Upstream investment to rise as oilfield services majors report quarterly results
Major oilfield services companies have reported first-quarter revenues squeezed by the Middle East conflict, but said upstream spending may increase to meet growing supply needs.
Conflict-related disruptions, including the ongoing Strait of Hormuz closure, have cut into earnings. But two significant players anticipate that spending on oil exploration and production will rise in the future.
Leading oilfield services companies SLB and Baker Hughes said tighter global supplies, driven by the war, have highlighted the need for investment.
Rise in spending forecast
The Middle East is the biggest market for those companies, accounting for more than a third of quarterly income.
Baker Hughes’ revenue slipped 19% to $1.15 billion in the region, while SLB saw a drop of 10% in the first quarter to $2.69 billion in revenue from the Middle East and Asia. Halliburton had earlier reported a 12.7% slide in Middle East revenue.
Asian and European countries have scrambled for supplies as the closure of the Strait halted the movement of 20% of global oil and shut in 9 mbpd of oil production. LNG and products such as fertilisers have also been hit.
This has intensified calls for supply diversity and energy security at a time when the industry is pursuing an energy-addition strategy rather than a transition to provide sufficient, reliable, and affordable energy.
“There is a growing need for increased upstream investment to expand global production capacity and ensure we can meet rising demand."
- Lorenzo Simonelli, Chairman and CEO of Baker Hughes
Lorenzo Simonelli, CEO of Baker Hughes, told a post-earnings conference call that he saw potential acceleration of investment decisions for North American LNG projects.
“There is a growing need for increased upstream investment to expand global production capacity and ensure we can meet rising demand,” he said.
Olivier Le Peuch, CEO of SLB, also anticipates increased investment in projects in North America and Latin America, including deepwater offshore markets, as many countries are likely to prioritise supply diversification and invest in exploration post-war.
Demand for these companies’ services may recover as repairs and reconstruction of war-damaged energy infrastructure begin. Saudi Arabia, UAE, Bahrain, Qatar, Iraq, and Kuwait were all targeted by Iran.
Rystad Energy has forecast a bill of up to $58 billion. However, Karan Satwani, Senior Analyst, Supply Chain Research, warned the situation was not just about damaged Gulf facilities, but “a stress test” for the entire energy supply chain. “The same equipment and contractors needed to rebuild are already committed to a wave of LNG and offshore projects sanctioned since 2023,” he said.
“Repair work does not create new capacity; it redirects existing capacity, and that redirection will be felt in project delays and into inflation far beyond the Middle East.”
Olivier Le Peuch, CEO of SLB, anticipates increased investment in projects in North America and Latin America, including deepwater offshore markets, as many countries are likely to prioritise supply diversification and invest in exploration post-war.
James West, analyst with Melius Research, anticipates “seasonal recoveries around the world and a resurgence of activity in the Middle East” as the conflict winds down.
He said: “2027 and 2028 are expected to be strong years of growth given the change in oil market fundamentals due to the Middle East conflict.”
Several countries have expressed willingness to join an international mission led by France to protect shipping in Hormuz when conditions allow.
This comes as TotalEnergies CEO Patrick Pouyanne warned of potential fuel shortages if Hormuz remains locked.
“If it lasts two, three months more, we are entering a world of scarcity of energy, which Asian countries have already suffered,” he told the World Policy Conference, near Paris. “You cannot have 20% of the oil and gas of the planet being stranded and not accessible without major consequences.”
