Schlumberger Warns of Moderating North America Drilling Investment

The possibility that OPEC will extend the cuts points to a more optimistic view of the industry.The possibility that OPEC will extend the cuts points to a more optimistic view of the industry.

Schlumberger reported on Friday a higher net profit for the third quarter driven by North America’s onshore activities, but the world’s largest oilfield services group now warns that investment appetite in North America is moderating as drillers focus on financial returns instead of volume.

Schlumberger’s diluted earnings per share—excluding integration charges—came in at $0.42 in the third quarter, up by 20% on the quarter and up by 68% compared to Q3 2016. Schlumberger’s EPS this past quarter is exactly in line with the analyst consensus of $0.42, Oil Price reported.

Revenues rose by 6% sequentially to $7.905 billion—a couple of million above the analyst forecast of $7.903 billion—with North America revenue jumping 18% and international revenues basically flat compared to Q2. In North America, Schlumberger’s revenue increase was due to “the nearly complete redeployment of our hydraulic fracturing capacity on land as robust fracturing activity continued during the third quarter,” the group said.

Fracking activity was partially offset by Hurricane Harvey and activity weakness in the Gulf of Mexico.

“North America land revenue experienced a 23% sequential growth, driven by 42% revenue growth in hydraulic fracturing on increased fleet redeployment, market share gains and improved pricing,” Schlumberger said. But the oilfield services giant cautioned about the North American activity in the coming quarters, with Chairman and CEO Paal Kibsgaard saying that “the investment appetite in North America land now seems to be moderating, driven by a growing focus from E&P companies on financial return and the need to operate within cash flow rather than the pursuit of production growth.”

According to Kibsgaard, a moderating North American investment, the possibility that OPEC will extend the cuts further, unprecedented low levels of investment outside of North America, OPEC and Russia, and a returning geopolitical risk premium in the oil market, all point to a more optimistic view of the industry. Following the results release, Schlumberger’s shares ticked up in pre-market trade on the NYSE, but fell later in the afternoon to hit $62.34.

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