Schlumberger re-hiring employees, bringing equipment back online
To meet growing demand from US shale producers, Schlumberger is re-hiring employees and reviving equipment that had been left dormant when oil prices dropped in 2014.
On Friday, the company’s CEO warned that the renewed activity comes with increased costs, according to a report by Reuters.
“We will have some headwinds around one-time reactivation cost in the coming quarters,” Schlumberger’s Chief Executive Officer Paal Kibsgaard said on a post-earnings conference call.
Shares in the company have fallen as much as 4.4 per cent to $73.18, the lowest in nearly a year. The quarterly profit was nearly half due to the increased costs.
Schlumberger reported its cost of revenue increased 11.3 per cent to $6.08 billion in Q1, outpacing a 5.7 per cent rise in revenue.
The oilfield service company’s pre-tax operating margin fell to 11 per cent in the latest quarter, down from 13.8 per cent one year ago.
James West, a partner at Everfore ISI told Reuters that he expects Schlumberger’s margin growth in Q2 and Q3 to be slower because of reactivation costs.
But, Schlumberger is anticipating its Q2 earnings per share to increase 15-20 per cent from Q1 due to strong North American demand. In Q1, revenue from North America grew 27.8 per cent to $1.87 billion, while international revenue fell 1.1 per cent to $4.92 billion.
“We expect another challenging year in international markets in 2017 before a clear acceleration of activity in 2018,” Kibsgaard said.
Schlumberger says its 2017 Q1 results were also impacted by production constraints imposed on a project in Ecuador as the company struggles to collect $1.1 billion from Petroamazonas, the Ecuadorian state-owned oil company.
The company said it is willing to continue talks with Petroamazonas, but is not clear when the payment issue will be resolved.
Net profit attributable to Schlumberger fell about 44 per cent to $279 million, or 20 cents in Q1. Excluding items, Schlumberger earned 25 cents per share, which matches analysts’ estimates, according to Thomson Reuters.
Q1 revenue was $6.89 billion, below the estimate of $6.96 billion.