Schlumberger: Deepwater, non-US E&P to drive 2011 earnings

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Jan. 24 -- Schlumberger Ltd.’s top executive expects robust world oil and gas activity, especially deepwater exploration and development outside the US, will drive strong 2011 earnings for his company and for oil service providers in general.

Andrew Gould, Schlumberger chairman and chief executive officer, recently told investors and analysts that he believes oil prices have moved into a range that will encourage operators to increase worldwide exploration investments.

Schlumberger reported fourth-quarter profit of $1.04 billion, or 76¢/share, compared with $795 million or 65¢/share for the same period the previous year. Last year, Schlumberger closed its $10.8 billion acquisition of drilling fluids provider Smith International.

“While we do not anticipate a return to pre-Macondo activity levels in deepwater US Gulf of Mexico in 2011, we do expect a marked increase in deepwater activity in the rest of the world,” Gould said of the April 2010 blowout of BP PLC’s Macondo well off Louisiana and subsequent oil spill.

Gould anticipates increased development activity and production enhancement worldwide “promise stronger growth rates as the year unfolds.”

During a Jan. 21 conference call, Gould said it’s possible Schlumberger’s first-quarter 2011 earnings could be lower than fourth quarter 2010 earnings because of various factors, including seasonality in the Russian market and North Sea weather.

For natural gas, demand recovery has been less marked. Increased supply of both US unconventional gas and of LNG worldwide will limit gas price increases, he said.

“Nonetheless, activity in the United States is likely to remain strong—at least through the first half of the year—due to the commitments necessary to retain leases, the backlog of wells to be completed, and the contribution of natural gas liquids to overall project economics,” Gould said. “Increased service capacity, however, will negatively affect pricing at some stage during the year.”

Worldwide, he said the governing factor on gas activity, particularly in the Middle East, will be the ability of many nations to use gas as a substitute for oil to meet increased local energy demand, thus freeing up more liquids for export.

Gould also expects that unconventional gas resources will continue to attract interest outside the US and Canada.

“The leading activity will continue to be gas in tight, or low permeability, reservoirs, and in coalbed methane developments,” he said. “There will be exploration activity around the potential that shale gas offers in many other parts of the world.”

Contact Paula Dittrick at paulad@ogjonline.com.

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