Oil majors may have slashed capital spending but national oil companies (NOCs) in the Middle East 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 fuel prices sank, expecting a dire performance from a sector reliant on 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 to December as oil majors put projects on hold or scaled back expenditure.

But while offshore drillers and seismic companies continue to suffer, oil services stocks with chunky exposures to Middle East spending, such as Petrofac, have bounced back.

Petrofac's order backlog was up 26 per cent at the end of 2014, and its share price has risen by almost 27 per cent since it reported full year earnings on February 25.

Recent wins include a contract for the first phase of Kuwait Oil Company's Lower Fars heavy oil development programme and two strategic contract agreements with Algeria's Sonatrach.

"There is a building differentiation in the backlog profiles of those companies exposed to onshore construction in the Middle East and those not," said Mick Pickup, managing director at Barclays Capital.

"While some of this is gas related, it signals a continued robust construction market in the region."

In contrast, a JBC Energy analysis found that ExxonMobil , BP, Shell, Total, Chevron and ConocoPhillips had slashed capital expenditure by 12.7 per cent for 2015, or almost $21 billion.

"The international oil company (IOC) has to make good returns for its shareholders, whereas the NOC has to keep the lights 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 they might have to import energy. We've seen huge energy demand growth in that region."

As well as needing energy for domestic desalination and air conditioning, the big Middle Eastern and North African producers require oil and gas for export. "Hydrocarbons might be the only way they can generate revenues," Williams said.

"Even at these low oil prices they have no choice but to keep exporting and reinvesting in their own oil and gas industries."

Data from Rystad Energy show that while global investments are expected to fall by around 20 per cent in 2015 versus 2014, in Gulf countries the reduction is likely to be just five per cent. Saudi Arabia, where investment in oil projects is expected to grow by five-10 per cent, is thought to have ramped up the number of rigs it employs.

"You could speculate that the country is now building capacity," said Espen Erlingsen, an analyst at Rystad Energy.

BARGAIN HUNTING

With no share prices to worry about, state producers may see the downturn as a chance to invest in projects at a lower cost.

"It seems some NOCs, like Saudi Aramco, are using this situation to position themselves for a potential comeback in the oil price," said Erlingsen. "Starting new projects now could be very profitable due to lower expected unit prices within the oilfield services market."

Jim Moffat, chief executive of rig-maker Lamprell, told Reuters that if a company ordered a jack-up tomorrow, it would be two years before it took delivery: "Most of these downturns are over in two years, and there are a couple of clients out with enquiries right now on that very basis. They think they can buy in the downturn and as such will be very well-placed when things bounce back."

Lamprell has a solid order backlog of $1.2 billion, with about 80 percent of revenues for 2015 already covered. Its shares are up almost 14 percent since it announced its full year earnings.

Moffat cited opportunities in the UAE, Qatar and Kuwait, with the drilling utilisation in the Middle East seen as pretty constant 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 relatively low lift cost.

"If you're in a harsh, deepwater environment with a high lift cost of $70-$80 a barrel, nobody will proceed with that project in a $50 environment. But in the Middle East a lot of projects have $10 lift costs, and people can still make very healthy margins on them."

Tim Weller, chief financial officer at Petrofac, also expects NOCs to continue investing through the downturn. "We actually see a pretty buoyant market - we anticipate about $25 billion 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 price environment, oil companies are trying to maintain the momentum of their upstream investment plans," Ayman Asfari, Petrofac's chief executive said on an analysts' call. - Reuters