Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Schlumberger's results look great -- for Halliburton.

The oilfield-services bellwether kicked off earnings season for the sector on Friday morning. Given Schlumberger Ltd.'s global reach, investors pore over its numbers and commentary for insights on every part of the oil business. But the clearest signal from the latest results came from North America. It's the only region providing high and sustained growth for the company:

American Exceptionalism
North America is the only region where Schlumberger's revenue has shown high and consistent growth
Source: Bloomberg, the company
Note: Year-over-year growth.

This was apparent in Schlumberger's commentary, too:

Over the past six months, we have more than doubled the number of active fracturing fleets in North America land and have now redeployed almost all available capacity ...  In the international markets, revenue was essentially flat with the second quarter.

The fact that Schlumberger's fracking fleets are now fully engaged corroborates the build-up in the U.S. inventory of drilled-but-uncompleted wells.

It also recalls Halliburton Co.'s profit warning back in March, when it boosted spending in order to meet a wave of activity by U.S. shale drillers. It has also seen that hockey stick show up in its regional revenue picture:

North Star
North America has also been the growth engine for Halliburton
Source: Bloomberg
Note: Year-over-year growth.

This bodes well for Halliburton's own results, due on Monday morning. It has long had higher exposure to the North American market relative to Schlumberger, and the difference has actually widened further this year:

Home Advantage
North America generates a much larger share of Halliburton's revenue
Source: Bloomberg, the companies

It's little wonder that Schlumberger, with its more-diverse business, talked up the prospects for a recovery in investment by international oil and gas companies while noting that "the investment appetite in North America land [activity] now seems to be moderating." There is some evidence for this happening, with the U.S. E&P sector consumed with a debate around the need to target value rather than growth as its own earnings season is about to kick off (see this).

Yet, for a company valued, much like Exxon Mobil Corp., as a defensive stock in troubled times, Schlumberger's investment case in the near term rests uncomfortably on the vagaries of the oil price and the continued efforts of OPEC and its partners. And only a couple of days ago, Patrick Pouyanne, the chief executive of French oil major Total SA, undercut expectations of a more zen-like atmosphere descending on America's shale fields by telling a conference audience in London that next year would see "another wave of investment in U.S. shale", due in part to the accelerated hedging by E&P companies on the back of the recent uptick in oil prices.

Schlumberger's focus on high technology and integrated services remains a strong competitive advantage for the long term. Even so, its expansion into less-traditional areas, such as taking on actual field ownership and development risk, has cast a shadow over this advantage for the time being. And its Schlumberger Production Management arm came under a lot of questioning on Friday morning's call.

Moreover, the model simply has less relevance, relatively speaking, in North America than it does elsewhere. For now, at least, the playing field tilts toward Halliburton. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net