Dec. 4--Market watchers have warned for weeks that oil field services firms would experience the first fallout in the energy sector from a recession coupled with dramatically lower oil and natural gas prices.

Schlumberger, the world's largest oil field services company, confirmed those predictions Wednesday when it announced its 2008 profit will fall below expectations.

"We have been consistent in our view that our results would be affected in the event of a severe global economic downturn, which we are now facing," Schlumberger Chief Executive Andrew Gould said in a written statement. "However, we still maintain that in the longer term, the fundamentals of our industry are sound."

Gould did not say, specifically, what earnings the company expects when it reports them in January.

In 2007, the company posted net income of $5.2 billion, or $4.20 a share, on revenue of $23.3 billion.

Schlumberger's stock closed down $1.39 at $42.53 Wednesday on the New York Stock Exchange.

First to feel it

Oil services and machinery companies that support drilling activity are beginning to see the leading edge of the downturn as energy exploration dials down in the face of a weakening global economy, according to the Federal Reserve Bank's December report on current economic conditions.

Another Houston-based services company, Baker Hughes, acknowledged a slowdown in its business earlier this week. Other major Houston oil field services companies, including Weatherford, Halliburton and Smith International, are not offering formal financial guidance yet.

Even so, many analysts consider Schlumberger a bellwether for the sector, saying its reduced earnings projection signals an across-the-board slump for companies that provide rigs and drilling support to exploration and production companies.

Jeff Tillery, an analyst with Tudor Pickering Holt & Co. Securities, said oil field services are in a transition period but added it's too early to tell how much the business will slow in 2009.

Tillery said prices and demand for oil and gas appeared to hold up through September and into October, but a warmer-than-normal winter could cause some natural gas exploration to fall off.

"Activity is moving materially lower. The question will be how much, and everybody has an opinion on what that will be, but it really depends on how cold this winter is," he said.