Schlumberger Ltd. (NYSE: SLB), which saw an 11% jump in second-quarter revenue compared to a year ago, anticipates “double-digit” international revenue growth in 2019 plus gains in the offshore and exploration segments.
But activity onshore will likely still be in the driver’s seat.
CEO Paal Kibsgaard delivered the positive outlook during an earnings call with investors July 20 following the release of the oilfield service company’s quarterly results.
“We are confident on the backlog we have of contract wins, and we know where these wins are and how it is going to shape up,” Kibsgaard said on the call. He cautioned detailed planning has not been done yet. “But in general, we see growth in all geographies next year. Land is still likely to be the driving force of it.”
Onshore is where most of the company’s lump-sum turnkey (LSTK) contracts and shorter-cycle barrels are located, he said.
Analysts are watching.
In a note July 19, Barclays analysts asked whether international margins need to be recalibrated lower.
“Tendering and contracting activity is on the upswing internationally, but fierce competition [weak pricing] and the proliferation of LSTK contracts suggest margins won’t approach the prior 2014 peak unless Schlumberger can prove otherwise,” Barclays said.
Schlumberger’s outlook was delivered as the oilfield services sector continues to rebound from the market downturn and works toward recovering some of the concessions given to its customers. The oilfield service company reported a $430 million net profit for the second quarter—significantly up from a $74 million loss a year ago but down from $525 million reported in first-quarter 2018.
Revenue rose to $8.3 billion, up 11% year-on-year and up 6% sequentially.
Internationally, year-on-year revenue dropped by 1% but inched up 4% from first-quarter 2018 to about $5 billion.
“Excluding Cameron, second-quarter revenue in the international markets of $4.4 billion grew 6% sequentially despite flat revenue in Russia, and only nominal growth in the Middle East, where startup and project delays affected our results,” Kibsgaard said in a statement. “Sequential growth was driven by an 18% improvement in Asia and Australia, 9% in Europe and Africa, and 3% in Latin America. These figures confirm that a much broader-based international recovery is now emerging.”
On the call, he noted pricing improvements and ongoing discussions with customers on new and existing contracts, saying Schlumberger has specific plans by customer and by contract on how to engage and recover concessions made.
“The discussions we’re having in the second half of this year should have an impact on our results in the first half of 2019,” Kibsgaard said. “To what effect, it’s still too early to say. With activity continuing to go up, with ourselves at least, being fully deployed capacity wise by the end of the year, I think it’s only natural that pricing comes up.”
Schlumberger expects its equipment will be fully deployed in the fourth quarter, given the number of large project awards in drilling and production services the company has landed, “after which we expect a further strengthening of the international pricing recovery.”
Offshore, Exploration Comeback
Improvement could also be on the horizon for the offshore segment.
“I think we will start to see movement in particular in shallow water as well. I believe there is some movement in shallow water rig rates, which I think is a very good precursor to what is likely to happen,” Kibsgaard said on the call. “Deepwater drilling activity in 2018 is roughly going to be 10% up versus 2017. I think the growth in deep water will probably continue and potentially accelerate as well into 2019.”
Schlumberger reported North America offshore activity is starting to recover with drilling projects underway in the Gulf of Mexico, offshore Eastern Canada and the Caribbean. Sequential revenue grew 22%.
Looking forward, development work is expected to dominate offshore work globally. But “exploration spending appears to be turning a corner as well,” Kibsgaard said. “We expect that in 2018 exploration, drilling and well services spend will probably be about 12% higher than 2018. So both deep water and exploration is starting to show double-digit growth already in ’18, and I can only see that accelerating going into 2019. Associated with exploration we’re actually also starting to see more interest and more discussion with our customers again on formation evaluation.”
Growing In North America
North America, home of the world’s most prolific shale play, accounted for the biggest share of Schlumberger’s second-quarter revenue growth, rising 43% from last year to about $3.1 billion. The growth, which reportedly was driven by market share gains and operational efficiency improvements amid flat pricing, came as shale operators pushed for optimized well designs while adjusting lateral lengths and completion volumes to increase production.
Kibsgaard said the trend of customers separating the procurement of pumping and sand supply services also accelerated during the quarter, putting Schlumberger’s vertical integration offering at a competitive advantage.
“We now own several sand mines and our investment into sand mines will be concluded basically this month,” he said. “We will then have sufficient sand mine capacity to take care of 100% of our current and also projected frac work.”
Schlumberger’s OneStim business, which delivers completions products and services for unconventional plays in the U.S., saw a 17% sequential jump in revenue.
Velda Addison can be reached at email@example.com.