Key Takeaways From Schlumberger’s Q1 Results

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Schlumberger (NYSE:SLB), the largest oilfield services contractor, posted a stronger than expected set of Q1 2018 results, driven primarily by higher activity in the North American market, although this was partially offset by the impact of some project start-up costs and continued weakness in international markets. Although the company remains optimistic about the outlook for 2018 and 2019, it indicated the investment outlook hasn’t improved considerably, despite the recent uptick in oil prices. Below, we take a look at some of the key takeaways from the company’s results and what lies ahead for Schlumberger. We have also created an interactive dashboard analysis outlining our expectations for the company for the full year.

Key Highlights of Q1’18 Earnings Release

In the company’s North American segment, revenues rose by 1% compared to the previous quarter, driven by stronger offshore activity in the Gulf of Mexico and Alaska as well as both strong drilling and pressure pumping activity in the land markets, which offset the seasonal drop in WesternGeco multi-client sales in the US Gulf of Mexico. The company said that North American land revenue, excluding Cameron, increased by 4%, mirroring the increase in the rig count.

On the pressure pumping side, the company indicated that it continued to add fleets, although its additions were less than planned, due to lower utilization, inefficiencies, and softer pricing. That said, the company still expects to add a total of 1 million horsepower over the course of 2018. The total U.S. market is expected to add 3.3 million HP this year, per consultancy Rystad Energy.

On the international front, the company continued to face some pressure, dragged down primarily by Latin America, where revenue decreased 16% sequentially, amid lower fracking intensity in Argentina, reduced activity in Brazil due to mobilizations, and declines in activity in Venezuela. While revenues from the Europe, CIS and Africa region also declined sequentially due to seasonality, revenues from the region grew by 3% year-over-year.

Outlook

While oil prices have been ruling at levels of over $70 per barrel, with clear signs that the oil market has been tightening, Schlumberger noted that there hasn’t been an upward revision to global exploration and production spending for 2018. The company indicated that spending in the North American and International upstream space was still expected to grow in the range of 20% and 5% respectively.

Considering this, Schlumberger expects the oil industry to face growing supply challenges in the interim, indicating that a significant increase in global upstream investment would be required to address the deficit in the coming years. That said, the company expects to be able to win a significant amount of new contracts available currently, as customers are showing a preference for the performance-based contracts and integrated projects that the company offers.

 

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