Schlumberger Sees Rough '09 For Oil Services As Profits Fall
January 23 2009 - 10:35AM
Dow Jones News
Schlumberger Ltd. (SLB) predicted that 2009 will be grim for the
oilfield services sector as the industry leader reported its first
year-on-year decline in net income since 2003.
Oil and gas producers are slashing spending on oilfield services
faster and deeper than in past downturns, Chief Executive Andrew
Gould said Friday in a conference call. That could mean a quick
recovery as well - but he declined to put an end date on the
sector's worst slump in at least a decade. Schlumberger is the
largest oilfield service company by market capitalization. The
company and its competitors perform much of the work involved in
preparing oil and gas wells for production, as well as boosting
output from older fields.
"These cycles ... are getting much sharper in their amplitude
and shorter in their duration," Gould said. "Of course, that
depends on the general economy."
Schlumberger's fourth-quarter net income of $1.15 billion, or 95
cents a share, down from $1.38 billion, or $1.12 a share, a year
earlier. The quarter included an 8-cent charge for job cuts.
Revenue increased 9.9% to $6.87 billion.
Analysts gave an average estimate of $1.05 a share on revenue of
$6.99 billion, according to Thomson Reuters. Schlumberger shares
were recently up 5.8% at $39.42, as investors were already
anticipating weak earnings from oilfield services companies
"This shouldn't be a surprise to anyone at this point," wrote
Bill Herbert, an analyst with Simmons & Co. in Houston.
The Downturn Deepens
Oilfield services companies have anticipated that their fortunes
would decline along with oil prices, which have dropped from above
$145 a barrel in July to about $45 a barrel on Friday. Natural gas
prices also hit a two-year low this week. The biggest declines this
year will come from the U.S., Canada and Russia, Gould said. Oil
and gas fields in those countries are older and less profitable for
producers, as they require constant work to maintain output.
Gould said he expects customers to ask Schlumberger to charge
lower prices in exchange for extra work or longer contracts.
National oil companies in particular may stretch large projects out
over a longer period, but are extremely unlikely to cancel deals
signed when oil prices were rising, Gould said.
"Our customers, they're not going to break contracts," he
said.
Schlumberger was among the first oilfield-services companies to
respond to the slowdown, warning in December that 2008 profit would
be below analysts' expectations. The company is in the midst of
laying off about 1,000 workers in North America, or 5% of that
region's work force. It's also cutting some of its 65,000 overseas
workers, though exact figures aren't yet available.
The company may reduce its workforce again in the first half of
the year, and will decide on a possible third cut in April or May,
Gould said.
Halliburton Co. (HAL) and Weatherford International Ltd. (WFT),
two of Schlumberger's biggest competitors, report earnings on
Monday.
-By Brian Baskin, Dow Jones Newswires; 201-938-2062;
brian.baskin@dowjones.com
(Shirleen Dorman contributed to this article)
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