Energy

Schlumberger Projects 'Medium-for-Longer' Crude Oil Market

Paul Ausick

Published: July 21, 2016 4:56 pm

Last Updated: January 13, 2020 5:26 am

Schlumberger Ltd. (NYSE: SLB) reported second-quarter 2016 results after markets closed on Thursday. The oil field services firm reported adjusted diluted quarterly earnings per share (EPS) of $0.23 on revenues of $7.16 billion. In the same period a year ago, Schlumberger reported adjusted EPS of $0.88 on revenues of $9.01 billion. Second-quarter results compare to the consensus estimates for EPS of $0.21 on revenues of $7.13 billion.

CEO Paal Kibsgaard said that Schlumberger has reduced its headcount by more than 16,000 in the first half of 2016 and taken a $646 million restructuring charge in the second quarter as a result. The company also took a $1.9 billion, non-cash impairment charge and recognized $335 million in merger and integration charges related to its acquisition of Cameron.

Revenue dropped 20% year-over-year in the second quarter driven but rose 10% sequentially reflecting the addition of the Cameron business. On a pro forma basis, revenue decreased 12% sequentially with North America falling 20% due to the Canadian spring break-up and a 25% drop in the U.S. land rig count. International revenue decreased 9% due to weaker activity, continued pricing pressure, and a large-scale cutback in our operations in Venezuela.

The CEO sees some light at the end of the tunnel:

As the downturn has developed, we have changed our focus from managing decremental margins to further strengthening market share where we have seen a significant increase in our tender wins. As oil prices have nearly doubled from their lows of January 2016, we are now shifting our focus to recover the temporary pricing concessions that have been made, and to renegotiate contracts with limited promise of longer-term financial viability.

At the same time, the effects of the cuts that we have seen in E&P spending are now clearly visible in falling oil production, and with demand remaining strong, we are heading more rapidly towards an increasing negative gap between global supply and demand for oil. This will require significant capability and capacity to reverse, and without pricing recovery the service industry will be challenged to deliver. …

Whatever shape the recovery takes, service pricing must rise while respecting the need for operators to control their costs in what will likely be a medium-for-longer oil price environment.

In other words crude prices will rise, but not by enough for Schlumberger to charge as much as it would like to for its services. The company’s advice to investors: get over it.

During the second quarter Schlumberger repurchased 400,000 shares of stock at an average price of $72.77 per share for a total cost of $31 million.

The company did not provide additional guidance in its press release, saying it would provide information in a conference call Friday morning. The consensus estimates for the first quarter call for EPS of $0.23 on revenues of $7.13 billion. For the full year, EPS is pegged at $1.12 on revenues of $28.33 billion.

Shares traded up less than 0.1% in after-hours trading at $80.07 after closing at $80.02. The stock’s 52-week range is $59.60 to $86.61. Thomson Reuters had a consensus analyst price target of $88.03 before Thursday’s results were announced.