Activity could improve in the longer term as the global crude market comes into balance, said the world’s top two oilfield service firms on Friday but warned that weakness in offshore exploration and slower producer spending may weigh on current-quarter earnings.
With Schlumberger NV hitting a 21-month low and Baker Hughes touching a 16-month low before retracing some losses, the outlook drove shares in both companies lower.
with customer investments in North American production moderating due to investor pressure for improved shareholder returns, Wall Street estimates for fourth-quarter earnings may be too high, warned Schlumberger, the world’s largest oilfield service company.
Schlumberger Chief Executive Paal Kibsgaard said that recent spending cutbacks on U.S. production could eventually boost crude prices and but global oil supply and demand is becoming more balanced.
Kibsgaard said that producers would be benefitted as inventories fall due to a current lack of production investments outside North America.
describing the business environment as “challenging” with customers pushing out some equipment purchases and saying the oilfield services industry continues to be volatile, Baker Hughes’ CEO Lorenzo Simonelli was more pessimistic.
“We have seen some improvement in activity but we have not seen meaningful increases in customer capital commitments,” he said.
Baker Hughes off less than 1 percent at $33.08 and Schlumberger was last down 3.3 percent at $62.33.
Share prices were knocked back after a sharp run up in 2016 and after ramping up spending earlier this year while oil prices remained flat, U.S. oil producers are under pressure to boost shareholder returns.
the U.S. crude benchmark CLc.1 has remained mostly below $55 a barrel and Brent crude prices LCOc1 have barely budged this year.
Including on oilfield services activities, second-half capital spending plans were cut this summer by U.S. producers Anadarko Petroleum Corp, ConocoPhillips and Hess Corp.
In a bid to tame excess capacity, a fresh round of consolidation was driven and crude’s sub-$60 prices have also weighed on offshore exploration among those drillers.
“In the U.S. Gulf of Mexico, activity continued to weaken in the third quarter, and the outlook remains bleak for this region based on current customer plans,” Schlumberger’s Kibsgaard said.
Baker Hughes reported a third-quarter profit that missed analysts estimates by a wide margin in its first report to include GE Co’s oil and gas business since their merger.
However, Schlumberger posted a 43 percent jump in business from North America and matched analysts’ profit estimates.
Shares in Halliburton Co, due to report third-quarter results on Monday, were little changed.
(Adapted from Reuters)