Schlumberger (SLB) posted solid results last quarter, despite falling oil prices, and credited global demand for oil services. The total rig count rose 6.6%, the company said, even while prices paid for the resulting product fell 8.8%.
The results offer a cautionary tale for American producers. Fracking costs big money, but many international fields don't yet require it to produce. Other countries can produce oil and gas at enormous profits on prices that may be marginal for U.S. oil plays.
The big gains came in Russia, which first competed with American supplies in the 19th century through fields in Baku. Rather than just double-down on those old fields with fracking, the country is moving from fields in western Siberia to eastern Siberia. Opening new fields like this delivers enormous supply at low per-unit prices.
Prices on other oil field stocks that are active in foreign plays, like Halliburton (HAL) and Baker Hughes (BHI), are also up in early trade while National Oilwell (NOV), which is most active domestically, fell in price. BHI was up 9% despite a collapse in prices of oil producers like Chesapeake Energy (CHK).
This is a story that won't go away. High prices may increase U.S. oil production, but they also draw production from lower-cost producers, resulting in lower prices. U.S. producers would benefit from stable prices, but there seems to be no effort on the part of the industry aimed at price stability.
For investors the lesson is clear. Look to oil service firms active in global markets for leadership, and look to international oil companies for bigger profits. A rising tide doesn't lift all boats equally.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.