Jul. 24--Schlumberger CEO Andrew Gould said today that continued volatility in crude oil prices is still spurring oil companies to postpone and cancel projects, but predicted activity could begin to rebound next year if prices finish 2009 at a high enough level.

"It really, really does depend on where prices will be at the end of the year, not where they are today," Gould said in a conference call this morning, acknowledging his current outlook is "less pessimistic" than it was a few months ago.

He said if crude prices do not stabilize by year end, oil companies will likely try to protect cash flows and could make additional cuts to capital spending programs.

"There is one element of this cycle that we don't understand: what will our customers do when their cash flows really start to be crimped?" Gould said in the conference call to discuss Schlumberger's second-quarter earnings.

The world's largest oil field services company said net income for the April-June period fell to $613 million, or 51 cents per share, from $1.42 billion, or $1.16 per share, a year ago. Revenue dropped 18 percent to $5.53 billion from $6.75 billion in the second quarter of 2008.

The declines came as natural gas drilling in North America hit a five-year low, business in some international regions remained soft and oil companies continued to pressure service providers to lower prices.

While the performance exceeded Wall Street expectations, Schlumberger shares were down $1.88 to $55.88 in New York Stock Exchange trading this morning.

"I think investors were hoping to hear something more positive about 2010," said Mark Brown, who follows the company with Pritchard Capital Partners in New York.

In January, Schlumberger said it was cutting 5,000 jobs worldwide and in March it announced a second round of layoffs roughly the same size. In the quarter, the company reported one-time charges of 17 cents a share related to severance payments and retirement benefits.

The company, with principal offices in Houston, Paris and The Hague, now has 79,000 employees worldwide.

But Gould said if business conditions improve, the company could quickly recall some skilled employees who are currently on what he called an "incentivized leave of absence."

Oil field services companies have seen business decline in recent months as lower commodity prices, tight credit markets and a recessionary drop in energy demand spurred oil companies to ratchet back spending on finding and producing oil and natural gas. Their oil company customers have also demanded lower prices for seismic surveys, well completions, drilling and other services.

In particular, a steep downturn in North America weighed on second-quarter results of oil field services companies, including Halliburton Co. and Weatherford International.

Schlumberger said revenue in the region dropped 43 percent as natural gas drilling activity plummeted on weak demand and bulging stockpiles. Gould said he doesn't see a significant rebound in the natural gas rig count in North America before 2010.

He also suggested there could be more consolidation in the oil field services industry "if North America remains bumping along the bottom for the next six months," though he said acquisition opportunities for Schlumberger may be limited.

In other parts of the world, the company saw slower rates of decline and some recovery, most notably in Russia, Gould said.

But Bill Herbert, analyst with Simmons and Co. International in Houston, said in a note to investors today that overseas markets remain in a "state of purgatory," awaiting a broader comeback.

Crude oil reached a record high near $150 a barrel last summer before falling below $33 in January. Today, the price is hovering around $67 a barrel.

"The current volatility in the oil price makes it unlikely that our customers will sanction any major increases in expenditures," Gould said, but that could change if prices stabilize by the end of the year.

brett.clanton@chron.com

-----

To see more of the Houston Chronicle, or to subscribe to the newspaper, go to http://www.HoustonChronicle.com.

Copyright (c) 2009, Houston Chronicle

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NYSE:HAL, NYSE:WFT,

A service of YellowBrix, Inc.