Schlumberger 4Q14 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

Cutting 9k jobs, bringing headcount in line with activity levels

“We recorded $296 million of severance cost as associated with a headcount reduction of approximately 9,000. This reduction which will largely be completed by the end of the first quarter will bring our headcount more in line with the currently anticipated activity levels.’

Lower oil prices creating pressure on pricing

“Lower oil prices have already created pricing pressure on land for hydraulic fracturing and drilling services and we are actively working with our customers in all basins to help lower their overall drilling and completion costs.'”

Customers are focused on how to create savings

“In addition to general typing discussions, our customer interactions are focused on how we can better work together and how we can create savings from new technologies and workflows as well as from improved operational planning and efficiency.”

400 rig reduction in North America already

“the dramatic fallen oil prices has already led to a reduction of around 400 rigs in US land compared to the October peak and we expect the trend of activity reductions and pricing pressure to continue in the first quarter.”

Customers reduce cost per barrel

“The significant drop in oil prices have put pressure on our customers to further reduce their cost of barrel and we are actively engaged with most of them to find ways to generate their required cost savings while maintaining a very strong focus on the quality and integrity on the products and services we provide.”

Iraq security has improved

“In Iraq, activity was steady in the north as an improved security environment had allowed operations to slowly resume. However the overall activity level still remained significantly below pre-conflict levels.’

Everyone will be impacted, but North America most

“In terms of the outlook for the international market, as part of the Middle East and partial Latin America, we do expect a reduction in spend levels for all customer groups in the coming year although we believe that the activity and pricing impact will be less than what is projected in North America land.”

The oil market is still relatively well balanced from a capacity standpoint

“Looking at the supply side, the growth in global oil production capacity of around 1 million barrels per day over the past year matches the growth in demand. So the overall oil market is still relatively well balanced from a capacity standpoint.”

This is about higher marketed supply

“The dramatic fall in oil prices is instead a result of higher marketed supply in the second half of 2014 from North America and also from OPEC who have shifted focus from protecting oil prices to protecting oil prices to protecting market share. ”

Clearly we have a challenging year in front of us

“Still given the level of the oil price and the industry wide focus on reducing E&P investments, we clearly have a challenging year in front of us.”

This is a supply issue

“if you look at the high level macro view that we have, nothing has been changed from what we said on the Q3 call. So looking at GDP at 3% we are still looking at solid growth overall in 2015 and oil demand is also going to be up. So as we said in Q3 the issue is really on the supply side”

Higher marketed supply

“I think it’s very important that we separate between global production capacity and marketed supply…if you look at the global production capacity in 2014, it grew by about 1 million barrels a day which is equal to the growth in demand. So the significant drop in oil prices is not driven by this over capacity but rather by the higher marketed supply which is coming from North America and from OPEC.”

The market is probably going to be looking for signs that supply is tightening

“if we assume that oil demand is going to be up by 1 million barrels, if we don’t take lower investments and already reduce their capacity, the market is already heading towards a tightening. I think that’s very clear. Now we don’t expect the oil prices to improve significantly until there are signs of weakening supply, and the weakening supply will either first come from North America or from international. ”

Going to be a 25%-30% reduction in spend most likely

“I think if you look at 2015 activity in North America and you look at the third party spend surveys, it indicates about 25%, 30% reduction. So it’s clearly going to be a tough year going forward, right”

We’d rather stack the equipment than operate at a margin that is unacceptable

” I will say that the general rule that we have applied in recent years that below a certain contribution margin, we will rather stack the equipment than operate at the level that is unacceptable.”

Lots of opportunities for inorganic growth in this environment

“the third one is inorganic growth. We see lots of opportunities for this based on our strong cash flow and also very solid balance sheet.”