When MEED reported in February that Saudi Aramco was demanding up to 25 per cent discounts from rig suppliers, it was a timely reminder that oil field service providers feel the pinch when crude prices fall.
But while major US oil field services companies such as Halliburton, Baker Hughes, Schlumberger and Weatherford have been shedding thousands of jobs in the US, their Middle East operations are not on the same scale.
This means that although there has been some trimming of non-essential personnel, there have not been the swingeing cuts that have been witnessed elsewhere.
Many of the oil field services companies operating in the region do so under long-term contracts of up to five years. This means most national oil companies (NOCs) are tied into service agreements where oil field services companies carry out field maintenance. These are insusceptible to the periodic highs and lows of oil prices. The fact that production levels have remained high despite the almost 50 per cent plunge in oil prices adds further protection.
All of the major oil producers in the Middle East are maintaining high production, and this is good news for the oil field services companies as it means their services remain vital, says Sadad al-Husseini, former head of exploration and production at Aramco. The NOCs are probably asking for discounted rates, but the work is still there.
Aramco is producing well over 10 million barrels a day at present, which means investment in its oil fields remains even more crucial than last year. Iraq is producing at record post-war levels and other members of oil producers group Opec are still investing in their oil sectors.
In terms of rig count, the Middle East has seen some significant changes since oil prices dropped from $110 a barrel in June 2014 to the $60-$65 a barrel level today. According to Baker Hughes, the regions rig count has differed wildly since June last year, with large decreases from some producers tempered with large increases for others.
The number of rigs in Iraq has decreased from 96 in June 2014 to 54 in March 2015, a drop of more than 43 per cent, while Egypts count fell almost 17 per cent in the same period, from 55 to 41.
Moving in the opposite direction were Saudi Arabia and Kuwait. Aramco increased its rig count from 104 in June 2014 to 125 in March, a rise of almost 20 per cent, while Kuwait jumped about 38 per cent from 35 to 53.
Saudi Aramco increased its rig count from 104 in June 2014 to 125 in March 2015
Source: Baker Hughes
The rest of the regions rigs have not changed in any significant way, meaning it is difficult to deduce exactly what has caused the contrasting figures.
In most cases, the reason is that older and less efficient rigs are replaced with new ones that can produce more oil, says an executive from a UAE-based rig provider. But everyone has a firm eye on costs.
Looking for discounts
There is definitely an element of opportunism at the moment from NOCs looking for discounts at the well head despite production remaining at record figures in many countries.
This is especially galling to oil field services companies, which argue that they did not get increased prices when crude was $110 a barrel. Another factor is that many of these companies have locked-in contracts that are difficult to amend precisely because they are aimed at being insulated from the fluctuations of the global oil market.
Nonetheless, oil field services companies have accepted that if low oil prices continue, discounts for services and technology will be inevitable, but this would also mean less investment will be made in research and development (R&D).
Research and development
R&D is what makes big oil field services players so viable in that they can usually solve any problem a field throws at them, says the executive from the UAE rig provider.
As more and more of the regions fields require highly technical and expensive enhanced oil recovery, it is vital that R&D spend remains high. With oil and gas fields not being homogenous, it is important that investment in local fields is carried out.
Every company involved in the hydrocarbons business is bracing itself for a tough 2015 and profits will be down across the whole value chain. However, lowering investment in oil field services is a false economy and, with most oil producers following a strategy of maintaining market share by keeping production high, it is imperative that every field has the technology and expertise to follow this policy to maximum effect.