Schlumberger To Post Resilient Results Driven By Increased Rig Count In 3Q’16

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With a notable rise in the global rig count over the last quarter, the market expects Schlumberger (NYSE:SLB), the world’s largest oilfield services company, to post resilient third quarter results on 21st October 2016 [1]. Though the pricing pressure will continue to weigh on the oilfield contractor’s margins over the next couple of quarters, the Houston-based company believes that the demand for rigs has bottomed out and the commodity markets are progressing towards the path of recovery.

SLB-Q&A-3Q16

In comparison to its closet competitor, Halliburton (NYSE:HAL), Schlumberger has displayed more resilience in this commodity downturn. The company has managed to lower its margin contraction by reducing its operating costs, and by strengthening its core competencies. Further, its limited exposure to the North American markets, the worst hit by the commodity trough, has enabled it to deliver better returns even in the ongoing slump. However, this could work against the oilfield contractor, since the North American markets are likely to experience a faster recovery than the other markets, once the commodities markets bounce back.

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HAL-Q&A-3Q16-1

In the last three months, the commodity prices, particularly natural gas, have shown strong signs of improvement. The Henry Hub natural gas price, which is a benchmark for gas prices, grew almost 35% during the quarter. Even though crude oil prices remained pretty much flat during this period, the unexpected recovery in oil prices in the second quarter, resulted in a notable rise in the global rig count (oil and gas). This recovery was driven by the rise in rig demand in the North American and Middle East markets, while the Latin American and European markets continued to be a drag on the overall rig count.HAL-Q&A-3Q16-2

Although the recovery in the global rig count could augment the future prospects of the oilfield services industry, it may not be enough to turn around their financial position in the near term. Thus, Schlumberger’s profitability will be highly dependent on the recovery of the commodity markets.

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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 To Announce Third Quarter 2016 Results, 26th July 2016, www.slb.com []