Analysts fawned over Schlumberger’s (SLB) second-quarter 2015 earnings report, which beat industry expectations, but concern crept in over the company’s dire forecast for North American E&P spending.

SLB pulled out a solid quarter with stable international revenues, which fell to $6.5 billion, or 5%, from the first quarter of 2015 due to customer budget cuts and continued pricing concessions. The company also boasted of its successes in the Eagle Ford, Permian and Bakken in paring down costs and increasing operational efficiency.

Overall, the second quarter saw $9 billion revenue that dipped 12% from the first quarter of 2015.

SLB said its efforts to manage costs and resources resulted in pretax operating margins of 10.2% in North America, said Paal Kibsgaard, SLB chairman and CEO. He warned that North American will be hard hit in 2015.

“E&P investment in North America is now expected to fall by more than 35% in 2015, driven by lower land activity and increased pricing pressure,” he said. “We believe that the North American rig count may now be touching the bottom and that a slow increase in both land drilling and completion activity could occur in the second half of the year.”

International spending is expected to decline by more than 15%, Kibsgaard said.

North American results were better than expected at $0.04 per share, but revenues declined to $2.4 billion, a 27% decrease compared to the first quarter of 2015. At the same time, the U.S. rig count fell 34%, said Ken Sill, senior oilfield services analyst, Global Hunter Securities.

In the U.S. and Western Canada, revenue fell on lower pressure pumping activity and persistent pricing pressure as the land rig count dropped 40%, exacerbated by the early onset of the Canadian spring break-up, SLB said. In the Gulf of Mexico (GoM), revenue declined as the deepwater rig count decreased and activity shifted from exploration to development and completion.

Nevertheless, the service giant remains bullish on improving oil supply and demand fundamentals.

“SLB thinks activity in NAM is bottoming and expects a slow increase in completion and drilling in the second half of 2015,” Sill said.

Bill Herbert, co-head of research, Simmons & Co. International, said Schlumberger showed a strong quarter in light of industry conditions.

“SLB has transcended high expectations for a second straight quarter,” he said, noting that the company’s earnings were free of charges, credits and showed strong free cash flow.

SLB reported a second quarter EPS of $0.88 per share compared to Wall Street consensus of $0.79 per share.

“For a second straight quarter, SLB has blown away margin expectations, which is a testament to the acceleration of its internal transformation initiative,” Herbert said.

SLB said that a rebalancing of the oil markets is underway, driven by flattening North American production and more indications of non-OPEC production declines, among other signs.

In late March, SLB had 411 land drilling rigs deployed around the world. In the U.S., it had 12 and, including Canada, 15. In Saudi Arabia, SLB was operating 28 rigs, seven in Oman and six in Iraq.

Showdown Continued

In 2014, the U.S. hit a 41-year high in crude production and averaged annual growth of 1 million barrels per day (bbl/d) in the past four years.

“Internationally, the picture is quite different,” Kibsgaard said in March. “In spite of a continued increase in E&P activity since 2009, total supply capacity, including OPEC spare capacity, has actually remained flat. This demonstrates the increasing challenges of replenishing reserves and production from existing fields.”

OPEC began its showdown when it felt market share, rather than price, slipping away.

Sill said that international results for the company were stronger than anticipated, with revenues and margins ahead of expectations.

In the second quarter, SLB found revenues had dipped by 5% from the previous quarter to $6.5 billion and margins increased to 24.5% for the company, Sill said.

In the Middle East, Saudi Arabia, the United Arab Emirates and Kuwait remained robust amid pricing challenges.

“Margins were essentially flat,” Sill said.

The U.S. E&Ps’ test is finding a way to cut more costs. So far, that’s largely been by negotiating reduced prices with service companies and suppliers that will ultimately cripple them.

SLB said that in some basins pricing has fallen to “unsustainable levels,” leading to pressure pumping equipment being stacked and crews reassigned.

In other basins, hydraulic fracturing fleet deployment was maintained in pursuit of market share and new technology opportunities.

Compared with the 2009 downturn, the first half of 2015 has been worse for the company. Year-on-year revenue dropped 26% in North America compared with a 24% decline during the 2009 downturn.

Field Day

SLB highlighted progress it’s made through technology to help increase production and efficiency in the Eagle Ford, Bakken and Permian among other areas.

In South Texas’ Eagle Ford Shale and Haynesville, SLB’s BroadBand Sequence fracturing service accelerated production and increase recovery in older wells for Encana Corp. (ECA).

In an Eagle Ford well for example, refracturing operations increased oil production by a factor of 13 to 650 bbl/d from 50 bbl/d. In the Haynesville, gas well production increased to 5 million cubic feet per day (cf/d) from 100 Mcf/d.

Also in the Eagle Ford, fluids and cuttings separator technology was deployed for Statoil ASA (STO). The tech helped maintain optimal well drilling conditions and minimize disposal costs and mud loss in a high-rate-of-penetration drilling environment. SLB said its systems helped achieve net savings of $68,000 for the first two wells drilled by decreasing the average per-foot synthetic-base mud cost by 30% and disposal costs by 13%.

In North Dakota, Drilling & Measurements deployed rotary steerable system technology for WPX Energy Inc. (WPX) to drill three extended-reach lateral well sections in the Middle Bakken formation. Similar performance was repeated on a 14,717-foot extended-reach lateral, which represents the longest rotary-steerable-drilled horizontal section in the area, SLB said.

In southeast New Mexico, Well Services used a low viscosity composite fluid from the BroadBand family of unconventional reservoir completion services to stimulate a new well in the Permian Basin with a plug-and-perf completion. Compared to the six closest offset wells completed using slickwater and similar proppant amounts, the new well’s total oil production after 120 days outperformed all the offset wells by more than 33%.

Kibsgaard said his company is focused on what it can control: costs, resources, effective use of technology and expertise.

“The success of this approach can be seen in our strong international margins despite the drop in revenue and in our ability to maximize our performance in North America,” he said.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.