The move by U.S. explorers to oil plays, and by implication, the oilfield services business, will buoy Schlumberger Ltd. into 2011, but higher natural gas demand will be required to keep up the pace in North American natural gas drilling "beyond a certain point in time," CEO Andrew Gould said Friday.

The Houston-based oilfield services company reported revenue of $6.85 billion in 3Q2010, which was 15% higher sequentially and 26% higher year/year (y/y). Net income, minus charges and credits, was $875 million (70 cents/share), which was 11% higher than in the year-ago period and 7% above profits in 3Q2010.

Schlumberger beat Wall Street's forecasts by a penny.

Gould, who spoke with energy analysts during a conference call, credited the company's quarterly gains to improvements onshore in the United States and Canada, which offset weakness in the Gulf of Mexico (GOM) following the deepwater drilling ban. The drilling moratorium cut into 4Q2010 earnings per share by 2-3 cents, but the company's prices for onshore pressure pumping continued to be strong.

"We expect the fourth quarter to show continued strong activity in North America on land, but we do not expect any rapid return to deepwater drilling in the U.S. Gulf of Mexico despite the lifting of the moratorium," said Gould. "Further clarification of the new rules and liabilities under which activity will be conducted will be necessary before any major increase takes place. Our restructuring efforts will continue to deliver margin improvements.

"Outside North America, the delays induced by the knock-on effect of the Macondo well are now being reabsorbed. This and the recent strength in oil prices give us some optimism that the rate of recovery overseas will accelerate slightly.

Restructured land drilling operations in North America are expected to continue to improve margins in the region, the CEO said.

Quarterly revenue from the company's North American operations more than doubled (53%) y/y to $1.26 billion, and it was 13% higher sequentially. Pretax operating income in the region totaled $219 million, which was a whopping 693% higher y/y and 90% higher than in the previous quarter.

"Sequentially, revenue growth was strongest in U.S. land, which expanded by 22% versus a 10% rig count increase on high service intensity as well as on improved pricing and equipment utilization that benefited Well Services, Wireline and Drilling & Measurement technologies," Gould said. "Canada revenue also increased significantly as the result of the seasonal recovery in rig count. These increases were partially offset by a 52% drop in U.S. Gulf of Mexico revenue as a consequence of the deepwater drilling moratorium."

Pretax operating margin for North America increased 704 basis points (bp) sequentially from 2Q2010 to 17.4%. The U.S. land margin improved 885 bp "on the combination of higher activity, stronger pricing and greater equipment utilization while Canada pretax operating margin increased sharply on the post spring break-up recovery. " The increases were partially offset by a 1,365 bp decline in the GOM.

The latest results reflected one month of activity from the acquired businesses of Smith International Inc., which Schlumberger purchased for $11 billion earlier this year (see Daily GPI, Feb. 23). The Smith units contributed $810 million to the latest quarter's revenue, with pretax operating income of $84 million.

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