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* GRAPHIC on Gulf spending: http://link.reuters.com/gap44w
* MENA states have no option but to keep spending
* Some OFS companies see strong bid pipeline for 2015
By Claire Milhench
LONDON, April 10 (Reuters) - Oil majors may have slashedcapital spending but national oil companies (NOCs) in the MiddleEast and North Africa show no sign of cutting investment,buoying oilfield services that the stock market has beaten down.
Investors sold in the second half of 2014 as benchmark fuelprices sank, expecting a dire performance from a sector relianton investment in oil and gas projects for its revenues.
Names such as Saipem and Subsea 7 notched up double-digit share price declines from June toDecember as oil majors put projects on hold or scaled backexpenditure.
But while offshore drillers and seismic companies continueto suffer, oil services stocks with chunky exposures to MiddleEast spending, such as Petrofac, have bounced back.
Petrofac's order backlog was up 26 percent at the end of2014, and its share price has risen by almost 27 percent sinceit reported full year earnings on Feb. 25. Recent wins include acontract for the first phase of Kuwait Oil Company's Lower Farsheavy oil development programme and two strategic contractagreements with Algeria's Sonatrach.
"There is a building differentiation in the backlog profilesof those companies exposed to onshore construction in the MiddleEast and those not," said Mick Pickup, managing director atBarclays Capital. "While some of this is gas related, it signalsa continued robust construction market in the region."
In contrast, a JBC Energy analysis found that ExxonMobil, BP, Shell, Total, Chevron and ConocoPhillips had slashed capitalexpenditure by 12.7 percent for 2015, or almost $21 billion.
"The international oil company (IOC) has to make goodreturns for its shareholders, whereas the NOC has to keep thelights on for its domestic population," said Stewart Williams,vice president, Middle East research at Wood Mackenzie.
"They have to keep going no matter what, otherwise theymight have to import energy. We've seen huge energy demandgrowth in that region."
As well as needing energy for domestic desalination and airconditioning, the big Middle Eastern and North African producersrequire oil and gas for export. "Hydrocarbons might be the onlyway they can generate revenues," Williams said. "Even at theselow oil prices they have no choice but to keep exporting andreinvesting in their own oil and gas industries."
Data from Rystad Energy show that while global investmentsare expected to fall by around 20 percent in 2015 versus 2014,in Gulf countries the reduction is likely to be just 5 percent.Saudi Arabia, where investment in oil projects is expected togrow by 5-10 percent, is thought to have ramped up the number ofrigs it employs.
"You could speculate that the country is now buildingcapacity," said Espen Erlingsen, an analyst at Rystad Energy.
BARGAIN HUNTING
With no share prices to worry about, state producers may seethe downturn as a chance to invest in projects at a lower cost.
"It seems some NOCs, like Saudi Aramco, are using thissituation to position themselves for a potential comeback in theoil price," said Erlingsen. "Starting new projects now could bevery profitable due to lower expected unit prices within theoilfield services market."
Jim Moffat, chief executive of rig-maker Lamprell,told Reuters that if a company ordered a jack-up tomorrow, itwould be two years before it took delivery: "Most of thesedownturns are over in two years, and there are a couple ofclients out with enquiries right now on that very basis. Theythink they can buy in the downturn and as such will be verywell-placed when things bounce back."
Lamprell has a solid order backlog of $1.2 billion, withabout 80 percent of revenues for 2015 already covered. Itsshares are up almost 14 percent since it announced its full yearearnings.
Moffat cited opportunities in the UAE, Qatar and Kuwait,with the drilling utilisation in the Middle East seen as prettyconstant in 2015 compared with 2014.
"The NOCs are far less affected than the IOCs appear to be,"he said, adding that the Middle East benefited from a relativelylow lift cost. "If you're in a harsh, deepwater environment witha high lift cost of $70-$80 a barrel, nobody will proceed withthat project in a $50 environment. But in the Middle East a lotof projects have $10 lift costs, and people can still make veryhealthy margins on them."
Tim Weller, chief financial officer at Petrofac, alsoexpects NOCs to continue investing through the downturn. "Weactually see a pretty buoyant market - we anticipate about $25billion of work we could bid on in 2015," he told Reuters,saying Petrofac had not seen a slowdown in orders.
"While we are seeing some short delays to bidding processes,possibly as pricing is adjusted to reflect the lower oil priceenvironment, oil companies are trying to maintain the momentumof their upstream investment plans," Ayman Asfari, Petrofac'schief executive said on an analysts' call. (Editing by Ruth Pitchford)
