Schlumberger expects reactivation costs to squeeze margins

Schlumberger NV warned on Friday that margins would remain under pressure as the oilfield services provider spends more to bring back idled equipment to meet rising demand from North American shale producers after a two-year lull.

 

Shares of the company, whose quarterly profit nearly halved due to a jump in costs, fell as much as 4.4 percent to $73.18, their lowest in nearly a year.

 

Oilfield service providers, including Schlumberger's rival Halliburton Co, are reviving equipment they stacked during the downturn in oil prices.

 

But bringing most oilfield fleets online comes at a cost, including expenses involved with repair and upkeep, and re-hiring of employees to man the equipment.

 

"We will have some headwinds around one-time reactivation cost in the coming quarters," Schlumberger's Chief Executive Officer Paal Kibsgaard said on a post-earnings conference call.

 

The world's No.1 oilfield services provider said its cost of revenue increased 11.3 percent to $6.08 billion in the quarter ended March 31, outpacing a 5.7 percent rise in revenue.

 

The company's pre-tax operating margin fell to 11 percent in the latest quarter, from 13.8 percent a year earlier.

 

Schlumberger's margin growth in the second and third quarters will be slower due to the reactivation costs, said James West, a partner at Evercore ISI.

 

Still, Schlumberger expects its second-quarter earnings per share to increase 15-20 percent from the first, buoyed by strong North America demand.

 

Revenue from North America surged 27.8 percent to $1.87 billion in latest quarter, while international revenue fell 1.1 percent to $4.92 billion. "We expect another challenging year in international markets in 2017 before a clear acceleration of activity in 2018," Kibsgaard said.

 

Schlumberger said production constraints imposed on its project in Ecuador also impacted its latest quarter results as it struggles to collect $1.1 billion from Ecuador's state-owned Petroamazonas.

 

The company said on Friday it was willing to continue talks with Petroamazonas, but said it was not clear when the payment issues would be resolved.

 

Schlumberger has invested $3 billion in Ecuador to-date under contracts signed earlier this decade to expand production at two oilfields.

 

Net profit attributable to Schlumberger fell about 44 percent to $279 million, or 20 cents per share, in the first quarter. (http://bit.ly/2ox4Wg5)

 

Excluding items, Schlumberger earned 25 cents per share, matching analysts' estimates, according to Thomson Reuters I/B/E/S.

 

Revenue of $6.89 billion came in below estimate of $6.96 billion.