U.S. fracturing services grew by 68% sequentially from Q1 to Q2
Schlumberger has begun the oil and gas Q2 earnings season.
The oilservices behemoth announced a net loss of $74 million, or $(0.05) per share. After adjusting for special charges, Schlumberger’s net results are earnings of $488 million, or $0.35 per share.
Revenues for Q2 2017 totaled $7,462 million, which is up 8% from Q1 and 4% from Q2 2016. According to Schlumberger Chairman and CEO Paal Kibsgaard, this is in large part due to the current U.S. activity resurgence.
Total North American revenue increased 18% sequentially, as the company’s frac capacity was quickly reactivated. U.S. land revenue grew by 42%, driven by fracturing services revenue that grew by 68% sequentially.
According to Kibsgaard, despite the significant costs imposed by reactivating equipment, every Schlumberger U.S. land product line was profitable in Q2.
In international markets revenue was up 4% sequentially, primarily driven by the recovery of activity after the winter slowdown in Russia and the North Sea. Revenue in Latin America increased on higher activity in Mexico, Central America and Argentina, the location of the only major shale development outside of North America.
Kibsgaard commented on the overall outlook in a statement, remarking “While the activity outlook in North America for the second half of the year remains robust, we are now also seeing more positive signs in the international markets with increases in activity and new project plans starting to emerge in several GeoMarkets. The strengthening in the international markets has so far been concentrated around land activity in Western Siberia and in the OPEC Gulf countries but we are now also seeing an increasing number of new offshore projects being prepared for tendering and final investment decision (FID) in many of the world’s shallow water basins.”
Schlumberger acquires majority stake in Eurasia Drilling
Schlumberger also announced an agreement to acquire a majority share in Eurasia Drilling Company. Eurasia Drilling is a major drilling company active primarily in Russia and the Caspian Sea. If approved, this would further cement the alliance between the two companies which was first established in 2011. In 2011, Schlumberger and Eurasia Drilling traded several drilling and service assets in Russia, ensuring the two would work together to provide drilling services in Russia.
According to Reuters, this is the second time Schlumberger has attempted to buy into Eurasia Drilling, as Russia’s Federal Antimonopoly Service blocked a $1.7 billion deal in 2015. The current agreement is also subject to Russian antimonopoly approval. It is not clear who this
Q&A from SLB Q2 Conference Call
Q: You had some significant restart cost in North America land this quarter. Are you able to dimension how this falls off over 3Q and 4Q? So if we simply state that those extraordinary restart costs in 2Q were indexed at like 1, where does this figure head in 3Q, 4Q, is it something like 0.7 and 0.3? I’m trying to think about how those extraordinary costs roll off over time here.
Paal Kibsgaard: So if you were to index it on Q2, I would say that Q3 will be pretty much 1.0 as well. We will continue to deploy at almost exactly the same rate and we expect to have all our total fleets of idle pressure pumping assets in operation by early Q4. Now, after that, the start-up costs will start to abate, so it will come down in Q4 and going into Q1, but Q3 will see the same rates of deployment and, unfortunately, the same rate of start-up costs. But we are very pleased with the progress we’re making here and we have – the rate of deployment that we have now in our pressure pumping business is unprecedented. We’ve never gone at it at this rate before.
Q: Is there a threshold oil price when you discuss, broadly speaking, with your international client base that results in E&P capital spending growth or, alternatively, results in a continued stagnation? What’s the dividing line between growth and standing still?
Paal Kibsgaard: We don’t discuss the detail of what their decision-making is based on, other than that we very actively worked with all customers in bringing the cost of a barrel down, whether this is offshore or on land. And given the fact that, I would say, a lot of the operators have been producing their assets quite hard over the past two, three years, I think there’s a need to start replenishing reserves, and also supporting production with more wells and smaller tiebacks, and so forth.
So given the fact that this uptick has happened in the second quarter, but actually saw lower oil prices than the first quarter, I think this is more a general direction of the international production base. Most basins have unprecedented low activity and investment levels, and we seem to be coming off the bottom now. It will, obviously, be supported more by higher oil prices, but there’s been movement in the second quarter, which has actually seen a more negative oil price sentiment. I think that’s going to turn in the second half of the year in terms of sentiments, but the start of growth momentum, although still nascent, has happened in the second quarter.
