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Schlumberger to reassess US land strategy after taking huge Q3 charge

Oilfield services major Schlumberger Ltd. is taking a hard look at its North American land market operations as the region once again dragged down earnings in the third quarter.

The company on Oct. 18 reported a third-quarter net loss of $11.38 billion, compared with a net profit of $644 million a year earlier, in part as the result of a goodwill impairment charge of $12.7 billion.

The new CEO Olivier Le Peuch warned in September that the company had over-invested in some segments on expectations of much higher producer activity, especially in North America.

Third-quarter earnings reflected a slowdown in the rate of North America land production as operators maintained capital discipline and reduced drilling and frack activity that offset strong offshore sales, Le Peuch said.

Schlumberger expects a higher risk of decline in North American land activity in the fourth quarter compared with the 2018 period, the CEO said. The usual winter holiday season will combine with budget exhaustion as customers operating within cash flow cease operations earlier than they did last year, Le Peuch said.

The market lacks visibility for 2020, but a typical rebound is forecast for the first quarter and prices could strengthen on the bounce, the executive said. Further out, market uncertainty is weighing on the oil demand outlook in a climate where trade concerns are seen as challenging global economic growth, Le Peuch said.

Amid the lack of stability in the U.S. land market, Schlumberger is undertaking a strategic review of its North America land businesses. It is looking at scale for every business in every basin, the CEO said.

Schlumberger is using a scale-to-fit approach to the market, he said. Upon reviewing its market position, strength, technology and customer opportunities, the company will decide whether to reduce its portfolio to fit one or multiple basins. It will also consider changes to its business model to focus on technology access, setting up technology as opposed to operating it, Le Peuch said.

Le Peuch said its technology helped the company maintain, if not slightly improve, third-quarter margins, excluding the impairment effect in North America land.

Schlumberger will continue to focus on technology in North America while also deciding whether to exit, expand or move to a new business model, Le Peuch said.

Sustained international activity drove overall third-quarter revenue gains despite the mixed results in North America.

For the fourth quarter, international market activity is forecast to slow due to typical seasonality. The winter season primarily affects Russia and to a lesser extent China and the North Sea. Rig activity decline will drive down revenue for the region but no more than in previous years, Le Peuch said.

Looking to 2020, Le Peuch expects the company will continue to see growth in the international markets, but the pace of growth could slow amid a macroeconomic environment fraught with uncertainty.

Le Peuch said offshore markets will drive international market growth, while there is some risk of decline in other regional basins. The extent of the growth is too early to call, he said, as customers are setting their 2020 budgets while taking into account macroeconomic factors, the CEO said.

Shares of Schlumberger on the New York Stock Exchange rallied Oct. 18 to a $33.20 high following an Oct. 17 close at $31.89.