Shares of top oilfield services provider SLB SLB.N tumbled nearly 10% and weighed on the benchmark S&P 500 index on Tuesday while its U.S. rivals fell after Saudi Aramco’s 2222.SE move to lower its maximum capacity target fanned demand worries.
Aramco, the largest oil company in the world, will cut its planned maximum sustainable oil production capacity to 12 million barrels a day (bpd) after being ordered by Saudi Arabia’s government. The new target is one million bpd below a target announced in 2020.
Analysts said the move could reflect a change in Saudi Arabia’s outlook for global oil demand and may be followed by Aramco curbing capital investment.
Shares of Halliburton HAL.N and Baker Hughes BKR.O were down more than 4% each. Shares of other energy services companies like Transocean RIGN.S and Seadrill SDRL.OL were down 3% and 4.2%, respectively.
Higher international and offshore oil exploration and production, primarily in the Middle East and Africa, have largely helped oilfield firms ride out slowing drilling activity by U.S. shale firms.
SLB, formerly Schlumberger, said in a filing last week that it anticipated record investment levels in the Middle East, citing the significant expansion in Saudi Arabia and nearby oil states.
The company’s significantly bigger international and offshore market exposure has been a driving force behind its upbeat performance in recent quarters.
ATB Capital Markets analysts said the move would have the most impact on Saudi’s offshore oil production capacity projects and jack-up companies.
“There was hope that some of the jack-ups would be built by NOV in Saudi Arabia and that plan will likely not go forward. The growth plans for the Big-3, SLB, HAL, and BKR will be negatively affected as well,” ATB analyst Waqar Syed said.
SLB and Halliburton did not immediately reply to requests for comment.
“… a lot of the equipment/services are already locked up under term contracts, unless some have easy outs. Also, still a lot of gas-related activity going on over there,” said Raymond James analyst Jim Rollyson.
Source: Reuters (Reporting by Mrinalika Roy in Bengaluru; Editing by Sriraj Kalluvila)