Schlumberger Limited (SLB) Last Update 7/2/21
Related: HAL
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Schlumberger Limited
STOCK PRICE
DIVISION
% of STOCK PRICE
Digital
34.6%
$13.46
Drilling
27.0%
$10.49
Production
23.9%
$9.29
Net Debt
28.0% $10.88
TOTAL
100%
$38.85
$27.97
Yours
Trefis Price
N/A
$28.41
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Schlumberger Limited Company

VALUATION HIGHLIGHTS

  1. Digital constitutes 35% of the Trefis price estimate for Schlumberger Limited's stock.
  2. Drilling constitutes 27% of the Trefis price estimate for Schlumberger Limited's stock.
  3. Production constitutes 24% of the Trefis price estimate for Schlumberger Limited's stock.

WHAT HAS CHANGED?

Digital Innovation and New Energy to drive future growth

Schlumberger’s first quarter revenues declined by 6% sequentially, largely due to low North American rig count and a seasonal dip in international business. Apart from the traditional reservoir performance and well construction segment, the company’s digital & new energy business also experienced headwinds due to weak macroeconomic activity.

With the pandemic causing a paradigm shift in energy demand, Schlumberger has restructured its organization to focus on digital solutions for the existing oil & gas industry and the budding renewable sector. As crude oil prices are expected to remain subdued for a couple of years, the industry demands technology solutions to enhance asset productivity and reduce capital as well as maintenance costs.

Thus, Schlumberger signed an agreement with Exxon Mobil to jointly develop and implement digital drilling solutions. Later, Schlumberger partnered with Honghua Electric, a Chinese drilling equipment manufacturer, to integrate its DrillOps software with all new Honghua rigs.

BUSINESS SUMMARY

Schlumberger provides upstream reservoir characterization and drilling and exploration services for the oil and gas industry. Schlumberger’s services are required by integrated oil companies such as Exxon Mobil, National Oil Companies (NOCs) like Saudi Aramco, and independent producers to explore, develop, and service their oil resources. The company has an extensive geographical reach, conducting business in over 80 countries and providing products and services for oil and gas exploration, including seismic services, drilling, and post-drilling services.

KEY TRENDS

Recovery In Oil Prices To Boost Drilling Demand

Oil prices started plummeting since mid-2014 due to the demand-supply mismatch in the global oil markets. This resulted in weaker oilfield service activity throughout 2015 and 2016, as oil and gas companies curtailed upstream spending due to falling cash flows. This severely hit the business of oilfield services companies over the last two years.

However, the OPEC decided to scale back on its production, pushing Brent crude prices to levels of over $70 per barrel temporarily. The improved outlook for the recovery in commodity markets had encouraged oil and gas companies to increase their capital. This recovery was led by the North American markets, which have the largest potential to grow in terms of conventional as well as unconventional drilling.

But with lower prices, the trend has turned around and is now expected to reverse.

Exploration of deepwater and other remote sources of oil and gas

Increasingly over the past few years, significant oil and gas finds have been in deepwater and other remote locations such as the CIS and Iraq. The exploitation of these sources adds tremendous logistical and technical complexities to the exploration projects, which translates into higher revenues and lower competition for upstream products and services firms such as Schlumberger. Additionally, projects such as deepwater provide opportunities for longer-term contracts and the ability to provide integrated services.

New oil and gas discoveries in Brazil and other Latin American countries

Several of the largest oil and gas discoveries in the past five years have been in Latin America, including several multi-billion-barrel offshore finds in Brazil. These discoveries are attracting investments from local oil companies such as Petrobras, as well as foreign oil majors such as Chevron and Petrochina. Exploration in this region is expected to improve Schlumberger’s revenue and profit outlook in the region.

Exploration for unconventional sources in Europe, Latin America, the Middle East, and Asia

Exploration for unconventional sources such as shale and tight gas are expected to pick up in Argentina, Mexico, Poland, China, and Saudi Arabia over the next several years, resulting in higher revenues and operating profits for Schlumberger in these regions.

Industry consolidation and higher service intensity in North America

The recent downturn has resulted in the consolidation of upstream products and the services industry in North America as many smaller players fail to survive the competitive pricing by established players such as Schlumberger. In addition to this, the shift towards unconventional activity and higher services intensity favors larger players, which should result in better pricing for Schlumberger. However, as lower oil prices and capital for operations are becoming more scarce, we expect the general environment to be more subdued in Q4 of 2019 and Q1 of 2020.

Efforts to arrest decline rates in aging fields

Oil firms are investing in technology to help them reduce the decline rates seen in major fields over their lifetime. For instance, Mexico’s Pemex has been engaged in efforts to arrest the decline in its Canterall fields, while Saudi Aramco has also made it a priority to reduce the decline in its fields at 2-3% per year.