ANALYSIS-Services firms feel the squeeze as oil rally from Iran war fails to spur drilling

By Anushree Mukherjee, Vallari Srivastava and Pranav Mathur

March 27 (Reuters) - Global oilfield services companies are bracing for a hit to earnings as the Iran war disrupts energy infrastructure across the Middle East and producers hold back on new drilling until higher oil prices prove durable.

Surging commodity prices - the Brent benchmark is up 53% since February 27, the day before the U.S. and Israel launched strikes against Iran - typically make oil and gas projects more profitable, boosting demand for rigs and crews.

In the Iran war, however, security risks and infrastructure damage have sent activity plummeting and reduced demand for oilfield services and equipment in one of the world's top energy-producing regions.

"For oilfield services companies, the situation is quite ambiguous: if producers do not increase activity, the price jump alone will not lead to a rise in orders," said Igor Isaev, head of analytics at European broker Mind Money.

Idled rigs in the Gulf, slower crew mobilizations, and rising logistics and insurance costs are disrupting operations, delaying projects and cutting utilization.

Offshore rig count, an early indicator of future output, has fallen about 39% to 72 rigs in the Gulf, as of March 27, according to Rystad Energy's estimates.

There were a total of 118 offshore rigs online in the region before February 28, the consultancy firm has said.

The Strait of Hormuz, which carries roughly a fifth of global oil and natural gas supply, has also become harder to navigate amid the rising security risks, further complicating offshore drilling and equipment movement.

"A persistent closure of the Strait of Hormuz would severely impact crew mobilizations in the region as well as create logistical challenges for movement of equipment and higher insurance costs," said Lauren Mayhew, head of MENA Research at Welligence Energy Analytics, adding project delays would be expected across the region.

COMPANIES FACE EARNINGS HIT

For oilfield services firms, the impact has been immediate as activity in the Middle East has declined, and producers elsewhere are exercising caution.

U.S. producers gathered at the CERAWeek conference in Houston this week signaled a need for oil prices to remain elevated for several months before adding rigs.

Industry bellwether SLB SLB.N expects first-quarter revenue below expectations and a 6-9 cent-per-share earnings hit, after suspending travel and demobilizing operations in the Middle East.

SLB, Halliburton HAL.N and Baker Hughes BKR.O have the highest exposure to the Middle East, but smaller rivals that invested in the region in recent years are also facing the squeeze.

UK-headquartered Borr Drilling BORR.N put four rigs on standby across Saudi Arabia, the UAE and Qatar, and evacuated staff from one site.

Overall, revenue generated from oilfield services provided in the Middle East could fall by 10% to 20% in the first quarter, said Richard Spears, vice president of oilfield consultancy Spears & Associates.

"If the war keeps going on, well, the second quarter is not good."

REBUILDING SEEN LAGGING

While the conflict is weighing on activity now, it is expected to support future demand.

Refineries will need repairs once export routes are restored, work that typically falls to oilfield service providers and engineering firms.

Energy infrastructure repair costs in the Middle East have reached at least $25 billion, according to Rystad Energy.

"Damage across Gulf energy infrastructure will generate meaningful demand for oilfield services ... this would result in operators prioritizing repair and maintenance of existing fields over contract awards for new development," said Rystad Energy's analyst Karan Satwani.

QatarEnergy's CEO told Reuters the Iranian attacks had knocked out a sixth of the country's LNG export capacity, worth about $20 billion a year, with repairs expected to take three to five years.

Baker Hughes CEO Lorenzo Simonelli said the company stands ready to support QatarEnergy as it assesses the damage.

"Additional repair and maintenance to damaged facilities in the region will to some extent result in additional demand for OFS companies, the extent to which this occurs however will be heavily dependent on broader market conditions and firm's capital allocations," Welligence Energy's Mayhew said.