Schlumberger Sees Oil Supply Deficit if Demand Growth Holds

Reuters

July 22 (Reuters) - Schlumberger Ltd, the world's No. 1 oilfield services provider, said it expects a "significant global supply deficit" of crude oil, assuming steady growth in demand, given the sharp decline in spending on exploration and production.

Energy companies have halved their E&P budgets since oil prices began their slump in June 2014, scaling back drilling to focus on the most prolific oil fields, a strategy called high-grading.

"As the opportunities for activity high-grading are exhausted, we should see a further acceleration in the global production decline," Schlumberger Chief Executive Paal Kibsgaard said on an earnings conference call on Friday.

The IEA, which coordinates the energy policies of industrial nations, earlier this month raised its forecast for global oil demand growth by 0.1 million barrels per day (bpd) to 1.4 million bpd in 2016 and 1.3 million bpd in 2017.

Schlumberger reported a better-than-expected adjusted profit for the second quarter on Thursday, and said it was considering rolling back pricing concessions.

The view echoed that of smaller rival Halliburton Co , which said on Wednesday that "deep, uneconomic pricing cuts" would have to be reversed.

"Inevitably service industry pricing has to recover and as it does, this will consume a large part of the E&P investment increases intended for additional activity, which will further amplify the pending oil supply deficit," Kibsgaard said.

Oil producers have said their ability to keep pumping oil without spending more was due to lower prices for oilfield services and better production techniques that drastically lower costs for each new well, while yielding more oil.

But Kibsgaard said the low costs were not indicative of a "permanent improvement in the underlying industry performance", emphasizing there had be no fundamental changes in technology, quality efficiency, collaboration or the industry's business model.

"What has taken place over the past 21 months is instead a redistribution of the profit and cash flow shortfall from previously sitting mostly with the oil producers to now representing an unsustainable burden for the supply industry."

Schlumberger's shares were down 0.7 percent at $79.43.

(Reporting by Swetha Gopinath and Arathy S Nair in Bengaluru; Editing by Savio D'Souza and Sriaj Kalluvila)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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john weaver | Jul. 22, 2016
You can't keep selling at a loss. Oil companies serve the stockholders. Vendors serve the employees.


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