Schlumberger Earnings: Middle East and Asia Activity, Market Share Gains Drive Results

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Schlumberger (NYSE:SLB), the world’s largest oilfield services company, reported its Q1 2014 earnings on April 17, with a reasonably good set of numbers. The company’s results were aided by stronger upstream activity in the Eastern Hemisphere, some market share gains and higher operational efficiencies. Quarterly  revenues grew by around 6% year-over-year to about $11.3 billion, while income before taxes grew by around 28% to around $2.07 billion. [1] In this note, we take a look at some of the key trends that drove the company’s results for the quarter.

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1) North American Pressure Pumping Gains : Schlumberger’s North American business saw revenues rise by around 12% year-over-year to about $3.68 billion, owing to market share gains and new technology deployments in the pressure pumping business, as well as due to higher sales for its artificial lift product line. The company mentioned that it had added one new pressure pumping fleet in Q4 2013 and another two fleets during Q1. However, North American margins came under pressure, falling by around 50 basis points year-over-year to 18.5%, partially due to lower pricing for the pumping services. Separately, the company also witnessed some hiccups in the U.S.  Gulf of Mexico, where deepwater drilling activity was lower due to some operational delays, higher work-over activity and longer completion times, which adversely impacted many of the company’s product lines. [2]

2) Rising Middle East And Asia Activity: Activity in Asia and the Middle East has been one of the key drivers behind Schlumberger’s earnings growth over the last year, and that growth has largely continued. Revenues from the region were up by around 18% year-over-year to around $2.85 billion, while pre-tax margins rose by around 350 basis points to 26.3%. The company’s business in the Middle East was spearheaded by activity in Saudi Arabia and the United Arab Emirates, and the company has indicated that it was mobilizing additional resources into the region to meet demand. The overall average rig count in the Middle East is up by around 13% year-over-year.

In the Asia-Pacific region, the company’s results were bolstered by strong deepwater activity in markets such as Australia and by a robust performance on one of its production management contracts in Malaysia. Schlumberger also expects to see some growth in China, although this could be at a slightly lower rate compared to last year, due to some budget cuts from the country’s national oil companies. Demand in China could be driven by the company’s new technology deployments and project management services. Some of the specific sectors of the Chinese oilfield services market that could see growth include conventional and shale gas exploration as well as offshore services.

3) Increasing Sales To IOCs And Independents: Schlumberger indicated that its sales to national oil companies and independent oil companies  now account for about 70% of its total revenues, while revenues from international oil companies has remained relatively flat. This is likely to be a positive trend for Schlumberger, since NOCs together hold over 80% of the world’s proven oil reserves. NOCs  are expected to account for a greater proportion of global exploration and production spending going forward, as many oil majors such as BP (NYSE:BP) have been slowing down on their expansion plans as they focus on improving shareholder returns. (Related: Rising Spending From National Oil Companies Is Good News For Schlumberger)

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Notes:
  1. Schlumberger Q1 2014 Earnings Press Release, Schlumberger, April 2014 []
  2. Schlumberger Q1 2014 Earnings Conference Call, Seeking Alpha, April 2014 []