Tough talk: from Andrew Gould
Schlumberger warns of hard times ahead
Oilfield services giant Schlumberger warned today that the credit crisis and softening global economy would dampen energy spending into next year.
The weaker market conditions come on the heels of a quarter when crude oil prices surged to record levels, peaking at $147 per barrel in July.
This year's surge in oil prices helped boost Schlumberger's third-quarter profit by 13%, as energy producers spent heavily to capture the high prices. The results met Wall Street expectations.
Since then, both crude oil and natural gas prices have fallen by more than 50%, raising investors' fears that energy companies would slash spending on exploration and production projects that are the core business of the oilfield services sector.
Brisk natural gas drilling activity across North America during the quarter helped offset the damage from hurricanes that ripped through the oil and gas operations in the Gulf of Mexico, but gas producers were already beginning to pare back operations.
"The recent rapid deterioration in credit markets will undoubtedly have an effect on our activity though we anticipate this will largely be limited to North America and in some emerging exploration markets overseas," Schlumberger boss Andrew Gould said in a statement.
A global economic slowdown is an increasing concern. Although it is difficult to forecast how that would affect spending in the energy sector, Gould said, "we anticipate a slowing in the rate of increase in customer spending".
Schlumberger's third-quarter net profit rose to $1.53 billion, or $1.25 per share, from $1.35 billion, or $1.09 per share, a year earlier. The results met the analysts' average forecast, according to Reuters Estimates.
Revenue increased 22% to $7.26 billion. Analysts were expecting $7 billion.
Operating profit at the oilfield services arm rose 13% to $1.7 billion, while the WesternGeco seismic unit saw earnings climb 16% to $355 million.
Schlumberger said earlier this month that it had yet to see any pullback in exploration and production spending from customers, but it was watching intently for any signs of budget cuts.
With its relatively lower exposure to the struggling North American natural gas market, Schlumberger looks well placed, analysts at Pritchard Capital Partners said. But the company's stock valuation of about 10 times estimated 2009 earnings close is already nearly twice that of rivals.
Pritchard said in a note on Thursday that Halliburton and Baker Hughes offered qualities similar to Schlumberger, but with more attractive 2009 multiples of 5.1 and 5.4, respectively.
Shares of Schlumberger have lost 46% in 2008, compared with a 54% drop for Halliburton, a 55% slide for Baker Hughes and a 52% drop in the Philadelphia Stock Exchange oil services index .