Schlumberger Profit Up, but Shares Plummet


The world's largest oil service company Schlumberger said Friday third-quarter profit climbed 35 percent on strong growth in its international markets, but soft North American results knocked its stock price down as much as 10 percent.

Schlumberger had been mostly insulated from the weakness in North America that has hurt peers like Halliburton and Baker Hughes . Schlumberger, which is seen as a bellwether for the sector, relies on fast-growing, more profitable international markets to drive its performance.

The third quarter was "not enough ... not by long shot," Tudor Pickering Energy said in a research note, highlighting the weakness in North America.

Shares of Schlumberger, which are still up more than 60 percent so far this year, skidded down 9 percent on the New York Stock Exchange, making it the stock's largest percentage drop since Feb 2001.

The stock drop weighed on the entire sector, pulling down the The Philadelphia Stock Exchange Index of oil services companies 4.6 percent to 292.

"The problem is that Street expectations in general for the oil services industry are too aggressive," Bill Herbert, analyst with Simmons & Co., said. "Schlumberger remains compelling, however, there has been a euphoria that has been building since these stocks started correcting in August."

Schlumberger's third-quarter earnings rose to $1.35 billion, or $1.09 per diluted share, from $1 billion, or 81 cents per share, a year earlier.

Wall Street analysts on average had expected the company to report profit of $1.06 share, according to Reuters Estimates.

Analysts said part of the better-than-expected profit was due to a tax benefit.

Revenue for the Houston-based company rose nearly 20 percent to $5.93 billion.

WesternGeco revenue rose 20 percent to $794 million, while pretax business segment operating income soared 32 percent to $306 million. Oil and gas companies use seismic technology to look for and map potential oil and gas deposits.

Growth was driven by Latin America, Russia, China and Indonesia, Schlumberger Chief Executive Andrew Gould said in a statement.

No Bottom in Sight

North America results were hurt by weaker pricing for pressure pumping in certain areas and a sharp drop in revenue from the Gulf of Mexico due to hurricane evacuations, Gould said.

On a conference call with analysts, Gould said he was not able to forecast the bottom of the market for pressure pumping prices in North America, which have been hit by overcapacity.

"Where the bottom is, I don't really know," Gould told analysts on a conference call, adding that the problem was related to capacity.

He cautioned that the weakness seen in the third quarter in that market would accelerate in the fourth quarter.

Energy companies use pressure pumping to increase the production of natural gas from hard-to-reach pockets in substances like shale. Pricing for those services in the United States have been hurt by overcapacity.

The chief executive also told analysts that growth rates in some international markets including Nigeria and Caspian Sea states may not rise as fast as some had thought, due to logistic snafus and weather-related delays.

Oilfield services revenue climbed 19 percent from a year earlier to $5.13 billion. Pretax operating income was up 23 percent to $1.51 billion.

In North America, 2007 third-quarter revenue fell 3 percentto $1.30 billion, while pretax operating income slid 15 percent to $350 million.

In Latin America, revenue jumped 37 percent to $863 million and pretax operating income soared 58 percent from a year earlier to $204 million.

Revenue for Europe, Russia and Africa climbed 28 percent to $1.69 billion on a 38 percent gain in pretax operating income of $495 million. .