Schlumberger 3Q15 Earnings Call Notes

Effective tax rate just 20%

“The effective tax rate was 20% in the third quarter.”

Fears of reduced growth in China and additional Iranian exports are offsetting tightening supply/demand picture

“as we enter the last quarter of the year, the global oil market is still weighed down by fears of reduced growth in China, and the timing and magnitude of additional Iranian exports. However, the fundamental balance of supply and demand continues to tighten driven by both solid global GDP growth and by weakening supply as dramatic cuts in E&P investments start to take full effect. We expect this trend to continue and as the oil markets further recognizes the magnitude of the industry’s annual production replacement challenge, this will gradually translate into improvements in oil prices going forward.”

Outlook for oilfield services companies will still be challenging despite expected improvement in oil prices

‘Second, in spite of the expected improvements in oil prices, the market outlook for oilfield services looks challenging for the coming quarters, as we expect additional reductions in activity and further pressure on service pricing.”

A year of very low prices has exhausted available cash flow

“This is driven by the financial pressure on many of our customers where a year of very low oil prices is now exhausting available cash flow and corresponding capital spending and also leading them to take a very conservative view on 2016 E&P budgets.”

Expect E&P investments to fall for 2nd consecutive year

“Based on this industry outlook, we expect E&P investments to fall for a second successive year in 2016, which is the first time since the 1986 downturn, when the spare capacity cushion was more than 10 million barrels per day.”

Recovery in our activity levels now seems to be a 2017 event

“while our macro view has not changed in terms of a tightening supply and demand balance and an expected improvement in oil prices, we have to factor in that the likely recovery in our activity levels now seems to be a 2017 event.”

We have decided to proceed with a further round of overhead reductions

“We communicated in our previous earnings call that we were prepared to live with our existing cost base going forward, provided we were close to the bottom of the market and that the activity recovery was only a couple of quarters out…The likely timing gap between the oil price recovery and the subsequent increase in oilfield services activity in combination with a more conservative spending outlook from our customers is causing us to now take further action. We have therefore decided to proceed with a further round of capacity and overhead reductions, which will result in a restructuring charge in the fourth quarter.”

Starting to see weakening of international supply as well

“In North America, the production is coming down more or less as expected as well and internationally, we are starting to see signs of a weakening supply as well.”

Hopefully 1Q16 is the bottom but it’s too early to say, we can see that Q1 should be below Q4

“we hope that Q1 will represent the bottom and there would be a gradually, but slow recovery during the year or even sideways. I think it is still too early to say, James. I think we have, even for Q4 now there is significant uncertainties in several of the markets on what’s going to happen. Beyond that we clearly see Q1 being below Q4, but visibility, Q1 is still very low.”

I think the oil price is now likely to start to move upward

“I would say also that there is a limit to how long these reductions in investment and activity can continue. And I think as the oil price now likely will start to move upwards, hopefully investments will turnaround, but anything meaningful will be late ‘16 and into ’17 as we see it as per today.”

Customers haven’t completed budgeting yet, but feedback is consistent that ’16 will be lower

“Most of our customers haven’t completed or just barely started our budgeting process for 2016. But the general feedback is very consistent. And that is, they expect, the vast of them that spend will be lower. ”

After 4 quarters of weak prices, financial strength has significantly weakened

“I think the fact that now four quarters into very low oil prices, the financial strength of many of our customers has significantly weakened and their appetite to invest is also a bit down. Any I think – any improvement in oil prices, I think will be to initially – is going to go towards the strength in the balance sheet and then the oil companies will likely assess how sustainable are these increases in oil prices before they start investing.”

Capex cuts will probably not be in the 20-30% range next year

“I think, full year 2016 – for full year 2016, that sounds like a high number. At this stage, I don’t think it’s going to be as much as that, no.’

Schlumberger 2Q15 Earnings Call Notes

Dramatic reduction in US land activity has created massive oversupply

“In U.S., land activity was down in all basins in the second quarter with the rig count dropping below 860 for most of the month of June. In addition to the significant reduction in rig count, poor weather conditions with floods in Texas, Arkansas and Alaska also drove activity lower in the second quarter. The dramatic reduction in activity in U.S. land has created a massive capacity oversupply in the service industry with pricing quickly plummeting to unsustainable levels in particular for pressure pumping where many companies now are desperately fighting to survive.’

OPEC continues to produce at high levels in a battle for market share

“Turning now to the overall outlook for the second half of the year, visibility still remains limited. However, some tentative signs of change are emerging. On the supply side of the oil markets, the global market share battle between OPEC and the high-cost producers is still playing out, with the first signs of flattening North America production starting to show. Within OPEC, production in the second quarter was at the highest level for three years, as marketed supply was again increased at the expense of lower core spare capacity, which, in June, dropped to 2.3 million barrels per day.

Demand growth continues to strengthen

” global oil demand growth continues to strengthen, with the IEA having revised its 2015 estimate up to 1.4 million barrels per day during the second quarter. These factors all points to a potential tightening in the global supply demand balance in the coming quarters.’

2015 E&P spend expected to be down 35%

“the largest drop in E&P investments is, as expected, occurring in North America, where 2015 spend will now largely be down by more than 35%, driven by both pricing and activity on land.”

We’ve probably seen the bottom for rig count, but we will only see a slow increase in drilling activity in the second half of the year.

“We do believe that the North American rig count has now reached bottom, but that we will only see a slow increase in drilling and completion activity in the second half of the year, which will not make any material dent in the massive overcapacity that has been created. This again means that there will be little to no improvement in pricing levels and, hence, the market will still remain very challenging for the foreseeable future.”

We are still confident that markets will tighten in the second half of the year

“I think the tightening that we’ve been foreshadowing, we are still relatively confident that that will happen in the second half of the year.’

Deepwater projects are long term projects and committed so likely not an impact at this stage

“In terms of the deepwater projects, I think, yes, there are some projects that are being delayed and some projects being canceled, if possible, but I think in general, these are long-term investments, many of them are already deeply committed. So we don’t see any kind of dramatic impact at this stage on the projects that are in the pipeline. Now, going forward, in terms of sanctioning new projects, I think it’s going to be very important for the industry to be able to – the service industry together with our customers to be able to come up with technical solutions and field development plans that significantly reduces cost per barrel.”

These were pretty clean results

“we have a clean quarter this quarter. There are no charges in it, so this is basically straight-line business performance in the second quarter.’

[Analyst comment] shows that most people are still thinking oil prices should be higher. Asks for 2016 outlook assuming $65 brent

“regarding the international outlook for 2016, which is, obviously, very preliminary, but based on your recent conversations and thinking through your viewpoints on supply/demand for crude, if we are in a $65 Brent world, what would your preliminary thoughts”

If markets tighten and oil price rises, good chance that E&P spending is up next year slightly

“if we see some improvement in the oil price in the second half of this year, I don’t think there is going to be any huge impact on the current year budget, but I think it’s a positive indicator that we might have some increase next year. I don’t think the increase in 2016 is going to be large, but I think there is a good chance that E&P investment levels next year will be higher than what we’ve seen in 2015.”

We are out of Iran. If the sanctions are lifted we will consider going back in

“Our position and our view on Iran is the following: we have fully exited Iran. When the sanctions are lifted and when it is permissible, we will evaluate going back in. So beyond that, I don’t really have anything more to say about what we will do, but it’s coming down to, firstly, that the sanction needs to be officially lifted, which they are not yet done.”

We were decisive about dealing with this downturn

“I think, we are pleased with how we’ve handled the downturn so far. We decided to be rather decisive in rightsizing the workforce for the downturn we are facing, and that includes both rightsizing and streamlining the support structure as well as the field capacity.”

We think we are pretty close to a bottom

“yes, you can infer that we are looking and searching for the uptick and that we think that we are pretty close to bottom.”

JS Earnings Call Notes – SLB, GOOGL

Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

Google (GOOGL) CFO Ruth Porat said she is bringing further expense discipline and balance to the company 

“The sequential deceleration in expense growth achieved in the second quarter reflects in part the benefit of expense discipline discussed in prior calls. A key focus is on the levers within our control to manage the pace of expenses while still ensuring and supporting our growth. We will do this while we continue to invest in engineering talent to keep us preeminent in innovation globally.”

But she also reminded investors that the company’s goal of creating terrific products that impact billions of people will require significant expenditures 

“Google’s goal is to develop great new services that significantly improves the lives of as many people as possible. Solving problems for users at scale ultimately results in monetization opportunities. How we prioritize and focus on these opportunities remains paramount, both for our employees, who remain inspired by the opportunity to work on the most cutting edge developments with maximum global impact and for our shareholders.”

Google (GOOGL) Chief Business Officer Omid Kordestani stated the company now has 5 different services which have one billion users

“First, our core products continue to do well and users love them. In fact, Google Search, YouTube, Android, Chrome and Google Maps, each have over one billion users.”

Google (GOOGL) Chief Business Officer Omid Kordestani thinks the company nailed the shift to mobile

More Google searches now take place on mobile devices than on computers in ten countries, including the U.S. and Japan, two of our largest markets. And we know that when people search on their mobile phones, they’re looking for immediacy and action. In fact, 30% of mobile queries are related to location and our efforts around local search are helping consumers to find relevant information fast.  We’re investing in creating great mobile experiences for people across Google products.”

Omid went on to declare that the Youtube audience reach and engagement has accelerated 

“On mobile alone, YouTube reaches more 18 to 49 year old in the U.S. than any U.S. cable network. And the number of users coming to YouTube, who start at the Youtube homepage similar to the way they might turn on their TV is up over three times year-on-year plus once users are in YouTube, they are spending more time per session watching videos, on mobile the average viewing session is now more than 40 minutes up more than 50% year-over-year.”

 

 

 

Schlumberger (SLB) CEO Paal Kibsgaard said he doesn’t expect the company’s immediate pricing power to rise in the event of a rebound in oil prices

“In this environment, we focus on carefully balancing market share growth with protection of operating margin and by negotiating pricing concessions in return for additional work, integration opportunities or improved contract terms, knowing from experience that any permanent pricing concessions that we make will be very hard to recover even as market conditions improve.”

And their business continues to be all about helping their clients extractin oil more efficiently

While we set goals for new technologies and increasing elements of service integration, we also target a 10-fold reduction in customer non-productive time, a doubling in asset utilization, a 25% reduction in inventory days, a 20% increase in workforce productivity and a 10% lowering of unit support costs.

Schlumberger (SLB) CEO Paal Kibsgaard stated that North America has seen the largest percentage drop in oil exploration and production expenditures and the oil services market will remain weak in the near-term

“Turning to our industry, the largest drop in E&P investments is, as expected, occurring in North America, where 2015 spend will now largely be down by more than 35%, driven by both pricing and activity on land. We do believe that the North American rig count has now reached bottom, but that we will only see a slow increase in drilling and completion activity in the second half of the year, which will not make any material dent in the massive overcapacity that has been created. This again means that there will be little to no improvement in pricing levels and, hence, the market will still remain very challenging for the foreseeable future.” 

 

Schlumberger 1Q15 Earnings Call Notes

1/4 of the revenue decline was driven by currency

“Our first quarter revenue of $10.2 billion decreased 19% sequentially, while pretax operating margin decreased 255 basis points. Approximately 25% of the sequential revenue decline was attributable to the currency effect and the absence of the year-end increase in product, software and multi-client sales that we experienced last quarter. The remaining decrease was driven by activity and price declines.”

If you operate locally you’re hedged from currency fluctuation

“although our revenue was significantly impacted by the fall in value of many currencies, this phenomenon does not have a significant impact on our pretax operating income. This reflects the benefit of our local cost structure which largely serves as the natural hedge against currency movements on our bottom line.”

Collapse in land activity in North America

“Our first quarter revenue declined 19%, driven by the activity collapse on land in North America and the associated pricing pressure. International activity was lower, as customers cut budgets in response to lower commodity prices and was also impacted by the normal seasonal effects in the northern hemisphere and the fall of certain local currencies against the U.S. dollar.”

revenue declined less than rig count

“our North American revenue decreased 25% sequentially which was significantly lower than the 32% drop in land rig count. Operating margins in North America decreased 670 basis points sequentially, to 12.9%”

Held international margins flat despite 16% drop in revenue

“despite the severity of the sequential revenue decline and the unfavorable shift in revenue mix, we managed to minimize the impact on our pretax operating margins which was essentially flat with the previous quarter, at 24.1%.
This performance was achieved by strong execution, proactive cost and resource management and the acceleration of our transformation program.

Current financial challenges wont disappear even if prices rebound

“Looking at the industry as a whole, the current financial challenges will not disappear, even if oil prices were to recover to the levels seen in recent years. The industry is therefore forced to seek new ways of working together to reduce costs and create more project value. And we have seen a much closer collaboration between operators and large service companies, as a significant opportunity to create technical solutions that will achieve these objectives.”

North America may be down 30%

“Turning to the 2015 outlook, visibility still remains limited. However, we expect the largest open in E&P investments to occur in North America, where 2015 spend is expected to be down by more than 30%.”

US land drilling recovery will be pushed out for a long time and may peak at lower levels

“We further believe that a recovery in U.S. land drilling activity will be pushed out in time, as the inventory of uncompleted wells builds and as the refracturing market expands. We also anticipate that our recovery in North America land activity will fall well short of reaching previous levels, hence extending the period of weak pricing.”

International should fall less then NA

“In the international market, we expect 2015 E&P spend to fall around 15% which will create challenges in terms of both activity and pricing levels, but considerably less than the headwinds seen in North America.”

We don’t think the macro has changed at all. Demand remains strong, supply is impacted by a market share battle

“our view on the macro hasn’t really changed, compared to what we said both on the October and January call. First of all, the 2015 oil demand remains strong. And I was actually right [indiscernible] in the latest IA report. It would now be about 1.1 million barrels per day. While on the supply side, we continue to see the market share battle playing out globally.”

There have to be some big changes made in deepwater

“if you look at deepwater first, this represents a huge resource base for the industry. Now given the level of development cost today, as well as given the level of recovery factors we’re seeing today, the cost per barrel for these type of developments is challenged.
So there has to be a change in overall, in how these developments are done. We have to get the costs down and we also have to drive recovery up.

We’re going to have to live with these cuts for a while

“given the cash flow constraints, we don’t expect that rig counts are going to come back to the previous levels of around 2000. It’s going to come back to somewhere in between the current levels and where it was.
And for the service industry, that means that the pricing concessions that are currently being given, we unfortunately are going to have to live with for a while, because there’s going to be a pretty significant order capacity for all sorts of services, given the lower activity level that we’re going to recover to.

Revenue should continue to come down in 2Q

“t this stage, we see both North America and international revenue coming down further in Q2 [indiscernible]. But I would say more so in North America than in international.”

Revenue reductions are slowing, but not ready to say it’s the bottom yet

“I would say that the revenue reductions in Q2 are slowing in pace. I’m not ready to say that it’s the bottom yet.”

Probably some increase in Brent prices coming, but question is will OPEC try to defend below $100

“given the reductions we’re seeing in spend and the weakness in several of the key basins, we expect that weakness to continue and potentially increase, as the year progresses and I think that’s why we believe that there will be some recovery in Brent. The question is, to what extent OPEC wants or is willing, to put more barrels on the market to stabilize prices at some level below $100.”

Schlumberger 4Q14 Earnings Call Notes

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.”

Schlumberger 3Q14 Earnings Call Notes

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.”

Schlumberger 1Q14 Earnings Call Notes

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

Severe winter weather in China and Russia too

“In spite of severe winter weather impacting activity in our Russia, China, and North America land operations, our first quarter results were solid and fully in line with our expectations.”

Brazil a headwind to Latin America results

“year over year reduction in revenue was predominantly driven by Brazil, where both activity and pricing were significantly down compared to last year”

Shale work in Argentina

“In Argentina, year-over-year growth was strong driven by rig-based activity in the Vaca Muerta shale where we are also actively engaging with a number of customers on sub-surface studies and on projects to improve drilling and completion efficiency.”

Oil markets tight

“the oil markets have been significantly tighter than anticipated, as strong demand trends in OECD and in the Middle East together with continuing supply disruptions in various regions have left to lower spare capacity figures and pushed OECD stocks down to the largest deviation from historical averages since 2003.”

North American production growth just barely enough to meet global demand growth

“The North American supply search continues to be just enough to equal the world’s growing demand, while all other growth regions, including Iraq, Brazil and the Caspian are struggling to meet their production targets. This should continue to support oil prices around $100 a barrel and therefore encourage oil directed investments in both the North American and International markets.”

Natural gas prices will come back down

“U.S. supply trends remain strong on the back of the Marcellus and as the weather normalizes over the springs and summer months we expect the North American market to return to a balanced supply demand situation from natural gas.”

International gas is a tight market though

“International gas markets remain relatively tight largely driven by Chinese demand which continues to grow at double digit rates while European gas demand has eased in the past months on a mild winter.”

Things aren’t lining up for the production bull case, just as is usual

“if you want to build a very kind of bullish case on production, I am sure you can do that. It’s just that if you go back and look at the previous years, there is always an element of project delays and production disruption. And what we said in January is that we expect there to be a normal dose of that in 2014. And so far this year we have seen that, so the market is still relatively tight. Obviously these stocks are down. OpEx spare capacity is down. And there is nothing dramatic in it other than that all the things aren’t lining up as maybe the bull case was at the beginning of the year for production.”

IOCs going to be focused on generating cash for the next couple of years, low infrastructure investment

“I think what’s going to happen at least over the next couple of years is that the IOCs will focus more of their spend where they can drill wells and generate production from existing infrastructure or from infrastructure that costs less. So huge infrastructure projects, I would expect to be kind of lower in frequency. And some of them might be postponed as we have already seen. While the focus, again is going to be on generating production which generates cash. So the ability to do that at the lowest possible investment, I think is going to be the focus, which is still good for us.”

Brazil creating headwind for whole deepwater market

“if you look at the deepwater market, it’s really two separate stories, you have Brazil and you have the rest of the world. In 2013, Brazil represented around 30% of the global deepwater drilling activity and in Q1 of 2014 Brazil was 20% down in activity while the rest of the world was up 3%. Now for the full year of 2014, we expect Brazil to be down more than 20% versus last year, while the rest of the world we see as being up high single digits. And as we previously indicated in January, the growth in the rest of the world deepwater is going to be driven by sub-Sahara Africa and Gulf of Mexico, so really no change to that.”

E&P companies taking advantage of environment to get relief on pricing pressure

“if you look at what’s happened on deepwater day rates over the past three, four, five years they have increased significantly and they have been completed disconnected from the other deepwater oilfield services, right. So today the rig rental makes up around 50% of the deepwater well cost, so customers have really been looking for the opportunity to get the rig rental rates down and the opportunity is here in form of the high number of new arrivals, all contract expiring and a significant reduction activity in Brazil. So I think this is the opportunity. In the short term they are trying to get some relief on cost.”

6% Capex growth not enough to create pricing pressure in North America for commodity services

“I don’t think 6% is going to be sufficient to have a wide spread price increase in commodity type of technologies. Now you might have small pockets where there is a surge of activity and there is insufficient capacity to deliver. You might have situations where new technologies are introduced or where efficiencies are stepped up, where you can drive your effective pricing. But at this stage I would say that we are expecting North America land pricing overall, we are hoping it’s going to flatten from where it is now, that’s going to be the forecast I would say that we have going forward and then we are looking on top of that to drive up our effective pricing through a new technology introduction and by driving efficiency of our operations.”

Opportunity for technological advancement in artificial lift

“we are interested in North America land artificial lift markets, and we have followed it for some time. There is clearly significant growth potential there. It’s a huge market. There are hundreds of thousands of wells that installed rod lifts and we see a significant opportunity to apply more science and technology into this markets and also to help drive production and cost per barrel.”

If you want to transform a market, you can’t do it from the sidelines

“if you want to be part of transforming a market which obviously are ultimate goal this year, and transforming it to the benefit of our customers, we are firm believers that you have to play in it; you cannot change it from the side lines.”

Schlumberger 4Q13 Earnings Call Notes

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.”

Schlumberger 3Q13 Earnings Call Notes

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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“In terms of pricing, we are not seeing any signs of an inflection point. However, the current operating environment with highly competitive pricing on basic services and slow but steady activity growth where we can get a premium for new technology and for the quality of our execution, suits us very well, as it plays to our strengths and allows us to continue to generate superior financial results.”

“In the Middle East, sequential growth was, again, solid in Saudi Arabia and Iraq, while the highest growth rate was seen in the United Arab Emirates and Qatar, where we also have very strong market positions. We are currently in the process of transferring in additional people and equipment to Saudi Arabia to keep pace with the additional work that we are taking on, while the – while in the United Arab Emirates, we have just completed a large mobilization linked to a recent major contract win.

Asia also posted strong sequential results headed up by China, where conventional and tight gas activities on land were the main drivers.”

“we in recent months have seen a number of positive signs in the world economy. The Eurozone is now out of its longest recession on record, the U.S. continues to show favorable trends in spite of the fiscal debate and the most recent data from China suggests a lower risk of a significant slowdown.”

“At this stage, we therefore expect continued support for Brent crude prices around $100 per barrel going into 2014. However, the makeup of the risk premium is likely to shift somewhat with lower supply uncertainty and potentially lower geopolitical risk, offset by more resilient demand and lower macroeconomic concerns.”

“In terms of E&P spend, the second half of this year is unfolding in line with expectations. Visibility of 2014 is still limited, as our customers are in their planning process. but at this stage, we foresee a continuation of the overall trend seen in 2013, which should yield another year of steady activity growth”

“the market dynamics that we play in will continue to see steady activity growth, but competitive basic pricing. But as along as we can get a premium for new technology and the quality of our execution, we are comfortable that we can continue to generate solid incremental margins without a inflection in the pricing.”

“at least for us, I would say that in general it would take us most likely longer to consume the overcapacity we have, unless we gain significant share to the point that we choose to activate some other fleets that we have in the idle asset program as well. But as of now, we are continuing to focus in on the operational efficiencies of the assets we have in operation, and if we can get decent incremental margins on additional work that we potentially take on, we will primarily look to create fleets out of assets currently in operation before we look to the idle asset program.”

“I would say that, our view on 2014 overall in Brazil is that it’s going to be another challenging year. And it’s mainly down to the activity levels that we see at this stage, which is relatively flat from where we stand now. That’s a function of obviously of what Petrobras is planning to do, but also there is some impact in this in lower activity projected for both the Brazilian independents as well as on the IOCs in Brazil in 2014.

2015 is likely to be higher when the exploration work linked to the last license round is likely to kick in, but the majority of the activity in Brazil next year for us is going to be centered around Petrobras who are not looking to significantly grow activity at least from what we can see at this stage.”

“we have a positive view on the market. There were significant growth in deepwater drilling activity in 2011 and we expect the continuation on that trend into 2014.”

“I think we see Arctic as a interesting market and a good opportunity going forward. We are, I think, very well positioned to take part in that in particularly in Russia, we’re already involved in one Arctic project there pre-Ludlum [ph]. At the same time we are also actively pursuing the other projects that are coming up both in, like to say, Greenland as well as other places in Russia and North America and Norway. So in terms of overall impact and activity, I think it’s going to take a bit of time before it becomes really material. But there is a significant potential there that we are going to actively position ourselves to take part in.”

Schlumberger 2Q13 Earnings Call Notes

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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“The results were driven by solid activity levels in all our main markets as well market share gains for a number of our product lines on the back new technology sales and our strong execution and integration capabilities.”

“The oil market picture is also largely unchanged. The market is more comfortably supplied than it was in 2012, but spare capacity remains below pre- Libya conflict levels.”

“Overall, the market continues to support Brent prices over $100 per barrel.”

“For natural gas, the apparent rebalancing of the U.S. market is still fragile as gas production remained steady and as the power sector has already switched back to coal in some regions on higher gas prices.”

“we said that international would grow north of 10% this year. We would see growth in Latin America, but due to the kind of transitional nature both, in Mexico and Brazil as we indicated earlier in the year, we weren’t expecting a lot of growth coming out in Latin America which is being confirmed and we said that the main growth markets would be Sub-Saharan Africa, Russia, Middle East, in particular Saudi and Iraq, China and Australia.”

“I mentioned in my prepared remarks, we still saw pricing pressure [in North America] both in the drilling, stimulation and Wireline product lines in the second quarter but that was slowing somewhat in pace.”

“or E&P companies that potentially are or will be facing cash flow issues, we expect them to be likely to shift more of the spend within the E&P spend from more infrastructure related projects towards more well CapEx.

So that obviously will be good for our business, because that’s sort of where we make most of our money on, right? So, I think the general shift from infrastructure towards CapEx is where I expect to happen for those E&P companies that are facing cash flow issues.”

“For the early production trends, I think we need more information to look at the production of these wells over a longer period of time and I think we also we need to look at the initial rates or the inflow performance for the wells that the operators are started to drill outside of the fairway”

“company wide programs addressing execution improvements they are not really sporadic or episodic with us. They are a way of life.”