Schlumberger Limited (SLB) Last Update 6/13/22
Related: HAL
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Schlumberger Limited
STOCK PRICE
DIVISION
% of STOCK PRICE
Digital
32.9%
$13.05
Drilling
30.2%
$11.98
Production
20.4%
$8.09
Net Debt
19.7% $7.82
TOTAL
100%
$39.63
$31.81
Yours
Trefis Price
N/A
$37.14
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 33% of the Trefis price estimate for Schlumberger Limited's stock.
  2. Drilling constitutes 30% of the Trefis price estimate for Schlumberger Limited's stock.
  3. Production constitutes 20% of the Trefis price estimate for Schlumberger Limited's stock.

WHAT HAS CHANGED?

Digital Innovation and New Energy to drive future growth

Schlumberger’s four operating segments, Digital & Integration, Reservoir Performance, Well Construction, and Production Systems contribute 12%, 28%, 36%, and 24% of total revenues, respectively. The uncertain demand environment had persuaded upstream companies to limit capital expenses in the last two years. However, the surge in benchmark prices due to the Russia-Ukraine war has rekindled demand for oil field services – taking worldwide rig count figures from 1,521 in December 2021 to 1,850 at present. Moreover, the company’s digital solutions business is likely to assist margin expansion in the coming years.

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 volatile for a couple of years, technology solutions are expected 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

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.

However, the OPEC curtailed production in 2020 which still stand below historical levels. Given the growing geopolitical uncertainty due to the Russia-Ukraine war, energy prices are likely to remain high in 2022. 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 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.

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.