Oil Servicers Say Tumbling Crude Hasn’t Changed Outlook

The recent tumble in crude oil prices hasn’t shaken the faith of two of the world’s biggest providers of drilling and production services.

Baker Hughes Inc. (BHI) said yesterday that oil would have to continue falling to $75 a barrel and stay there for a few months before energy companies will cut back spending. Schlumberger Ltd. (SLB) described the drop as “fear of short-term oversupply” and said it wasn’t changing a long-term view that it will almost double earnings from last year’s level by 2017.

Booming North American output and reduced demand forecasts from the International Energy Agency sank oil prices in recent days. West Texas Intermediate, a U.S. benchmark, rebounded today after falling below $80 a barrel, a two-year low, yesterday. Brent crude, the global benchmark, rose to settle at $86.16 after sliding to an almost four-year low yesterday.

Schlumberger believes that “steady recovery in the world economy is still intact and that the overall oil demand situation is largely unchanged,” Paal Kibsgaard, chief executive officer of the Houston- and Paris-based company, told analysts today on a conference call. “We therefore expect Brent to recover and stabilize when and at the level that is deemed appropriate by the main oil producers.”

Schlumberger climbed 3.7 percent to $93.97 at the close in New York, while Baker Hughes rose 2.2 percent. The companies provide energy producers with services including drilling wells, hydraulic fracturing and mapping underground oil pockets.

‘Over Their Skis’

Schlumberger is respected for its views of the market because of its size and pretty accurate calls so far, Stephen Gengaro, an analyst at Sterne Agee Group Inc. in New York, said in an interview.

“It is nice to hear somebody who’s got a more level view,” said Gengaro, who rates the shares a buy and owns none. “People tend to get out over their skis and panic sometimes.”

The world’s largest oilfield servicer reported third-quarter earnings that beat the average of 31 analysts’ estimates compiled by Bloomberg. The results continue its streak of exceeding estimates every quarter since the end of 2011.

Customers are expected to reduce spending on exploring for oil and gas 4 to 5 percent this year compared with 2013, partly due to poor well results, Kibsgaard said. The explorers are mainly cutting back orders for seismic shoots that help identify where pockets of oil are located, he said.

Attractive Returns

Kibsgaard said in June that Schlumberger’s projected earnings growth was based on oil prices of about $100 a barrel. Futures prices for WTI averaged $103.46 a barrel during the third quarter.

Customers of Baker Hughes, the world’s third-largest oil servicer, don’t believe crude prices will stay low, Martin Craighead, chairman and CEO of the Houston-based company, told analysts yesterday on an earnings conference call.

“The returns are still quite attractive,” Craighead said. “Right now, it’s full steam ahead.”

Baker Hughes reported quarterly adjusted profit that missed estimates.

If U.S. oil prices stay below $80 for a quarter, energy producers “are going to sober up” and reduce spending, T. Boone Pickens, chairman and CEO of BP Capital LLC, said in an Oct. 9 interview. “It’s getting their attention.”