Schlumberger Ltd (SLB.N) and Baker Hughes Inc (BHI.N), the No. 1 and No. 3 oilfield service companies, posted higher-than-expected profits as revenue piled up outside North America despite dark clouds looming over the world economy.
A surprising bounceback in U.S. operations for Baker Hughes sparked a nearly 9 percent leap in its shares to above $45. But the shares remain $3 short of where they were before the company's March profit warning about its customers' exodus out of U.S. natural gas fields.
The Baker Hughes-compiled U.S. rig count has remained steady as natural gas reductions have been offset by more oil drilling. But the count outside North America hit 1,285 in June, its highest level since 1985, lifted by the inclusion of some 80 rigs in Iraq that expanded the Middle East count by a quarter.
Baker Hughes stuck with its forecast for 8 percent growth in the international count this year, excluding the Iraqi rigs, while Schlumberger expects more than 10 percent growth.
But Morningstar analyst Stephen Ellis said he was concerned that macroeconomic headwinds from Europe and China may weigh down oil prices and lead to more challenging results overseas.
Schlumberger Chief Executive Paal Kibsgaard, while generally upbeat on the quarterly conference call, also pointed to potential obstacles for international growth.
"We saw significant volatility in the second quarter in terms of the global markets," Kibsgaard said. "That volatility could bring some more caution into some of the operators, how they plan to go forward with activity."
Investment cycles outside the volatile U.S. and Canadian oilfields are generally smoother, and analysts said Schlumberger got a particularly big lift from Europe and Africa last quarter.
Kibsgaard said North Africa and Russia remain promising, and he could not point to any disappointing regions. Assuming no macroeconomic issues, he expects pricing to continue improving this year.
Both companies hailed the return of Gulf of Mexico drilling to levels seen before the disastrous oil spill there two years ago, and Baker Hughes CEO Martin Craighead expects five more deepwater rigs to join the 24 already there later this year.
Schlumberger's second-quarter net profit rose to $1.40 billion, or $1.05 per share, from $1.34 billion, or 98 cents per share, a year earlier. Analysts' average forecast was $1.00 per share, according to Thomson Reuters I/B/E/S. [ID:nL2E8IK0IU]
Revenue increased 16 percent to $10.45 billion, of which two-thirds was earned outside North America.
Profit growth for Houston-based Baker Hughes was also driven by Europe, as well as better-than-expected earnings in its home market. Overall, it earned $439 million, or $1 per share, while analysts had expected 77 cents a share.
Brokerage Tudor Pickering Holt described the results as "very good, especially against low expectations."
Like other U.S. hydraulic fracturing players, Baker was hit by a leap in the price of guar, a key ingredient in fracking fluid, as well as the shift to U.S. oil basins in response to decade-low natural gas prices.
U.S. fracking leader Halliburton Co (HAL.N), which reports earnings on Monday, warned in June that North American profit margins were hit hard by the guar shortage.
Craighead said guar prices, after peaking at $12 per pound in the second quarter, had come down to about $5 per pound in the last few weeks. But Baker Hughes said that would not help much this quarter as it must still use up pricier inventory.
Kibsgaard said it was clear that fracking profit margins would continue to decline in the third quarter, which he hoped would be offset by greater activity in the Gulf of Mexico.
"We are obviously well positioned to offset the hydraulic fracturing, but to what extent we can do it is still a bit uncertain," he said.
Baker Hughes shares jumped 8.7 percent to $45.38 in morning trading, while Schlumberger rose 1.9 percent. Halliburton climbed 2.5 percent.
(Reporting by Braden Reddall in San Francisco; Additional reporting by Swetha Gopinath in Bangalore; Editing by John Wallace)