Schlumberger Falls as Global Crude Recovery Trails U.S. Shale

  • Sales dropped 17% from year earlier to $7.02 billion
  • Asia is only market in world not showing signs of growth

Schlumberger Ltd. fell the most in more than three months after reporting a drop in third-quarter earnings as the world’s largest oil-services provider waits for international customers to catch up with the U.S. shale turnaround.

The company fell 3.3 percent to $80.28 at 2:43 p.m. in New York after earlier slipping as much as 4 percent for the biggest intraday drop since June 24.

Its "modest" outlook for next year calls for more work in a trio of global markets, with the rest showing subdued or non-existent growth, Matt Marietta an analyst at Stephens, wrote Friday in a note to investors. In addition, the company’s Cameron oilfield-equipment operations remain challenged due to declining backlog and decreased demand for manufacturing gear used in the longer-cycle offshore oil work, according to the note.

"We are now entering the phase of the downturn that the other Schlumberger businesses have experienced over the past 18 months," Scott Rowe, president of the Cameron business, told analysts and investors Friday on a conference call.

Hitting Bottom

To adjust for unprecedented customer spending cuts over the past two years, Schlumberger has cleaved more than $6 billion in costs, including the elimination of more than 50,000 jobs during the downturn. Chief Executive Officer Paal Kibsgaard echoed Halliburton in July by calling the bottom of the oil industry’s worst financial crisis in a generation.

Net income declined to $176 million, or 13 cents a share, from $989 million, or 78 cents, a year earlier, the Houston- and Paris-based company said in a statement Thursday. Excluding one-time items, the profit was 25 cents, beating the 22-cent average of 39 analysts’ estimates compiled by Bloomberg. Sales dropped 17% from year earlier to $7.02 billion.

"We maintain that a V-shaped recovery is unlikely given the fragile financial state of the industry; still, we do see upsides in 2017 in North America land, the Middle East and Russia," Kibsgaard said on the call. "The only place where we don’t see any signs of recovery at this stage is in Asia."

Schlumberger, which generates most of its sales outside the U.S. and Canada, told investors nearly two months ago it was expecting "slightly lower" third-quarter revenue for its Drilling Group as West Africa, Brazil and Asia see further declines in deepwater drilling.

"Working capital was negatively affected by lower-than-expected collections as we are now seeing widespread delays in payments from customers in all geographies,” Kibsgaard said Thursday in the statement. “This is a clear sign of the persistent financial distress across the industry.”

Rig Count

The international rig count fell sequentially for an eighth-straight quarter at the end of September, Andrew Cosgrove and William Foiles, analysts at Bloomberg Intelligence, wrote last week in a report. Some pressures on international pricing may linger into the first quarter next year, according to the report.

"International pricing will take time to improve, given the long-term nature of international contracts and operators," Marshall Adkins, an analyst at Raymond James, wrote Oct. 17 in a note to investors. "Once activity begins to meaningfully grow across individual regions, we expect margins to slowly move higher over the next two years."

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