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Schlumberger shrugs off Q4 loss with positive oilfield outlook for 2017

Schlumberger Ltd. lost $204 million in the fourth quarter of 2016, but executives see a rebounding E&P sector leading to brighter days for the company and the oilfield services industry.

Paal Kibsgaard, chairman and CEO of the oilfield services giant, said he expects an increased demand for his company's services in 2017, led by activity in the U.S., and in one Texas play in particular.

"We expect the growth in investments to initially be led by land operators in North America, where continued negative free cash flows seem less of a constraint, as external funding is readily available and the pursuit of shorter-term equity value takes precedence over full-cycle return on investment," he said. "E&P spending surveys currently indicate that 2017 [North American] E&P investments will increase by around 30%, led by the Permian Basin."

But when the discussion turned to offshore activity, Kibsgaard made an alarming forecast.

"Offshore, revenue declined again sequentially as the rig count dropped further and pricing remained under pressure in spite of the significant technical operational challenges in this market," he said. "The resulting business environment is potentially becoming unsustainable for us and will either lead to a recovery in service pricing or a narrowing of our service offering, with redeployment of resources to markets that offer more adequate returns."

Kibsgaard said during Schlumberger's Jan. 20 earnings call that revenues in North America had increased 4% sequentially, a positive sign for the company.

"[The increase was] driven by an improving land business in the U.S. and western Canada as drilling and completions activity increased and service pricing started to recover," he said. "In terms of technology, we saw the strongest growth on land and pressure pumping followed by directional drilling, drill bits and drilling fluids."

The $204 million GAAP loss amounted to 15 cents per share. That was down from a profit of $176 million profit, or 13 cents per share, in the third quarter but a smaller GAAP loss than the $1.02 billion reported for the fourth quarter of 2015.

On an adjusted basis, Schlumberger reported a $379 million profit, or 27 cents per share, which hit the S&P Capital IQ Consensus earnings estimate.

The Schlumberger CEO said he believes the next several years will be good for the company as foreign producers will have to follow North America's lead and drill more to replace reserves currently under production.

"I think that the key here is that we look at 2017 as a starting point of a new multiyear cycle, where the main challenge is actually going to be to reverse the effect of several years of global E&P underinvestment and then try to mitigate the pending supply shortage that we see unfolding," he said.