Hess Seeks Over $40 Million from Schlumberger

Hess Corporation 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 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, 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 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.