What’s The Outlook Like For Schlumberger In International Markets?

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Schlumberger  (NYSE:SLB), the largest oilfield services company, posted a relatively mixed performance over the last quarter, as the North American market – which is the biggest driver of Schlumberger’s growth – has faced some hiccups on account of weaker activity in the Permian Basin and softness in the hydraulic fracturing space. However, the company’s international business is showing signs of improvement, and could compensate for some of the weakness in the U.S. In this note, we take a look at some of the trends that could drive the company’s international business going forward.

Why International Oilfield Spending Looks Set To Grow

Overall exploration and production investment across the globe has been subdued, with the spending falling by about 44% between 2014 and 2017, per Schlumberger, on account of weak oil prices. Moreover, the number of major project FIDs (final investment decisions) has also dropped, with just about 30 projects major projects approved in 2017, compared to an average of 40 projects a year between 2007 and 2013. However, investment will need to pick up for multiple reasons. Firstly, oil demand growth over 2019 is likely to be stronger compared to 2018. Moreover, it’s likely that declining production in Venezuela and a possibility that Iranian oil will exit the broader market amid U.S sanctions could call for more investments by other players in the oil market. The international rig count, which is a leading indicator of oilfield services demand, has been trending higher, rising to 1017 units, marking a 7% year-over-year increase.

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Schlumberger stands to benefit from an expanding oilfield services market, considering its broad technology portfolio, geographic footprint as well as its emphasis on performance-based contracts and integrated projects. Over the third quarter, the company’s Latin America and Middle East operations saw higher activity, driven by national oil companies and independent operators, while Europe, CIS, and Africa segment saw strong activity driven by Russia. The company has indicated that it expects its international equipment capacity to be fully utilized by the end of this year, potentially allowing it better leverage with pricing going forward. Capacity for drilling-related equipment and measurements, in particular, could be more constrained.

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