All’s not well in oilfield services, but it might start getting a bit better from now on. That’s the essence of a statement made by Schlumberger’s chief executive Paal Kibsgaard on the release of the company’s second-quarter earnings report. The report met with mixed reactions, especially since it also included the announcement of 8,000 more layoffs in the three-month period.
Schlumberger reported a $1.56 loss per share at end-June 2016, down from earnings of $0.40 at the end of the first quarter of the year, and $0.88 at end-June 2015. The dip into the red was caused by charges totaling $1.79 per share. These, the company noted, included impairment charges on assets, expenses related to the layoffs, as well as integration charges linked to the purchase of Cameron International, which was closed in April. Excluding these, the world’s top oilfield service provider would have turned in a profit of $0.23 per share.
Now, if we take the adjusted figure, charges aside, Schlumberger did indeed do better than some analysts expected, more precisely the ones polled by Reuters whose consensus expectation was for EPS of $0.21. Others, however, polled by Bloomberg, expected the company to report a non-adjusted profit of $296.3 million (the total loss was $2.16 billion). In other words, you can’t trust analyst expectations too much, which is hardly any news to anyone.
What’s perhaps more important than the figures is what Schlumberger’s management expects for the future, and that is a gradual improvement. To be fair, neither CEO Kibsgaard, nor President Patrick Schorn have sounded too optimistic when they’ve said that the worst may have come and gone in that second quarter, but even cautious optimism is better than none at all.
“In the second quarter market conditions worsened further in most parts of our global operations, but in spite of the continuing headwinds we now appear to have reached the bottom of the cycle,” said Kibsgaard in his statement on the second-quarter performance of Schlumberger. Schorn was earlier quoted by Bloomberg as saying the second quarter may be “the final approach to a market bottom.”
Oilfield service providers have suffered no less than E&Ps, and in some respects they’ve suffered even more: they were forced to make discounts on their contracts with producers in order to stay in business. Also, of course, they have had to lay off thousands of people. Related: Oil Rally Hopes Crushed As Inventories Hit All-Time High
Schlumberger’s tally so far is around 50,000, including 16,000 laid off in the first half of this year. Layoffs may be a necessary evil, but they drag charges with them and affect bottom lines. At the same time, the second quarter of the year saw Schlumberger cough up $335 million in integration charges after the Cameron deal.
So, the second quarter was a truly hard time for Schlumberger. This, however, may not continue to be so if oil prices strengthen more consistently. The addition of Cameron was a smart move on the part of Schlumberger as it expanded its service portfolio, complementing its current offering without too much overlapping of operations. The cost cuts and layoffs were probably unavoidable, although it may be worth considering how much re-hiring will cost the company once demand for oilfield services picks up—and most observers and analysts seem to agree that it will pick up as output falls and the market rebalances. True, this will take time but it will inevitably take money, too.
All this – the pick-up in demand, the rehiring prospects and the associated spending – are in the future, in the medium-term, at best. Right now, Schlumberger will apparently focus on getting some of those forced discounts on contracts canceled. It’s pretty much business as usual, despite the loss. After all, for Q4 2015, the company posted a loss of $1 billion and cut 10,000 jobs when the crisis was raging at full speed. Then it managed to turn to profit in Q1 2016. It could return into the black again in this quarter. If not, more layoffs will probably be on the way.
By Irina Slav for Oilprice.com
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