Anticipating a slowdown in the US oil patch, Schlumberger charts new course

Houston — Forecasting a significant contraction in North American oil and gas activity for 2020, Schlumberger Friday unveiled a 2020 strategy focused on expanding margins by shrinking its less profitable business lines.

Olivier Le Peuch, CEO of the world's largest oilfield services company, said Friday the North American land market will contract for a second year as oil and gas producers focus on capital discipline. Schlumberger forecast a double-digit market correction.

Given its 2019 GAAP net loss of $10.1 billion, mainly due to North American land market weakness, the company will zero-in on returns rather than growth in North America, executives said during their fourth-quarter earnings call.

"Our ambition for North America land in 2020 has been clearly reset for margin expansion despite the unfavorable activity outlook," Le Peuch said. "While our strategic decision will result in revenue reduction greater than the decline in the market, [North America land] will contribute incremental earnings and cash flow compared to 2019. This will allow further prioritization of resources and capex allocation towards the international market."

Specifically, Schlumberger plans to "repurpose" its OneStim business, the most significant element of its North American portfolio. OneStim provides hydraulic fracturing services, and in a self-imposed capacity cap, the company will reduce its total available capacity 50%.

REDUCES FRAC FLEET, BUT KEEPS OPTIONS OPEN

While reducing its frac fleet, Le Peuch said the company remains open to new business opportunities in North America when situations improve.

"While we believe this action improves OneStim performance, reshaping it for the better into a focused and profitable business line, we'll keep our options open and be ready to participate into an enhanced market consolidation offering, given the right partner and economics," he said.

Also central to its plan, Schlumberger will accelerate its fit-for-basin-strategy. The company will expand the asset-light model to other business lines to increase market reach while optimizing its infrastructure and capital expenditure requirements, the CEO said.

In his macro outlook, Le Peuch noted that US production growth should slow "significantly" this year versus that of last year's 1.2 million b/d due to continued E&P budget austerity.

"Over time, this will create a pull on the OPEC-plus and international non-OPEC production base," Le Peuch said.

MACRO VIEW SEES RENEWED OFFSHORE ACTIVITY

But these macro conditions will continue to support the international growth cycle," he said. "They will also increasingly stimulate investment to renew activity in offshore and deepwater exploration and development as the year progresses."

On Thursday, S&P Global Platts Analytics forecast US oil production growth this year at 800,000 b/d versus 1.2 million b/d in 2019, citing the same reason.

After cutting its workforce by more than 1,400 employees since Q3 2019, Schlumberger will continue to reduce its facility footprint. It will shrink the areas in which it operates by an estimated 25% by the end of 2020, and adjust the support structure accordingly, Le Peuch said.

The CEO said that when completed, the facility and workforce reductions will save the company above $300 million on an annualized basis when compared to the Q3 2019 run rate.

Schlumberger's international and offshore market performance in 2019 helped mitigate the negative impact from North American land. For 2020 the company expects exploration and production spending growth in global markets to support international market growth above the mid-single digits.