Services Giants End New Investments in Russia

The top global oil-field services (OFS)and technology services companies said over the weekend that they will stop new investments in Russia, raising questions about the country's long-term production outlook amid an international backlash over its invasion of Ukraine.

Halliburton said Friday that it will “immediately suspend” future business in Russia and work to “wind down” its remaining operations there.

Schlumberger, Baker Hughes and Weatherford followed with their own pledges to suspend new investment, although none specified plans to wind down operations as Halliburton did.

"With the majors/IOCs [international oil companies] having largely all already announced plans to walk away from Russia and the larger OFS companies now following suit ... we can’t help but think that current Russian oil production levels might start to come under pressure over a longer-term time horizon," analysts at Tudor Pickering Holt said in a note Monday.

Company Moves

Schlumberger said late Friday it will "immediately suspend new investment and technology deployment” to Russia but “will fulfill any existing activity in full compliance with applicable international laws and sanctions.” Baker Hughes said Saturday it would do the same.

Weatherford said it had "placed a hold" on shipments to Russia following the implementation of sanctions on Feb. 24 and suspended new investments or technology deployments. It added that it has “no active joint ventures or partnerships in Russia” but "will continue to fulfill existing contractual obligations within applicable international laws and sanctions."

The decisions end weeks of relative silence from the services sector as companies of all stripes have fled Russia since the war in Ukraine broke out.

The weekend announcements follow the EU's adoption last week of more sweeping sectoral sanctions on Russia's energy sector.

Market Share

Since service firms typically do not break out their Russian businesses in earnings statements, it's not entirely clear how exposed these companies are to the country.

Analysts from VTB Capital estimate global services companies control roughly 13% of the Russian market, with Schlumberger having the largest share at 8%.

Russia's Vygon Consulting puts the combined market share of Schlumberger, Weatherford, Baker Hughes and Halliburton closer to 18%, with the rest split between private local firms and Russian majors’ service entities.

Production Impact

VTB said it does not expect "major repercussions for oil production ... in the near term" due to the "relatively low presence of foreign oil-field services" in Russia and the fact that Schlumberger, Baker Hughes and Weatherford say they will continue to work on existing projects.

“However, hard-to-recover exploration and production projects may be at risk in the more distant future, due to the reliance on more complex technology solutions," VTB said.

Indeed, the digital and other technology offerings of foreign services companies are seen as key enablers for E&P growth projects in Russia. Vygon estimates that foreign services companies provide nearly 60% of the high-tech solutions deployed in Russia, which means some longer-term projects could now be put on hold.

Russian Deputy Prime Minister Alexander Novak said Monday that Moscow will carefully monitor the country’s oil and gas production levels to avoid risks of declining production.

LNG Contractor Exits

Meanwhile, Germany's Linde, a key engineering contractor for Russian LNG and gas-processing projects, also confirmed last week that it is suspending all business development for new projects in Russia.

Linde did not specify which projects will be suspended, saying it is working with the relevant authorities to ensure it is "safely winding down affected projects in Russia.”

It follows a previous announcement by engineering giant Technip Energies, which is working with Novatek on the Arctic LNG 2 project. Technip Energies has said it will suspend new investments in Russia but currently appears poised to continue on with existing work.

Baker Hughes is also a key equipment supplier for LNG projects globally.

Any disruption to the work these firms are carrying out in Russia could deal a blow to Russia’s LNG expansion plans, which largely rely on foreign technology, equipment and competence.

LNG has not been targeted by the Western technology sanctions at this stage, but it is understood to be subject to the EU’s recent ban on new investments in Russia’s energy sector.