VALUATION HIGHLIGHTS

1. Drilling constitutes 46% of the Trefis price estimate for SLB's stock.
2. Res. Characterization constitutes 19% of the Trefis price estimate for SLB's stock.
3. Production constitutes 19% of the Trefis price estimate for SLB's stock.

WHAT HAS CHANGED?

Schlumberger Changing its Name to SLB

The rebranding includes a new logo and focuses on creating and scaling new energy systems such as carbon solutions, hydrogen, geothermal and geo-energy, energy storage, and critical minerals.

In 2020, the company launched a business unit to explore low-carbon and carbon-neutral technologies. The following year, the company said it wanted to achieve net-zero greenhouse gas emissions by 2050, with minimal reliance on offsets. The company has since rolled out new offerings to reduce carbon dioxide and methane emissions from oil-and-gas operations.

SLB Tops Q4 Estimates On Strong Oilfield Services Demand

The oil services company reported Q4 adjusted earnings and revenues that beat analyst estimates while raising its quarterly dividend to $0.25/share. The company's Q4 GAAP net income rose to $1.07 billion, or $0.74/share, from $601 million, or $0.42/share, in the prior-year period. Its adjusted EBITDA jumped 39% year-over-year (y-o-y), and revenues rose 27% yo-y to $7.88 billion, including a 27% y-o-y jump in revenues from North America to $1.63 billion and a 26% gain in international sales to $6.19 billion.

Multiple tailwinds remain in place for 2023, and the activity outlook abroad remains robust, especially in the Middle East where SLB cited the continuation of record investment by national oil companies for multiple years.

BUSINESS SUMMARY

SLB provides upstream reservoir characterization and drilling and exploration services for the oil and gas industry. SLB'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

High Oil Prices Pushing 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 till 2019.

Oil prices rose early in 2022 as a surprising economic rebound drove demand for oil after several months of lockdowns. Secondly, the supply was not able to respond to increased demand as OPEC was probably cautious not to oversupply the market again, and the fact that oil production has long investment cycles. Lastly, the oil prices also increased sharply due to the conflict in Ukraine and sanctions on Russia. While oil prices saw a downward trend through July and mid-September, it has been rising again since October as OPEC+ agreed to reduce oil production by 2 million barrels a day, the first proposed target reduction since the Covid-19 pandemic. The organization is likely looking to raise oil prices in the face of slowing global economic growth. Given the growing geopolitical uncertainty due to the Russia-Ukraine war, energy prices are likely to remain high in 2023. Thus, demand for oil field services is likely to remain high for a couple of quarters.

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 SLB. 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 area is expected to improve SLB'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 is 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 SLB in these regions.

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 by 2-3% per year.