Oil services provider Schlumberger sees a "strong" outlook for upstream activity in the second half of 2014, with its international businesses expanding in all geographic markets and North America offering growth opportunities, particularly in onshore shale plays, its CEO said Friday.
As the global economy continues to recover, the global oil market is relatively tight, although solid demand has been offset in part by pockets of supply uncertainty due to political events in parts of the world, Paal Kibsgaard said during a second-quarter earnings call.
But in general, Brent crude that is holding above $100/barrel should encourage investment in oil-directed activity as US production continues to grow, Kibsgaard said.
In 2014, "we continue to expect well-related E&P investment levels to grow north of 6%, driven by more development than production-focused activities," he said. Meanwhile, "exploration spending will be largely flattish in 2014 driven by lower seismic spending as international oil companies focus on free cash flow generation."
"We're ... positive on our 2014 outlook as we continue to aim for double-digit growth in earnings per-share," he said.
Internationally, where the market is "highly competitive," Schlumberger's revenue grew 5% year-over-year on strong growth in the Middle East, Asia and Europe/Africa, while the pre-tax operating margin was 24% -- a level not seen since before the global recession began in 2008, Kibsgaard said.
He added that international sanctions on Russia earlier this year have had "no real impact" on Schlumberger's business. "For now it's business as usual."
Other than that, a solid recovery there following a harsh winter and recent contracts for Sakhalin Island projects should allow the company to finish the year on a "strong note," Kibsgaard said.
Second-quarter activity in Latin America was uneven as revenue fell 3% to $1.91 billion. Sluggish activity in Brazil and Mexico was only partly offset by stronger activity in Argentina, especially in the Vaca Muerta shale, Ecuador, and Venezuela. In Mexico, where budget constraints have caused cutbacks in rigs, the prognosis for the rest of 2014 looks stronger as the country resolves some of the specific issues that had shut Schlumberger-placed rigs the country's south, Kibsgaard said.
In the Middle East and Asia, where Q2 revenue rose 12% from the year-ago quarter to $2.96 billion was driven by Saudi Arabia, which is becoming one of the "largest and most advanced setups in our global portfolio," he said. "We continue to add resources and invest in the country to keep pace with additional work we're taking on," he added.
The company's activity in southern Iraq was down year-on-year due to mounting civil unrest, but northern Iraq activity was strong, driven by exploration drilling. "We expect second-half growth in the north" and this should offset setbacks in the south, he said.
North American revenue was up 16% year-over-year to $3.89 billion, despite a softness in multi-client seismic sales. But Schlumberger continues to increase its market share from hydraulic fracturing, artificial lift and land drilling services in rapidly expanding unconventional and shale plays, Kibsgaard said.
The company has adopted a new strategic plan for its North American land business focused on efficiencies and technology that should establish an expanded base for growth in the coming years, Kibsgaard said.
Schlumberger's Q2 income from continuing operations, excluding charges and credits, was $1.8 billion, down from $2.2 billion in the comparable 2013 period, with much of the decline attributable to a $205 million charge for discontinued operations.
