Schlumberger Has Fuel for a 20% Run
Schlumberger (NYSE:SLB) reported strong results announcing a 68% jump in its revenues over the same quarter last year. The growth was fueled by the North America market for oilfield services, spurred by the increased demand for onshore services as well the resumption of exploration in the Gulf of Mexico. High oil prices have boosted oil firms cash flows and their ability to generate finances for further drilling and exploration resulting in a strong demand for related services and equipment. Among its competitors, Halliburton reported a 35% growth in revenues and Baker Hughes‘ revenues jumped by 41%. (See: Halliburton Heads to $60 on Gusher of Exploration & Production Demand) [1]
We have a $106 price estimate for Schlumberger, which is just under a 20% premium over its current market price.
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Manpower & equipment shortages mean firmer pricing
Outgoing CEO Andrew Gould noted in his address that Schlumberger continued to face challenges in meeting the demand for its manpower and equipment. The coinciding rebound in the North American and international exploration and production activity has strained the ability of oilfield services firms to meet the demand. [2] Shortages in the industry mean the Schlumberger can demand higher pricing for its products and services thereby increasing revenues. [3] We expect improvements in pricing to continue through the year and along with higher utilization rates, these will boost company revenues.
Higher exploration and production spending and increased deepwater activity also account for a portion of the growth in revenues. Revenue growth was seen across segments ranging from reservoir characterization to production.
International markets show strong rebound as well
Schlumberger also saw demand for its services increase in international markets such as Latin America, the Middle East and Asia. In Latin America, the company reported double digit revenue growth because of activity in Venezuela, Trinidad and Tobago, Peru and Brazil. Revenues increased across all service lines in the Middle East and Asia geographies with expansion in Saudi Arabia, Bahrain and Iraq. Higher demand in the North Sea supported growth in the Europe, CIS and Africa division as well.
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Notes:- Baker Hughes Quarterly Profit Jumps, The Street [↩]
- Schlumberger Announces Second-Quarter 2011 Results, Schlumbeger [↩]
- Schlumberger 2Q profit jumps 64 pct, Associated Press – Yahoo! Finance [↩]