Schlumberger sees 'tentative signs' of improvement

OREANDA-NEWS. July 29, 2015. The world's biggest oilfield services provider Schlumberger sees that "tentative signs of change are emerging" in the oil market as the plunge in crude prices slows supply growth and demand improves.

Output outside of North America and the producer group Opec has already weakened by 650,000 b/d in the first half of the year. A further softening is expected in the second half, driven by Brazil and Mexico "as the low investment levels in many regions start to take full effect," chief executive Paal Kibsgaard said in the company's second-quarter earnings call.

"Against these supply figures, global demand growth continues to strengthen," he said. "These factors all point to a potential tightening in the global/supply demand balance in the coming quarters."

But those signs will not immediately result in any upward adjustments to oil producers' spending. A continuation of the trend seen in the first half of the year, of low exploration activity and tight management of development spending, will continue and weigh on the rates service providers can charge for rigs, crew and chemicals.

In North America, the fall in rig count by half from year-ago levels has created a massive capacity oversupply, with "pricing quickly plummeting to unsustainable levels, in particular for pressure pumping, where many companies now are desperately fighting to survive," he said.

Pioneer and WPX are a small group of US independent producers who have announced plans to increase their rig counts despite a weak oil market, in part because of a drop in services costs. While others like Whiting Petroleum and Occidental have raised their output guidance for the year, those numbers are likely to be met by higher drilling and operational efficiency from existing rigs.

The US rig count fell by six this week, reversing course after three straight weeks of gains that ended a 28-week losing streak, according to latest numbers from Baker Hughes.

The North American rig count has reached a bottom, Kibsgaard said, but drilling and completion activities will see a slow increase in the second half of the year, "which will not make any material dent in the massive overcapacity that has been created."

An improvement in oil prices in the second half of the year may potentially lead to increased investments in 2016, however, both for exploration and development related activity.

"What we've been saying I think for a number of quarters that we see solid oil demand growth," he said.

One of the first companies to announce massive layoffs when oil prices began to fall last year, Schlumberger said the belt tightening measures have helped improve the company's finances. It shed 15pc of its 115,000 workforce in two rounds, which has in part helped improve free cash flows to \\$2.45bn in the first half of the year, despite the worsening market conditions, from \\$1.9bn a year earlier, marking an improvement of nearly 30pc.

The company reported second quarter profit of \\$1.12bn on \\$9bn in revenue, a nearly 30pc drop from the \\$1.59bn profit in the same quarter in 2014, when revenue was \\$12.bn.