Schlumberger Ltd posted a sharp drop in profit on Friday and warned it did not expect a rebound in spending in 2009 by its oil- and gas-producing customers, sending its stock down 4.5 percent.

The world's largest oilfield services provider and its rivals have suffered as the slump in oil and gas prices forced energy producers to cancel projects and rein in spending.

While oil prices have rebounded from early 2009 lows, they remain at half the record of July 2008, while natural gas is down about 75 percent from year-ago levels.

Chief Executive Andrew Gould said energy price volatility made it hard for his clients to commit to spending since they would not see any cash flow increase next year unless oil prices improved from their current range of $60 to $70 a barrel.

Sixty is OK, but it is not going to lead to a rash of activity, whereas I think $70 might be a lot more encouraging, Gould told analysts on a conference call. He stressed that year-end prices would be the deciding factor for clients.

North American natural gas drilling activity fell to a five-year low. Although output was beginning to show declines, which should help prices, Gould said no rebound for the oilfield service sector was likely before 2010.

Still, the company warned that the drop-off in spending, coupled with higher costs to find oil and gas, could cause a supply shortfall when growth in demand resumes.

The sobering outlook from the industry leader came at the end of an encouraging week in terms of oil services earnings, which had rallied the sector.

EARNINGS DOWN

Schlumberger said second-quarter net profit fell to $613 million, or 51 cents per share, from $1.42 billion, or $1.16 per share, a year earlier.

Excluding one-time charges for employee severance, earnings were 68 cents per share, above the 64 cents that analysts had forecast, according to the average on Reuters Estimates.

Simmons Co International analyst Bill Herbert said the beat was due to better-than-expected sales at Schlumberger's WesternGeco seismic arm.

(North America) on the other hand, was considerably worse than modeled as Schlumberger essentially registered break-even margins, he wrote in a note to investors.

Revenue fell 18 percent to $5.53 billion. Analysts were expecting $5.48 billion.

Revenue declined to $4.96 billion at the oilfield services unit and fell 17 percent at WesternGeco.

Schlumberger had improved its liquidity by $537 million from the first quarter and cut costs by about $300 million. Besides job cuts, Gould said, some skilled employees had taken leaves of absence and could be called back if needed.

Schlumberger shares fell 4.5 percent to $55.15, down from its best close for nearly five weeks on Thursday.

The stock had been up 36 percent so far in 2009, lagging a 43 percent gain for the Philadelphia oil service index <.OSX>, which slid 1.8 percent in response to Schlumberger's outlook.

Shares of rival Halliburton Co , which reported better-than-expected earnings on Monday, fell 0.9 percent.

(Reporting by Matt Daily in New York and Braden Reddall in San Francisco; Editing by Lisa Von Ahn)

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