Schlumberger to Pare U.S. Operations -- WSJ
January 18 2020 - 3:02AM
Dow Jones News
By Christopher M. Matthews
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 18, 2020).
The world's largest oil-field services company, Schlumberger
Ltd., is pulling back from the U.S. and focusing on international
projects as a slowdown in shale drilling reverberates through the
industry.
Chief Executive Olivier Le Peuch said Friday that diminishing
shale production growth could reduce a plentiful supply of oil
globally and create greater market reliance on production outside
the U.S. The company is positioning itself accordingly, he said,
restructuring its business in the U.S. and reducing its fracking
fleet there by 50% while diverting spending abroad.
"The international market is poised for further growth," Mr. Le
Peuch said on a call with investors. "By contrast, North America
will depend on our execution of our strategy. There is downside
risk."
Schlumberger's business in the U.S. weighed on the company's
performance throughout 2019. The company reported a more than $10
billion net loss for the full year due to more than $12 billion in
write-downs, most of them related to U.S. assets.
In the fourth quarter, Schlumberger's profit also fell as it
reported an increase in various charges, most of them also related
to its U.S. business. The company said Friday net income was $333
million for the quarter, down 38% from the comparable quarter a
year earlier, as a reduction in spending by U.S. shale producers
cut into revenues.
"North America revenue of $2.5 billion...dropped 14%
sequentially due to customer budget exhaustion and cash flow
constraints," Mr. Le Peuch said. Earnings per share were 24 cents,
down from 39 cents a share.
Meanwhile, prospects abroad have grown brighter for the company.
While full-year world-wide revenue of $32.9 billion was flat
compared with a year prior, international revenue grew 7%, compared
with a 10% decline in North America.
Investors have cut off cash infusions to shale producers, after
frackers have largely failed to turn a profit for years. Meanwhile,
technology gains in the shale patch have slowed as drillers
struggle to wring more oil from each well. Those factors have
forced austerity on shale producers, whose dwindling budgets have
had a severe impact on the service companies who drill and frack
their wells.
Mr. Le Peuch said he expects spending by North American
producers to potentially decline by more than 10% in 2020. By
contrast, international spending will grow by 5% or more, he said,
as companies return to offshore projects.
The oil-and-gas industry had pulled back from costly offshore
projects in recent years as companies focused investment on
promising shale prospects. But as profits have failed to
materialize a decade into the shale boom, major oil companies
including Exxon Mobil Corp. and Chevron Corp., are
recalibrating.
Chevron and Exxon Mobil have written off billions in U.S.
natural gas assets in recent years, shifting their shale focus
primarily to the oil-rich Permian basin in Texas and New Mexico.
Both have also renewed their appetite for offshore projects.
Chevron recently approved a large offshore project in the Gulf
of Mexico and Exxon has been investing heavily in a huge oil find
in the waters off the coast of Guyana, where oil began flowing in
December.
Schlumberger has been re-evaluating its business in the U.S. at
the direction of Mr. Le Peuch, who became CEO in July. He said
Friday that review had prompted a retrenchment in the U.S.
Going forward, Schlumberger will reduce its operating locations
by 25%, focusing on only three hubs near the largest shale basins.
In addition to the dramatic cuts to its fracking fleet, the company
has laid off more than 1,400 employees in North America, and Mr. Le
Peuch said Friday that further workforce reductions are
possible.
The company recorded $456 million in impairment and other
charges from items including restructuring in North America and
workforce reductions. A year earlier, the company recorded $172
million in various charges.
"As the year progresses, the effect of slowing North America
production growth is likely to cause tightness in the market and
further stimulate international operators to step up their
investments in the second half of the year and beyond," Mr. Le
Peuch said.
--Allison Prang contributed to this article.
Write to Christopher M. Matthews at
christopher.matthews@wsj.com
(END) Dow Jones Newswires
January 18, 2020 02:47 ET (07:47 GMT)
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