Schlumberger Profit Rises After Oil Climbs to Record

By David Wethe
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Oct. 17 (Bloomberg) -- Schlumberger Ltd., the world's largest oilfield-services provider, said third-quarter net income climbed 13 percent after record crude prices spurred exploration and production spending by customers. The company's shares fell after it said growth may slow.

Profit rose to $1.53 billion, or $1.25 a share, from $1.35 billion, or $1.09, a year earlier, Houston-based Schlumberger said today in a statement. Revenue advanced 22 percent to $7.26 billion as U.S. oil futures topped $147 a barrel in July and traded 57 percent higher than in last year's third quarter.

Sales jumped 32 percent in Latin America and 28 percent in Europe, Africa and former Soviet states after producers such as Petroleo Brasileiro SA boosted spending. Deteriorating credit markets ``will undoubtedly have an effect on our activity,'' Schlumberger Chief Executive Officer Andrew Gould said in the statement. Should slumping economies slow oil spending, he said, ``any significant drop in exploration and production investment would rapidly provoke an even stronger recovery.''

``The fact that they haven't said, `Oh my goodness, the sky is falling,' I think is significant,'' said Michael Henzi, an analyst at Sterne Agee & Leach Inc. in Boston. ``The company is not one to panic or get euphoric.''

Schlumberger fell $5.39, or 10 percent, to $47.81 at 9:53 a.m. in New York Stock Exchange composite trading. The shares, which have 21 buy and four hold ratings from analysts, have lost more than half their value since the end of June.

`Tail Winds' Blow

Chevron Corp. and other exploration and production companies, known as E&Ps, ramped up spending in the past year to bolster reserves and output as oil rallied. Projects are going forward even after oil tumbled more than $70 a barrel from July's all-time high.

``You still have the tail winds of the first half of the year coming through where you have record cash margins for the E&Ps, record spending and record commodity prices,'' said Benjamin Dell, an analyst at Sanford C. Bernstein & Co. in New York who rates Schlumberger shares ``market perform.'' ``Most of that is still working its way through the system.''


Producers may cut spending in the next 12 to 15 months because of lower prices, Gould told investors and analysts on a conference call.

Schlumberger didn't cite one-time costs or gains. Earnings per share matched the average of 25 analyst estimates for profit excluding any such items, according to a Bloomberg survey.

Segment Results

U.S. gas futures had an average price of almost $9 per million British thermal units, up 44 percent from last year's third quarter.

Revenue from Schlumberger's oilfield-contracting business jumped 24 percent from a year earlier to $6.36 billion, according to the statement. Revenue at WesternGeco, the company's seismic-mapping business, rose 12 percent to $892 million.

Dan Pickering, an analyst at Tudor, Pickering, Holt & Co. Securities in Houston, said the seismic unit's results exceeded his expectations, and Schlumberger's overall performance was in line with his projections. The company's ``slightly more cautious'' tone in its statement will lead investors to speculate about prospects for oil spending.

``This is really going to be how bullish do people want to be, how bearish do people want to be,'' Pickering said. ``That tug-of-war is going to play out for the next six months.''

Gustav and Ike

Atlantic hurricanes reduced third-quarter profit by 4 cents a share, Schlumberger said. Hurricanes Gustav and Ike slammed the Louisiana and Texas coasts last month after forcing production shutdowns and damaging equipment in the Gulf of Mexico. Almost all Gulf oil output was idled after Ike hit.

Schlumberger is capitalizing on increased exploration spending by expanding sales outside North America. The company, which derived almost three-fourths of its profit from outside North America last year, has said it's targeting Brazil and other Latin American markets for growth.

The number of oil and gas rigs active around the world rose in September to 3,557, the highest since 1985, according to a count by Baker Hughes Inc. Rig use is an indicator of demand for Schlumberger's drilling tools, subsea pumps, well testing and other products and services.

Technology is giving Schlumberger an edge against its competition and helping to boost profit margins, said James Wicklund, chief investment officer at Carlson Capital LP, a Dallas-based hedge fund.

``They have the best technology going,'' Wicklund said. ``It gives them an edge from both winning the business and being able to charge higher margins.''

Halliburton, the world's second-largest oilfield services provider, is scheduled to report earnings next week. Baker Hughes, the third-largest oilfield contractor, plans to report its third-quarter results on Oct. 22.

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net.