Schlumberger CEO Paal Kibsgaard told the Scotia Howard Weil Energy conference in New Orleans yesterday that producers' spending cuts already in the realm of 25-60% have dropped the rig count by 45% since late last year forecast output to soon decline or flatten out so prices can recover.
"Going forward, we believe financial prudence, where investments are limited to the cash flow generated by production, will be the new normal for US tight-oil developments," he told the conference.
Oil prices have halved since June to around $US46/barrel as Saudi Arabia and OPEC try to prod higher-cost producers out of the market, which will particularly hit those in the US chasing deeper plays beyond the conventional ones already milked.
While some US highly-leveraged US players were known for their intensive capex budgets when the market enjoyed plus-$100/bbl prices, Kibsgaard said that could well change forever, even if things recover.
He said Schlumberger expected the oil and gas industry's international spending on exploration and production outside North America to drop by 10-15% this year, even after the already severe cuts made both inside and outside the US.
Thus, "the global oil market is clearly heading for a tightening ... in the second half of this year", he said.
He said this rebalancing would be particularly driven by stronger demand in a market currently oversupplied by about 1 million barrels per day.
However, he was bullish on his own company, which has seen its share price fall by about a third since July last year, and said Schlumberger would be positioned to take advantage of any uptick in demand for its range of oilfield services, from drilling to hydraulic fracturing.
The oilfield services giant has been generating more free cash flow than its two main competitors, Halliburton and Baker Hughes, which are in the process of merging to better rival Schlumberger.
"In the short term, activity visibility still remains limited as many of our customers are making drastic and sometimes unpredictable cuts to protect margins and cash flow," Kibsgaard said.
