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Schlumberger's Reservoir Modeling Systems Build Fan Base

Schlumberger Ltd. is seeing continued strength in its North American operations in part because of its hydraulic fracturing (fracking) technology, which is reducing time and costs to complete a well, management said Friday.

The world's largest oilfield services provider reported a 65% increase in earnings and double-digit revenue growth in the second quarter from a year earlier. Quarterly earnings rose to $1.34 billion (98 cents/share) from $818 million (66 cents) a year earlier. Revenue was up 62% to $9.62 billion from $5.94 billion. Excluding charges, continuing operations profits totaled $1.18 billion, which was 22% higher sequentially and 45% more than a year earlier.

CEO Andrew Gould, who is retiring in August, led a conference call with financial analysts to discuss results in the latest quarter, which were led by growth in North America, Schlumberger's largest earnings contributor. He echoed some comments made last Monday by Halliburton Co. CEO Dave Lesar, who said North American demand for fracking services was growing faster than companies could add equipment (see Shale Daily, July 20).

"Pricing power in North America pressure pumping remained robust, but more importantly toward the end of the quarter it became clear that pricing traction for certain other services -- particularly those related to drilling high-risk deepwater plays or other complex developments -- was in place both in North America and internationally," Gould said. "This is not yet universal, but a positive trend is in place which should yield results by the end of the year."

However, the "continued strength in drilling liquid-rich plays in North America, coupled with an acceleration in drilling both in exploration and development internationally, will put considerable strain on the ability of the service industry to meet activity levels.

"While it is not unprecedented that a North American cycle has run concurrently with increasing activity internationally, the service intensity of drilling and completing horizontal wells in liquid-rich plays and shale gas basins has introduced a new dynamic in as much as this activity requires far more service equipment than was traditionally used in the North American land market. As a result, the ability of the industry to supply both the North American and international markets with the required equipment and people in a concurrent growth phase will be challenged."

COO Paul Kibsgaard, who will succeed Gould, said there had been 11% sequential growth in North America from the first three months of the year. In the U.S. segment alone, the company reported a 21% sequential growth. "Sequential margins were up 287 basis points on strong pressure pumping and drilling activity."

"In our Well Services [unit], we have added more horsepower this year than any previous year," said Kibsgaard. "All drilling technologies showed strong growth," with price led by the drilling and wireline segments in North America.

Schlumberger's reservoir modeling work flow system "continues to gain traction internationally and in North America," said the COO. The system is "able to predict variation of shale reservoir quality and allows customers to only drill wells in the best part of the shale and only fracture in the horizontal part of the section. It has significantly reduced wasted drilling time and costs from the brutal way it's done in current shale developments."

All of Schlumberger's product groups grew at double-digit rates in the latest quarter. North America was impacted in the latest period by "prolonged Canadian spring break-up and poor weather in the Northwest" but those factors were offset "by very strong growth in the rest of U.S. land and a significant contribution from deepwater operations as the rig count increased and renewed interest in exploration activity in the Gulf of Mexico led to high multiclient seismic data sales," Kibsgaard said.

Schlumberger's proprietary onshore and offshore technology proved to be a big attraction for customers, he told analysts.

In the onshore customers are snapping up Schlumberger's HiWAY flow-channel hydraulic fracturing (fracking) systems. Since the beginning of this year the system has been used in more than 1,200 fracking stages that have been pumped, which Schlumberger said had cut more than 60,000 tons of proppant compared to standard fracking techniques. In North America alone more than 700 stages were pumped in the second quarter, "and a total of 15 customers have now deployed the technology with activity concentrated in the Eagle Ford play in South Texas," said Kibsgaard.

In the Marcellus Shale business unit Data & Consulting Services conducted a reservoir characterization study that "allowed Ultra Petroleum to determine that well location, rather than completion technique, was the major contributor to variable well performance," the company said. The study "enabled Ultra to prioritize its drilling and completion plans for several wells." The study integrated 3-D surface seismic with Schlumberger's proprietary "logging-while-drilling" data on 19 laterals and data on seven vertical pilot wells.

The study "highlighted sweet spot areas with better reservoir quality where wells produced superior results compared to average levels previously seen in the field," which "helped Ultra establish criteria that will reduce risk as it continues development of its Marcellus acreage."

And in the Woodford Shale, Cimarex Energy Co. used a combination of Schlumberger's proprietary technology and drillbits to drill a well 56% faster than the field average, with a 4,763-foot horizontal lateral drilled in "a record 2.2 days." The combined systems "resulted in a smoother wellbore with a 16% reduction in drilling-related friction," said the company.

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