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The world's largest oilfield services provider Schlumberger Limited (SLB - Analyst Report) expects its fourth quarter to be hit by delays in international markets and a slowdown in drilling activity in North America (NAM).

Weak natural gas prices have affected the demand for gas-directed activity in North America. In fact, NAM activity is slower than expected on land in the U.S. and in Western Canada. As Schlumberger has broad exposure in this region, its share prices may be depressed going forward. This market already registered deterioration in growth and profitability in the third quarter, although in line with market expectations, due to continued decline in gas-based activity.  

Hydraulic fracturing-related work continues to face difficulty from overcapacity and will likely continue to decline this year. The company’s near-term outlook on U.S. land also remains subdued with lingering weakness in pressure pumping. The second-largest member of the oilfield services contingent — Halliburton Company (HAL - Analyst Report) — and Baker Hughes Inc (BHI - Analyst Report) are also experiencing slower activity level in North America.

Schlumberger also stated that continued contractual delays along with higher-than-typical seasonal activity slowdown in the Europe/CIS/Africa region will hurt its earnings by approximately 5 to 7 cents per share. During the third quarter, Europe/CIS/Africa generated $2.99 billion of sales, the second highest segmental contribution to the total.

During the third quarter, although Schlumberger experienced activity disruption due to Hurricane Isaac, its Gulf of Mexico (GoM) performance remained well in line with its expectation. The business remained highly accretive to the quarterly results even with the Isaac shutdown. The GoM operation is expected to be gradually more accretive to the company’s results in North America, in particular WesternGeco.

For the to-be-reported quarter, the Zacks Consensus Estimate is $1.14 a share. With the year-ago profit level at $1.11 per share, the projected growth rate stands at 2.5% for the fourth quarter. For 2012, the Zacks Consensus Estimate is $4.23, which represents a year-over-year growth rate of 15.6%.

Schlumberger carries a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation on the company.

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