Blame Canada. But analysts say Schlumberger earnings show it's not that bad
That's the explanation some oil-field-services companies will be giving in the days ahead for weak spots in their profit reports. Schlumberger, the world's largest oil-field-services company, began the refrain Friday when it kicked off earnings season for the industry.
In the second quarter, the company reported a "significant" downturn in its Canadian business as high natural gas stockpiles continued to sap the incentive to drill.
Yet the Great White North was the only blemish in the company's report, suggesting to some analysts that fears may be overstated about the potential impact of a weak Canadian market on the oil services industry. Schlumberger, based in Houston and Paris, said its profit jumped nearly 50 percent as growth in international regions offset declines in Canada.
Net income grew to $1.3 billion, or $1.02 a share, compared with $856.9 million, or 69 cents a share, in the same period a year ago. Revenue rose to $5.6 billion from $4.7 billion in the second quarter of 2006, the company said.
Those results handily beat expectations.
Analysts had predicted earnings per share of 95 cents on revenue of $5.5 billion.
Stock up
Investors showed their approval. The company's stock price closed up nearly 4 percent to $96.68 per share after touching a new high of $97.68 earlier in the day.
Schlumberger is considered a bellwether for the oil-field-services industry because of its vast global presence and wide portfolio of products and services.
The company's strong results, particularly in international regions, may help calm investor fears about Canada ahead of profit reports by competitors next week, said Ken Sill, industry analyst with Credit Suisse in Houston in a report Friday.
Those fears have been in high gear since last week, when Houston's Baker Hughes warned that a "significant deterioration" of activity and profitability in Canada would hurt its second-quarter profit. Baker Hughes reports profits Friday.
The announcement drove down stock prices of several rivals. But some analysts said investors have given too much weight to Canada when assessing oil-field-services stocks.
They also questioned what drove Baker Hughes, which they believed had little Canada risk, to blame its profit miss on the region.
Sill called the move "very conspicuous," after Schlumberger's report showed international demand remains healthy.
Canada is likely to be a "focal point" for Houston-based Weatherford International, which has relatively large exposure to the region, at 15 percent to 20 percent of revenue, said Bill Herbert, industry analyst with Simmons & Company International in Houston.
But those fears also may be unwarranted because Weatherford, like Schlumberger, is well-positioned geographically to offset weak Canadian business.
Schlumberger's North American business wasn't completely overshadowed by Canada. It benefited from growth in U.S. land drilling, higher exploration activity in Alaska and a richer mix of services in the Gulf Coast region, Schlumberger Chairman and CEO Andrew Gould said.
And in Canada, he predicted that high decline rates of existing fields and poor quality reservoirs now being drilled will spur new investment in coming years, despite the uncertainty.
Breaking down its performance, Schlumberger said its oil-field services posted a 33 percent increase in pretax operating income to $1.51 billion, while revenue rose 21 percent to $4.97 billion.
WesternGeco, which houses the company's seismic arm, posted a 28 percent increase in pretax operating income to $216 million. Revenue increased 18 percent to $665 million versus a year ago, the company said.
That's the explanation some oil-field-services companies will be giving in the days ahead for weak spots in their profit reports. Schlumberger, the world's largest oil-field-services company, began the refrain Friday when it kicked off earnings season for the industry.
In the second quarter, the company reported a "significant" downturn in its Canadian business as high natural gas stockpiles continued to sap the incentive to drill.
Yet the Great White North was the only blemish in the company's report, suggesting to some analysts that fears may be overstated about the potential impact of a weak Canadian market on the oil services industry. Schlumberger, based in Houston and Paris, said its profit jumped nearly 50 percent as growth in international regions offset declines in Canada.
Net income grew to $1.3 billion, or $1.02 a share, compared with $856.9 million, or 69 cents a share, in the same period a year ago. Revenue rose to $5.6 billion from $4.7 billion in the second quarter of 2006, the company said.
Those results handily beat expectations.
Analysts had predicted earnings per share of 95 cents on revenue of $5.5 billion.
Stock up
Investors showed their approval. The company's stock price closed up nearly 4 percent to $96.68 per share after touching a new high of $97.68 earlier in the day.
Schlumberger is considered a bellwether for the oil-field-services industry because of its vast global presence and wide portfolio of products and services.
The company's strong results, particularly in international regions, may help calm investor fears about Canada ahead of profit reports by competitors next week, said Ken Sill, industry analyst with Credit Suisse in Houston in a report Friday.
Those fears have been in high gear since last week, when Houston's Baker Hughes warned that a "significant deterioration" of activity and profitability in Canada would hurt its second-quarter profit. Baker Hughes reports profits Friday.
The announcement drove down stock prices of several rivals. But some analysts said investors have given too much weight to Canada when assessing oil-field-services stocks.
They also questioned what drove Baker Hughes, which they believed had little Canada risk, to blame its profit miss on the region.
Sill called the move "very conspicuous," after Schlumberger's report showed international demand remains healthy.
Canada is likely to be a "focal point" for Houston-based Weatherford International, which has relatively large exposure to the region, at 15 percent to 20 percent of revenue, said Bill Herbert, industry analyst with Simmons & Company International in Houston.
But those fears also may be unwarranted because Weatherford, like Schlumberger, is well-positioned geographically to offset weak Canadian business.
"There's a big world out there beyond Canada and North America," he said.
Schlumberger's North American business wasn't completely overshadowed by Canada. It benefited from growth in U.S. land drilling, higher exploration activity in Alaska and a richer mix of services in the Gulf Coast region, Schlumberger Chairman and CEO Andrew Gould said.
And in Canada, he predicted that high decline rates of existing fields and poor quality reservoirs now being drilled will spur new investment in coming years, despite the uncertainty.
Bullish on international
With respect to worldwide oil drilling, Gould was more bullish.
"We remain convinced that international activity will continue to increase as operators combat production shortfalls and continue to increase exploration budgets to renew reserves," he said.With respect to worldwide oil drilling, Gould was more bullish.
Breaking down its performance, Schlumberger said its oil-field services posted a 33 percent increase in pretax operating income to $1.51 billion, while revenue rose 21 percent to $4.97 billion.
WesternGeco, which houses the company's seismic arm, posted a 28 percent increase in pretax operating income to $216 million. Revenue increased 18 percent to $665 million versus a year ago, the company said.
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