Hess seeks over $40 million from Schlumberger in valve dispute
HOUSTON | By Ernest Scheyder
Hess Corp said on Wednesday 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 oilfield 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, chief operating officer at 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 km) southeast of New Orleans.
The company later in the day said it would seek even more from Schlumberger for legal costs and other claims, though Hess representatives declined to specify the full amount they would seek.
Two of Tubular's four wells had been closed in the second quarter 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 (boepd) for the year, down from previous estimates for at least 25,000 boepd.
"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 Wednesday afternoon.
Hess said it expects the platform to be fully back online later this year.
Hess holds a stake of about 57 percent in the Tubular project, with Chevron Corp holding the rest. Chevron deferred comment to Hess.
Earlier on Wednesday, Hess reported a smaller-than-expected quarterly loss, but cut its 2016 budget, citing depressed crude prices.
Shares of Hess fell 3.9 percent to $51.61 in Wednesday afternoon trading. Shares of Schlumberger fell 0.6 percent to $80.01.
(Reporting by Ernest Scheyder; Editing by Terry Wade and Marguerita Choy)
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Hess seeking $40 million from Schlumberger over alleged faulty valve
By Nicolas Torres -
August 1, 2016
Image courtesy of Hess. Hess may be seeking up to $40 million from Schlumberger NV for an alleged faulty valve that impacted production at one of the company’s offshore fields.
According to Reuters, Hess announced in its second quarter conference call that it will pursue legal action to seek remediation fees for an alleged defective safety valve at Tubular Bells.
The company could be seeking as much as $40 million from Schlumberger, Reuters said.
During the company’s second quarter call, Hess president and COO Gregory P. Hill said the company is “going to go after the cost of the replacement belts, the cost of the remediation work, lost profits due to downtime and all the attorney’s fees.”
Hess has not yet filed a lawsuit and has not disclosed further details about its plans.
“Obviously it’s extremely disappointing,” Hill added according to a transcript provided by Seeking Alpha.
Hill said during the call that Tubular Bells was impacted by three subsurface safety valve failures.
According to Reuters, two of the four wells at Tubular Bells were closed for regular maintenance in the second quarter that was expected to last about a month.
However, the valve issue forced Hess to close a third well at the field earlier this month, Reuters added.
The second valve failure impacted the company in the second quarter and the third failure will impact the company in the third quarter, Hill said.
Hill said during the call that the failures impacted about 15,000 barrels a day of Tubular Bell’s production guidance.
Capacity at Tubular Bells was not impacted by the valve issues, Hill added.
The well closures prompted Hess to cut its production forecast for Tubular Bells down to about 10,000 barrels of oil equivalent per day from its previous forecast of about 25,000 barrels of oil equivalent per day, Reuters said.
Hill said during the earnings call that Hess expects production in the Gulf of Mexico to be back up to about 70,000 to 75,000 barrels per day near the end of this year.
Schlumberger has not commented on the matter.
During the call, Hill added that safety valves being supplied by Schlumberger for the Stampede field have been upgraded and quality control problems appear to have been fixed.
Hess operates Tubular Bells with a 57.14 percent working interest.
Chevron holds the remaining 42.86 percent working interest in the field.