Schlumberger Reports A Notable Recovery; Expects North American Demand To Remain Strong In 2018

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Schlumberger (NYSE:SLB), the world’s largest oilfield services company, posted a strong set of financial numbers for its December quarter and full year 2017 last week((Schlumberger Announces Fourth Quarter 2017 Results, www.slb.com)). The Houston-based company exceeded the market expectations for both revenue as well as earnings backed by the remarkable recovery in the drilling demand of North American onshore markets, while the international markets continued to remain weak. Going forward, the oilfield contractor expects the North American drilling demand to continue to grow, given the optimistic outlook for commodity prices. Also, the company expects slow yet gradual improvement in the international markets in 2018 and beyond.

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Key Highlights of 4Q’17 Earnings Release

  • Similar to the last quarter, a majority of Schlumberger’s revenue growth was driven by the improvement in its North American onshore markets. The company witnessed higher drilling activity as well as a recovery in pricing in the onshore markets due to additional fleet deployment in its newly acquired OneStim business and increased demand for longer lateral sections in shale oil wells. The North American offshore markets also grew due to WesternGeco year-end multiclient seismic license sales.
  • On the international front, the oilfield contractor continued to face weakness, as the improvement in Latin American and the Middle East markets was more than offset by the slowdown in Europe, CIS, and Africa region. Overall, the company’s 2017 revenue stood at $30.44 billion, almost 10% higher than the previous year. This shows that the company has been able to translate some of the recovery in the commodity prices and global drilling demand into impressive results for its shareholders.

  • As a result of the recent economic and political developments in Venezuela, Schlumberger booked a write-down of $938 million on its investment in the country during the fourth quarter. Further, based on the company’s cost-benefit analysis, it plans to exit the marine and land seismic acquisition market, and consequently, took an impairment charge of $1.1 billion for the same in the December quarter. Despite this, Schlumberger posted adjusted net earnings of $0.48 per share and $1.50 per share for the fourth quarter and full year 2017 respectively.
  • During the year, Schlumberger generated cash flows of $5.7 billion from its operations, of which $3 billion were utilized to repay its long term debt and around $2.1 billion were spent in capital investments. Further, the company paid dividends of $2.8 billion and repurchased its own shares for $0.9 billion, returning almost 54% of its cash flows from operations to its shareholders.

Going Forward

  • Given the extension of production cuts by OPEC and Non-OPEC members until the end of this year, Schlumberger expects the oil prices, and in turn, the demand for oil and gas drilling, to continue to grow in 2018. The positive outlook for commodity prices is likely to boost the investment appetite and availability of financing, particularly for the North American drillers. Based on third-party surveys, Schlumberger anticipates a 15%-20% rise in North American investments in 2018.
  • However, the full-blown recovery in the international markets is expected to take some time. That said, these markets are likely to witness a 5% increase in capital investments during the year, which will prove to be beneficial for Schlumberger.
  • Schlumberger recently purchased Weatherford’s US hydraulic fracturing and pump-down perforating business for $430 million and took ownership of the company’s US-based facilities, field assets, and supplier and customer contracts related to these businesses. This transaction is likely to strengthen Schlumberger’s position in the hydraulic fracturing market by challenging Halliburton’s dominance in this market.

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