Schlumberger’s 4Q Earnings To Witness Improvement As Commodity Prices Rise

by Trefis Team
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As the year 2016 ends on a positive note for the oil and gas industry on the back of the production cut announced by the Organization of Petroleum Exporting Countries (OPEC), the investors are now eagerly waiting for the earnings season to see the impact of this news on the annual performance of companies in the sector. Schlumberger (NYSE:SLB), the world’s largest oilfield services company, is set to discuss its December quarter and full year 2016 financial results on 20th of January 2017 [1], kick-starting the earnings season for the oilfield services industry.

SLB-Q&A-4Q16

As mentioned earlier, the market is expecting a notable boost in Schlumberger’s 4Q earnings on a sequential basis driven by the rebound in commodity prices in the last few months. WTI crude oil prices jumped from an average of $44.85 per barrel in the September quarter to $49.21 per barrel in the December quarter, representing a rise of almost 10% in the last three months. As a result, the global rig count (oil and gas) grew sharply from 1,578 units at the end of the third quarter to 1,772 units at the end of the fourth quarter. However, despite this, the Houston-based company’s revenue is likely to remain flat for the current quarter, due to the time lag between the recovery of commodity prices and the rise in demand for drilling rigs.

BHI-Q&A-2016-4

Source: Baker Hughes Rig Count Data; US Energy Information Administration (EIA)

 Yet, we believe that Schlumberger has held strongly in the ongoing commodity slump with the help of its Transformation Program, which is aimed at enhancing the company’s performance in four core areas – technology, reliability, efficiency, and integration. This program has yielded extraordinary results for the company enabling it to deliver superior results compared to its peers, even in the commodity downturn. For instance, the oilfield contractor has enhanced its capital efficiency by increasing asset utilization through better assignment to field locations. This has translated into lower capital investment as a percentage of revenue without slowing down the delivery of new technologies.

Impact of Schlumberger’s Transformation Program

SLB-Q&A-2016-2

Source: Energy & Natural Resources Conference, Schlumberger, December 2016

In addition to this, Cameron, a Schlumberger company, has signed two 10-year pressure control equipment management service contracts on behalf of Transocean, valued at greater than $350 million [2]. The first contract requires Schlumberger to manage Transocean’s Cameron risers in the Gulf of Mexico, including the storage, maintenance, inspection, repair, recertification and data-driven riser management on the rigs. Under the second contract, the company will provide a wide range of solutions to maintain and service blowout preventer (BOP) systems and other pressure control equipment for nine of Transocean’s ultra-deepwater and harsh environment drilling rigs. These contracts will leverage the core competencies of Transocean and Schlumberger’s capabilities as an original equipment manufacturer, to reduce the total cost of ownership for the offshore equipment and increase up-time associated with pressure control equipment, to deliver higher margins.

Furthermore, Schlumberger has continued to expand its operations in the existing, as well as growing, segments of the oilfield services industry. Earlier this week, the US oilfield provider announced the acquisition of Peak Well Systems (Peak), a leading specialist in the design and development of advanced downhole tools for flow control, well intervention and well integrity [3]. The deal is likely to enable the company to offer fully integrated well intervention solutions to its customers on electric line, mechanical slickline, or digital slickline, and in turn, strengthen the company’s position in this market.

Have more questions about Schlumberger (NYSE:SLB)? See the links below:

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 Fourth Quarter And Full Year 2016 Results, 4th November 2016, www.slb.com []
  2. Schlumberger Signs Two Long-Term Transocean Service Agreements, 21st December 2016, www.slb.com []
  3. Schlumberger Acquires Peak Well Systems, 5th January 2017, www.slb.com []
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