Jul. 25--Schlumberger CEO Andrew Gould said Friday that volatility in crude oil prices is still spurring oil companies to postpone or cancel projects, but predicted activity could start 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, acknowledging his current outlook is "less pessimistic" than it was a few months ago.

But if crude prices do not stabilize by year end, oil companies may make additional cuts to capital spending programs in order to protect cash flows, he said.

''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.

The remarks came the same day the world's largest oil field services company said its profits fell 57 percent to $613 million in the second quarter. It blamed the drop on a five-year low in natural gas drilling in North America, weak business in some international regions and continued pricing pressures. Revenue slipped 18 percent to $5.53 billion.

The company also booked a 17-cents a share charge for severance payments and retirement benefits, after announcing in January it would cut 5,000 jobs and, two months later, layoffs of roughly the same size to reduce costs.

While the company's quarterly results exceeded Wall Street expectations, Schlumberger shares fell 44 cents to close at $57.33 in New York Stock Exchange trading Friday.

"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.

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 slash spending on oil and gas projects. In addition, profits have been squeezed as oil companies demanded lower prices for seismic surveys, well completions, drilling and other oil field services.

A steep downturn in North America was a particular drag 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 Friday 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. On Friday, benchmark crude closed at $68.05 on the New York Mercantile Exchange.

The wide swings have strained even the largest oil companies and make it "unlikely that our customers will sanction any major increases in expenditures," Gould said, adding a warning.

"This situation, if it persists, will lead to inadequate supply when demand growth returns," he said.

brett.clanton@chron.com

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