Schlumberger Q3 Report Signals U.S. Drilling May Be On the Upswing

A quarter after Schlumberger (NYSE:SLB) called the bottom of the oil industry’s downturn, the oilfield services major reported third-quarter earnings that beat estimates by a narrow margin, saying that North America drilling and fracturing activity has increased.

Schlumberger booked diluted earnings per share (EPS), excluding one-off items, of US$0.25, beating the Zacks consensus estimate of US$0.22. On the downside, total revenues of US$7.019 billion fell slightly short of the US$7.13 billion analyst projection.

Schlumberger’s North America revenue dropped by 2 percent quarter-on-quarter, but excluding results of the newly-acquired equipment manufacturer Cameron Group, Schlumberger’s land revenue in North America increased by 14 percent sequentially, on the back of higher drilling and manufacturing activity.

Still, much of the U.S. land drilling activity was led by small independent North American companies, Schlumberger said, in a sign that the big ones are still a bit hesitant to ramp up drilling.

North America is historically not the biggest revenue source for Schlumberger, contributing US$1.699 billion to its third-quarter revenues, while sales outside North America came in at US$5.249 billion, down 2 percent compared to the second quarter. Persisting weakness in Latin America, the North Sea, Sub-Saharan Africa and Southeast Asia offset the higher peak-summer activity in Russia and new projects in the Middle East and Australia, Schlumberger noted.

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That’s a sign that higher-cost fields still need oil prices to stabilize at above US$50 per barrel to justify renewed investments in drilling—a sentiment backed up by Schlumberger’s expectations for E&P investment in 2017: “Visibility remains limited as our customers are still in the planning process”.

And although Schlumberger sees an uptick in the North America land, Middle East and Russian markets next year, a “V-shaped recovery is unlikely given the fragile financial state of the industry”, the company noted.

Schlumberger’s competitor, Halliburton Company (NYSE:HAL), also pointed to signs of improvement in its North American operations when it reported a surprise small third-quarter net profit earlier this week. Halliburton, like Schlumberger, is also cautious for the immediate-term operations with the usual holiday- and weather-related downtimes that are expected in the fourth quarter. Like Schlumberger, Halliburton is also suffering in its Latin American business.

By Tsvetana Paraskova for Oilprice.com

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