UPDATE 5-North America drives gain in Schlumberger profit

* Q3 EPS ex-items 70 cts vs Wall St view 69 cts

* Revenue rises 26 percent to $6.85 bln

* Analyst says results lend credence to Q4 expectations

* CEO looks ahead to succession next year

* Shares close up 5.4 pct to 5-month high (Adds comments from CEO, analyst; updates share price)

By Matt Daily and Braden Reddall

NEW YORK/SAN FRANCISCO, Oct 22 (Reuters) - Schlumberger Ltd SLB.N, the world's largest oilfield services company, posted an increase in quarterly profits on strength in U.S. and Canadian land drilling.

Schlumberger’s stock closed up 5.4 percent on Friday, after underperforming the sector this year due to previous profit disappointments.

Firmer oil prices and brisk drilling activity for natural gas in shale rock formations in North America have buoyed the industry, which has suffered from a big drop in Gulf of Mexico drilling since BP Plc's BP.L oil well blowout in April.

Schlumberger's results mirrored those of rival Halliburton Co HAL.N this week, but Schlumberger warned that brisk North American gas drilling would slow down in the coming months, unless there was an unexpected pick-up in natural gas demand.

Chief Executive Andrew Gould said a shift to liquids-rich shale fields was offsetting the decline in other drilling, but that shift was not profitable in the long term if there is no money to be made on the gas that accompanied the liquids.

“Fundamental economic principles have not gone away, and at some stage activity will moderate,” Gould told analysts on a conference call. “But please don’t ask me when it is, because I don’t know.”

Natural gas prices have slumped in recent months, with the benchmark NYMEX futures falling below $3.35 per million British thermal unit, triggering expectations that producers will halt spending on new wells.

Still, North American oil and gas activity is likely to remain the key driver for the industry, since oil prices are not high enough to spark a surge in activity in other regions.

UBS analyst Angie Sedita, who rates the shares a “buy,” expects a slow and moderate recovery in international markets.

Gould said he saw the potential for its margins to increase outside North America in 2011, though margins in the important Russian market would be fairly flat as improvement in Western Siberia would be offset by weakness elsewhere.

Asked about his priorities for next year, Gould said apart from seeing through the integration of Smith International, he wanted to ensure a smooth transition to his successor.

Gould, CEO since 2003 and a 35-year Schlumberger veteran, turns 64 in December, and CEOs have stepped down at 65 in the past, a spokeswoman said. Analysts see Paal Kibsgaard, named chief operating officer in February, as a likely replacement.


Schlumberger, with major offices in Paris, Houston and The Hague, is now incorporated in Curacao due to the dissolution of Netherlands Antilles this month. [ID:nN10282618]

Third-quarter net income jumped to $1.73 billion, or $1.38 a share, from $787 million, or 65 cents a share, a year ago. The most recent third quarter earnings included a net after-tax credit of $859 million reflecting the increase in value of the M-I Swaco joint venture with Smith after Schlumberger bought Smith in August.

Excluding one-time items, earnings of 70 cents per share came in slightly above the 69 cents that analysts had forecast on average, according to Thomson Reuters I/B/E/S.

Simmons & Co analyst Bill Herbert said the performance “lends more credence” to the average Wall Street estimate for fourth-quarter profits of 77 cents per share, indicating that was “conservative” now.

Third-quarter revenue climbed 26 percent to $6.85 billion. At Schlumberger’s oilfield service operations in North America, revenue rose 53 percent to $1.26 billion.

Gould said its North American land business would remain strong but deepwater Gulf of Mexico drilling would not return quickly despite this month’s lifting of a U.S. moratorium, which trimmed Schlumberger’s earnings by 2 to 3 cents per share in the quarter.

Outside North America, earnings were mixed, with Asian, Russian and North Sea markets improving, but Mexico and some markets in Africa declining.

On Monday, Halliburton reported a profit that topped analysts’ consensus figure but fell short of more bullish expectations that had driven its shares up by nearly 30 percent in the month ahead of its results. [ID:nN18244280]

Baker Hughes Inc BHI.N reports results on Nov. 1.

Schlumberger shares closed up 5.4 percent on Friday to $67.47, trading at its highest levels since May. (Reporting by Matt Daily, additional reporting by Braden Reddall in San Francisco; Editing by Matthew Lewis, Derek Caney and Carol Bishopric)