Oilfield services giant Schlumberger (SLB - Get Report) released respectable first quarter results after the markets closed Thursday, reporting earnings per share of 40 cents, essentially in line with analyst expectations. But as it's the first oilfield services company to report (and such outfits generally track the movement of oil prices), its results and management comments on its Friday conference call say a lot about the state of the oil and gas industry - and when it might recover.

Schlumberger CEO Paal Kibsgaard didn't mince words about the difficulties the industry is facing, calling it a "full-scale cash crisis" and "the toughest environment for the industry in 30 years and it will likely get tougher." Indeed, he said Schlumberger's sales drop in the first quarter - by 16% to $6.5 billion - will likely repeat in the second. "We expect market conditions to worsen further in the second quarter, as customers reduce activity," he said.

But Kibsgaard believes that a tightening in the supply and demand balance is "well underway," and expects the recovery to begin in the second half of the year. "We believe that the current oversupply should shrink to zero this year," he said. "We remain confident that we can weather the environment much better than our surroundings."

The company is doing that by eliminating jobs, including 2,000 in the first quarter. But to retain its technical talent, he said the company is putting some of its engineering staff on "incentivized leave of absence" in which they're paid half of their annual salary but also get 20% when they leave and 30% when they're called back, which he expects will be in 12 to 18 months. "That's a key part of how we conserve our core expertise," he said.

Kibsgaard said the company is constantly looking at ways to cut costs across operations (it expects to cut its capital expenditures this year by 17% to $400 million). But he thinks the oilfield services industry can't cut what it charges customers any more and the company won't charge less than its weaker competitors unprofitably just to gain market share. "We do not like contracts that are dilutive to earnings," he said. "Losing money is not something we want to get into."

Piper Jaffray & Co. unit Simmons & Co. International kept its overweight rating on the stock with a price target of $83 per share, saying Schlumberger represents the "best-in-breed defensive sanctuary" for all of energy.

Tudor, Pickering, Holt & Co. also continues to have a buy rating on Schlumberger's stock based on the belief that oil prices have bottomed out and the company's stock has already set its cyclical trough (in fact, it's already up 30% over the last three months from a low of $61 per share). But it does think the stock will need to "catch its breath" at some point, and the company's in-line results and uninspiring outlook "might just prove to be the catalyst."

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