“In the second quarter market conditions worsened further in most parts of our global operations, but in spite of the continuing headwinds we now appear to have reached the bottom of the cycle,” Schlumberger CEO Paal Kibsgaard said.
However, the company still has free cash flow, good operating margins and pre-tax operating income, with second quarter revenue rising 10% sequentially thanks to a full quarter of activity from the recently acquired Cameron, which chipped in $1.5 billion.
However, revenue dropped 12% on a pro forma basis, with North American income falling 20% and the US land rig count down 25%.
The company expects to further streamline its overheads, infrastructure and asset base after culling 16,000 staff, leading to $646 million in restructuring charges in the second quarter, plus a non-cash $1.9 billion impairment charge for fixed assets, inventory and multi-client seismic data.
It also copped $335 million in merger and integration charges relating to the Cameron transaction.
“The effects of the cuts that we have seen in E&P spending are now clearly visible in falling oil production, and with demand remaining strong, we are heading more rapidly towards an increasing negative gap between global supply and demand for oil,” Kibsgaard said.
“This will require significant capability and capacity to reverse, and without pricing recovery the service industry will be challenged to deliver.”
Schlumberger has sought to expand its technology portfolio amid the downturn not only by acquiring Cameron but with a series of smaller acquisitions that are enabling the development of new integrated drilling and production technologies that the company believes will further lower cost per barrel.
It has also leveraged the opportunities of transformation to create “significant” competitive advantage and steadily improve its intrinsic performance.
“Whatever shape the recovery takes, service pricing must rise while respecting the need for operators to control their costs in what will likely be a medium-for-longer oil price environment,” the CEO warned.
“This provides an opportunity to share the additional value that can be mutually created through collaboration and integration.
“We will therefore continue to develop the way in which we operate as a company as well as the nature of the work that we undertake, making sure we remain at the forefront of an industry that increasingly needs fundamental change.”
FMC woes
Schlumberger wasn’t alone in job cuts, with Houston-based FMC also cutting 1000 jobs amid shrinking profits as it prepares for its merger with French company Technip.
FMC sees a continued future in deepwater activity despite the likes of ConocoPhillips pulling out of such costly ventures.
Suffering particularly with the drop in US shale production, FMC at least turned a profit, albeit a slim $2.2 million, down from $108 million a year prior.
FMC chairman and CEO John Gremp said the company’s subsea technologies division delivered solid operating margins, benefiting from what he called “execution momentum” as well as the savings from its ongoing restructuring activities.
However, the further deterioration in North America led to a significant impact to its surface technologies business.
Total inbound orders were $537.9 million, including $334.1 million for subsea technologies.
Its backlog was $3.4 billion, including subsea technologies’ backlog of $2.9 billion.
“Although the timing around the sanctioning of deepwater projects remains uncertain, we continue to focus our strategy on lowering the cost of deepwater development, and I am confident that our merger with Technip will allow us to further improve project economics,” he said.
