Schlumberger: The Year In Review

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

Schlumberger (NYSE:SLB), the world’s largest oilfield services provider, had a mixed 2014. The company’s financial performance remained strong, with revenues poised to rise by around 8% over 2013 on the back of higher upstream activity, market share gains and new technology introductions. Earnings per share is poised to rise by close to 15% driven by a better activity mix, improved operational efficiencies and share repurchases. However, the stock saw a meaningful decline towards the second half of the year, owing to lower crude oil prices that have resulted in a tough near-term outlook for upstream capital spending and contracting activity in the oilfield services industry. In this note we take a look at the year that was for Schlumberger and what to expect from the company going into 2015.

Trefis has a $105 price estimate for Schlumberger, which is about 25% ahead of the current market price.

See Our Full Analysis For Oilfield Service Companies HalliburtonSchlumberger |Baker Hughes

Relevant Articles
  1. Down 7% Already This Year, Will SLB Stock Recoup These Losses After Q4 Results?
  2. Flat Since The Beginning of 2023, What Is Next For SLB Stock?
  3. SLB’s Q2 Earnings: What Are We Watching?
  4. SLB Stock To Likely Trade Higher Post Q1
  5. SLB Stock Looks Attractive At $46
  6. What To Expect From SLB’s Stock Post Q4 Results?

2014: North America, Asia Pacific and Middle East Drove Results

Schlumberger’s North American operations proved to be one of the key growth drivers during 2014, with revenues from the division rising by around 15% over the first nine months of the year. Overall upstream activity in North America remained strong, with the rotary rig count as of November rising by 10% year-over-year. Pressure pumping, which is Schlumberger’s single most important product line in the U.S , witnessed tightening supply-demand conditions owing to higher service intensities, better natural gas prices and growth in unconventional drilling activity in the Permian basin. Additionally, the company also benefited from better artificial lift sales and market share gains for drilling services in the U.S. Gulf of Mexico. Schlumberger’s international operations, which account for about two-thirds of the company’s revenues, also did well. The Middle East and Asia Pacific geomarket also saw meaningful growth, spearheaded by spending by national oil companies in the Middle East and higher activity in the Asia Pacific region. Revenues from the region grew by around 11% for the first nine months, while pre-tax margins expanded from around 25% to around 27%. Schlumberger is a technology leader in the oilfield services space and its new products coupled with its higher market power and greater geographic presence have allowed it to maintain meaningfully higher margins compared to its competitors.

2015: Upstream Capex Pressures Will Weigh On Performance

Benchmark Brent crude oil prices have touched five and a half year lows, falling to levels of under $60 per barrel owing to a sluggish outlook for global oil demand growth and strong supplies from U.S. shale oil fields. Prices could remain under pressure through early 2015 as well, due to further growth in U.S. production. The near-term situation doesn’t bode too well for the oilfield services industry, since oil and gas companies are seeing their cash flows come under significant pressure, leading them to become more circumspect about their upstream spending plans. While most oil and gas players have yet to provide their capital expenditure budgets for 2015, some companies that have provided guidance – such as ConocoPhillips and Malaysia’s Petronas – indicate that we could see capex cuts in the range of 20%. This is likely to weigh on Schlumberger’s top line and margins going into 2015.  Activity directed towards shale and tight oil plays is likely to take the biggest cut, given the higher marginal production costs and shorter investment planning cycles. Although Schlumberger derives less than a third of its revenues from North America and its revenue exposure to pressure pumping stands at just about 15% (FY 2013) compared to over 30% for Halliburton (NYSE:HAL), its North American operations are likely to feel the pinch. [1] Additionally, the company derives a meaningful portion of revenues from ultra-deepwater and mature plays, which are typically undertaken by larger and more cash-rich oil and gas companies that have long capex planning horizons. Although we do not expect to see a large decline in contracting activity from these projects, customers are likely to have meaningfully better bargaining leverage in contract negotiations and extensions.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap

More Trefis Research

Notes:
  1. Oil Field Services Fact book – Conference Edition 2014, Howard Weil []