Schlumberger Q4 Preview: North American Margins In Focus

North America had been a source of some pain for most large oilfield services companies over the last few quarters due to the volatility in natural gas prices and sluggish land-based drilling, which has impacted pricing for some services such as pressure pumping. However, Schlumberger’s North American operations showed some signs of a recovery during Q3, benefiting from increasing efficiencies, stronger offshore drilling as well as lower raw material costs and better utilization rates for its pressure pumping product line. The division’s pre-tax margins for the quarter stood at around 20.2%, up by nearly 2% since the same quarter last year.

For this quarter, we expect the division’s margins to improve on the back of higher overall activity, continuing efficiency improvements as well as some market share gains. While the broader pressure pumping market continues to reel under strong supply, Schlumberger has been gaining market share owing to new technology deployments such as its proprietary “hi-way” fracking technology. The technology helps to significantly cut down on the amount of proppant and water used in the fracking process. During the third quarter, the company said that it had activated four additional fracking fleets and mentioned that its total fracking stage count increased by around 7% sequentially and this could translate into a better performance in Q4. Additionally, overall oilfield services activity in the United States is expected to have been higher during Q4 2013 when compared to the previous year since the total well count in Q4 is up nearly 5% year-over-year. ^[1]

Activity in the offshore U.S. Gulf of Mexico is also expected to have been strong. The average rig count in the Gulf has risen from around 47 in Q4 2012 to about 58 in Q4 2013, according to data from Baker Hughes. Schlumberger has also been strengthening its offshore and deepwater business over the past few years and has been one of the main beneficiaries of the increasing offshore activity in the Gulf. Going forward we believe that Schlumberger’s subsea joint-venture with Cameron “One Subsea” as well as its seismic offerings could prove to be key drivers for growth given the vast swaths of under-tapped acreage in the ultra-deepwater lower tertiary region of the Gulf of Mexico.