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Schlumberger Sees ‘Bottom’ in Margins; Shares Rise

A christmas tree, controls the flow of oil and gas
A file photo shows a christmas tree, left, controling the flow of oil and gas as a flare stack burns gas nearby at a Choice Exploration oil and natural gas well in Liberty County, near Houston. Photographer: Mike Fuentes/Bloomberg

April 23 (Bloomberg) -- Schlumberger Ltd., the world’s largest oilfield contractor, said international profit margins are poised to rise. The company’s shares gained 6.6 percent.

Schlumberger reported today first-quarter net income dropped to $672 million, or 56 cents a share, from $938 million, or 78 cents, a year earlier. Excluding 6 cents in costs from U.S. health-care legislation and planned acquisitions, Schlumberger earned 62 cents a share, 1 cent higher than the average of 26 analysts’ estimates compiled by Bloomberg.

Andrew Gould, chief executive officer of the Houston- and Paris-based company, said international profit margins “appear to have bottomed” earlier than he expected, at 22 percent for the quarter. Gould previously said they would reach their lowest point by the middle of the year.

The margins “are now likely to resume a positive trend - absent any exceptional circumstances,” Gould told analysts today in a conference call.

Schlumberger rose $4.50 to $72.68 at 4:26 p.m. in New York Stock Exchange composite trading. The shares earlier reached $73.19, the largest gain since June. Before today, the shares, which have 26 buy ratings from analysts, 6 holds and 1 sell, had risen 4.8 percent this year.

“Welcome back into the camp for more bullish people, Andrew,” Ole Slorer, an analyst at Morgan Stanley in New York, told Gould today on the call. “Good to have you back.”

Other Gains

Other service companies rose because of Gould’s statements, said Philip Weiss, an analyst at Argus Research in New York, who rates Schlumberger shares at “sell” and says he owns none.

Smith International Inc., a Houston-based company Schlumberger agreed to buy in February, rose $2.77, or 6 percent, to $48.68. Weatherford International Ltd., based in Geneva, rose 86 cents, or 5.1 percent, to $17.58. Baker Hughes Inc., based in Houston, rose $1.66, or 3.2 percent, to $53.46.

Schlumberger, which got 80 percent of its oilfield-services revenue from outside North America, is probably the company best positioned for international growth, said Kurt Hallead, an analyst at RBC Capital Markets in Austin, Texas.

“The international market is much like a big tractor-trailer that gets momentum once it starts rolling,” Hallead said.

Sales for Schlumberger dropped 6.7 percent to $5.6 billion. North American profit margin was 8 percent, more than the 6 percent projected by Hallead.

Exceeding Expectations

“The performance in North America will exceed investors’ expectations,” Hallead, who rates Schlumberger shares at “outperform” and owns none, said today in a telephone interview.

Geoff Kieburtz, an analyst at Weeden & Co. in Greenwich, Connecticut, said international markets appear to be strengthening.

“But also like other service companies, they are expressing a low level of conviction as to what direction things take in North America in the second half of the year,” said Kieburtz, who rates Schlumberger shares a “buy” and owns none.

Gould told investors on March 22 that oil prices above $75 a barrel would give customers confidence to increase spending on exploration. The boost in spending may be more likely for 2011, he said at the time.

Crude Prices

Crude-oil futures prices on the New York Mercantile Exchange have averaged about $80 a barrel so far this year. Oil and gas producers around the world slashed spending by about 15 percent to $395 billion last year, according to a Dec. 16 estimate by Barclays Capital in New York. Spending should rise 11 percent to $439 billion this year, Barclays said.

Schlumberger boosted capital spending for this year by $400 million to about $3.1 billion.

Revenue at the company’s largest segment, the oilfield-services unit, fell 6 percent to $5.1 billion, while sales at the WesternGeco seismic unit dropped 14 percent to $472 million.

The company said its results included $40 million in costs associated with U.S. health-care legislation and $35 million for costs from its purchase of Smith International Inc. and Geoservices.

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net.

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net.

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