BL: Schlumberger 1st-Quarter Net Rises 13% on Oil Prices (Update7)
By Jim Kennett
April 18 (Bloomberg) -- Schlumberger Ltd., the world's largest oilfield contractor, said first-quarter net income rose 13 percent as record oil prices prompted increased drilling by customers worldwide.
Profit climbed to $1.34 billion, or $1.09 a share, from $1.18 billion, or 96 cents, a year earlier, Schlumberger, based in Houston and Paris, said today in a statement.
Schlumberger sells equipment to oil and natural-gas producers, which increased spending as crude soared to records. The company, which missed consensus estimates on project delays in Mexico and lower sales at its seismic unit, likely will meet current estimates for 2008, Chief Executive Officer Andrew Gould told analysts today. Growth will increase next year, he said.
``We desperately need oil, and you're not going to get it without the likes of Schlumberger,'' said Stephen Leeb, president of Leeb Capital Management in New York, whose 56,000 shares of Schlumberger mark his largest energy holding. ``Everything's going to accelerate. Natural gas is going to kick in in the second part of the year, and there's going to be more rigs running, all of which will help Schlumberger.''
The company earned $1.06 a share excluding income from rigs that were sold, 6 cents below the average of 25 analyst estimates compiled by Bloomberg.
``I'm very comfortable with Wall Street's assumptions on the full-year 2008,'' Gould said on a conference call. ``My gut feeling, and it's no more than a gut feeling, is that '09 will be better than '08, in terms of growth.''
Shares Rise
Schlumberger is expected to earn $4.81 a share for the full year, the average of 25 analysts surveyed by Bloomberg. The company earned $4.18 a share last year.
Schlumberger rose $6.55, or 6.9 percent, to $101.85 in composite trading on the New York Stock Exchange. The shares have gained 36 percent in the past year.
Growth will come as oil companies must spend more money globally to boost energy supplies, Gould said.
``We remain convinced that current investment levels are insufficient to both stem the decline and explore for new reserves,'' he said. ``Spending will remain stronger for a longer period than we originally anticipated.''
Schlumberger's revenue gained 15 percent to $6.29 billion in the first quarter, while sales as WesternGeco, the company's seismic mapping and interpretation business, dropped 4.2 percent. Profit at WesternGeco fell 26 percent. Oil companies bidding for offshore blocks in the U.S. Gulf of Mexico have delayed purchasing seismic data until they ``absorb the results'' of the latest lease-sale in March, Gould said.
Backlog Outlook
Some of the decline in backlog is because of long-term commitments that are still being bid, he said.
``To look for a significant increase in the backlog, you're probably looking at the second half of the year, but there's no lack of bids out there,'' he said.
Schlumberger's integrated project-management business continues to experience high costs related to starting new operations in Mexico, Gould said in the statement. Absent ``a severe global recession leading to a steep drop in demand'' for oil and gas, Gould said he expects growth to strengthen through the rest of 2008.
As a global commodity, oil drives exploration and production outside of North America, while regional gas markets affect drilling in the U.S. and Canada. Oil touched a high of $111.80 a barrel during the first quarter, and later set a record of $116.93 a barrel today.
National oil companies from Russia to Saudi Arabia are depending more on service providers such as Schlumberger as they seek to develop their own reserves and exclude large international companies such as Exxon Mobil Corp. or Royal Dutch Shell Plc.
More Spending
Drilling outside North America rose 6.5 percent from a year ago, as oil-rich countries boosted exploration and production.
``You're going to get more of a proliferation of countries spending their own money,'' said Brad Handler, an analyst at Wachovia Securities Inc. in New York who rates Schlumberger at ``neutral'' and doesn't own the stock. ``From an international perspective, the budgets are rising, the projects are progressing.''
Schlumberger reported double-digit sales and profit growth in every region outside of North America. That pushed worldwide revenue from oilfield services up 18 percent from a year ago, to $5.61 billion, while operating income gained 6.9 percent to $1.5 billion. Operating margins for oilfield services were 27 percent, down from 28 percent in the fourth quarter and 29.5 percent last year, Schlumberger said.
Schlumberger's North American revenue rose 3 percent as deepwater rigs returned to the Gulf of Mexico, and winter drilling in Canada, Schlumberger said. Operating profit fell 16 percent year-over-year, squeezing profit margins to 26 percent, compared with 31 percent last year.
Gas Prices
A 22 percent gain in New York gas futures did little to increase North American drilling for that commodity, as the number of rigs searching for gas fell 1.8 percent. Gas drilling accounted for 81 percent of all U.S. rig activity, according to a count by Baker Hughes Inc.
Halliburton Co., the largest oil-service company in North America and the second-biggest worldwide after Schlumberger, will hold a conference call to discuss its first-quarter earnings on April 21. Baker Hughes, the third-largest oilfield contractor, is scheduled to report earnings on April 22.
The company also said today its board approved an $8 billion buyback program.
To contact the reporter on this story: Jim Kennett in Houston at jkennett@bloomberg.net.
Last Updated: April 18, 2008 16:21 EDT
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