SLB wins Russian business as oilfield rival pulls out after Ukraine invasion

Jan 19 (Reuters) – SLB (SLB.N), the world’s largest oilfield company, is boosting its efforts by picking service and equipment contracts from departed rivals following Moscow’s invasion of Ukraine, company filings and people familiar with the matter said. its business operations in Russia.

Despite sharp criticism for SLB’s continued embrace of Russia, interviews with two sources close to the company and industry, as well as company documents seen by Reuters, show that SLB’s decision to help Russia increase oil and gas production through its services and drilling equipment The decision has paid off off.

For example, SLB’s Russia and Central Asia reservoir performance segment saw a 25% increase in revenue in Q3 2022 from the previous quarter. That beat growth rates in Asia and the Middle East and North Africa of 12 percent and 11 percent, respectively, according to one of six documents reviewed by Reuters.

The company is also expected to report record fourth-quarter results from its Russian reservoir performance unit, according to a separate report seen by Reuters.

SLB, which changed its name from Schlumberger last October, did not respond to several interview requests or written questions for this article. The company said in March that while it continued to operate in Russia, it had halted new investments there.

SLB is unlikely to violate U.S. and European sanctions banning financial transactions with Russia, in part because the measures targeting Russia’s energy sector do not amount to a complete cut in oil production, according to sanctions experts interviewed by Reuters.

“The Russian energy sector is exempt from comprehensive sanctions, and companies can be careful to comply with prohibitions or restrictions that may apply to certain transactions,” said Peter Kucik, managing director of public affairs at Mercury and a former official in the U.S. office of Foreign Assets Control, the Treasury Department. A division of the Ministry responsible for the enforcement of sanctions.

“Trade with Russia is funding aggression, murdering civilians and destroying peaceful cities,” a spokesman for Ukraine’s embassy in Washington said in response to a question about SLB’s operations in Russia.

The Business and Human Rights Resource Center, an international organization that monitors corporate responses to human rights issues, warned that the company risked being drawn into a war as a result of Russia’s military mobilization.

Ella Skybenko, a senior fellow at the group, said companies doing business in Russia must take steps to “mitigate the increased risk associated with or directly related to armed conflict.” She cited the example of SLB’s compliance with Russia’s military mobilization or involvement in the conflict.

SLB did not respond to a request for comment. Russia’s energy ministry and the Russian embassy in Washington did not respond to requests for comment.

In the months following Russia’s invasion of Ukraine, many Western companies closed or sold their operations in Ukraine to avoid running afoul of sanctions or avoiding a war to help Vladimir Putin. Others have suspended investment or operations, while some remain in Russia.

Russian unit growth

By contrast, SLB will add about 70 workers in Russia by the end of 2022, including staff from major clients such as Gazprom and Rosneft, according to two people familiar with the matter, suggesting that Its business in Russia is not slowing down.

The Curacao-registered company is a major foreign employer in Russia, with about 10,000 employees, about 10 percent of its global workforce, spread across Russia and neighboring Kazakhstan, where sales have also grown .

Russia accounted for 6 percent of SLB’s total revenue, or $1.21 billion, in the first nine months of last year, up from 5 percent before the Ukraine invasion, according to a regulatory filing. Business there will ramp up further this summer, according to sources and company filings.

One of the reasons for SLB’s newfound success in Russia is that competitors have exited the region. Halliburton and Baker Hughes have sold their businesses in recent months. The companies did not specify reasons for the sale.

According to regulatory filings, SLB’s regional unit, including Russia, saw revenue rise 45% in the first and third quarters of 2022, while Halliburton’s similar unit declined 6%.

Halliburton said in September it had sold its business to a Russian management team made up of former Halliburton employees. The company said it now operates under the name BurService LLC and is independent of Halliburton.

Baker Hughes and Halliburton declined to comment.

A source working in Russia told Reuters that Weatherford was a smaller competitor but its participation in the industry was declining because it had terminated some existing contracts that SLB was able to secure. Reuters could not determine how many contracts SLB had won.

SLB is also likely to become the exclusive supplier of directional drilling for a major Russian gas project, one of the sources said.

“The news from the headquarters is that high-paying exclusive contracts are mainly used,” said an SLB employee involved in the business. With fewer competitors, SLB was able to secure price increases and better terms and conditions, the source, who was not authorized to speak to the media, said.

Weatherford declined to comment for this story.

past violations

Reuters quoted Russian media reports last year that there was no forecast for a sharp decline in Russia’s output, with oil and condensate output rising 2.2% from January to November last year to an average of 10.91 million barrels per day. Countries such as India, China and Pakistan are buying Russian oil at steep discounts, while production is nearing full capacity at the Sakhalin 1 project, which is run by Exxon Mobil Corp and pulled out after the Ukrainian invasion.

SLB is currently a contractor for large projects in the Russian Far East and expects more business in 2023, including work to help the Sakhalin 3 project produce more gas, according to a recent presentation seen by Reuters.

The company continued operations there after the United States imposed sanctions on Rosneft, a partner in the project, in 2014.

SLB has previously violated government sanctions imposed by the countries in which it operates. In 2015, a unit of SLB pleaded guilty to violating sanctions related to Iran and Sudan and paid a $237.2 million fine to the U.S. Department of Justice. In a 2015 statement, the company said it was “cooperating with the investigation” and was “satisfied that the matter has finally been resolved.”

In 2021, SLB paid $1.4 million for its subsidiary Cameron International Corp to provide services to Russian energy company Gazprom-Neft Shelf in violation of Ukrainian-related sanctions.

Reporting by Liz Hampton in Denver; Editing by Anna Driver and Gary McWilliams

Our Standards: The Thomson Reuters Trust Principles.

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