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Schlumberger: it’ll be a slow, weak recovery for the oil sector

General Economic Imagery From North Dakota Ahead Of The Republican CaucusGeneral Economic Imagery From North Dakota Ahead Of The Republican Caucus
Waiting for the uptick.Photograph by Daniel Acker — Bloomberg via Getty Images

Schlumberger Ltd (SLB), the world’s No.1 oilfield services provider, suggested that it may have to reduce costs further and cut more jobs as it expects any rebound in drilling activity to now take longer than expected.

Even if crude prices improve next year, weak cash flows would curtail the ability of oil and gas companies to increase spending on exploration and production, Schlumberger Chief Executive Paal Kibsgaard said in a statement.

“In light of conservative customer budgets for next year, we are therefore entering another period during which we will continually adjust resources in line with activity,” Kibsgaard said on Thursday.

Kibsgaard said the oil market is also weighed down by concerns of slowing Chinese demand and additional supply from Iran.

Schlumberger said spending cuts by companies have been “dramatic”, but it did not say how much it expects oil and gas companies to cut spending in North America and internationally–a forecast it issued in the previous two quarters.

Its last forecast, issued in July, was for a drop in spending of more than 35% in North America and more than 15% outside the region.

“They know that the next two quarters are going to be very choppy and very tough so they want to make sure they are aligned for that,” Evercore ISI analyst James West said.

“When they said they are going to manage their operations, it’s a good indication that headcount reductions will continue.”

Schlumberger kicks off the earnings for oilfield services providers and its comments are closely watched for a glimpse into industry trends.

Schlumberger has already cut 20,000 jobs this year and scaled back spending in response to weak crude prices, moves that helped its third-quarter profit marginally beat analysts’ average estimate.

Net income nearly halved to $989 million, or 78c a share, fractionally ahead of expectations.

Total revenue fell 33% to $8.47 billion, including a 47 % drop in North America and a decline of some 27% outside.

Schlumberger said in August it would buy equipment maker Cameron International Corp (CAM) for $14.8 billion to bolster its pricing capability, and on Thursday said it would seek more acquisitions. However, a proposed deal for Russia’s Eurasia Drilling, which would have strengthened its position in one of the world’s largest markets, fell through under political pressure.

The $35-billion merger of its rivals Baker Hughes Inc (BHI) and Halliburton Co (HAL) is still awaiting regulatory clearance.