Schlumberger Ltd., the world’s largest oilfield services operator, beat revenue expectations during the third quarter but pre-tax charges resulted in a huge loss, including a $1.6 billion charge in the North American hydraulic fracturing business.
Net losses totaled $11.97 billion (minus $8.22/share), versus net profits in 3Q2018 of $659 million (47 cents). Excluding a one-time impairment of $12.7 billion, adjusted earnings in 3Q2019 were 43 cents/share, above Wall Street estimates of 40 cents. Revenue edged up slightly year/year to $8.54 million from $8.50 billion, with an 11% decline in North American revenue offset by 8% growth in international operations.
“This quarter’s results reflected a macro environment of slowing production growth rate in North America land as operators maintained capital discipline, reducing drilling and fracture activity,” CEO Olivier Le Peuch said during his first conference call at the helm. “Our year-to-date high single-digit international revenue growth continues to be underpinned by international investment levels.
“Market uncertainty, however, is weighing on future oil demand outlook in a climate where trade concerns are seen as challenging global economic growth.”
Schlumberger, a bellwether for the industry, is the first of the oilfield services (OFS) operators to issue third quarter results. The No. 2 OFS operator, Houston-based Halliburton Co. is set to issue its results next week.
North American revenue overall increased 3% sequentially, excluding the Cameron unit, as strong offshore sales outpaced minimal onshore growth by exploration and production (E&P) customers. A modest increase in the pressure pumping business, OneStim, was offset by softer pricing. International revenue of $5.6 billion increased 3% from 2Q2019.
“Sustained international activity drove overall growth despite mixed results in North America,” Le Peuch said. Former CEO Paal Kibsgaard, who retired in August, had warned during the 2Q2019 conference call that North American land activity through the end of the year would be down.
“As we exited the quarter, OneStim activity decelerated as fracture programs were either deferred or canceled due to customer budget and cash flow constraints,” Le Peuch said.
Peak summer activity and double-digit growth in Asia pushed international revenue 9% higher. However, Latin America revenue declined 9% sequentially on lower activity in Argentina and Mexico.
Schlumberger last month unveiled a strategy to move the company forward that has four key elements: digital transformation, fit-for-basin solutions, capturing value for customers and fostering capital stewardship.
Capital stewardship, said Le Peuch, relates to more stringent capital expenditure allocation by E&Ps and a review of the portfolio, “particularly in North America, through the lens of fit-for-basin attributes, customer performance and return on investment.
“We are already off to a good start on digital,” he said. The company is committed to an “open digital environment that unlocks customer performance” for exploration and production customers.
Schlumberger recently commercialized a digital formation testing platform and fit-for-basin technologies including the Ora intelligent wireline formation testing platform, said to be the first tool built by the company on a cloud-native platform. It combines software and hardware to deliver dynamic reservoir characterization in all conditions.
“In Mexico, the Ora platform was the first-ever wireline formation tester able to collect high-quality gas condensate samples in a challenging carbonate formation,” the company noted. Ora helped state-owned producer Petroleos Mexicanos triple estimated reserves in one of its land discoveries.
Another technology, the NeoSteer at-bit steerable system, was used by SRC Energy Inc. in the Denver-Julesburg Basin of Colorado to drill a 12-well pad targeting vertical, curved and lateral sections. The rate of penetration (ROP) increased by 20%, saving “as much as 21 hours in a single well while targeting various zones...”
Another fit-for-basin technology, the Aegis armor cladding alloy for drillbits, was used in the Anadarko Basin of Oklahoma in eight wells for an undisclosed operator, resulting in an ROP increase of 36%. The customer reduced drilling time by 27%, or about 179 hours across the eight runs.
This year the number of jobs overall using fit-for-basin technologies “has increased six-fold compared with 2018,” management noted.
In North Dakota, for example, OneStim used the company’s BroadBand unconventional reservoir completion services for Whiting Petroleum Corp. to increase oil production in two infill wells, outperforming nearby offset wells by 37% in the Bakken Shale and 48% in the Three Forks formation, while using similar proppant intensities.
OneStim also deployed WellWatcher Stim and Broadband in the Permian Basin for Callon Petroleum Co. to avoid parent-child well interference. Also in the Permian, Occidental Petroleum Corp. worked with Schlumberger to establish a differentiated unconventional asset development program.
Occidental built the Aventine facility, an integrated operations and logistics center in New Mexico, and Schlumberger built and operates a base within the facility.
“Both companies are achieving record hydraulic fracturing efficiencies through collaborative optimization of workflows and new fit-for-basin technologies,” Schlumberger noted.
OneStim fleets have broken Permian records for each company for stages/month four different times this year, with one fleet achieving 267 stages. In addition, one fracture fleet completed a two-well pad with an average 20.2 hours of pumping time per day, and a single-day maximum of 21.8 hours, above typical industry pumping times of 12-15 hours/day on comparable operations.
The company also repurchased 2.2 million shares of common stock at an average price of $36.64/share, for a total purchase price of $79 million.
In 3Q2019, Reservoir Characterization revenue was up 6% sequentially to $1.7 billion, with 82% from the international markets. Growth was led by wireline activity in Russia, offshore China and Australia, as well as more WesternGeco multiclient seismic license sales in North America, both on land and offshore.
Drilling revenue was up 2% sequentially to $2.5 billion, with 75% from the international business. Lower 48 drilling activity was impacted by a declining land rig count, but the fit-for-basin technology for drilling equipment sales and leases helped offset the revenue decline.
In the Production unit, revenue was up 2% sequentially to $3.2 billion, with more than half (55%) from the international arena. Artificial lift solutions were higher in North America land, North Africa, Ecuador and Europe.