Hess Corp. (NYSE: HES) said on July 27 that it was pursuing legal action against Schlumberger NV for $40 million or more, claiming the oilfield service provider supplied a defective valve for a U.S. Gulf of Mexico oil field that shuttered three wells and crimped production.
Hess took the unusual step of announcing the move on its quarterly earnings conference call, publicly mentioning Schlumberger and decrying the quality of service and parts provided.
Oil producers such as Hess have been battling with Schlumberger and other oilfield service providers over price and other financial matters at a time when depressed crude prices have eroded profits for the entire industry.
"It's extremely disappointing," Greg Hill, COO of Hess, said on the earnings call of the alleged defective valve.
Schlumberger representatives were not immediately available to comment.
Hess executives claimed the company is owed between $30 million and $40 million in remediation fees from the shutdown of some wells at its deepwater Tubular Bells Field, roughly 135 miles (217 kilometers) southeast of New Orleans.
The company later in the day said it would seek even more from Schlumberger for legal costs and other claims, although Hess representatives declined to specify the full amount they would seek.
Two of Tubular's four wells had been closed in the second quarter of 2016 for regular maintenance that was supposed to last 31 days. But Hess said a faulty valve earlier this month forced the closure of another well.
As a result, Hess slashed its production outlook from the Tubular project to about 10,000 barrels of oil equivalent per day (Mboe/d) for the year, down from previous estimates for at least 25 Mboe/d.
"It relates to some quality control and some of the components of the valve," Hill said.
He did not say if Hess had filed a lawsuit or was seeking arbitration. No filings from Hess appeared in U.S. court records as of the afternoon of July 27.
Hess said it expects the platform to be fully back online later this year.
Hess holds a stake of about 57% in the Tubular project, with Chevron Corp. (NYSE: CVX) holding the rest. Chevron deferred comment to Hess.
Earlier on July 27, Hess reported a smaller-than-expected quarterly loss, but cut its 2016 budget, citing depressed crude prices.
Shares of Hess fell 3.9% to $51.61 in afternoon trading on July 27. Shares of Schlumberger fell 0.6% to $80.01.
Recommended Reading
Comstock Continues Wildcatting, Drops Two Legacy Haynesville Rigs
2024-02-15 - The operator is dropping two of five rigs in its legacy East Texas and northwestern Louisiana play and continuing two north of Houston.
Oceaneering Won $200MM in Manufactured Products Contracts in Q4 2023
2024-02-05 - The revenues from Oceaneering International’s manufactured products contracts range in value from less than $10 million to greater than $100 million.
E&P Highlights: Feb. 5, 2024
2024-02-05 - Here’s a roundup of the latest E&P headlines, including an update on Enauta’s Atlanta Phase 1 project.
CNOOC’s Suizhong 36-1/Luda 5-2 Starts Production Offshore China
2024-02-05 - CNOOC plans 118 development wells in the shallow water project in the Bohai Sea — the largest secondary development and adjustment project offshore China.
TotalEnergies Starts Production at Akpo West Offshore Nigeria
2024-02-07 - Subsea tieback expected to add 14,000 bbl/d of condensate by mid-year, and up to 4 MMcm/d of gas by 2028.