SLB wins Russia enterprise as oilfield rivals exit after Ukraine invasion

Jan 19 (Reuters) – Following Moscow’s invasion of Ukraine, world’s largest oilfield agency SLB (SLB.N) has boosted its enterprise in Russia by cherry-picking service and tools contracts from rivals who left, based on firm paperwork and folks aware of its operations.

Whereas SLB’s continued embrace of Russia has drawn sharp criticism, interviews with two individuals near the corporate and business sources, as nicely firm paperwork reviewed by Reuters present SLB’s choice to assist Russia enhance oil and gasoline manufacturing with its companies and drilling tools has paid off.

For instance, SLB’s Russia and Central Asia reservoir efficiency division within the third quarter of 2022 grew income by 25% over the prior quarter. That outpaced development of 12% and 11% for its Asia and Center East and North Africa areas, respectively, based on considered one of half a dozen paperwork seen by Reuters.

The corporate additionally expects to report document outcomes for the fourth quarter for its Russian reservoir efficiency division, based on a separate presentation seen by Reuters.

SLB, which modified its identify from Schlumberger final October, didn’t reply to a number of requests for interviews or written questions for this story. The corporate stated in March that, whereas it’s persevering with operations in Russia, it has halted new investments there.

SLB has not going fallen afoul of U.S. and European sanctions prohibiting monetary transactions with Russia, partially as a result of measures taken towards Russia’s vitality sector will not be meant to totally curtail oil manufacturing, based on sanctions consultants interviewed by Reuters.

“The Russian vitality sector is just not topic to complete sanctions, and with care, firms can adjust to prohibitions or restrictions that will apply to sure transactions,” stated Peter Kucik, a managing director with Mercury Public Affairs and a former official with the U.S. Workplace of Overseas Belongings Management, a unit of the Treasury Division that administers sanctions.

“Buying and selling with Russia is financing aggression, homicide of civilians and destruction of peaceable cities,” stated a spokesperson for Ukraine’s embassy in Washington, D.C. in response to a query about SLB’s operations in Russia.

The Enterprise & Human Rights Useful resource Centre, a global group that screens company responses to human rights points, has warned the agency dangers being pulled into the conflict efforts with Russia’s army mobilization.

Firms working in Russia should take steps to “mitigate the elevated danger of contributing, or being immediately linked, to the armed battle,” stated Ella Skybenko, a senior researcher at that group. She pointed to SLB’s compliance with Russia’s army mobilization for instance of being complicit within the battle.

SLB didn’t reply to requests for remark. Russia’s Ministry of Power and the Russian embassy in Washington, D.C. didn’t reply to a request for remark.

Within the months since Russia invaded Ukraine, scores of western firms have shuttered or offered their operations there to keep away from working afoul of sanctions or keep away from the looks of aiding Vladimir Putin’s conflict. Others have suspended funding or operations, whereas some stay in Russia.

RUSSIA UNIT GROWS

Against this, SLB added round 70 workers in Russia in late 2022, together with personnel to its key accounts akin to Gazprom and Rosneft, based on two sources aware of the matter who cited this as an indication that its enterprise there may be not slowing down.

The Curacao-registered firm is a serious international employer in Russia with some 10,000 workers, or round 10% of its international workforce, unfold throughout Russia and neighboring Kazakhstan, the place it has additionally posted gross sales will increase.

Russia accounted for six%, or $1.21 billion, of SLB’s whole income within the first 9 months of final yr, based on a regulatory submitting, up from 5% earlier than the invasion of Ukraine. Enterprise there may be additional slated to ramp up this summer season, based on a supply and firm paperwork.

One motive SLB is discovering new success in Russia is that rivals have exited the area. Halliburton Co and Baker Hughes Co offered their companies in latest months. The businesses didn’t specify the rationale for promoting.

SLB’s regional unit that features Russia noticed income develop by 45% between the primary and third quarters of 2022, whereas an analogous unit at Halliburton skilled a 6% decline, based on regulatory filings.

Halliburton stated in September it offered its enterprise to a Russia-based administration crew made up of former Halliburton workers. It now operates below the identify BurService LLC and is impartial from Halliburton, the corporate stated.

Baker Hughes and Halliburton declined to remark.

Weatherford, a smaller competitor stays, however its participation within the business is diminishing because it has terminated some present contracts that SLB has been capable of decide up, a supply working in Russia advised Reuters. Reuters was unable to find out what number of contracts SLB has gained.

SLB can also be in line to be the unique supplier of directional drilling for a serious Russian gasoline venture, a supply stated.

“The message from HQ is to take principally unique contracts with excessive income,” stated a SLB worker concerned within the enterprise wins. With fewer rivals, SLB has been capable of obtain worth will increase and higher phrases and circumstances, the supply, who is just not licensed to talk to the press, stated.

Weatherford declined to remark for this story.

PAST VIOLATIONS

Russia’s output has defied predictions of a steep decline, and for January by way of November of final yr rose by 2.2% from year-ago ranges, averaging 10.91 million bpd of oil and gasoline condensate manufacturing, Reuters reported final yr, citing Russian media. International locations like India, China and Pakistan are shopping for Russian oil at steep reductions, whereas manufacturing on the Sakhalin-1 venture, which was operated by Exxon Mobil Corp earlier than it exited after the Ukraine invasion, is nearing a return to full capability.

SLB is at the moment a contractor on that Russian Far East mega-project, and is anticipating extra enterprise in 2023, together with work to assist produce extra pure gasoline on the Sakhalin-3 venture, based on a latest presentation seen by Reuters.

The corporate continued to work there in 2014 after the U.S. slapped sanctions on Rosneft, a accomplice within the venture.

SLB has beforehand violated authorities sanctions imposed on international locations the place it operates. In 2015, a unit of SLB pleaded responsible to violating sanctions associated to Iran and Sudan, paying a $237.2 million tremendous to the U.S. Justice Division. In a 2015 assertion, the corporate stated it “cooperated with the investigation” and was “happy that this matter is lastly resolved.”

In 2021, SLB paid $1.4 million for violations of Ukraine-related sanctions by its subsidiary Cameron Worldwide Corp for offering companies to Russian vitality agency Gazprom-Neft Shelf.

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

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