Schlumberger Beats, Then Disappoints

The oil service giant blows away estimates but its CEO foresees 'patches of weakness'.
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Updated from 7:57 a.m.

Schlumberger

(SLB) - Get Report

blew away first-quarter earnings targets, citing exceptionally strong results in North America, led by gains in Canada. But shares of the oil service giant slipped Tuesday morning following some cautious comments in its conference call.

For the first quarter ended March 31, the oil services giant earned $524 million, or 87 cents a share, from continuing operations. That's up from the year-ago $107 million, or 18 cents a share.

Revenue rose to $3.16 billion from $2.67 billion a year earlier.

Excluding special items, latest-quarter earnings surged to 65 cents a share from 44 cents a year ago, beating the Thomson First Call analyst consensus estimate by 3 cents.

"Increasing activity levels around the world reflect the growing response to the current narrow margin of excess production capacity," commented Schlumberger Chairman and CEO Andrew Gould.

In a teleconference with analysts, Gould said the company's major growth driver was pricing -- the ability to raise prices for equipment and services facilitated by a growing demand and a reduction in supply -- as well as gains from its wireline and well services

Operations in Canada yielded the most revenue, but this is expected to decline in the second quarter, Gould said, due to a "Canadian breakup" in orders. "The sequential revenue increase was primarily driven by Canada with maximum equipment and personnel utilization, higher pricing levels and increased demand for high-tier services," Gould said. "This revenue growth rate was partially reduced by the absence of any turnkey drilling operations as this activity was exited in the prior quarter."

As a result, the "multiclient growth" seen during the fourth quarter of 2004 to the first quarter of 2005 will probably decline in the second quarter, Gould said. He did not say how big of a decline is expected but the CEO also sees some "patches of weakness" in Schlumberger's pricing power in other areas in the world where there is an oversupply of drilling equipment.

Schlumberger shares were recently down 35 cents, or 0.5%, to $71.37.