By Steve Gelsi
NEW YORK (Dow Jones) -- Schlumberger on Friday signaled more
tough times ahead for the hard-hit oil drilling sector on top of
its 17% drop in fourth-quarter profit, but investors nevertheless
bid up shares of the company as it fared better than some had
feared.
The oil service sector leader (SLB) said net income for the
three months ended Dec. 31 dropped to $1.15 billion, or 95 cents a
share, from $1.38 billion, or $1.12 a share, at the same point a
year ago.
Income from continuing operations totaled $1.03 a share, two
cents shy of the consensus analyst estimate of $1.05 a share..
Revenue rose to $6.87 billion from $6.25 billion last year.
Schlumberger shares rose 5.9% to $39.46, moving off their
52-week low of $36.35 set in the previous session.
The move helped lift the Philadelphia Oil Service Index (SOXX)
into positive territory despite losses in the broad energy
sector.
Byron Pope, an analyst at Houston-based energy research firm
Tudor Pickering & Holt, said Schlumberger results weren't as
dire as many had feared.
"People were bracing for a worst-case scenario," he said. "But
they were within reach of the consensus earnings forecast."
The company confirmed it's taking actions to reduce its global
workforce, and held out the possibility of more cuts this year.
Job-cutting costs, plus asset write-offs related to a client
with liquidity issues, resulted in a fourth-quarter charge of 8
cents a share.
Reports surfaced on Jan. 8 that Schlumberger would cut 10% of
its roughly 80,000 head count to get costs in line.
Looking ahead, Schlumberger said it expects activity to weaken
across the board in 2009 with the most significant declines
occurring in North American gas drilling, Russian oil production
enhancement and in mature offshore basins.
On a conference call with analysts, Schlumberger CEO Andrew
Gould said the current downturn appears to be shorter and deeper
than ones in the mid-1980s and late 1990s.
"The cycles are getting much sharper and shorter," he said.
Gould fielded questions on whether Schlumberger's customers are
threatening to break drilling contracts altogether in the face of
capital spending cuts and less cash available to drill.
Gould said Schlumberger said customers are attempting to modify
agreements to make them more favorable.
"Customers will try to pressure us to swap price for volume, or
price for duration, but customers won't break contracts," Gould
said.
The earnings from Schlumberger came as drill bit counts in the
industry have been falling dramatically in recent weeks, as oil and
natural gas producers cut back on capital spending.
Analysts at Pritchard Capital Partners noted they expected the
company's fourth-quarter results to be "choppy."
Like other components of the Philadelphia Oil Service Index
(OSXX), Schlumberger has seen punishing drops to its stock price -
hit by a double whammy of the credit crisis and plunging oil
prices.
Schlumberger said it doesn't expect a vast improvement any time
soon as the industry continues to put on the brakes.
"The sharp drop in oil and gas prices due to lower demand,
higher inventories and the belief that demand will erode further in
2009 as a result of reduced economic activity, is leading to rapid
and substantial reductions in exploration and production
expenditure," Schlumberger said.
"At current prices most of the new categories of hydrocarbon
resources are not economic to develop. It will take time for
inflation to be removed from the system and to bring finding and
development costs more in line with lower oil and gas prices."
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