The oil field services sector got a bump of about 2.5% earlier this week when Halliburton (HAL) reported results and indicated that the HAL earnings outlook for the rest of 2010 was looking better. So far today, the sector is up nearly 7% on a similar earnings outlook from Schlumberger Ltd. (SLB), even though the company’s revenues dropped in the quarter. Even Weatherford International Ltd. (WFT) is getting a nice boost on Schlumberger’s coattails. (See WFT earnings report here)

Crude oil prices are back above $84/b, leading investors to believe that the US economy is back on a sustainable growth path. The US Commerce Department report that new home sales jumped 27% in March is contributing to the sharp increase in crude prices, and in today’s strength in the oil field services business.

Schlumberger posted revenues today of $5.6 billion for its first quarter, down from $6 billion a year ago and down from $5.74 billion in the fourth quarter. Diluted EPS for the quarter came in at $0.56, compared with the year-ago quarterly EPS of $0.78. On an adjusted basis, this quarter’s EPS was $0.67. Analysts had been expecting EPS of $0.61 and revenues of $5.69 billion.

But the operative sentences in the company’s release was this one from the chairman/CEO: “Finally, I am on record as saying that I felt international margins would bottom at the end of the second quarter of 2010. I am pleased to report I was mistaken. International margins appear to have bottomed and are now likely to resume a positive trend—absent any exceptional circumstances.”

This is not the usual, “Things are getting slightly better” or “Things are getting worse more slowly.” Schlumberger believes the industry has turned the corner and that drilling is about to take off again.

Schlumberger expects to complete it’s approximately $11 billion merger with Smith International Inc. (SII) in the second half of 2010. The company does not expect to see any impact on earnings until 2011 from the merger, and expects cost efficiencies from the deal of about $480 million over the next two years. The market cap of the combined companies will be nearly $100 billion, more than 3 times the market cap of Halliburton, its nearest rival.

The company noted several ongoing projects in its press release, but did not mention anything about its recent staffing up in Iraq. That’s probably due to the fact that Schlumberger isn’t making any revenue in Iraq yet, but they do have the largest presence of any oil field services company, anticipating the beginning of an exploration and drilling boom by the end of the year.

Shares set a new 52-week high of $73 this morning, and are still trading at around $72.80. The median price target for the shares is $81 and the mean is $84.18. Neither is out of reach based on both the company’s optimism and its capabilities.

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