(Reuters)

Proposed US tariffs on steel and aluminium imports are poised to escalate costs for domestic oilfield services companies, which rely on these metals for their operations.

Oilfield services firms such as ChampionX and Patterson-UTI are the backbone of the North American oil and gas industry, supplying essential equipment and services for drilling, production and maintenance. The lifeblood of this sector – drilling rigs, pipelines, refineries, compressors, storage tanks and offshore platforms – is steel.

President Donald Trump earlier on Tuesday (March 11) doubled the planned tariffs on Canadian steel and aluminium imports to 50 per cent, to go into effect tomorrow morning.

Any tariff hike is a potential hit to the operational and production costs of these businesses, half a dozen industry experts told Reuters.

“About 14 per cent 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 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) – specialised pipes and tubes designed to endure high pressures, temperatures and corrosive environments. 

In 2024, the US imported nearly 40 per cent of its OCTG, according to Wood Mackenzie analyst Nathan Nemeth. By January 2025, Canada and Mexico accounted for 16 per cent of OCTG imports, hinting at buyers stockpiling ahead of potential tariffs.

Broadly, US imports of steel products from Canada and Mexico rose in January more than 32 per cent from the previous month, to 1,017,644 metric tons, US Census Bureau data showed.

Rystad Energy forecasts tariffs to spike OCTG costs by 15 per cent year-on-year. U.S. prices of HRC are estimated to ascend to US$890 per short ton in 2025, marking a 15 per cent 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 have fallen about 16.5 per cent, while ChampionX has dropped 3.3 per cent since February 11, when Trump announced plans to hike duties on steel and metal imports.

Chapman sees costs rising for Halliburton as well as firms like NOV and Tenaris, key providers of steel pipes to the petroleum industry. None of the three firms responded to requests for comment.

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 per cent of drilling and completion costs for onshore wells in the Lower 48 states. So if prices rose by 25 per cent, about 2.1 per cent would be added to well costs,” Wood Mackenzie’s Nemeth said. 

Average well costs for producers in the US typically range from US$8 million to US$9 million.

“They’re (small-cap producers) at the mercy of the service providers,” Chapman said. Large-scale producers such as Exxon Mobil, ConocoPhillips, EOG Resources and Diamondback, with their robust balance sheets and diversified supply chains, are better equipped to absorb these costs.

The tariff comes 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, Energy Transfer and Williams Companies all warned in regulatory filings that tariffs could raise project costs, particularly construction costs related to foreign-sourced materials such as steel and aluminum.