How Will Schlumberger’s Revenue Fare As The Shale Industry Slows Down?

by Trefis Team
-8.30%
Downside
19.63
Market
18.00
Trefis
SLB
Schlumberger Limited
Rate   |   votes   |   Share

Schlumberger  (NYSE:SLB) is an oil-services firm based out of four executive offices in Paris, London, Houston, and The Hague. It competes with other oil-drilling and services companies such as Halliburton and Transocean. The fracking industry has been facing a slowdown recently due to lower oil prices, because of which oil-services companies have seen their revenues slowing down. Despite this slowdown, Schlumberger continues to beat expectations from its earnings releases. Trefis highlights trends in Schlumberger’s Revenues over the years along with our outlook for 2019 and 2020 in an interactive dashboard, parts of which are highlighted below.

 

An Overview of Schlumberger’s Revenues

Schlumberger’s four divisions are expected to report a total revenue of $34.5 billion in 2019:

  1. Production: The production division is involved in helping oil production companies co-manage operations. Providing production management services, that largely involve real-time evaluation and monitoring of production.
  2. Reservoir Characterization: This division helps companies in evaluating and modelling potential reservoirs. Schlumberger provides a range of tools and models to help oil companies evaluate potential sites, and also provides further information for drilling
  3. Cameron: is a company within Schlumberger that helps provide a range of rig equipment to oil companies.
  4. Drilling: This division provides a range of services to help companies drill oil-wells. Providing the latest techniques, that include, latest technologies for fluid and boring. Along with drilling, the company provides management and evaluation services.

What is behind the new low-growth environment?

  • Oil prices dropping over the course of the year resulted in total rig count falling to multi-year lows.
  • As a result, Schlumberger faces an environment where revenues are expected to grow at a slower pace.
  • Despite the new trajectory, Schlumberger’s lesser exposure to the North American market compared to its peers resulted in its third-quarter results being better than that of its peers.
  • With oil prices being lower, offshore and international operations have also been affected.
  • Schlumberger currently has a range of deep-water operations around the Gulf of Mexico, Europe and Latin-America. These operations require oil prices to be higher in order to significantly ramp up their production.
  • Therefore, as oil prices trend higher, we expect some of the revenue lost in the North American market to be made up by these offshore contracts.

How does Schlumberger deal with the onerous conditions?

  • In the future, oil exploration and development projects will need to make far more financial sense than they have in the past.
  • As a result of this newfound discreetness among financiers, Schlumberger and other oil-services firms may have to cut costs in order to readjust to the current environment.
  • Notably, Schlumberger’s costs would need to come down by around 5-10% in order for it to maintain its margins.
  • Consequently, the company itself will have to be far more particular about picking future projects.

What opportunities can Schlumberger explore?

  • Deep-water wells and coastal projects from the Gulf of Mexico, Latin America and Africa will be the primary sources that may push Schlumberger’s Revenues higher going forward as growth in North America plateaus.
  • With Schlumberger not being overly exposed to North America, we expect the company to face fewer headwinds relative to its peers in the near future
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs
Like our charts? Explore example interactive dashboards and create your own.

 

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!