Baker Hughes,Schlumberger Profits Lift Oil Field Services Gloom
07/20/2012| 02:11pm US/Eastern
--Baker Hughes stock up nearly 9% on earnings beat
--Oil field services companies beat analyst estimates amid strong oil field activity
(Updates throughout with background; comments from analyst, executive; new share price.)
By Alison Sider
HOUSTON--Oil field services companies Schlumberger Ltd. (>> Schlumberger Limited.) and Baker Hughes Inc. (>> Baker Hughes Incorporated) on Friday surprised Wall Street with better-than-forecast second-quarter results at a time when their businesses face rising costs in North America and global economic uncertainty.
Schlumberger, the world's largest oil field services company, reported a second-quarter profit of $1.4 billion, or $1.05 a share, up 4.8% from a year earlier. Revenue jumped 16% to $10.45 billion. Analysts polled by Thomson Reuters had most recently forecast earnings of $1 a share on revenue of $10.41 billion.
Baker Hughes reported increased profit of 30% to $439 million, or $1 a share. The year-earlier period included expenses of 16 cents a share related to the company's operations in Libya. Revenue rose 12% to $5.33 billion. Analysts surveyed by Thomson Reuters recently expected earnings of 77 cents a share on $5.26 billion in revenue.
The earnings dispelled gloomy perceptions among analysts focused on weakness in the hydraulic fracturing business in North America, a big chunk of major oil field services companies' bread and butter. There, rigs have been migrating en masse from unprofitable natural gas areas to harder-to-tap oil shale, resulting in expenses and inefficiencies that oil field service providers cannot fully pass on to the energy producers that hire them amid a glut of hydraulic fracturing capacity.
Even lowly guar--a bean that's used in hydraulic fracturing fluid--had upset investors, as a recent shortage of the product led Halliburton Co. (>> Halliburton Company), which reports results Monday, to recently lower its earnings outlook.
But oil field activity seems to have held on better than expected in the face of declining prices, leading to narrower-than-forecast declines. Bill Herbert, an analyst with Simmons & Co., said that could mean North American margins will bottom out at a higher level than expected.
The companies also said that a widely feared global economic slowdown, resulting from the euro-zone crisis and faltering growth in China and the U.S., hasn't produced a massive pullback in oil drilling, which has been the main pillar of the energy industry both in North America and abroad amid a market glut for natural gas.
"They haven't seen customers pull back in terms of activity. That's a positive for the whole sector," said Phil Weiss, an analyst at Argus Research.
And prices for guar are dropping, said Baker Hughes Chief Executive Martin Craighead, who added that the company was looking for ways to replace the product.
Stock prices for both companies rose Friday. Baker Hughes was trading up 8.7% recently, at $45.40. Schlumberger's stock was up 26 cents at $68.90.
Schlumberger's earnings were attributed mostly to strong results in its international operations, which CEO Paal Kibsgaard said are on track to grow through the rest of the year.
"Absent a future setback to the world economy, [we maintain] our stated view that international activity will grow in excess of 10% this year," he said, highlighting Russia as the fastest-growing market for the company.
In North America, rising activity in the deep waters of the Gulf of Mexico helped offset stagnation in hydraulic fracturing margins. Schlumberger's revenue in the region fell 1.7%, but the company said they actually grew if seasonal factors in Canada are taken out.
Revenue at Baker Hughes's North American oil field operations, the company's largest geographic business by revenue, grew 13%, although the segment's pretax profit fell 18%. Baker Hughes had warned that its North America margins for the second quarter would decline, due mostly to seasonality in Canada. The decline, however, was narrower than most analysts expected.
-Melodie Warner and Angel Gonzalez contributed to this article.
Write to Alison Sider at firstname.lastname@example.org
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