Service sector misery (December 2002)

The oil and gas service sector is going through a bad patch. Asbestos liabilities, write downs for goodwill impairment and lousy economics are causing misery all round. The seismic business is unlikely to improve without rationalization.

Even though oil prices are going through the roof, the upstream service sector has been battered in what has proved to be a true annus horribilis. Mostly the sector is suffering from the persistent low levels of exploration activitybut some external events have contributed to the current dire situation.

Halliburton.

Halliburtons woes began back in 1998 with the takeover of Dresser, when the company acquired a slug of undervalued liabilities relating to asbestos litigation. This month it looks as though Halliburton has finally squeezed out of a very tight spotbut at the expense of a $4 billion payment to claimants.

Sema

Schlumbergers troubles stem from the takeover of ailing Franco-British consulting outfit Sema Group last year. This month Schlumberger has recognized a $3.2 billion charge in its fourth quarter mostly resulting from goodwill impairment in respect of the Sema acquisition.

PGS 

Petroleum Geo-Services continue to fight for survival. Most recently a critical interest payment to lenders has been delayed as PGS negotiates with its banks and bondholders.  Are things getting better? Not this financial year according to Schlumberger, which issued a supplemental information document to investors following its write-down.

IEA

Schlumberger blames an International Energy Agency study forecasting a lowering of demand, together with OPECs decision to maintain current quotas. Together, these have served to amplify uncertainty surrounding near-term investment levels.

Softening

Worse, Schlumberger has found that international activity has started to soften, most notably in the UK and Nigeria. Unrest in Venezuela and lackluster activity levels in the US complete the gloomy picture. Looking to the future, Schlumberger expects the conventional seismic market to remain under pressure. A recovery in this sector is unlikely before there is a balance of supply and demand.

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