Schlumberger expects reactivation costs to squeeze margins


UPDATE 4-Schlumberger expects reactivation costs to squeeze margins

* Q1 revenue rises 5.7 pct to $6.89 bln
    * Cost of revenue increases 11.3 pct to $6.08 bln
    * Pre-tax operating margin 11 pct vs 13.8 pct
    * Q2, Q3 margin growth to lag Q1 - analyst

 (Adds Breakingviews link)
    By Arathy S Nair and Swetha GopinathApril 21(Reuters) - Schlumberger NV <SLB.N> 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 <HAL.N>, 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. [nL2N1H50SO]
    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. (
    Excluding items, Schlumberger earned 25 cents per share,
matching analysts' estimates, according to Thomson Reuters
    Revenue of $6.89 billion came in below estimate of $6.96

BREAKINGVIEWS-Schlumberger exposes oil's geographic fault lines
[nL1N1HT0QB]    [nL1N1HT0QB]
 (Reporting by Arathy S Nair in Bengaluru; Editing by Sriraj
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This article appears in: Fundamental Analysis , Stocks , World Markets , Oil , Earnings
Referenced Symbols: HAL , SLB

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