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Schlumberger (ticker: SLB) kicked off earnings season on October 15, 2015, releasing its Q3’15 results following the close of the market. Unfortunately for oil price bulls, the world’s largest oilservice provider did not bear promising news on the macroeconomic front.

“In light of conservative customer budgets for next year, we are therefore entering another period during which we will continually adjust resources in line with activity, as the recovery now appears to be delayed,” said Paal Kibsgaard, Chairman and Chief Executive Officer of Schlumberger, in a company-issued press release.

Management will discuss the results via a conference call tomorrow morning at 9:00am EDT.

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Supply/Demand Imbalance Tightening

Kibsgaard offered little optimism for an oil price rebound in his prepared comments – a surefire disappointment for E&P and oilservice companies enduring stressful borrowing base redeterminations. The SLB executive said the oil market is “still weighed down by fears of reduced growth in Chinese demand and the expectations regarding the timing and magnitude of additional Iranian supply.”

However, Kibsgaard did mention the supply/demand imbalance continues to tighten and the significant budget cuts on the production side are beginning to take effect. “We expect this trend to continue as the oil market further recognizes the magnitude of the industry’s annual production replacement challenge,” he added.

Oilservice companies, on the other hand, are still expected to bear the brunt of the reduced drilling plans. “The market outlook for the coming quarters looks increasingly challenging with activity expected to be reduced further, as lack of available cash flow exhausts capital spending for a number of our customers, leading them to take a conservative view on 2016 E&P spending in spite of any gradual improvement in oil prices,” Kibsgaard explained. Management does not expect current activity to offset typical seasonal impacts in Q4’15.

The forecast may place the balance sheets of smaller oilservice providers at even greater risk. SLB and Halliburton (ticker: HAL) are supergiants in the sector and can adjust their prices accordingly to maintain market share. Smaller providers do not have that kind of flexibility.

David Anderson, Senior Equity Analyst for Barclays, discussed the issue with Oil & Gas 360® back in April.  “Since HAL is the low cost operator, it doesn’t matter what price they go at,” he said. “They have the ability to take the competition down to cash costs and will continue to make money, but for everybody else it’s going to be a tough couple of quarters.”

The pressing debt numbers are apparent in EnerCom’s Oilservice Weekly Benchmarking Report. For the week ended October 9, 2015, the median operating profit for 60 service companies was 4%, compared to 7% from results on October 10, 2014. In the same time frame, enterprise value to trailing twelve month EBITDA has declined to a median of 5.2x from 6.9x, and debt to market cap percentages have climbed to 62% from 26%.

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