Schlumberger 3Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Heavy rain in the Permian and loop currents in gulf of Mexico impacted North america results

“headwinds from heavy rainfall in the Permian Basin that limited land activity in the US, loop currents that slowed offshore activity in the Gulf of Mexico ”

No security impact in Iraq, but contract awards delayed

“In Southern Iraq, there was no security impact on our operations in the third quarter, but activity remains lower compared to the same quarter last year as new contract awards continue to be delayed. With government approvals, our new contract award is still pending. We do not expect any significant improvement in activity in the near term.”

We believe the recovery is still in tact

“Given the strength of the US economy and the ongoing efforts to stimulate and manage growth in Europe and China, we continue to believe that the slow, but steady recovery and the world economy is still intact and that the overall oil demand situation is largely unchanged.’

Supply situation is still well balanced

“While market sentiments are currently driven by short-term oversupply due to the continued growth in North America production, we still see the supply situation as relatively well balanced given the continued challenges in the non-NAM non-OPEC production base, lack of growth in OPEC’s sustainable production capacity maintaining tightness in OPEC spare capacity and with the continued geopolitical risks in several key producers.”

We expect the price of oil to settle where key producers want it to settle

“We therefore expect Brent to recover and stabilize when and at the level that is deemed appropriate by the main oil producers. The key to the overall oil market is still that the global oil demand is currently set to increase by 1.1 million barrels per day in 2015, which will require growth in the EMP investments.”

Oil demand is below the July peak, but at February levels

“So if we look at the 2014 absolute demand, it is still at the February level and only 0.2 million barrels a day down from the July peak.”

The demand picture is flat, supply picture hasn’t changed

“we see the demand side of the oil market also as more or less unchanged. So then what’s left is to look at the real supply situation, and we don’t think that has changed in terms of fundamental supply capacity since Q2 as well. And that’s because there is lack of growth in OPEC sustainable production capacity. And actually if you look at IEA report, the OPEC sustainable production capacity is actually down 800,000 barrels a day in September of 2014 versus last year.”

Spare capacity is not going up

“What I would say at least it’s not going up. So far this year, it’s been flat. When more production is offered into the market, it is at the expense of the spare capacity.”

Borrowing capacity is the key

“But it is clearly going to be a function of the level of free cash flow for the E&Ps, which was already negative in general at the WTI of 90. And the key going forward is going to be continued borrowing capacity. So there’s really two scenarios here that we end up with a lower WTI, further cost inflation in the E&P value chain and reduced borrowing capacity, and this will likely have an impact on the spending growth rates.”

Drivers of pressure pump pricing

“pressure pumping pricing, it’s going to be a function of the activity levels and how much horsepower capacity has been ordered in the past couple of quarters.”

Very clear that there’s an oversupply of deepwater rigs

“I think it’s very clear that we are in oversupply situation of deepwater rigs at this stage.”

Deepwater should be flattish from here

“ooking forward to 2015, we see flattish deepwater drilling activity in 2015, generally supported by lower rig rates. So we’ve weathered, I think, a fairly significant deepwater decline this year and we expect it to be more or less flattish going forward into next year.”

Not going to make predictions about the level that Saudis would change what they’re doing

“I’m not going to make any predictions at what level the Saudis would change what they’re doing. We have a very strong business in Saudi Arabia. Growth has been very strong this year. And as of now, we continue to expect solid growth in Saudi Arabia next year as well.”

Too early to tell what the oil price is going to be

“In terms of what the commodity price is going to be, I think it’s too early to say what level it’s going to be at in 2015. Obviously there’s been a sharp drop over the past two to four weeks. How this is going to evolve I think is still highly uncertain, and I still believe that there’s going to be some kind of recovery happening.”