Schlumberger Q4 Preview: Weak U.S. Fracking Activity Could Hurt Results

by Trefis Team
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Schlumberger Limited
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Schlumberger  (NYSE:SLB), the largest oilfield services provider, is expected to publish its Q4 2018 results on Friday, January 18. We expect the company to see a sequential decline in revenues amid weakness in the North American market, though that is likely to be partly offset by a steady performance in the international market. In this note, we take a look at some of the key trends to watch when the company publishes earnings.

International Markets

Schlumberger has indicated that international revenues could remain flat sequentially in international markets, as stronger integrated drilling services revenues help to offset the winter slowdown in the Northern Hemisphere, as well as some potential weakness in the Latin American market. Moreover, the company previously indicated that it could see more favorable pricing conditions in the international market, as it indicated that international equipment capacity could be fully utilized by the end of the year, allowing for better leverage with pricing.

North American Headwinds Will Hurt Results

Schlumberger indicated that revenues from its North American business could fall 15% sequentially over the quarter, driven primarily by headwinds in the fracking market. The company noted that it had seen a larger than expected drop in demand for fracking over the quarter, causing pricing to take a hit. Separately, operators have slowed down activity in the Permian, which is one of the largest oil and gas basins in the U.S., due to a lack of pipeline capacity to transport crude from the region. Moreover, well productivity gains for tight oil appear to be tapering off in regions including the Permian and the Eagle Ford, with operators likely to see lower incremental returns on investments in existing wells, causing some softness in activity.

Impact Of Oil Price Decline On 2019 Outlook

Oil prices declined meaningfully over the last quarter, with WTI prices currently trading at under $50 per barrel, almost 35% below their October 2018 highs. While this isn’t likely to have meaningfully impacted global activity over the fourth quarter, it could cause customers to take a more conservative approach with their E&P spending, particularly in early 2019. That said, lower than expected production rates from U.S. wells and some moderation in global spending could help to bolster prices going forward. We will be looking for more updates from the company on this front during its earnings call.

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