Schlumberger takes hit in Q3, expects a rough 2016

Schlumberger revenue down as recovery in oil patch delayed according to Chairman and CEO Paal Kibsgaard

Schlumberger

Schlumberger

Energy services giant Schlumberger says its revenue continues to drop due to low oil prices and it expects 2016 to be another tough year.

The company reported its Q3 earnings late last week and the news was not good. During the first nine months of 2015, year-on-year revenue dropped by 34 per cent in North America, and 18 per cent internationally.

“The business environment deteriorated further in the third quarter,” Chairman and CEO Paal Kibsgaard said in a press release. “Schlumberger third-quarter revenue decreased 6% sequentially driven by a continuing decline in rig activity and persistent pricing pressure throughout our global operations.”

SchlumbergerThe company reported that North America revenue fell 4 per cent sequentially as it focused on balancing margins and market share, while international revenue dropped 7 per cent due to customer budget cuts, activity disruptions, and service pricing erosion.

“However, the cost reduction actions we took in previous quarters and the acceleration of our transformation program enabled us to protect our financial performance in what is shaping up to be the most severe downturn in the industry for decades,” said Kibsgaard.

“As a result of our actions, we have been able to deliver pretax operating margins well above those seen in any previous downturn and we have continued to generate significant liquidity with free cash flow of $1.7 billion in the third quarter, representing 170% of earnings.”

Schlumberger

Schlumberger Chairman and CEO Paal Kibsgaard.

Schlumberger decremental operating margins over the same period were limited to 34 per cent in North America, and 23 per cent internationally, substantially better than the 2009 downturn, according to Kibsgaard.

Among the business segments, drilling group revenue fell 7 per cent sequentially during the third quarter driven by weakening drilling activity and by persistent pricing pressure in both North America and the International Areas.  Production group and reservoir characterization group revenues each declined 5 per cent as activity and pricing for pressure pumping services on land in North America continued to drop and as demand for exploration-related products and services decreased further internationally.

“As we enter the last quarter of the year, the oil market is still weighed down by fears of reduced growth in Chinese demand and the expectations regarding the timing and magnitude of additional Iranian supply,” said Kibsgaard, who noted that the fundamental balance of supply and demand continues to tighten, driven by both solid global macroeconomic growth and by weakening supply as the dramatic cuts in E&P investments are starting to take effect.

“However, for oilfield services, the market outlook for the coming quarters looks increasingly challenging with activity expected to be reduced further, as lack of available cash flow exhausts capital spending for a number of our customers, leading them to take a conservative view on 2016 E&P spending in spite of any gradual improvement in oil prices.”

Schlumberger expects conservative customer budgets for next year and says it is entering another period during which it will have to continually adjust resources in line with activity.

North America third-quarter revenue of $2.3 billion decreased 4 per cent sequentially while outperforming the US land horizontal rig count decline of 7 per cent.  Revenue declined on land due to persistent pricing pressure, while Alaska revenue declined as exploration projects were completed.

Schlumberger

Decline in oilfield services

In the US Gulf of Mexico, revenue fell slightly on lower multiclient seismic sales while higher technology sales limited the impact of pricing concessions. However, the trend of exploration rigs transferring to drilling and completion activities continued.

North America pretax operating margin declined sequentially to 9 per cent, mainly due to lower pricing across the basins, which led to more pressure pumping equipment being stacked and crews reassigned.

In certain basins, hydraulic fracturing fleet deployment was maintained in pursuit of market share and new technology opportunities.

“This balanced approach to market share and margins will be maintained to preserve our lead in overall profitability levels in North America,” said Kibsgaard.

“Offshore margin also decreased as work shifted from deepwater exploration to completions and well intervention.”

Posted in: Energy Financial

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