Schlumberger beats estimates as shale helps lead recovery

Schlumberger’s earnings beat expectations after the world’s largest oilfield services provider cashed in on an early U.S. recovery as it waits for the rest of the world to catch up.

Excluding one-time items, the Houston- and Paris-based company reported profit of 25 cents for the third quarter, beating the 22-cent average of 39 analysts’ estimates compiled by Bloomberg. Aside from the challenges experienced by its newly acquired Cameron equipment-manufacturing unit, Schlumberger said Thursday that North America onshore sales climbed 14 percent sequentially.

Schlumberger follows its closest rival Halliburton in reporting an improvement in North America as crude prices have almost doubled from a 12-year low in February. Halliburton reported a surprising third-quarter profit and said it’s taking dead aim at driving up prices for its services — even if that means giving up market share. Halliburton boosted North American sales in the quarter for the first time since the downturn began in late 2014.

“People were expecting numbers to be fairly good, given what Halliburton reported,” said Rob Desai, an analyst at Edward Jones in St. Louis, who rates the shares a buy and owns none. “They didn’t disappoint from that perspective.”

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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.

“We maintain that a broad-based V-shaped recovery is unlikely given the fragile financial state of the industry, although we do see activity upside in 2017 in North America land, the Middle East and Russia markets,” Kibsgaard said in the earnings report. “We are therefore ensuring that we are optimally positioned to capture a large share of this upside that we can subsequently turn it into positive earnings contributions.”

Net income declined to $176 million, or 13 cents a share, from $989 million, or 78 cents, a year earlier, Schlumberger said. The result was a drastic improvement from a $2.16 billion net loss in the previous quarter. Sales dropped 17 percent from a year earlier to $7.02 billion.

The results were released after the close of regular trading in New York. Stock for Schlumberger, which has 33 buy ratings from analysts, is up by about 19 percent for the year.

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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. “This is a clear sign of the persistent financial distress across the industry.”

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.”