For the latest indication of how bad the recession in the U.S. oilfield services sector is, we took a look at last night's Schlumberger results which were modestly better than expected, beating expectations of $0.37 by one cent, however, the non-GAAP adjusted bottom line did not tell the full story. The company's net income plunged nearly 50 percent, to $501 million, or 40 cents a share, from $975 million, or 76 cents, a year earlier.
Profit fell in the first quarter as the company, which helps explorers find pockets of oil underground and drill for it, adjusts to shrinking margins in North America as customers scale back work. Customers are slashing spending by as much as 50 percent in the U.S. and Canada. Related: Sanctions Lifted, Now Iran Wants To Get Paid
"It’s a weak beat mainly because they guided estimates down," Rob Desai, an analyst at Edward Jones in St. Louis, who rates the shares a buy and owns none, said in a phone interview. "North America came in weaker than we expected."
The world's No.1 oilfield services provider said its costs to do business in North America exceeded the revenue it earned there in the quarter, the first time it had negative margins in the region since oil prices started falling in mid-2014.
"North America was the biggest surprise to the downside, with negative margins, which did not occur during 2008-2009 oil drop," Edward Jones analyst Rob Desai said. Related: Eni Hopes To Develop Supergiant Gas Field By 2017
The company was pressured from the collapse in crude prices seen in North America, the world’s largest hydraulic fracturing market, where Schlumberger reported a loss of $10 million, before taxes. Elsewhere, the company announced earlier this month its plans to cut back activity in Venezuela, holder of the biggest oil reserves of any country, due to unpaid bills.
The real indicator of what is to come is that SLB has cut its 2016 capital spending budget to $2 billion from $2.4 billion and has hinted that more cuts are still to come. The company also cut another 2,000 jobs in the first quarter, proving that the world’s largest provider of oilfield services sees the industry in an unprecedented downturn. This reduced the global headcount to 93,000 at the end of the first quarter according to Joao Felix, a spokesman for the company. More than a quarter of Schlumberger’s workforce, or roughly 36,000, have now been cleaved off since the worst crude-market crash in a generation began in late 2014. Related: Oil Majors Lose Faith In The North Sea – 100 Shut Downs Looming
If anything these cuts suggest that the true picture for the U.S. shale space is getting worse not better.
Chairman and Chief Executive Officer Paal Kibsgaard had the final word, saying: "The decline in global activity and the rate of activity disruption reached unprecedented levels as the industry displayed clear signs of operating in a full-scale cash crisis. This environment is expected to continue deteriorating over the coming quarter given the magnitude and erratic nature of the disruptions in activity."
We are confident this lack of downstream demand from the company that has the best visibility in the U.S. shale sector is why oil is up another 2 percent even as virtually all oil producers are now ramping up production to even higher levels in a furious attempt to beggar their mostly OPEC neighbors.
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