Oil Service Companies Flock to Saudi Arabia for 2014

The shale boom in the US and Canada has led to an overcapacity for rigs, restricting the profits of energy service companies. As the likes of Schlumberger, Halliburton, and Baker Hughes look to 2014, they have picked out Saudi Arabia as a growth market that will offer them better potential for profit than the North American market.

The service company giants have begun to boost their presence in Saudi Arabia in anticipation of the expected increase in demand for dozens of new onshore and offshore rigs.

Gabriel Podskuba, the area manager for the eastern hemisphere at Tenaris SA, told Reuters that, “we have a very close relationship with Saudi Aramco, and the plans that we see for next year are talking about 200 rigs.”

It has been suggested that Saudi Aramco plans to accelerate its search for unconventional gas reserves, and at the same time increase its oil production in order to its spare production capacity around the 2 million barrel mark.

Since early 2011 the country has produced over 9 million barrels a day, and that has been boosted to over 10 million barrels a day as it tries to take up the slack by falling output from the likes of Libya, Iran, Nigeria and Yemen. In order to boost its production output even further Aramco is willing to invest heavily, and service companies are keen to take advantage.

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Khalid al-Falih, the Chief Executive Officer at Saudi Aramco, said that “in the past two years alone, we have swung our production by more than 1.5 million bpd in order to address market supply imbalances.”

Saudi Arabia is heavily reliant on revenues from its oil exports, but some government officials fear that the constant high prices could threaten the long-term demand of oil, as they force people to look for alternative sources. Its drive to increase demand is in part motivated by the desire to reduce oil prices around the world.

Saudi Arabia is already a big market, but this desire to increase production further has attracted the attention of some of the larger service companies.

Reuters writes that Baker Hughes forecast a strong year for rig demand in the Middle East, driven by Saudi Arabia, and pushing the global rig count up by five percent. By contrast the US rig count will wall by nine percent.

By. Joao Peixe of Oilprice.com