UPDATE 4-Schlumberger sees hit from fracking price pressures

Mon Mar 26, 2012 3:23pm EDT

* N.America liquids basins start seeing price pressure in Q1

* Schlumberger shares down 1.2 pct, Baker Hughes off 1.6 pct

* Market leader Halliburton rises, seen as better placed

By Braden Reddall

NEW ORLEANS, March 26 (Reuters) - Schlumberger Ltd, the world's largest oilfield services company, said profits would be hurt by downward pricing pressure for hydraulic fracturing services, which had now reached North American liquids-producing basins as well.

Chief Executive Paal Kibsgaard said that on top of the price squeeze, already widely seen in natural gas areas due to weak gas prices, the shift of pressure pumping equipment to liquids-rich basins was reducing utilization while also adding to costs.

"Together these factors will have an impact on our results both in North America, and overall, in this and in the coming quarters," Kibsgaard said in a speech to kick off the Howard Weil Energy Conference in New Orleans on Monday.

The use of hydraulic fracturing, or fracking, around the many U.S. shale basins has boosted natural gas production while stemming a decades-long trend of falling U.S. oil production.

"There is some slackening of demand in the gas plays and there has been migration to liquids plays. So there's more supply coming online and it is normal that pricing would come down," said David Vaucher, an analyst with IHS-Cambridge Energy Research Associates in Houston.

But other supplies remain scarce in general, from rigs to frack crews, water, sand and synthetic proppants used to keep cracks in shale rock open to get the hydrocarbons out.

Vaucher highlighted the challenge of getting all those materials to so many wells. "Looking at just pressure pumping is a little myopic," he said. "There is upward pressure for all other things that are still required for fracking jobs."

HALLIBURTON UP

Shares of Schlumberger, which makes most of its money outside North America, fell 1.2 percent to $72.28, while rival Baker Hughes Inc dropped 1.6 percent to $43.03.

Baker Hughes gave a profit warning last week, in addition to a warning in January, about the impact of disruptions from its fracking crew relocations and supply shortages.

But shares of Halliburton, the market leader in North American pressure pumping, rose 0.8 percent on Monday.

"We believe (Halliburton) has a much better developed supply-chain network, and while not immune to near-term frictions, will likely post much better margins than its peers in North America," Sterne Agee Analyst Stephen Gengaro wrote on Monday as he cut profit estimates for Baker Hughes.

Nabors Industries Ltd, the No. 6 in North American pressure pumping, sees an increasingly competitive market in 2012 and a U.S. land rig count "flat to slightly down" in the second half of 2012. But the company said that with 72 percent of its 2012 operating income under contract, the downside was limited.

Nabors also spelled out plans to sell its helicopter business and well service rigs in Canada, some of its offshore rigs, as well as its oil and gas properties. Dahlman Rose's James Crandell expects those sales to raise about $1 billion.

Outside North America, Schlumberger saw steady growth from deepwater activity and exploration, as well as key land markets.

"The medium-term outlook for the oil and gas industry remains positive, driven by the narrow cushion of spare oil capacity and the growing demand for natural gas," Kibsgaard said in his first presentation to the conference after taking over as CEO from Andrew Gould last August.

Barclays believes international growth could offset the near-term weakness in North America. "We think this softness is largely due to transitory issues and some pricing pressure in pressure pumping," analysts at the bank wrote on Monday.

Bernard Duroc-Danner, an economics Ph.D. who runs oilfield services company Weatherford International Ltd , said the pressure pumping market may get even tougher as a result of building decisions made three months ago in response to what were then healthy margins.

"Beyond the 'gas very bad, oil very very good' phenomenon, pressure pumping has dynamics of its own insofar as there is a quite sizeable amount of capacity just waiting to come on the market," Duroc-Danner told the conference.

The industry has attempted to rein in this expansion. Superior Energy Services Inc, for one, cut its pressure pumping capacity growth plan this year by about one-quarter.

This follows the huge ramp-up in the past few years. Dan Pickering, of Tudor, Pickering, Holt, sees available hydraulic horsepower by year-end at 19 million horsepower, or 2-1/2 times more than in 2009. A typical frack job uses up about 50,000 hp.