Schlumberger Ltd., the world's largest oilfield services company, on Friday said quarterly earnings nearly doubled, beating expectations, but its shares dipped on worries that North American natural gas business could weaken.
Chief Executive Andrew Gould said high natural gas storage levels in North America had begun to affect drilling activity in the region, especially in higher-cost operations in Canada such as coal bed methane and shallow gas production.
"This has not yet materially impacted our activity; however, if the coming winter fails to stimulate strong natural gas demand, there is a growing likelihood of excess equipment capacity in the pressure pumping business at some point in 2007," Gould told a conference call.
Shares in the company fell nearly two percent or $1.15 to $61.35, a sharper drop than the 0.7 percent decline in the Philadelphia Oil Service sector <.OSX>. Schlumberger shares have tripled over the past three years, but are 17 percent off their May lifetime peak.
"I think there's probably some concerns about the comments on natural gas being a precursor to a slowdown," said Pierre Conner, analyst with Capital One Southcoast.
But Conner said Schlumberger has a stronger international presence than many of its peers, which should make it less vulnerable to a slowdown in North America.
Schumberger's Gould said the company had seen no affect currently from the drop in natural gas prices, which are at less than half the prices they were at the end of December, but said any downturn could force the industry to retire some of the older equipment still in use.
"I think Schlumberger's trying to send a message to the industry that there's too much capacity in pressure pumping," said Dan Pickering, head of Pickering Energy Partners in Houston.
STRONG SEISMIC
Third-quarter net income from continuing operations rose to $1 billion, or 81 cents per share, from $541 million, or 44 cents per share, a year earlier, boosted by strong drilling services demand and rapid growth in its seismic business continued.
The results topped the analysts' average forecast of 77 cents per share, according to Reuters Estimates.
Schlumberger and others in the oilfield sector have seen revenues surge in the past two years as oil and gas producers have spent heavily to increase production and take advantage of historically high energy prices.
Operating revenue rose 34 percent to $4.95 billion from $3.7 billion.
Western Geco, Schlumberger's oil and gas deposit measuring seismic arm, saw revenue increase 51 percent to $659 million as pretax income nearly tripled to $242 million.
Oilfield services revenue rose 32 percent to $4.3 billion, while pretax income jumped 68 percent to $1.21 billion.
North American pre-tax profit rose 88 percent from a year ago to $410 million, while the European, African and former Soviet states region earnings rose 67 percent to $335 million. Middle East and Asia profit climbed 47 percent to $332 million and Latin American earnings rose 41 percent to $130 million.
The company deferred about $20 million in revenues from Venezuela during the quarter pending the result of ongoing discussions on new contracts for drilling barges and outstanding receivables.
The company also said it had repurchased 8.1 million shares during the quarter for $482 million, or an average price of $59 each.
