Oil Field Services Giant SLB Earnings Beat Expectations, Raises Dividend

The world’s largest oil fields service company SLB (formerly known as Schlumberger) reported better than expected fourth quarter earnings Friday before the market opened. SLB increased its quarterly dividend by 43%, raised it to 25.0 cents a share from 17.5 cents a share. Higher demand for its services and equipment, as producers capitalize on the global energy crisis and higher crude and natural gas production. Growth was driven by its core divisions. The oil service giant’s peers Baker Hughes (BKR) and Halliburton (HAL) report next week.

Schlumberger Vintage

Schlumberger Ltd NYSE: SLB Reported Before Open Friday

Schlumberger Q4 22 Earnings

Q4 2022 earnings release at 6:15 a.m. ET; conference call at 8:30 a.m ET

  • Net income rose to $1.07 billion, or 74 cents a share, from $601 million, or 42 cents a share, in the year-ago period.
  • Excluding nonrecurring items, adjusted earnings per share of 71 cents topped the FactSet consensus of 68 cents.
  • Adj EPS $0.71 (est $0.68) – Rev $7.88 (est $7.81B)
  • Adj EBITDA Margin 24.4% (est 23.9%)
  • Adj EBITDA $1.92B (est $1.87B)
  • Cash flow from operations was $1.6 billion and free cash flow was $0.9 billion
  • Raises Quarterly Cash Dividend To $0.25 Per Share, +43%
  • In December 2022, SLB repurchased $804 million of its outstanding notes, consisting of $395 million of 3.75% Senior Notes due 2024 and $409 million of 4.00% Senior Notes due 2025.

“In North America, we seized the growth cycle throughout the year, increased our pretax operating margins close to 600 bps, and almost doubled our pretax operating income. We effectively harnessed our refocused portfolio, fit-for-basin technology, and performance differentiation to gain greater market access and improved pricing, particularly in the drilling markets where we significantly outperformed rig count growth. Today, we have built one of the highest-quality oilfield services and equipment businesses in North America through the implementation of our returns-focused strategy.

SLB: Stock Market Reaction

  • $57.59 ▲ +0.21 (0.37%) Pre market
  • $57.59 ▲ +6.09 (11.83%) YTD
  • $57.59 ▲ +20.54 (55.44%) Over year
  • $57.59 ▼ -18.78 (24.59%) Over 5 years
  • 52wk High $59.45
  • 52wk Low $30.55

“In the international markets, after a first half of the year that was impacted by geopolitical conflict and supply chain bottlenecks, activity began to visibly inflect in the second half of the year, resulting in full year revenue growth of 20% and margin expansion of more than 150 bps. We laid the foundation for further growth and margin expansion through pricing improvements and a solid pipeline of incremental contract awards. In the Middle East, SLB is well positioned to be a key beneficiary of this visible market expansion, and we expect record levels of upstream investment by NOCs to continue in the next few years. During the year, we secured a sizeable share of tender awards in the region, driven by our differentiated performance, fit-for-purpose technology, and best-in-class local content. Similarly, across offshore basins, we continue to consolidate our advantaged position with new contract awards, particularly in Latin America and Africa.

Raising Full-Year Outlook

Full-year revenue outlook revised upward to at least $27 billion

“Looking ahead, we believe the macro backdrop and market fundamentals that underpin a strong multi-year upcycle for energy remain very compelling in oil and gas and in low-carbon energy resources. First, oil and gas demand is forecast by the International Energy Agency (IEA) to grow by 1.9 million barrels per day in 2023 despite concerns for a potential economic slowdown in certain regions. In parallel, markets remain very tightly supplied. Second, energy security is prompting a sense of urgency to make further investments to ensure capacity expansion and diversity of supply. And third, the secular trends of digital and decarbonization are set to accelerate with significant digital technology advancements, favorable government policy support, and increased spending on low-carbon initiatives and resources.

“Based on these factors, global upstream spending projections continue to trend positively. Activity growth is expected to be broad-based, marked by an acceleration in international basins. These positive activity dynamics will be amplified by higher service pricing and tighter service sector capacity. The impact of loosening COVID-19 restrictions and an earlier than expected reopening of China could support further upside potential over 2023.

“Overall, the combination of these effects will result in a very favorable mix for SLB with significant growth opportunities in our Core, Digital, and New Energy. We expect another year of very strong growth and margin expansion. We have a clear strategy, an advantaged portfolio, and the right team in place to drive our business forward. I look forward to another successful year for our customers and our shareholders.”

Schlumberger CEO Olivier Le Peuch commented.

Revenue by Geographical Area

International

Latin America Revenue

  • $1.6 billion increased 7% sequentially due to higher Well Construction revenue from increased drilling activity and improved pricing, mainly in Mexico and Brazil. Increased Production Systems sales in Brazil and higher APS project activity in Ecuador also contributed to the sequential revenue growth.
  • Year on year, revenue grew 34% due to higher drilling activity and increased pricing across the area. Higher APS project activity in Ecuador, increased stimulation and drilling activity in Argentina, and higher Production Systems sales and drilling in Brazil also contributed to the year-on-year revenue growth.

Europe/CIS/Africa Revenue

  • $2.1 billion increased 1% sequentially due to strong activity across all Divisions in Africa, mainly in Angola, Central & East Africa, and higher reservoir evaluation and intervention activity in the Caspian, Azerbaijan, and Turkmenistan. These increases, however, were almost fully offset by activity declines in Russia, Scandinavia, and Europe due to the onset of seasonal effects.
  • Compared to the same quarter last year, revenue grew 30% due to strong Well Construction activity and improved pricing across the area, higher Production Systems sales in Europe and Scandinavia, and activity increases in Africa across Divisions.

Middle East & Asia Revenue

  • $2.5 billion increased 7% sequentially mainly due to double-digit growth across the Middle East, primarily in Saudi Arabia, the United Arab Emirates, Iraq, and Qatar, from strong activity led by Well Construction and Production Systems.
  • Asia was sequentially flat as revenue growth in East Asia, India, and Australia was offset by declines in Indonesia and China, with the latter due to the onset of seasonal effects.
  • Year on year, revenue increased 19% due to increased activity across Divisions in Asia and higher activity from new projects in the Middle East—notably, increased drilling and stimulation activity in Saudi Arabia, the United Arab Emirates, Iraq, and Qatar.

North America

  • $1.6 billion increased 6% sequentially driven by strong year-end exploration data licensing sales in the US Gulf of Mexico boosting North America offshore revenue. US land revenue increased sequentially due to drilling revenue growth, which outperformed the rig count growth.
  • Compared to the same quarter last year, North America revenue grew 27%. All Divisions experienced significant year-on-year revenue growth, led by Well Construction and Production Systems.

Earnings Insight:

  • Schlumberger has posted better than expected EPS figures in 9 straight quarters, missing revenue expectations only twice in that period.
  • SLB stock has traded between $30.55 and $59.45 over the past year.
  • SLB stock has a price-to-earnings ratio (P/E) of 24.19.
  • SLB price-to-book-value (P/BV) is 3.83.
  • SLB dividend yield is 1.58%. (Will be higher with raise)

Analysts Outlook

With energy being the hot sector in 2022 analysts have become increasingly optimistic and revised EPS and revenue estimates upward 18 and 14 times, respectively. With oil stocks catching a bid along with oil futures after OPEC+ agreed on a 2 million barrel per day crude oil production cut at the October meeting. The oil production cut is the biggest from OPEC+ since April 2020. Oil prices had run up beforehand with estimates running up from 1mbpd last week to 2mpd by today’s meeting.

SLB Peer’s Earnings

About Schlumberger

SLB (formerly Schlumberger) NV is the world’s largest oil fields service company and provides technology for reservoir characterization, drilling, production and processing to the oil and gas industry. It operates through the following business segments: Digital and Integration, Reservoir Performance, Well Construction, and Production Systems. “With expertise in more than 120 countries, we collaborate to create technology that unlocks access to energy for the benefit of all.”

“Overall, 2022 was transformative for SLB as we set new safety, operational, and performance benchmarks for our customers and strengthened our market position both internationally and in North America. We launched our bold new brand identity, reinforcing our leadership position in energy technology, digital, and sustainability, and demonstrated our ability to deliver superior earnings in this early phase of a structural upcycle in energy.” SLB CEO Olivier Le Peuch commented,

Source: SLB

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