The No. 1 oilfield services provider in the world, Schlumberger Ltd., on Friday said growth in the deepwater, as well as activity outside of North America, provided a big lift in 3Q2012. However, competitor Baker Hughes Inc., the industry's third-largest provider, said the slump in U.S. natural gas activity weighed heavily on its quarterly profits.
Houston-based Baker posted a lower-than-expected earnings report, while Schlumberger, based in Curacao, beat Wall Street expectations. Halliburton Co. last week also reported that its quarterly profits fell in part from a sharp decline in U.S. onshore drilling, which isn't expected to accelerate until next year (see related story).
Baker's quarterly net income plunged 60% to $279 million (63 cents/share) versus $706 million ($1.61) a year ago. Excluding special items, earnings were 73 cents/share; analysts had expected profits to be 84 cents. Revenue rose 3% y/y to $5.23 billion. Profit margins were slammed by the drop-off in North American pressure pumping, as the U.S. natural gas rig count fell to a 13-year low. Canadian activity was down almost 30% year/year (y/y), while the total rig count worldwide fell 17%% sequentially.
North American revenues at Baker were nearly flat y/y at $2.74 billion versus $2.72 billion. However, North American profits before taxes plunged to $288 million from $602 million; operating profits fell to $321 million from $602 million. Profits before tax margins in North America y/y fell to 11% from 22%.
"For the third quarter, Baker Hughes' revenue was flat, despite a drop in U.S. and international rig counts," said Baker CEO Martin Craighead. "However, our margins were impacted by the well-known imbalance in the North American pressure pumping business. Additionally, activity was less than planned in several key geomarkets for Baker Hughes, resulting in an unfavorable mix. The clearest example is Canada, where the seasonal return of activity was nearly 30% less than this time last year..."
Schlumberger's net income rose 9% y/y to $1.42 billion ($1.07/share) from $1.30 billion (96 cents). Excluding one-time items the company earned $1.08/share, which was two cents higher than analysts' expectations. Revenue jumped 11% to $10.61 billion, versus average forecasts of $10.68 billion.
"We still expect our international activity to grow in excess of 10% in 2012," said Schlumberger CEO Paal Kibsgaard. "In North America on the other hand, the strength in Gulf of Mexico activity will continue to be challenged by weakness in the land hydraulic fracturing [fracking] market and early signs of softening in the land coiled-tubing business."
In North America, "a slow seasonal recovery in Canada, falling U.S. land rig count, continued oversupply of hydraulic fracturing capacity, and the effects of Hurricane Isaac all impacted performance," Schlumberger said. Service capacity remained "tight" for Schlumberger's seismic, wireline and drilling and measurements services, "and we also saw signs of capacity tightening in our well testing business." HiWAY stimulation activity, used in fracking wells, continued to grow, and the first commercial IsoMetrix marine seismic acquisition was completed. The company also introduced several "unique" wireline services during the quarter.
Schlumberger's pretax operating margin of 20.2% increased 11 basis points (bp) from 2Q2012 but fell 4 bp y/y. North American margins of 18.6% decreased 209 bp sequentially and 669 bp y/y "from the lower U.S. land rig count and from lower pricing due to excess pressure pumping capacity." It was the same story within the production segment, which reported that y/y revenue rose 6%, but pretax operating income fell 24%. Operating margins fell 148 bp sequentially to 14.9% and declined 572 bp y/y.
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