Schlumberger 1Q17 Earnings Call Notes

Paal Kibsgaard

North America investment increasing, but ROW underinvesting

“Turning next to the business outlook. We maintain our constructive view of the oil market, and we made further inventory growth in the second quarter, driven by the OPEC and non-OPEC production cuts put in place in January. At present, the region in the world showing clear signs of increased E&P investments in 2017 is North America land, although investment levels in the Middle East and Russia are also expected to remain resilient this year. However, for the rest of the world, which still make up more than 50 million barrels per day of oil production, we are heading towards a third year of significant underinvestment, which increases the likelihood of a medium-term supply deficit as produced reserves are not replaced in sufficient volume.”

Depletion is rapidly accelerating

“In particular, the market continues to focus on headline decline numbers that suggest that production is holding up well, while a closer examination of the underlying data clearly shows that the rate of depletion of proved undeveloped reserves is rapidly accelerating in several key non-OPEC countries.”

Biggest underinvestment is in exploration

“The current level of underinvestments is most visible in exploration, where the record-low investments, including both drilling and seismic, led to a total amount of industry discoveries of less than 5 billion barrels in 2016 versus a produced volume of over 30 billion barrels, dropping the industry-wide reserves-to-replacement ratio to 32%.”

Reached bottom internationally, but only flat underlying activity

“Internationally, as I said earlier, we have reached bottom in all markets. But for the second quarter, we only see, at this stage, flat underlying activity in Q2. So the – really, the only growth that we are going to see in the second quarter is going to be limited to the seasonal recovery in the North Sea, Russia and China.”