WRAPUP 2-Schlumberger soars on global drilling boom, Baker hit at home

Fri Jul 19, 2013 10:46am EDT

* Schlumberger Q2 EPS $1.15 vs estimate $1.10
    * Baker Hughes profit down 45 pct, CEO sees rebound
    * Schlumberger shares rise 4 pct, Baker down 4 pct


    By Braden Reddall
    July 19 (Reuters) - A three-decade high for drilling
activity outside North America lifted Schlumberger Ltd 
to a seventh straight estimate-topping quarterly profit, while
U.S.-focused Baker Hughes Inc came up short in a tough
quarter closer to home.
    Shares of global oilfield services leader, Schlumberger rose
4.3 percent to $81.88, touching a near-two-year high briefly,
while Baker Hughes fell 4 percent to $47.14.
    UBS analyst Angie Sedita was impressed by Schlumberger's
strong execution in almost every region. "Additionally positive
data points for continued strength in the international and
deepwater markets support strong growth in the years ahead," she
wrote in an investor note.
    Schlumberger said second-quarter net income rose 49 percent
to $2.1 billion, or $1.57 per share, in the second quarter, from
$1.4 billion, or $1.05 per share, a year earlier. Excluding
certain items, its profit was $1.15 per share, whereas analysts
had expected $1.10, according to Thomson Reuters I/B/E/S. 
    Schlumberger, which makes more than two-thirds of its
revenue outside North America, is better insulated from the
uncertain oilfield market in the home country of rivals
Halliburton Co and Baker Hughes over the rest of 2013.Exploration and drilling rebounded in China and Australia
and growth continued in the key markets of Saudi Arabia and
Iraq, Schlumberger Chief Executive Paal Kibsgaard said.
    Yet U.S. natural gas prices have remained weak due to excess
supply from shale fields. Both Schlumberger and Baker Hughes saw
strong activity in the Gulf of Mexico and improved deployment of
hydraulic fracturing equipment, but Kibsgaard expected the
fracking market to be oversupplied for the rest of this year.
    Incorporated in Curacao, Schlumberger has major offices in
The Hague, Paris and Houston.
    Overall, the near-term U.S. outlook is positive, with
Barclays this week tallying a 4 percent rise in drilling permits
in June in the 30 states it surveys. Analysts sense drilling
budgets may come under pressure before year-end, though
Kibsgaard believed budgets for services would hold up.
    "So that obviously would be good for our business, because
that is sort of where we make most of our money," he said.
    Baker Hughes CEO Martin Craighead said he expected a strong
rebound in North American operating margins in the third quarter
as activity in Canada returns to normal. 
    Baker's Canadian revenue and profits declined significantly
as rig counts dropped to their lowest levels in four years in
the annual spring slowdown as melting ice disrupts oilfield
activity. 
    The company's 45 percent fall in overall second-quarter
profit was mainly due to lower margins in North America, as well
as weakness in Latin America. 
    The U.S. gas-directed rig count fell to an 18-year low of
353 in June, while the rig count outside North America climbed
to 1,333, the highest level in 30 years, according to data
compiled by Baker Hughes. 
    Baker Hughes executives predicted the total U.S. rig count
would average 8 percent lower in 2013, though because of the
greater efficiency of drillers, the onshore well count would
decline by only 4 percent to 35,000 this year.
    To save on costs, drillers increasingly sink more wells from
single well sites - which also serves to improve the margins of
companies selling services to them by making logistics easier.
    In a sign of the times, Baker Hughes on Thursday launched an
onshore U.S. well count to complement its closely watched,
seven-decade-old U.S. rig count.
    "When we compare well count and rig count data side-by-side,
we can see that efficiencies in the U.S. are improving and that
drilling rigs in some basins are drilling wells faster,"
Craighead said in a statement.
    Second-quarter net income for Baker Hughes fell to $240
million, or 54 cents per share. Excluding certain items,
earnings were 61 cents per share, below the average estimate of
65 cents. Revenue rose 3 percent to $5.5 billion. 
    Prior to Friday, shares of Schlumberger and Baker Hughes had
risen about 10 percent in the past three months. Shares of
Halliburton, which reports earnings on Monday, have risen 19
percent on news the company may settle its liability related to
the 2010 Gulf of Mexico oil spill.
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