(Reuters) - Oilfield services companies Schlumberger Ltd (SLB.N) and Baker Hughes Inc BHI.N reported better-than-expected quarterly profits and signaled an improvement in the North American market, driven by increased drilling in the Gulf of Mexico.
Schlumberger, the world’s largest oilfield services company, gets a third of its revenue from North America. The region accounts for half of rival Baker Hughes’ annual revenue.
The companies provide drilling technology and equipment, well construction services and seismic surveys to oil and gas companies such as Exxon Mobil Corp (XOM.N).
Three years after the worst offshore oil spill in U.S. history, large oil and gas companies are ramping up operations in the Gulf, which is poised to deliver more than 700,000 barrels per day of crude.
While Schlumberger’s revenue from deepwater drilling in the region fell in the first quarter due to operational delays, the company expects the situation to normalize in the current quarter.
“The outlook for deepwater drilling activity in the Gulf of Mexico remains strong for the full year,” Chief Executive Paal Kibsgaard said on a conference call with analysts.
Baker Hughes, which said it had a good first quarter in the Gulf, expects business to continue to improve in the region and boost margins, particularly in the second half of the year.
Barclays analysts were upbeat on both stocks, saying the companies had done well in North America despite a colder-than-usual winter.
“The industry bellwether posted a solid earnings number in a tough quarter (and) signaled a ‘robust’ North American market ...,” they said in a research note, referring to Schlumberger.
The company’s North American revenue rose 12 percent to $3.68 billion in the first quarter. Baker Hughes posted a 7 percent rise in revenue to $2.78 billion from the region.
Baker Hughes’ shares rose as much as 5 percent to $69.43 on the New York Stock Exchange - their highest since August 2011.
Schlumberger’s shares, which rose less than 1 percent in morning trade to their highest in nearly six years, were marginally down at $100.34 in morning trading.
The stock has risen about 12 percent in the past month, outperforming shares of Halliburton Co (HAL.N) and Baker Hughes.
In the past couple of quarters, colder-than-usual weather in North America and Russia disrupted drilling, hurting oil and gas companies.
The cold weather, however, pushed up natural gas prices in North America and depleted stockpiles to their lowest level since 2003, after years of glut that forced many drillers to idle rigs.
Kibsgaard said the fundamentals of the global economic recovery were intact despite the harsh winter, slowing growth in China, and problems in Ukraine.
“These factors, however, are likely temporary in nature ... but supply and demand is expected to normalize over the coming months,” he said in a statement.
Oilfield services companies are expected to feel the heat as large oil companies, after a decade of double-digit growth, cut spending amid stagnating oil prices and higher project costs.
The company has already seen a reduction in spending from integrated oil companies, Kibsgaard said, adding that he expects them to cut spending more on infrastructure and less on well-related projects.
Schlumberger, which cut its 2014 capital spending budget by about 3 percent to $3.8 billion, said it expected spending on well-related activity to rise by more than 6 percent this year.
Schlumberger’s first-quarter revenue fell short of the average analyst estimate due to reduced drilling activity and pricing pressure in Latin America.
Revenue from the region declined 8 percent to $1.76 billion, the lowest in eight quarters. Latin America accounted for nearly 16 percent of Schlumberger’s total sales in the first quarter ended March 31.
Schlumberger’s profit from continuing operations rose 32.5 percent to $1.59 billion, or $1.21 per share, in the first quarter. Analysts had expected a profit of $1.20 per share.
The company’s total revenue rose about 6 percent to $11.24 billion, but missed the average analyst estimate of $11.49 billion, according to Thomson Reuters I/B/E/S.
The company expects deepwater drilling in Brazil to be down more than 20 percent in 2014.
Baker Hughes also posted a 10 percent drop in quarterly revenue from Latin America.
The company’s adjusted profit rose 27 percent to 84 cents per share, while revenue rose nearly 10 percent to $5.73 billion. Analysts on average had expected earnings of 78 cents on revenue of $5.71 billion.
Writing by Sayantani Ghosh in Bangalore; Editing by Joyjeet Das, Kirti Pandey and Saumyadeb Chakrabarty