Middle East conflict deals a heavy blow to the oilfield service industry! Major players released their financial reports this week, with SLB (SLB.US) expecting a profit drop of 31%.

This week, leading oilfield services companies worldwide will release their financial reports one after another, and the impact of the conflict caused by Iran's GEO Group Inc. will become clear. The market expects that net profits of SLB (SLB.US), Baker Hughes (BKR.US), and Halliburton (HAL.US) will all decline. Halliburton will kick off the industry's earnings season on Tuesday, with analysts expecting the company's earnings per share to drop by 2%. Later this week, SLB is expected to announce a 31% decrease in earnings per share, the largest decline since the last quarter of 2020. Baker Hughes will release their financial report on Sunday, with an expected 21% decrease in earnings per share. SLB and Baker Hughes have a significant exposure in the Middle East region. April to June marks the first complete quarter after the escalation of the U.S.-Iran conflict. Production in several countries, including Iraq, Qatar, and Kuwait, has been limited or completely stopped. Despite recent production activities increasing in the U.S., companies like Weatherford International (WFRD.US) and Halliburton are expected to face even greater impacts in the second quarter due to operational interruptions and uncertain recovery times. Scott Gruber, an analyst at Citigroup Global Financial, stated that investors and analysts will focus on the future prospects in the Middle East region, the speed of global oilfield activity recovery by 2027, and which regions will drive industry growth. Gruber said, "North American operators, especially private operators, are expanding extraction operations, while oilfield operations in Latin America, Europe, and Africa are also increasing. Therefore, apart from the Middle East, the overall oilfield services market is improving." U.S. drilling activity has rebounded after months of stagnation, helping to offset the weak trend in the Middle East region. Rising oil prices have prompted producers to add about 46 drilling rigs since the low point in December last year, and oilfield worker wages have reached historic highs. James West, an energy analyst at Melius Research, mentioned that some Middle Eastern oilfields are recovering faster than expected, and investors are eager to understand the local situation despite the unpredictable current situation. "We need to understand the real situation on the front line of oilfield recovery in the Middle East: the current status of reserves, the level of production capacity recovery, and the time needed for comprehensive recovery." He also noted that overall capital spending by shale oil companies remains cautious, although a strong oil price may lead companies to increase capital budgets to the upper end of guidance, thus increasing profits. West believes, "Compared to the previous quarter, oilfield service companies are likely to feel marginal market demand warming, with an increase in industry consulting orders, business negotiations, and a tightening supply of oilfield equipment and manpower." Gruber stated that the resilience of the oilfield services industry is still a focus for investors, who hope that management will demonstrate confidence in the prospects beyond 2026. "Investors want to see sustained growth trends in the industry." Part of the industry's resilience comes from expanding data center infrastructure and energy-related services, which is becoming an emerging growth point for the oilfield sector. West said, "This is a logical direction for the industry's transformation." He added, "If natural gas becomes a significant power source for many data centers, oilfield service companies have a natural advantage in developing related support businesses."