Oil Servicers May See Russia Earnings Hit

(Bloomberg) -- Earnings for the world's biggest oilfield service providers may be impaired from working in Russia, according to analysts at JPMorgan Chase & Co. and Citigroup Inc., with Schlumberger estimated to have the biggest exposure in the country.

Although the companies don't disclose specifics, JPMorgan estimates Russia makes up as much as 8% of total sales for Schlumberger. The world's No. 1 oilfield contractor generates margins in the high teens in Russia, according to estimates from Citigroup. Baker Hughes Co. has the second-highest exposure, while Halliburton Co. rounds out the group with as much as 2% of revenue from Russia, according to JPMorgan estimates.

“Even if the Big 3 will be able to legally continue work in Russia, it is possible that pressure could mount from shareholders to exit the country,” Arun Jayaram, an analyst at JPMorgan, wrote Tuesday in a note. That said, “with sanctions so far largely sparing Russia's energy sector, we believe that most operations of the Big 3 in Russia will continue for the time being.”

The companies haven't yet shared any change in plans for operations in the country in response to inquiries from Bloomberg News. Representatives weren't immediately able to comment on the analyst notes.

While no sanctions have been levied on Russia's energy sector as a result of its invasion of neighboring Ukraine, several large oil and natural gas companies including BP Plc and Shell Plc have severed ties. On Monday, the drilling chief for Ukraine's state-owned natural gas company urged Halliburton and other oilfield contractors to cease operations in Russia.

“The devaluation of the ruble and shareholder pressure should lead investors to more heavily discount future earnings derived from Russia,” Jayarum said. “If reliance on local inputs keeps margins in Russia steady, earnings will be significantly undercut on a USD basis.”