New Coverage: $105 Trefis Price Estimate for Schlumberger N.V.

+6.32%
Upside
54.81
Market
58.27
Trefis
SLB: SLB logo
SLB
SLB

Schlumberger N.V (NYSE:SLB) is one of the world’s largest providers of upstream oil & gas exploration and production services. Its oilfield services division has a presence in over 80 countries that are classified into 4 ‘geo-divisions’. Schlumberger’s oilfield revenues are evenly divided across these divisions with none of them accounting for more than 27% of the overall revenues. Competitors include Halliburton Company (NYSE:HAL), Baker Hughes (NYSE:BHI) and, in the offshore and deepwater sector, Transocean (NYSE: RIG) is another player with significant presence.

As a leading player in the oil and gas exploration services industry, Schlumberger enjoys the tailwinds from rising global oil demand due to high commodity prices. Historically, higher oil prices have been associated with increased exploration and production budgets that directly impact the top line and bottom line performance of upstream services providers like Schlumberger. In addition to this, we expect the company to benefit from the increasing project complexity and technological intensity of oil and gas exploration as this is will increase the revenues per project and reduce competition.

Coverage Launch; $105 price estimate for Schlumberger Limited

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We recently launched coverage activity on Schlumberger Limited with a $105 price estimate for the company’s stock which is around a 25% premium to its current trading price.

We have broken down our analysis of Schlumberger along its four geographical divisions and one division for the revenues from its distributions business and other sources.

  1. North America
  2. Latin America
  3. Europe, Africa and the CIS
  4. Middle East and Asia
  5. Distribution, Elimination and Others

Under all the four geographies, Schlumberger provides a host of oilfield services that are targeted at the life cycle of the reservoir. Its products and services include reservoir imaging, wireline, well testing, information services, data & consulting services. Under drilling services the company provides drill bits, drilling fluid systems, completion systems, and integrated project management for well construction projects. The reservoir production group offers well services, completions and artificial lift technologies, subsea, water and carbon services activities. The distributions business is largely limited to N. America and operates a number of service centers, supply branches and sales offices through which it markets pipes, valves, fittings, safety and other maintenance products. It also provides warehouse management, vendor integration and inventory management services.

North America Business

A rebound in the demand for oilfield services in North America is largely attributable to the increased drilling activity in shale plays. The growth in rig count in the Eagle Ford and Bakken basins touched 20% in Q4 2010 and the increasing complexity of the drilling efforts in these regions should increase Schlumberger’s revenue per rig figure in the geography.

Rising oil prices and the U.S. government’s push towards reducing dependence on imported oil are expected to provide an impetus to deepwater and offshore exploration and the exploitation of unconventional sources such as tar sands. These efforts should help upstream service providers such as Schlumberger improve their revenues as well as their operating margins and compensate for the impact of suppressed natural gas prices hurting gas exploration in North America

International Operations

Revenues from international businesses are also expected to improve through 2011 and 2012 as the company is extensively involved in major exploration efforts in Brazil, Saudi Arabia, Iraq, West Africa, the CIS and the North Sea. The increase in exploration activity in these regions is expected to offset the temporary setbacks the company is facing in Mexico and in Libya due to local unrest and adverse weather conditions. As exploration and production activity shifts offshore with output from land rigs on the decline in Latin America, the Middle East and Asia and in Europe, Africa and the CIS, we see revenues for Schlumberger rising, improving the overall outlook for the company.

See our full analysis for Schlumberger