Schlumberger: Major, Independent Oil Cos to Spend More in 2008

HOUSTON Jan 19, 2007 (Dow Jones Commodities News)

State oil companies will continue to drive services spending in 2007, but major and independent oil companies should be back in the driver's seat by next year, Schlumberger Ltd. (SLB) chief executive Andrew Gould said Friday.

Much of Schlumberger's growth in 2006 came from national oil companies, which have taken advantage of soaring oil prices to mount ambitious exploration efforts in difficult-to-access reserves. Some of the biggest spenders include Petroleo Brasileiro SA (PBR), or Petrobras, which is looking to exploit deepwater reserves off Brazil, and Russian oil companies operating in Siberia.

Major and independent oil companies, by contrast, have been reporting disappointing reserve replacement rates for 2006 and reduced exploration budgets for 2007. ConocoPhillips (COP), for example, on Jan. 11 reported organic reserve growth of just 10% to 15% for 2006.

"ConocoPhillips shocked us with an early reserve replacement guidance for 2006 booking of just 11% ... that by the company's own admission is a weak number," Deutsche Bank analysts said in a research note.

Gould said that major and independent oil companies will see their reserve replacement rates grow faster when development at newer fields is further along.

"We are still in the early seismic phase, and therefore the results of exploration programs, even in provinces like the Gulf of Mexico ... are not going to be reflected in people's reserves bookings for a number of years yet," he told analysts in a conference call after the company released fourth-quarter earnings.

Major and Independent oil companies will also take a greater share of worldwide exploration spending when new rigs begin entering the market in 2008 and 2009, he said.

Companies that build whole rigs, such as Transocean Inc. (RIG) have been reporting record backlogs and delays in rolling out new equipment for over a year. Of Transocean's $20.2 billion backlog, about half is expected to be delivered in 2008 and 2009, the company said when it released third-quarter earnings in November.

"Growth in 2007 will still very much be based on increased spending from (national oil companies)," Gould said. "The rate of growth will be sustained by (independents) when new rigs start to come out of shipyards in 2008 and 2009."

Schlumberger reported fourth-quarter revenue of $5.35 billion Friday, 33% higher than the same period last year. Income from continuing operations was up 71%, to $1.13 billion, beating analysts' expectations. The company's stock rose $2.13, to $60.03, in early trading.

Copyright (c) 2007 Dow Jones & Company, Inc.

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