SLB Warns Cautious Oil Explorers Have Slowed Growth in Spending

(Bloomberg) -- SLB, the world’s biggest oilfield services provider, warned oil explorers’ spending growth has waned in recent months as they take a cautious approach amid lower crude prices. 

The company, which helps clients drill oil wells and map underground pockets of crude, also told investors in a statement Friday that it expects to exceed its target of $3 billion in shareholder returns this year as most of its customers’ projects are going ahead. 

Looking to next year, SLB is gearing up for producers outside the US and Canada to grow spending by low-to-mid single digits, while North American operators could see their drilling budgets flat to down compared with this year, Chief Executive Officer Olivier Le Peuch told analysts and investors Friday on a conference call. But long-term projects haven’t been touched, he said, adding that final investment decisions for offshore work between 2023 and 2026 will top $500 billion.

“Although some customers have adopted a more cautious approach to their near-term capital expenditures and discretionary spending amid lower commodity prices, most projects are progressing as planned,” Le Peuch said in the statement. “Although the rate of upstream spending growth has moderated in the last few months due to the macroenvironment, we continue to expect a sustained level of upstream investment in the years to come.” 

SLB, or Schlumberger, is often a bellwether for the oil and gas industry, with its global footprint providing an insight into the financial health of the energy sector. It’s the first of the Big 3 oilfield contractors to post third-quarter results, with rivals Baker Hughes Co. and Halliburton Co. scheduled to report in coming weeks.

The company posted third-quarter earnings of 89 cents a share, excluding certain items, matching what analysts expected, while sales of $9.16 billion were less than analysts forecast. 

The shares fell 3.7% as of 11:13 a.m. in New York. 

Major oilfield service companies are pivoting to more work in international and offshore fields amid a slowdown in US shale activity brought on by industry consolidation, low natural gas prices and the pressure to keep spending muted and return profits to shareholders. International spending by oil explorers is expected to climb 5% this year while US and Canada will see a 3% drop, according to Evercore ISI. 

SLB is in the midst of realigning and optimizing some of its organization, partly due to lower activity levels in North America. The company also announced it has an agreement to sell its Canada production assets to an unnamed buyer for $430 million. The asset was originally intended to give SLB an ownership in producing wells for which it could boost production. But the business also made it difficult for investors to value the oil services company that was working as an oil and gas producer.

“It’s a good thing this is going away from our balance sheet,” Chief Financial Officer Stephane Biguet said on the call. “It will reduce both earnings volatility and capital intensity.”

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