Schlumberger’s 2019 shale view: more of the same

By Luke Geiver | January 22, 2019

The more things change in the global oil production and service world, the more things stay the same. With variables such as supply and demand sentiment, sanctions on producers or new technologies entering the oil scene for 2019, Schlumberger, believes activity and budgets across North American shale plays will stay relatively flat.

After a positive year for revenue growth in most U.S. sectors, the world’s largest energy service company said in its full-year and fourth quarter 2018 call to investors that exploration and production activities targeting U.S. shale will remain at near-term levels throughout 2019 as producers navigate an oil price point that is bordering on volatile.

Like Schlumberger, E&Ps in North America will focus on running their businesses on generated cash flow and avoid taking on new debt for growth or other activities. Across the U.S. some operators may choose to focus less on drilling new wells and instead work on their backlogs of drilled but uncompleted wells.

New analysis of decline rates in many shale oil wells shows that a rising percentage of an operator’s budget must be put towards new production because of the decline in production seen in existing wells over time.

Paal Kibsgaard, CEO of Schlumberger, told investors asking on subsurface technology that the company believes there is still much to be done with technology and innovation that will improve production issues. “There are technologies and innovations beyond higher efficiencies and faster production that can be done,” he said. “I think there is still a significant upside for tech deployment into the shale industry and that is why we continue to invest in this because if you want to take part in changing the game, you have to be there.”

Schlumberger will focus on regional margins and generating free cash flow for the first part of the year as it awaits growth opportunities at the back-end of 2019. Most signs point to a rising oil price growth this year, the company believes.

For the first time since 2014, deepwater and international oil developments in Africa, Asia and Latin America are showing signs of growth as the need for maintaining production numbers has arose.

More from Schlumberger’s 2018 Q4 review:

1) What is the capex guidance for the full year 2019?
Capex (excluding multiclient and SPM investments) for the full year 2019 is expected to be approximately $1.5 to $1.7 billion, which is lower than the $2.2 billion that was spent in 2018.

2) What were the cash flow from operations and free cash flow for the fourth quarter of 2018?
Cash flow from operations for the fourth quarter of 2018 was $2.3 billion. Free cash flow for the fourth quarter of 2018 was $1.4 billion, including $75 million of severance payments but excluding $600 million of cash proceeds that were received from the sale of the WesternGeco marine seismic business.