Schlumberger Posts A Stellar Quarter Despite Volatility; Aims To Leverage The Recovery In North America

Schlumberger (NYSE:SLB), the world’s largest oilfield services company, released an impressive set of June quarter 2017 financial results on 21st July 2017((Schlumberger Announces June Quarter Results, 21st July 2017, www.slb.com)), exceeding the consensus expectation for both revenue and earnings by a notable margin. Despite the slowdown of the recovery in commodity prices in the second quarter, the Houston-based company managed to grow its top-line as well as bottom-line driven by the rising drilling demand in the North American onshore markets, and seasonal improvements in the international markets. However, given the uncertainty in the commodity markets, the market did not seem pleased with the company’s results, as the stock closed 50 cents lower than the previous day. That said, we believe that the oilfield contractor has displayed resilience in this ongoing slump, and has set a difficult precedence to match for its competitor, Halliburton. Going forward, Schlumberger will continue to restrict its costs by improving the capital efficiency of its products and expand its presence in key markets through relevant joint ventures and/or acquisitions.

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Key Takeaways From 2Q’17 Results

• SLB’s revenue rose to $7.46 billion, more than 8% higher on a sequential basis, largely due to strong drilling demand from the North American onshore markets, and seasonal improvements in the international markets. The company’s US land revenue grew 42% sequentially, almost double the increase witnessed in the US rig count during the same period.
• Schlumberger posted adjusted earnings of 35 cents in the quarter, higher than 23 cents in 2Q’16 and 25 cents in 1Q’17, driven by higher pricing, market share gains, improved operational efficiency, timely resource additions, and proactive supply chain management.
• During the quarter, the oilfield company repurchased 5.5 million shares of its common stock for a sum of $398 million and approved a quarterly cash dividend of $0.50 per share.

Source: Google Finance; US Energy Information Administration (EIA)

Going Forward

• The US-based company expects robust drilling activity in the North America markets even in the second half of the year. In addition, the company foresees improvements in the international markets in the coming quarters, as increasing demand and new projects are likely to emerge in Western Siberia and in the OPEC Gulf countries.
• Schlumberger is progressing well towards closing the OneStim joint venture transaction with Weatherford in the second half of this year to capitalize on the recovery in North America land unconventional activity.

• The company has recently announced an agreement to acquire a majority (51%) equity interest in the Eurasia Drilling Company (EDC), Russia’s biggest drilling company. This is SLB’s second attempt to acquire a stake in EDC since the sanctions were imposed on Russia in 2014. The deal aims to cement the strategic alliance between the two companies since 2011, and will provide access to sustained capital investment in the Russian markets. The financial terms of the deal have not been disclosed and the closing of the transaction is subject to the approval by the Federal Antimonopoly Service of Russia.
• Lastly, Schlumberger plans to increase investments in its SPM operations through its new projects with OneLNG, YPF, and NNPC and FIRST E&P. This will not only open additional short-term opportunities for its various product lines, but also deliver long-term financial returns for the company.

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