Schlumberger Ltd.’s management team on Friday said it returned to form in the first quarter, with the expectation global oil and natural gas activity could return to pre-pandemic levels by 2022.
CEO Olivier Le Peuch held court during a conference call from Houston, where he shared an optimistic vision for the world’s No. 1 oilfield services (OFS) company.
“The first quarter of 2021 was a step forward,” Le Peuch told analysts. “The quarter unfolded, as we anticipated, with acceleration in North America activity and momentum continuing to build in the international market, aside from the usual seasonal effect.”
Schlumberger’s management team had begun this year “with conviction in our strategic direction and our resulting outlook for 2021. The combination of the promising first quarter results and an increasingly constructive macroeconomic view are strengthening this conviction…
“A new growth cycle has finally commenced, and we are prepared to deliver growth and returns that outperform the market.”
A robust global economic forecast by the International Monetary Fund, along with the stronger oil demand outlook by the Organization of the Petroleum Exporting Countries, “reinforce the transition into a demand-led recovery, which will strengthen through the second half of 2021, absent new setbacks in vaccination rollouts or easing of lockdowns.”
North American activity has been solid since the start of the year, Le Peuch said.
“We see sustained activity growth in U.S. land,” with a “seasonal rebound” across North America, “particularly in work construction. Our new mix and sizable explosion in the North American market will increasingly contribute to our results.”
Well construction saw sequential growth, with North American activity outpacing the U.S. land rig count, Le Peuch noted.
Overall first-quarter revenue slumped 6% from the fourth quarter, reflecting a 17% dip in North America from asset sales. North America has supplied the bulk of Schlumberger’s revenue for years, but it accounted for only 19% of the global total in 1Q2021.
Late last year Schlumberger sold OneStim, its massive North American onshore hydraulic fracturing business, to Denver-based Liberty Oilfield Services Inc. Absent divestitures, North American revenue was up 10%, driven by land services, which jumped 24%.
There’s no doubt, though, that overseas work is increasing while North American jobs overall are in decline. That’s likely to be the case going forward, Le Peuch told analysts.
“With the gradual return of oil demand, we anticipate North America activity to level off at production maintenance levels, while international activity is poised to ramp up through year-end 2021 and beyond,” Le Peuch said.
“Looking farther into the second half of 2021 in North America, the pace of growth is expected to moderate on budget exhaustion” by exploration and production customers. However, activity “could surprise to the upside…”
Following a solid first quarter, international growth continues to hum. It is “broader in the second quarter, with the seasonal recovery in Russia and China, augmenting continuing growth in Africa and the Middle East, while Latin America should remain resilient.”
The offshore is seeing a “gradual return of exploration” in key markets too.
“As the industry prepares for an upcycle, performance matters, and decisions on contract awards and capacity allocation are increasingly driven by technology and execution,” the CEO said. Management’s confidence in the international business has strengthened based on higher capital expenditures by customers, a growing rig count and “customer engagements.”
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“International activity will broaden and accelerate in the second half, impacting short- to long-cycle, both on land and offshore, including the productivity in the most advantaged of the shale basins.”
All signs point to a big uptick in activity overseas during the second half of the year.
“We have greater confidence than previous guidance of a double-digit increase in International revenue in the second half when compared to the same period last year,” Le Peuch said. “We foresee an upside for full-year growth internationally, resurrecting a stronger footing as we enter 2022.”
Lower 48 Gains
Schlumberger, which prides itself as a technology company first, also highlighted a bevy of work across the globe that it said enabled operators to improve drilling times and cut costs.
Specifically in the Lower 48, Schlumberger said technology used in the Denver-Julesburg Basin of Colorado enabled Great Western Petroleum LLC to drill the “longest footage in the 8.5-in section covering 21,630 feet of vertical, curve and lateral in a single run, using a bottomhole assembly (BHA).”
For an undisclosed Permian Basin operator working in the Delaware sub-basin, Schlumberger said its technology enabled a curve and lateral totaling nearly 24,500 feet in a single run. One BHA remotely drilled the 6.75-inch curve and lateral in 6.5 days, saving the operator “an average of five days of rig time/well and as much as 12 days of rig time on an individual well.”
Meanwhile, Rockcliff Energy LLC in the Haynesville Shale tested the first drillbit from Schlumberger’s Smith Bits unit to achieve a “69% rate of penetration improvement while maintaining the required drilled footage, saving the operator more than 40 hours of drilling time.”
Net income was $299 million (21 cents/share) in 1Q2021, versus year-ago losses of $7.4 billion (minus $5.32). Revenue fell 30% year/year to $5.2 billion.
Pretax segment operating income margins expanded by 88 basis points (bps) to 13% from 1Q2020. Margins represented a 200 bps-plus improvement year/year despite a 30% revenue decline.
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