Schlumberger 4Q13 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Brazil likely weak through 2014 before resuming strength in 2015

“In Brazil the business environment remained difficult with lower activity in the fourth quarter for Petrobras as well as the local independent and the international oil companies. We have adjusted our cost base in the country and are prepared to manage what appears to be a challenging 2014 before activity growth likely resumes in 2015.”

North America activity remained high

“In the Gulf of Mexico, deep water activity remained high in the fourth quarter and the offshore rig county is expected to show strong growth also in 2014. In the land market activity was solid with the fourth quarter U.S. rig count remaining flat sequentially while the seasonal activity recovery in Canada stayed in line with 2012 levels.”

Still pricing pressure in North America

“The main challenge in the North America land market is still pricing and we saw further downwards pricing pressure in most product lines in the fourth quarter partly amplified by the renegotiation and roll over of several key contracts.”

Brent Oil price supported around $100 based on fundamentals

“we also expect the global oil market to be well supplied in the coming year driven by continued growth in North America liquids production, leading supply and demand relatively well balanced with fair capacity excluding Libya in the range of 4 million barrels per day and this continuous support for Brent crude prices around $100 per barrel.”

Dry gas recovery still a ways away

“In the U.S. resilient production levels and strong competition with coal indicates that a meaningful recovery in dry gas drilling activity continues to be pushed up in time.”

Lots of new technology coming to market in 2014; hopefully protect pricing

“we have a number of new technologies that came on 2013 and a similar number is not even higher coming up in 2014. So we will continue to leverage what we have introduced in the past year and also augment it a significant number of new technologies coming out in 2014. So I’m quite positive and optimistic that through the new technology introductions we can continue to drive the effective pricing up.”

E&P spending growth looking to be around 6% in 2014

“Yeah if you look at the comment I made on tool for E&P spend, this is expected to be around 6% and that’s really based on the third party survey. So at the average of that, they will come in around that level. Within the 6% as I said the international growth somewhat north of 6% and NAM growth somewhat below.”

Deepwater continues to be a focus

“As within that outlook offshore and deep water continues to look solid. So and in this model the valuation and spend growth from the Super Mega’s to the IOCs to the independents and the NOCs is all part of it. So in these comments those valuations are captured.”

Analyst comments: Investment community concerned about deepwater contracting

“I think is raised concern among investment community is the lack of contracts recently for deep water rigs for example casting somewhat of a shadow on the what had been the fairly obvious trajectory for a deep water activity growth.”

“I was just curious the market has been on focused on some of the IOCs having some budget cuts out there I think (indiscernible). Some of the other IOCs their cuts have been feeding really market concerns about offshore and development spending”

SLB’s answer to the deep water contracting concern:

” the drilling activity and the rig scheduled for deep water could be impacted by some of these ongoing commercial discussion. There is a number of rig contract coming up for renegotiation as you indicate and also some of the new arrivals who not yet have contract but in rig contractors that we talk whom seem confident that the new rigs will be contracted basically because of the higher operating efficiency that they have but the contract excursions [ph] could have an impact on the day rate for the other generation rigs, not now.”

Exploration spend in 2014 will be decent, but not as good as 2013

“With respect to exploration we still see growth in exploration in 2014. It’s going to be lower than the roughly 10% that growth that we saw in 2013 but still decent growth.

Exploration spend focused on the well

“there has been a lot of data acquired in recent years. So the growth in exploration is going to be more well related than exploration related and well that is that means that it’s a more challenging environment for WesternGeco it still bodes well for our Wireline well testing and drilling product line. So of course they called in the balance.”

North America still pricing pressure through 2014

“if you referred to the fracturing if I go like fracturing there is still today significant industry overcapacity of horsepower. So at this stage we do not expect the market to reach equilibrium in 2014.”

“we’re pretty confident that we will not reach equilibrium in 2014.”