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HOUSTON — Schlumberger Ltd. exemplified the ongoing troubles for oil and gas industry, reporting Friday its second-quarter earnings tumbled 57 percent and offering an uncertain outlook for the rest of 2009 and beyond.
Even though results for the world's largest oilfield services company topped Wall Street expectations, Schlumberger shares fell more than 3 percent.
Oil and gas producers continue to cancel or postpone exploration and drilling projects, many of which aren't worth it at current commodity prices. That means less work for Schlumberger and other service companies, which help producers with drilling, seismic surveys and other oilfield tasks.
Schlumberger chairman and CEO Andrew Gould said clients weren't likely to substantially increase spending until prices — and their cash flows — improved. He said oil's volatile swings in the past year made it impossible to predict when activity might rebound.
"Even our very largest customers are having to borrow or dip into their war chests to sustain their spending," Gould said on a conference call with analysts. "And they'll only go on doing that for a certain period of time."
Like smaller rival Halliburton Co. earlier this week, Schlumberger said a significant decline in natural-gas drilling in North America weighed heavily on second-quarter results.
Gould said the rate of declining revenue slowed in the second quarter from the start of the year as improving business in other parts of the world somewhat offset the drag from North America. Activity in Russia was noticeably improved, Gould said.
One of the biggest problems for energy companies has been natural gas prices, which have tumbled from double-digit levels a year ago to well below $4 per 1,000 cubic feet of late.
Gould said natural-gas drilling in the U.S. and Canada reached a five-year low in recent months because of weak demand and large inventories. He said he doesn't expect a significant rebound in drilling this year.
Overseas, Schlumberger said declining activity should be limited as the year progresses but pricing concessions made in the first half of the year will affect second-half revenue.
In addition, Gould said, "the current volatility in the oil price makes it unlikely that our customers will sanction any major increases in expenditures."
After hitting an all-time high near $150 a barrel a year ago this month, the price of crude tumbled all the way down to below $33 in January. It's now back up to around $67 a barrel.
Schlumberger said net income for the April-June period fell to $613 million, or 51 cents per share, from $1.42 billion, or $1.16 per share, a year earlier.
One-time items aside, Schlumberger said income from continuing operations amounted to 68 cents a share — 5 cents better than the consensus estimate of Wall Street analysts polled by Thomson Reuters.
Revenue fell 18 percent to $5.53 billion but beat the consensus forecast of $5.46 billion.
Company shares fell $1.96, or 3.4 percent, to $55.81 in midday trading.
Schlumberger in January said it had slashed 5,000 jobs worldwide and on Friday, the company reported one-time charges of 17 cents a share related to severance payments and retirement benefits.
The company, whose principal offices are in Houston, Paris and The Hague, said revenue at its oilfield services arm fell 18 percent year over year to $5 billion, but sales were off 43 percent in North America. Its seismic arm, WesternGeco, posted second-quarter revenue of $559 million, down 17 percent from a year ago.
Earlier this week, Halliburton signaled the difficulty service companies are facing, reporting its second-quarter profit fell 48 percent from a year earlier. Several of the major oil producers, including Exxon Mobil Corp. and ConocoPhillips, are scheduled to report second-quarter results next week.
