Schlumberger (SLB) expects to be able to charge customers higher prices as activity ramps up further this year, but needs prices to be "significantly higher," signaling that oil producers will have to rely more on innovation and efficiencies.
Oilfield service providers like Schlumberger slashed prices during the oil bust. But the rebound in crude has boosted demand for services and materials, and rival Halliburton (HAL) has said it is ready to increase prices, even if it means losing some market share.
Schlumberger said exploration and production investments in North America will increase by 30% this year with the biggest growth seen in the Permian basin, "which should lead to both higher activity and a long overdue recovery in service industry pricing."
"On fracking, we need significantly higher pricing before we get into a sustainable operating environment," CEO Paal Kibsgaard said during a conference call with analysts. "We are having active pricing conversations with customers."
He added that 2017 will be a starting point of new multiyear cycle to reverse the effects of several years of underinvestment in exploration and production.
Nearly 80% of U.S. exploration and production companies expect an increase in field service prices, a recent Barclays survey showed. More than half, though, only see an increase of up to 10% this year.
Shares closed down 0.8% at 86.49 on the stock market today as Q4 earnings met views. Halliburton, which is slated to announce results Monday, rose 2%, and Baker Hughes (BHI), which is on tap for Thursday, ended essentially flat.
General Electric (GE), which is merging its oil and gas business with Baker Hughes later this year, dropped 2.2% after reporting quarterly results Friday.
IBD'S TAKE: The IEA lifted its forecast for U.S. oil production next year sharply higher, due in part to its assessment that shale productivity has improved by "leaps and bounds."
Schlumberger's Q4 earnings plunged 58.5% to 27 cents a share, in line with analyst views, while revenue fell 8% to $7.11 billion, ahead of estimates for $7.07 billion.
North American revenue rose 4%, Middle East and Asian revenue climbed 5%, while Latin American revenue fell 4%.
"One thing we saw that maybe gave us a little bit of pause was the 4% revenue increase in North America," said Edward Jones analyst Rob Desai. "Given that the U.S. rig count was up 20% we were looking for a little bit more."
Desai said Halliburton is a stronger pick for investors as it has more exposure to North American land drilling, but he sees Schlumberger boosting investment in North America.
While the company has said all markets have hit their bottoms, management still expects weakness overseas, and Desai doesn't expect international markets to pick up until later this year or early next year.
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