Recent oil price volatility is adding more uncertainty to the 2019 spending outlook as producers remain restrained, Paal Kibsgaard, chief executive of Schlumberger said.
The conservative approach to exploration and production (E&P) spending will further push back the broad-based recovery the world's biggest oilfield services provider had expected to start as recently as three months ago. Even so, the global oil market supply and demand picture is expected to turn positive, which will lead to a gradual recovery in prices through the course of the year, potentially leading to a revival in investments.
The fourth quarter saw wide swings in crude prices, which fell some 40pc from the highs for the year touched in mid-October of $76/bl for WTI. Amid that backdrop, Schlumberger's revenue and profits for the three months fell compared with the previous quarter primarily driven by North America as producers pulled back activity.
Based on discussions with its clients, Schlumberger expects single-digit growth in its international business this year as investments start to normalize and reflect a more sustainable pattern. After four years of under-spending, state-run companies and independent producers oversees are seeing the need to invest in resources to maintain production.
But the outlook for North America remains unclear.
"In North America land, the increased cost of capital and focus on aligning investments close to free cash flow has introduced more uncertainty to the outlook for both drilling and production activity," Kibsgaard said.
Schlumberger attributes the price drop in the fourth quarter to a combination of factors that include US shale production surprising to the upside, while geopolitics created an unclear supply/demand outlook. A large sell-off in equity markets over global growth uncertainty and increasing US interest rates "created a perfect storm to close out 2018," he said.
Amid the uncertainty, the services giant has prepared a flexible operating plan for 2019 to adapt to any investment and activity scenario. The plan will be driven by its goal to generate sufficient cash flow to cover its business without increasing net debt. As such, it has set a capital expenditure (capex) budget of $1.5bn-$1.7bn for this year versus $2.2bn in 2018.
Some of Schlumberger's operational highlights in North America include drilling the longest ever horizontal well in the Permian basin, spread across Texas and New Mexico, to a depth of 26,150 ft for XTO Energy, a subsidiary of oil major ExxonMobil. It also drilled the longest lateral well in the Permian, of 16,426 ft, for the same company.
The company's North America revenue in the fourth quarter held flat at $2.8bn from a year earlier, but declined by 12pc from the previous three months. For the full year, however,revenue increased by 26pc to $12bn. Middle East & Asia revenue grew to $2.5bn in the three months, up 3pc from a year earlier and 2pc from the third-quarter. For the full year, this segment rose by 2pc to $9.5bn.
Schlumberger posted a profit of $2.14bn for the full year versus a loss of $1.5bn a year earlier. For the fourth-quarter, it posted a profit of $538mn versus a loss of $2.3bn a year earlier.
