* 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 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
"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."
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
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.