*

Tariffs to increase costs for oilfield services companies

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Imports of steel-dependant drilling tools from Canada,

Mexico

rise amid tariff concerns

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Smaller producers face higher costs due to tariff impact

(Changes dateline, updates paragraph 4 to say tariffs have been

imposed, adds statement from Tenaris in paragraph 14)

By Vallari Srivastava

March 12 (Reuters) - U.S. tariffs on steel and aluminum

imports are poised to escalate costs for the oilfield service

companies behind North America's vast energy industry, as their

operations rely heavily on these metals.

Steel is essential for everything from the drilling rigs

and pipelines to refineries and storage tanks provided by

companies such as ChampionX ( CHX ) and Patterson-UTI

that supply the equipment and services necessary for oil-and-gas

producers.

Any tariff hike is a potential hit to the operational

and production costs of these businesses, half a dozen industry

experts told Reuters.

U.S. President Donald Trump's increased tariffs on all steel

and aluminum imports took effect earlier on Wednesday "with no

exceptions or exemptions", escalating the global trade war.

"About 14% of what we buy, it comes from countries that will

be impacted by tariffs," said Patterson-UTI CEO Andy Hendricks.

"If you layer on tariffs, it could affect us in the low single

digits in terms of our costs going up for what we do,"

Peer ChampionX ( CHX ) has also warned of equipment costs going up

due to tariffs.

A particular variety of steel, hot-rolled coil steel (HRC),

is used to fashion oil country tubular goods (OCTG) -

specialized pipes and tubes designed to endure high pressures,

temperatures and corrosive environments.

In 2024, the U.S. imported nearly 40% of its OCTG, according

to Wood Mackenzie analyst Nathan Nemeth. By January 2025, Canada

and Mexico accounted for 16% of OCTG imports, hinting at buyers

stockpiling ahead of potential tariffs.

Broadly, U.S. imports of steel products from Canada and

Mexico in January rose more than 32% from the previous month to

1,017,644 metric tons, U.S. Census Bureau data showed.

Rystad Energy expects tariffs to spike OCTG costs by 15%

year-on-year. U.S. prices of HRC are estimated to ascend to $890

per short ton in 2025, marking a 15% increase from the previous

year's average price, according to S&P Global Commodity Insights

analyst Ali Oktay.

"It's probably going to be harder for service companies in

2025 to maintain their activity levels and their pricing," said

Mark Chapman, principal analyst for OFS Intelligence at Enverus.

Shares of Patterson-UTI and ChampionX ( CHX ) have dropped about 16%

and 3.3%, respectively, since Trump on February 11 announced

plans to hike duties on steel and metal imports.

Chapman sees costs rising for Halliburton ( HAL ) as well as

firms like NOV and Tenaris, key providers of

steel pipes to the petroleum industry.

While Halliburton ( HAL ) and NOV did not respond to requests

for comment, Tenaris said it was monitoring the potential impact

of tariffs.

This price surge will likely be passed on to customers who

operate in the exploration and production segment, particularly

smaller-scale producers who are more exposed to spot market

pricing.

"OCTGs represent about 8.5% of drilling and completion costs

for onshore wells in the Lower 48 states. So if prices rose by

25%, about 2.1% would be added to well costs," Wood Mackenzie's

Nemeth said.

Average well costs for producers in the U.S. typically range

from $8 million to $9 million.

"They're (small-cap producers) at the mercy of the service

providers," Chapman said. Large-scale producers such as Exxon

Mobil ( XOM ), ConocoPhillips ( COP ), EOG Resources ( EOG ) and

Diamondback, with their robust balance sheets and

diversified supply chains, are better equipped to absorb these

costs.

The tariffs come amid plummeting oil prices, the lowest

since Russia's invasion of Ukraine disrupted supply chains.

Trump's wish to achieve cheaper oil prices and increased

production might not align with the profitability of producers.

Further, Venture Global ( VG ), Energy Transfer ( ET ) and

Williams Companies ( WMB ) all warned in regulatory filings that

tariffs could raise project costs, particularly construction

costs related to foreign-sourced materials such as steel and

aluminum.

(Reporting by Vallari Srivastava in Bengaluru, writing by

Mrinalika Roy; Editing by Stephanie Kelly, Matthew Lewis and

Devika Syamnath)