Schlumberger’s 2Q’16 Revenue And Earnings Continue To Drop As Drilling Activity Remains Weak

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Schlumberger Limited (NYSE:SLB), the world’s largest oilfield services company, reported a notable drop in its June quarter revenue as well as earnings last week [1] on the back of weak drilling demand and pricing pressure globally. The company’s revenue stood at $7.2 billion, 10% higher compared to the last quarter, due to $1.5 billion of revenue contributed by the Cameron acquisition. However, excluding the impact of the Cameron deal, the revenue was down 14% on a sequential basis and more than 20% on a year-on-year basis.

On the cost side, the company booked a one-time pre-tax charge of $2.9 billion in the quarter, pertaining to asset impairments, workforce reductions, and merger and integration charges. Yet, the company posted pre-tax income of $747 million, or pre-tax operating margin of 10.4%, as opposed to a pre-tax loss of over $4 billion recorded by its closest rival Halliburton (NYSE:HAL) in the same quarter. This is primarily due to the synergies of $125 million generated from the Cameron deal during the quarter, making it earnings, as well as cash flow, accretive in its first full quarter itself.

Besides this, Schlumberger closed its acquisition with Xtreme Drilling and Coil Services Corp. (a Saudi Arabia-based coiled tubing drilling company) in June 2016. Further, it announced its acquisition of Saltel Industries (an engineering, manufacturing and service company offering expandable patches and steel packers) and Omron Oilfield and Marine, Inc. (a company that designs, manufactures, sells, and provides aftermarket services for automated drive and control systems, power houses, and drillers’ cabins) during the second quarter. These acquisitions will enable the company to expand its product offerings in different markets.

 

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Overall, the company’s management believes that the commodity markets have bottomed out and expects them to recover going forward. However, it anticipates the drilling activity to remain low in the second half of 2016. As a result, the company expects the pricing pressure to continue over the next couple of quarters. To weather the current downturn, Schlumberger has been making significant adjustments to its cost and resource base. For this, the company released more than 16,000 of its employees during the first half of the year and streamlined other overheads costs.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Schlumberger Limited

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Notes:
  1. Schlumberger Announces Second Quarter 2016 Results, 22nd July 2016, www.schlumberger.com []