Schlumberger, the world’s largest oilfield service company, reported steep losses in the third quarter after writing down the value of two previous acquisitions and its North American shale business by billions of dollars.

Schlumberger said it lost $11.4 billion in the three-month period ending in September, compared to a $659 million profit during the same period a year earlier. Third quarter revenues rose to $8.54 billion from $8.5 billion in the third quarter of 2018.

The third quarter loss was more than double the combined $5.6 billion of profits that Schlumberger earned during the previous 12 quarters. The company, which is headquartered in Paris but has its principal offices in Houston, blamed the loss on $12.7 billion of pretax charges.

More than $8.8 billion of those charges were attributed to write downs in the value of business units formed by the 2010 acquisition of Houston oilfield service company Smith International and 2016 acquisition of Houston offshore service company Cameron International. Executives attributed another $1.6 billion in losses to write downs in value for company's North American hydraulic fracturing business, which has suffered from weaker demand amid lower crude oil businesses and tightening customer budgets.

Despite those write downs, Schlumberger beat Wall Street expectations for revenue and generated $1.7 billion of cash flow from operations during the third quarter, which executives said makes the company look strong moving forward.

“None of this changes our ability to generate strong cash flow as this quarter has once again demonstrated—giving us the flexibility to navigate a more uncertain market landscape,” Schlumberger’s recently appointed CEO Olivier Le Peuch told investors during a Friday morning call.

Service Sector: Schlumberger’s new CEO inherits profitable company alongside challenges

Bill Herbert, head of energy research for the Houston investment banking firms Simmons Energy, was not as dismissive of the writedowns, calling it a “muddled quarter” for Schlumberger.

“The asset write-downs today spoke about the misallocation of capital over the last 10 years,” Herbert said. “Anyone who engaged in acquisitions over the last five to 10 years overpaid. And that’s not just overpaid. They overpaid significantly.”

Schlumberger’s stock was trading at $56 per share and crude oil around $75 per barrel when the company bought Smith International. The company’s stock was worth $72 per share and crude oil was trading in the $40 per barrel range when it bought Cameron International. Today, the company’s stock is trading around $32 per share and crude oil at $53 per barrel.

As the first oilfield services company to report its quarterly earnings, Schlumberger’s results typically set the tone and conversation for the sector, which has struggled to deal with lower crude oil prices and pressure from customers to lower costs.

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Le Peuch, who became CEO in August, inherited a profitable company, but also some serious challenges. He has not been idle to address the problems facing the company or the sector.

While enjoying increased demand from offshore and international customers, Le Peuch has also placed a greater emphasis on cost-cutting digital products and services. Last month, he announced a strategic review that aims to improve the company’s financial performance. Among the goals are moving to customize products and services for individual oil and gas basins and enact more responsible spending.

Schlumberger is also selling more than $1 billion of assets. Earlier this month, the company received $250 million from Rockwell Automation of Milwaukee after shedding some assets to create a joint venture named Sensia.

Two sales are expected to close over the next few months. Schlumberger sold its Middle Eastern drilling rigs to Saudi Arabian service company Taqa in a $415 million deal. The company also struck a $400 million deal to sell its oilfield pipe manufacturing arm DRILCO and two other subsidiaries to Houston oilfield technology firm Wellbore Integrity Solutions.

Schlumberger is also trying to sell its assets in Argentina.

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James West, an oilfield service company analyst with the investment banking advisory firm Evercore ISI, believes that the moves will pay off in the long-run for Schlumberger. The company’s new digital technology and customized products and services for individual basins are already being embraced by customers in the exploration and production sector, he said.

“These are exactly the kind of technology solutions that North American E&Ps need to continue adopting — and paying for — as they strive to generate cash flows in a $55 (per barrel) environment,” West said.

sergio.chapa@chron.com

@SergioChapa on Twitter