Market set for slight growth, producers say

Schlumberger, Haliburton agree the worst may be over for oil industry

The world’s two largest providers of oilfield drilling and fracking services have declared the worst may be over in the two-year-old oil market crash.

Schlumberger said Thursday the oil industry appears to have reached the bottom of the cycle, echoing smaller rival Halliburton Co., which said Wednesday the North American market reached its lowest point in the second quarter and is poised for modest growth the rest of this year.

“They’re the two dominant players in the market, both of whom just called the bottom,” James West, an analyst at Evercore-ISI in New York, said Thursday. “It’s a positive. Calling the bottom in the market sends the right signal and Schlumberger has a ton of credibility.”

As the downturn dragged on, executives at the world’s largest oilfield services provider have had to push back their expectations for an improvement in drilling and fracking work, with crude prices remaining more than 50 per cent lower than their peak in 2014. The recovery will be slow and steady, with a wave of rising service costs putting pressure on the explorers getting back to work, chief executive Paal Kibsgaard told analysts and investors on a conference call Friday.

“I think technology has to play a very important role in this,” Kibsgaard said. “If you want to drive down cost per barrel, we have to look at ways of getting more production out of each well.”

Schlumberger reported an unexpected second-quarter loss of $2.16 billion, or $1.56 cents a share, compared with a profit of $1.12 billion, or 88 cents, a year earlier, ac- cording to a statement Thursday. The Houston- and Paris-based company was expected to post a $296.3-million profit, according to the average of 28 analysts’ estimates compiled by Bloomberg. The company also said it cut another 8,000 jobs in the second quarter after slashing a similar number in the first three months of the year.

“In the second quarter, market conditions worsened further in most parts of our global operations,” Kibsgaard said in the statement. “But in spite of the continuing headwinds, we now appear to have reached the bottom of the cycle.”

Third-quarter earnings are expected to be flat with the second quarter, Kibsgaard said. Excluding certain items, Schlumberger earned 23 cents a share in the three months ended in June.

The nearly doubling of oil prices this year has Schlumberger shifting its focus to renegotiate contracts with explorers and trying to recover some of the discounts it was forced to give during the downturn, Kibsgaard said.

“That is a positive that they’re seeing that there is a little bit of appetite to renegotiate those contracts,” Rob Desai, an analyst at Edward Jones in St. Louis who rates the shares a buy and owns none, said Thursday. “I think pricing will still be weak for a while. It could be a couple of years before pricing really recovers.”

Schlumberger’s president, Patrick Schorn, said last month that the second quarter “may represent the final approach to a market bottom.” In April, Schlumberger closed its $14.8-billion takeover of Cameron International Corp., marking the largest deal among oilfield contractors this year.