hit by a decision from QatarEnergy to declare force majeure on exports of liquefied natural gas (LNG) and because of the shut-in of crude oil production in Iraq as a result of the lack of maritime transit.

Saudi Arabia Ensnared by War

Last year, SLB was among a handful of upstream services firms that reached memoranda of understanding with Saudi Aramco when U.S. President Donald Trump hosted Saudi Crown Prince Mohammed bin Salman at the White House.

This year, Saudi Arabia is under pressure from the spill-over of a conflict between the United States and Iran. Joint U.S.-Israeli airstrikes in February were meant to cripple Iranian leadership and its nuclear program. Saudi Arabia has since been targeted by Iran and its allies, with drone attacks hobbling parts of its East-West crude oil pipeline, which has been used to avoid oil transit through the volatile Strait of Hormuz as the conflict drags on.

On Thursday, September 24, Reuters reported that the Houthi rebel group in Yemen, which draws on military support from Iran, struck out at "a sensitive target" in Riyadh and at the Red Sea port city of Yanbu, the terminal point for the East-West pipeline.

The research team at Industrial Info Resources continues to investigate the extent of the damage, if any, on the pipeline and infrastructure at Yanbu. On Thursday, Industrial Info Resources reported that Saudi Aramco was able to build bypasses around the damaged sections of the pipeline network in order to get product moving again to Yanbu.

Early Wednesday, Bloomberg reported that satellite imagery had determined tankers were taking on crude oil from Yanbu, but it was unclear to what extent the pipeline was operational.

As of September 17, the Yanbu Aramco Sinopec Refining Company was operating its refinery at Yanbu at around 50% of its operational capacity of 430,000 barrels per day (bpd); the refinery itself was not hit but was running at reduced rates until repairs on East-West were completed, according to Industrial Info Resources.

By the Numbers

• Four: upstream-related contracts in Saudi Arabia for SLB
• 14%: year-over-year regional revenue decline for SLB in the second quarter

Key Takeaways

• SLB sees the potential for work beyond the original contract
• Saudi Arabia is caught in the cross-fire of a conflict that began in February.

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