Oilfield services leader Schlumberger Ltd increased quarterly profit by 33 percent on brisk activity on land in North America, but its shares dropped more than 3 percent as analysts had hoped for more. While uncertainty surrounds its seismic reservoir-mapping unit and there has been a sharp drop in oilfield spending in Mexico, the company's outlook is broadly unchanged otherwise, giving investors few reasons to jump in to the stock.
Bill Herbert, an analyst at Simmons & Co, said the results were weaker than he had expected given the "considerably better than expected performance" for Schlumberger's peers so far. Nearest rival Halliburton Co blew away estimates with its results on Monday thanks to strength in US onshore drilling, and its stock jumped 6 percent, even if its earnings will be cut by 5 to 8 cents per share for the next two quarters due to the Gulf of Mexico impact.
The BP Plc oil disaster in April led to a regulatory crackdown as the US government froze activity in the Gulf through November while it crafts new drilling safety rules. Schlumberger is not as exposed to the region as some rivals, accounting for only about 5 percent of its revenue.
Overall, Schlumberger's second-quarter net profit rose to $818 million, or 68 cents per share, from $613 million, or 51 cents per share, a year before. The earnings were in line with analysts' average forecast, according to Thomson Reuters I/B/E/S. Revenue rose 7.4 percent to $5.94 billion. Chief Executive Andrew Gould said the recovery in world oil demand was reasonably robust and he expected slowly increasing levels of exploration and production activity this year.
Pretax profit at Schlumberger's oilfield service business climbed 5 percent from a year earlier, to $1.07 billion, with gains in Russia, Latin America and the North Sea as well as growth in the North American land market. "I have no doubt that US land margins will continue to improve provided the rig count holds up," Gould said on a call with analysts, adding that he expected North American margins overall to end 2010 at about the level of the first half.
But the company's WesternGeco seismic arm, which maps oil and gas reservoirs, saw pretax profit drop 52 percent as activity fell off from a strong first quarter. Its outlook will be reliant on the uncertain Gulf of Mexico market, Gould said.
Schlumberger does not expect Gulf of Mexico drilling to resume in 2010, and has accelerated a review of US operations due to the knock-on effect of the Gulf spill. Gould said higher drilling costs in the Gulf of Mexico due to regulations would have less of an impact on smaller players remaining there than how risk is shared for future spills.
"The very real issue that our customers will have a great deal of difficulty coming to terms with is what is the ultimate liability going to be," Gould said, adding that it could become a market limited to majors and government-backed operators.
"But I think it's a little too early to assume that." Schlumberger's involvement in the BP well blow-out has been the subject of media speculation, given that its wireline services crew, which runs well tests, left the rig the day it exploded and sank. Schlumberger shares, down 6 percent this year, were down 3.2 percent at $59.34 on the New York Stock Exchange on Friday morning.
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