WRAPUP 2-Oil service firms struggle to shake off US slump
* U.S. drilling cannot recover without natgas price rally
* Analysts, executives see little chance of bounce in 2009
* BP cutting more costs points to further market tightness
* Oil services index down 3 pct; FMC Tech profit surprises (Adds FMC Technologies in paragraph 4, closing share prices)
SAN FRANCISCO, July 28 (Reuters) - A flattened U.S. drilling market is weighing down earnings for oilfield services companies and clouding their outlook as they seek to recover from a dramatic decline in demand during the past 12 months.
Earnings at equipment and service provider National Oilwell Varco Inc (NOV.N) exceeded Wall Street expectations, but they came up short at service company Smith International Inc (SII.N).
Shares of both companies fell as a rally in oil prices stalled and their expectations for the quarters ahead offered investors few reasons to buy.
By contrast, FMC Technologies Inc (FMC.N), which makes subsea processing systems deployed in hot spots like Brazil, posted surprise profit growth as North American weakness was offset by subsea demand, and its stock jumped. [ID:nN28193174]
Yet while markets outside North America look healthier, BP Plc (BP.L), Europe's second-largest oil company by value, will only add to service companies' worries by lifting its 2009 cost-saving target to $3 billion from $2 billion on Tuesday.
A plunge in oil and gas prices from record highs last July has forced exploration companies to slow or halt drilling, and the fact that natural gas prices, unlike oil, have not recovered at all means activity at gas-rich U.S. fields remains subdued.
"While we think we are at the bottom, the bottom does not mean going up, and you could be looking at fishing along the bottom for a period of time," National Oilwell Varco Chief Executive Pete Miller said on a call to discuss its results.
Smith CEO John Yearwood said he saw no reason for U.S. natural gas drilling to increase this year. His company, which employs about 23,000 worldwide, cut a further 10 percent of its U.S. workforce in the second quarter, bringing the total to 23 percent this year.
U.S. natural gas prices touched a near-seven-year low this month, and gas futures tumbled on Tuesday due to lower crude oil prices, mild Midwest weather and concerns about record storage and weak industrial demand. [ID:nN28458553]
Analysts at Prichard Equity Research said they see little reason for a natural gas price recovery in the next few months because the decline in drilling activity will not have fed through.
BETTER ELSEWHERE
The CEO of Weatherford International Ltd (WFT.N), Bernard Duroc-Danner, said last week there was "no place to hide" in North America for oil services companies, after Weatherford posted a steeper-than-expected decline in quarterly profit.
Weatherford is in the midst of a long-term plan to significantly reduce its North America cost base and focus more on international markets, which Duroc-Danner believed had bottomed out in the second quarter.
Adding to the rosier view outside North America, Norwegian oilfield engineering group Subsea 7 (SUB.OL) posted on Tuesday a smaller-than-expected drop in operating profit and painted an upbeat picture of future demand. [ID:nLR223221]
National Oilwell Varco reported earnings before one-off charges of 90 cents per share, compared with 87 cents expected by Wall Street analysts. [ID:nN28526662]
Smith said its earnings, excluding charges, were 15 cents per share, short of the analysts' average forecast of 21 cents, according to Reuters Estimates. [ID:nN28527100]
Shares of Smith fell 5.8 percent to $24.75. National Oilwell slipped 2.4 percent to $36.55, and the Philadelphia Stock Exchange oil service index .OSX fell a similar amount.
On Friday, industry leader Schlumberger Ltd (SLB.N) put a damper on last week's rally in oil services stocks by giving a cautious outlook for pricing and activity. [ID:nN24444747] (Reporting by Braden Reddall in San Francisco and Matt Daily in New York; Editing Bernard Orr)
