Which energy firms will feel pain from Russian sanctions

Some of the world’s biggest energy companies could see billions in revenue disappear amid new sanctions that shut them off from the Russian energy frontier.

As violence escalates in eastern Ukraine between government and separatist forces, the European Union today sought to punish Russia for its involvement by restricting exports of deep-sea drilling and shale-fracturing technologies. The U.S. followed suit, with President Barack Obama announcing a block on specific goods and technologies exported to the Russian energy sector.

“Because we’re closely coordinating our actions with Europe, the sanctions we’re announcing today will have an even bigger bite,” Obama told reporters today at the White House. “Russia’s energy, financial and defense sectors are feeling the pain.”

The new restrictions, which Obama described as the region’s most significant to date, “will make it more difficult for Russia to develop its oil resources over the long term,” he said.

Russia relies on companies including Exxon Mobil Corp.,(NYSE:XOM) BP Plc, Halliburton Co.(NYSE:HAL) and Schlumberger Ltd.(NYSE:SLB) for the latest technology and expertise it needs to develop an estimated $7.58 trillion in oil and natural gas resources that sprawl across nine time zones. Exploration and production companies like Exxon were expected to spend $51.7 billion in Russia this year, according to estimates from Barclays Capital Inc. -- much of which would go to service and equipment companies such as Schlumberger and Halliburton.

No Fracking

The U.S. and EU are restricting the transfer of certain oilfield technologies into Russia that are needed to develop its oil and gas fields in shale rock formations, deep water offshore and in the Arctic. That will include horizontal drilling and hydraulic fracturing, which has helped boost North American crude production and set the U.S. on a course toward energy independence.

Russia is the second-largest market for fracking services outside North America, after China. Russia’s demand for rock- crushing gear was forecast to double by 2018, according to research by PacWest Consulting Partners.

Russia Revenue

Oilfield service companies Halliburton, Baker Hughes Inc. and Weatherford International Plc each generate 4 percent to 5 percent of their global sales from Russia, while Schlumberger gets 5 percent to 6 percent, according to RBC Capital Markets. The increased sanctions aren’t expected to drive the service companies out of Russia, Kurt Hallead, an analyst at RBC Capital Markets in Austin, said in a phone interview.

“It hurts from an earnings standpoint,” Hallead said. “They basically have to eat a lot of fixed costs if their revenue goes away.”

Halliburton continues to operate in Russia while complying fully with all laws, Susie McMichael, a spokeswoman at Houston- based Halliburton, said today in an e-mailed statement. A spokeswoman for Baker Hughes declined comment, and Weatherford representatives couldn’t be reached. Schlumberger wasn’t able to comment on the future impact of the sanctions, according to Stephen Harris, a spokesman.

“We are assessing the impact of the sanctions,” Alan Jeffers, an Exxon spokesman, said in an e-mailed statement.

 

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