Schlumberger’s 3Q’17 Earnings To Surge Backed By Continued US Drilling Demand

by Trefis Team
Schlumberger Limited
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Schlumberger (NYSE:SLB), the world’s largest oilfield services company, is set to initiate the earnings season for the industry by releasing its September quarter 2017 financial performance on 20th October 2017((Schlumberger To Announce Third Quarter 2017 Results, 16th August 2017, The market expects the company to post a strong improvement in its top line as well as bottom line, both on an annual and sequential basis. This rebound will be backed by the continued demand for drilling and production equipment and services during the third quarter. In addition to this, the oilfield contractor is planning to enter the oil and gas production space by acquiring equity stakes in drilling projects across the globe through joint ventures and partnerships. While it is difficult to comment on the effectiveness of this strategy, this could alter the face of the entire oilfield services industry. (Read more: Changing Face Of The Oilfield Services Industry)

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Continued Drilling Demand To Boost Revenues & Profits In Short Term

Despite the continued threat of hurricanes and storms in the US, the WTI crude oil prices averaged at around $48 per barrel during the third quarter, largely flat compared to the previous quarter. Consequently, the oil and gas rig count for the region remained strong and continued to drive the global rig count. The US rig count grew almost 77% to 1,150 units at the end of the September quarter compared to the same quarter of last year. However, the drilling demand in the international markets dropped during the quarter, offsetting the impact of strong demand from the North American markets. Yet, the global rig count rose by 31% to 2,081 units compared to the year ago quarter. Accordingly, we expect Schlumberger’s third quarter revenues and earnings to witness a solid improvement.

Turning Into An Oil And Gas Producer

Further, Schlumberger is planning to venture out into the oil and gas production business soon. For this, the company already has a unit called “Schlumberger Production Management” (SPM), under which it has invested in oil and gas joint ventures and projects previously. The company has recently acquired equity stakes in oil and gas projects in various locations such as Argentina, Russia, and Nigeria. With this new strategy, the company will actively participate in the drilling process and oilfield management of these projects, while having the right to carry out all the service contracts that are required to fulfill a particular project.

On one hand, this implies that Schlumberger will not have to compete with its peers for the various service contracts in a project and will be responsible to complete the entire project. On the other hand, it indicates that the company will not be entitled for the upfront service payment it receives for providing services to it clients, but would rather be responsible for the downside in case these projects fail to deliver. While it is too early to judge the outcome of this move, still, it is likely to motivate the other players in the oilfield services industry to follow suit.

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