Challenges ahead for new Schlumberger CEO
Schlumberger’s newly appointed CEO, Olivier Le Peuch, is inheriting the world’s largest and most profitable energy services company, but must also contend with a slowing North American shale sector and still sluggish recovery for oil field services following the last oil bust.
La Peuch was named Friday to succeed longtime CEO Paal Kibsgaard, who is retiring Aug. 1. Le Peuch is taking over as conditions for the oil field services sector remain difficult. In North America, exploration and production companies, still reeling from oil price crash at the end of last year, have cut capital budgets and spending for drilling, hydraulic fracturing and other services that Schlumberger and other companies in the industry provide.
Oil field services companies were particularly hit hard by the two-year oil bust that began in 2014. The steep downturn forced them to lay off tens of thousands of workers and slash returns for shareholders. Although exploration and production companies have largely recovered, service companies have not fared as well. Schlumberger’s stock market value of $54 billion is roughly one-third the $152 billion in 2014.
Ben Carey, managing director for the energy consulting firm Accenture Strategy, said the technology and processes created by services companies made the shale revolution possible 10 years ago. During the downturn, services companies were forced to slash their rates but have not been able to raise them significantly over the past three years.
“We effectively have a lost decade where there hasn’t been
any value created by the major players,” Carey said. “Service companies are still in the same spot and it’s a very difficult spot and there’s a lot of work to do.”
Born and raised in France, Le Peuch began his career at Schlumberger in 1987 as an electrical engineer. He was promoted to chief operating officer in February.
Le Peuch, in a call with investors, praised Kibsgaard for leading the company through the oil bust. On Friday, Schlumberger reported a $492 million profit in the second quarter, up 14 percent from $430 million in the same period a year earlier. Revenues slipped to $8.1 billion from $8.3 billion in the second quarter of 2018.
Most of the company’s profits came from higher margins in overseas business while hydraulic fracturing and other services for
North America’s shale drilling markets remain sluggish. But Le Peuch is not giving up on the North American market — one that makes up for lower margins through its volume of business. Schlumberger expects U.S. shale fields to remain the only source of global production growth.
“The North America land market is too big to ignore,” Le Peuch said. “I believe that our ability to extract more value for our customers, to beat a technical challenge and create efficiency for the
industry is critical.”
Le Peuch will have a seat on the company’s board of directors, but he will not become chairman right away. That post will go to shale pioneer and EOG Resources founder Mark Papa, now CEO of the Colorado oil and gas company Centennial Resource Development.
Looking ahead, Carey, the Accenture analyst, said oil field service companies need to engage in more partnerships with their customers and adopt new technology such as electric fracking as ways to reduce costs. He added that the industry needs to consolidate through mergers and acquisitions to reduce the number of companies on the drilling pad.
“Market conditions alone won’t lead the major players back to a better place,” Carey said. “They’re going to have to continue to look at different ways to improve their businesses.”