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Schlumberger impresses with cost cuts, resilient margins

Schlumberger Ltd, the world’s No.1 oilfield services provider, reported a smaller-than-expected fall in first-quarter margins as it continued to execute tight cost controls to combat a decline in drilling activity.

Schlumberger shares rose as much as 3.3 percent to a near-five-month high of $94.89 on Friday, a day after the company reported a profit well ahead of analysts’ expectations despite a 9 percent drop in quarterly revenue.

“Market pricing for certain products and services (in North America) has already reached unsustainable levels,” Chief Executive Paal Kibsgaard said on a conference call with analysts on Friday.

“However, we are being selective in the pursuit of market share and very disciplined in the avoidance of loss-making contracts.”

Resilience in its international business, which accounts for more than two-thirds of Schlumberger’s total revenue, helped drive profit.

“I think the overall resilience in our well-balanced international business is underestimated,” Kibsgaard said.

Schlumberger’s cost of revenue fell 7 percent in the quarter ended Mar. 31. Operating margins shrunk to 17.6 percent from 19.3 percent a year earlier, but were higher than the estimates of some analysts tracked by Reuters.

Evercore ISI analysts, who had predicted margins of 14.5 percent, said the company had “exceeded our expectations in its ability to swiftly reduce its cost structure to correspond to industry realities.”

“Schlumberger was likely the most proactive company in the group preparing for the downturn, swiftly adjusting to changing market conditions,” they said.

The Houston-based company plans to cut 11,000 jobs, bringing the total job cuts announced this year to 20,000 – about 15 percent of its workforce.

A 44 percent slide in crude prices since June has also prompted nearly 13,000 job cuts at rivals Halliburton Co and Baker Hughes Inc, who are set to merge in a $35 billion deal.

Kibsgaard said he expects a recovery in U.S. land drilling activity to be delayed as energy companies on stringent budgets deploy fewer rigs, forcing services firms to continue discounting.

“We don’t expect that rig counts are going to come back to the previous levels of around 2,000. It’s going to come back somewhere in between the current levels and where it was.”

There were 760 rigs drilling for oil in the United States as of April 10, according to Baker Hughes’ closely watched survey.

(Additional reporting by Kanika Sikka in Bengaluru; Editing by Joyjeet Das)

This article was from Reuters and was legally licensed through the NewsCred publisher network.

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