Following Moscow’s war in Ukraine, the world’s biggest oilfield firm SLB (SLB.N) has expanded its business in Russia by cherry-picking service and equipment contracts from rivals who exited, according to company documents and people with knowledge of its operations.
While SLB’s continuous embrace of Russia has attracted harsh criticism, company documents reviewed by Reuters, along with interviews with two people immediate to the company and industry sources show SLB’s decision to help Russia ramp up oil and gas production with its services and drilling equipment has been profitable.
For instance, SLB’s Russia and Central Asia reservoir performance division in the third quarter of last year increased revenue by 25% over the previous quarter. That outperformed growth of 12% and 11% for its Asia and Middle East and North Africa regions, respectively, based on one of half a dozen documents seen by Reuters.
The company also expects to post record results for the December quarter for its Russian reservoir performance division, according to a different presentation seen by Reuters.
SLB, which changed its name from Schlumberger last October, failed to respond to several requests for interviews or written questions for this story. The company said in March that, while it proceeds with operations in Russia, it has stopped new investments there.
SLB has not likely violated U.S. and European sanctions forbidding financial transactions with Russia, in part because measures taken against Russia’s energy sector are not meant to completely curtail oil production, according to sanctions experts interviewed by Reuters.
“The Russian energy sector is not subject to comprehensive sanctions, and with care, companies can comply with prohibitions or restrictions that may apply to certain transactions,” said Peter Kucik, a managing director with Mercury Public Affairs and a former official with the U.S. Office of Foreign Assets Control, a unit of the Treasury Department that administers sanctions.
“Trading with Russia is financing aggression, murder of civilians, and destruction of peaceful cities,” said a spokesperson for Ukraine’s embassy in Washington, D.C. in response to a question about SLB’s operations in Russia.
The Business & Human Rights Resource Centre, an international organization that tracks corporate responses to human rights issues, has cautioned the company risks being roped into the war efforts with Russia’s military mobilization.
Firms operating in Russia must take measures to “mitigate the increased risk of contributing, or being directly linked, to the armed conflict,” said Ella Skybenko, a senior researcher at that organization. She cited SLB’s compliance with Russia’s military mobilization as an example of being involved in the conflict.
SLB failed to reply to requests for comment. Russia’s Ministry of Energy and the Russian embassy in Washington, D.C. would not reply to a request for comment.
In the months since the war in Ukraine started, scores of western companies have sold or shut down their operations there to avoid falling afoul of sanctions or avoid the impression of aiding Vladimir Putin’s war. Others have halted investment or operations, while some continue operations in Russia.
Russia Unit Grows
By contrast, SLB hired about 70 employees in Russia late last year, including personnel to its main accounts such as Rosneft and Gazprom, according to two sources with knowledge of the matter who mentioned this as a sign that its business there is not slowing down.
The Curacao-registered company is a leading foreign employer in Russia with some 10,000 employees, or about 10% of its global workforce, spread across Russia and neighboring Kazakhstan, where it has also recorded sales rises.
Russia formed 6%, or $1.21 billion, of SLB’s total revenue in the first three quarters of 2022, according to a regulatory filing, a rise from 5% before the Ukraine war. Business there is further expected to increase this summer, according to a source and company documents.
One reason SLB is achieving new success in Russia is that rivals have left the region. Halliburton Co and Baker Hughes Co divested their businesses in recent months. The firms did not indicate the reason for selling.
SLB’s regional unit which includes Russia saw revenue increase by 45% between the first and third quarters of last year, while a similar unit at Halliburton saw a 6% drop, according to regulatory filings.
Halliburton said in September it sold its operations to a Russia-based management team comprising former Halliburton employees. It now runs under the name BurService LLC and is independent of Halliburton, the company said.
Halliburton and Baker Hughes would not comment.
Weatherford, a smaller rival stayed behind, but its participation in the industry is decreasing as it has ended some existing contracts that SLB has been able to secure, a source working in Russia told Reuters. Reuters was unable to establish how many contracts SLB has clinched.
SLB is also being considered the exclusive provider of directional drilling for a big Russian gas project, a source said.
“The message from HQ is to take mostly exclusive contracts with high revenue,” said an SLB employee involved in the business wins. With lesser rivals, SLB has been able to obtain price hikes and better terms and conditions, the source, who is not allowed to speak to the press, said.
Weatherford refused to comment for this story.
Russia’s output has defied expectations of a sharp decline, and for January through November of 2022 jumped by 2.2% from year-ago levels, totaling 10.91 million bpd of oil and gas condensate production, Reuters reported in 2022, citing Russian media.
Countries like China, India, and Pakistan are buying Russian oil at sharp discounts, while production at the Sakhalin-1 project, which was managed by Exxon Mobil Corp before it left after the Ukraine invasion, is nearing a return to full capacity.
SLB is currently a contractor on that Russian Far East mega-project, and is expecting more business this year, including work to help generate more natural gas at the Sakhalin-3 project, according to a recent presentation seen by Reuters.
The company remained at work there in 2014 after the U.S. slammed sanctions on Rosneft, a partner in the project.
SLB has previously fallen afoul of government sanctions put on countries where it operates. In 2015, a unit of SLB admitted to violating sanctions related to Sudan and Iran, paying a $237.2 million penalty to the U.S. Justice Department. In a 2015 statement, the company said it “cooperated with the investigation” and was “satisfied that this matter is finally resolved.”
In 2021, SLB paid a $1.4 million fine for violations of Ukraine-related sanctions by its subsidiary Cameron International Corp for offering services to Russian energy firm Gazprom-Neft Shelf.