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Schlumberger, Baker Hughes Say Global Oil Markets Returning to Balance

Tom Terrarosa

Schlumberger Ltd. squeaked out a slight earnings beat Friday, April 20, reporting 38 cents per share for the first quarter, but company followers don't feel the results will do much for oilfield services stocks.

"These in-line results from global OFS bellwether simply won't get equity investors enthused about rushing headlong into buying more OFS exposure for the stock portfolio after the run these stocks have been on over the last month," Tudor, Pickering, Holt & Co. wrote in a Friday morning research note, referring to oilfield service companies. "As telegraphed, SLB's international results impacted by transitory start-up costs with softness primarily seen in Latin America, Africa and Middle East (pricing pressures)."

Analysts expected Schlumberger to report earnings of 37 cents per share on $7.81 billion in revenue. The company reported revenue of $7.83 billion.

Schlumberger's stock fell on the pre-market news. The shares were down about 1.6% to $69.17 apiece in trading on the New York Stock Exchange at around 11:15 a.m.

Houston-based Schlumberger is a holding in Jim Cramer's Action Alerts PLUS. TheStreet's Action Alerts Plus team on Friday called the earnings report and Schlumberger's first quarter a "relative non-event."

Schlumberger's competitor Baker Hughes had a better outing by some accounts. The company, a unit of General Electric, reported earnings of 9 cents per share on $5.4 billion in revenue, compared with analysts' expectations of 6 cents EPS on $5.4 billion in sales.

"These Q1 results aren't blow-your-socks-off good, but we'd argue that BHGE's solid operational performance, driven by better-than-expected (by us) op margin performance in company's two upstream-oriented biz segments (Oilfield Services, Oilfield Equipment), coupled with the company having generated $226MM of FCF and repurchased $503MM worth of stock during the quarter, all adds up to a win," TPH said. "BHGE stock has gotten off to a rip-roaring start so far in Q2, and this Q1 earnings outcome likely keeps that upward momentum going."

As expected, both Schlumberger and Baker Hughes' management teams had much to say on the state of the global oil market.

In the company's release, Schlumberger CEO Paal Kibsgaard said "the absence of global stock builds in the first quarter, supported by the OPEC-and-Russia-led production cuts, confirm that the oil market is in balance."

Kibsgaard noted, however, that "production challenges in US shale are emerging" and "it is, therefore, becoming increasingly likely that the industry will face growing supply challenges over the coming year and a significant increase in global E&P investment will be required to minimize the impending deficit."

That investment would likely benefit both Schlumberger and Baker Hughes, but more so their competitor Halliburton Co. , which is the most levered to the North American market among the big three oil services providers.

Halliburton reports earnings Monday, April 23. The company is expected to report earnings of 41 cents per share on sales of $5.75 billion.

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