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Good times roll for services firms

OILFIELD-services sector profits and revenues are on the rise as companies seek to maximise oil and gas output while commodity prices are high. Schlumberger announced a 13% rise in net income compared with second-quarter 2007 to $1.42bn, while revenue was up by 19.7% to $6.75bn; both were higher than analysts' forecasts.

Halliburton's net profit was down by 67% at $0.507bn, but the second-quarter 2007 figure of $1.53bn was inflated by a gain of $0.933bn from the spin-off of the company's KBR subsidiary, so the underlying trend remained positive. Income from continuing operations, at $0.623bn, met analysts' expectations, while a 20% rise in revenue to $4.48bn exceeded forecasts.

Smaller oilfield services providers also fared well. Second-quarter net profit at Weatherford International more than doubled to $371m, with revenues increasing by 23% to $2.2bn, although profits from continuing operations dipped to $299.7m from $351m a year earlier. Meanwhile, net profits at Baker Hughes increased by 9% to $379.3m on an 18% rise in revenue, to $3bn.

With little sign of a slow-down in demand for their products and services, company bosses were bullish about the future. Schlumberger's chief executive, Andrew Gould, told analysts in a conference call after the release of the results that the company remains on track for a rise in international revenues – those derived from outside North America – of over 20% in 2009. He expects Latin America to be the company's strongest offshore market in 2008 as a whole and Russia to be a top performer in terms of land-based oil and gas services.

Analysts noted that, while the results reflect a boom in Schlumberger's international services business, margins remain tight in North America, where revenue rose by 7%. Gould attributed some of this to a seasonal slow-down in Canada and also blamed inflationary pressure in the region, with increased drilling activity, particularly on land, pushing up the cost of supplies and personnel. Gould said it was significant that 28 new offshore rigs were reportedly placed on order in the second quarter, increasing the total on order worldwide to more than 180.

Halliburton's results also reflected slower growth in North America, where revenue rose by 14% compared with 26% for its non-North American operations. But Dave Lesar, Halliburton's chief executive, was optimistic about prospects for the region. "Increasing energy prices, above levels previously envisioned, coupled with expanding drilling and completion budgets for our North American customers, bodes well for future activity," he said in the results statement.

As with Schlumberger, Latin America was particularly buoyant, with Halliburton reporting that Mexico, Brazil, Colombia, and Venezuela experienced year-over-year revenue increases of between 30% and 56%. And Lesar was keen to draw attention to improved margins in the eastern hemisphere, which it sees as vital to its next phase of expansion. Last year, Halliburton set up a second headquarters in Dubai, where Lesar is now based – a decision designed to bring the company into closer contact with lucrative markets in the Middle East and Asia.

Weatherford was the only one of these four oilfield services companies whose results fell short of market expectations. The company said it had experienced higher-than-expected project start-up costs in Mexico. But there was also good news for Weatherford; its North American performance bettered market expectations and chief executive Bernard Duroc-Danner said 2009 should be a strong year. He is expecting 40% revenue growth in international markets and robustness in the US drilling market.


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