Oil Drilling Ramp and Record Natural Gas Production Deliver for Schlumberger

The world’s largest oil fields service company Schlumberger reported better than expected third quarter earnings Friday before the market opened. SLB reported its strongest adjusted profit since 2015 sending $SLB up to $48.65 +2.96 (+6.48%) after the releases. Higher demand for its services and equipment, as producers capitalize on the global energy crisis and rebound in crude and natural gas prices. Growth was driven by its core divisions.

Updated: The oil service giant results compared with its peers Baker Hughes (BKR) on Wednesday and Halliburton (HAL) Tuesday. Schlumberger also announced its new name as SLB (yes, the stock symbol)

Schlumberger Vintage

Schlumberger Ltd NYSE: SLB Reported Before Open Friday

Schlumberger Q3 22 Earnings

Q3 2022 earnings release at 6:15 a.m. ET; conference call at 8:30 a.m ET

  • Adj EPS: $0.63 v Consensus EPS Estimates: $0.55
  • Revenue: $7.5B v Consensus Revenue Estimates: $7.10B
  • Adj EBITDA $1.76B (est $1.63B)
  • Cash flow from operations $408 million and free cash flow was negative $119 million.
  • Capital investment (composed of capex, exploration data costs, and APS investments) for the full-year 2022 is expected to be approximately $2 billion. Capital investment in 2021 was $1.7 billion.
  • Board Approved Qtrly Cash Div of $0.175/SHR
  • SLB trades $48.65 +2.96 (+6.48%) today after earnings

Raising Full-Year Outlook

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

“The strength of our second-quarter outperformance highlights a firmly established growth inflection and our ability to comprehensively participate in drilling and completion activity growth globally. The multiyear upcycle continues to gain momentum with upstream activity and service pricing steadily increasing both internationally and in North America, resulting in a strengthened outlook for Schlumberger.

“As a result of this performance and based on our updated outlook for the remainder of the year, 2022 year-on-year revenue growth is now expected to be in the high-teens which translates to full-year revenue of at least $27 billion. “We expect this higher revenue to result in earnings that exceed our previous expectations, given our ambition to exit the year with adjusted EBITDA margins 200 basis points higher than in the fourth quarter of 2021,”

Schlumberger CEO Olivier Le Peuch commented

Revenue by Geographical Area

International

Latin America Revenue

  • $1.3 billion increased 10% sequentially due to higher stimulation activity in Argentina, higher Production Systems sales in Brazil and Mexico, and higher offshore drilling in Guyana.
  • Year on year, revenue grew 26% due to higher drilling activity in Mexico, Ecuador, and Brazil as well as increased stimulation activity in Argentina.

Europe/CIS/Africa Revenue

  • $1.7 billion increased 20% sequentially. This significant growth was driven by activity that strengthened beyond the impact of the seasonal drilling activity recovery in the Northern Hemisphere with higher Production Systems sales in Europe and Scandinavia and multidivisional activity increases in Sub-Sahara Africa.
  • Year on year, revenue grew 16%, primarily from higher Production Systems sales in Europe and higher exploration drilling in offshore Sub-Sahara Africa, partially offset by the revenue decline in Russia.

Middle East & Asia Revenue

  • $2.2 billion increased 7% sequentially due to higher drilling across Asia, particularly in China, Australia, and Indonesia as well as multidivisional activity increases across the Middle East mainly in Oman, United Arab Emirates, Saudi Arabia, Egypt, and Iraq.
  • Year on year, revenue increased 8% due to higher drilling, stimulation, and intervention activity on new projects in Iraq, Oman, Egypt, Qatar and across Southeast Asia and Australia.

North America

  • North America revenue of $1.5 billion increased 20% sequentially and represented the highest sequential quarterly growth rate since 2017.
  • US land revenue growth outperformed the rig count increase sequentially, while offshore revenue growth was more than double the pace of US land—boosted by increased exploration data licensing in the US Gulf of Mexico and higher drilling activity.
  • US land revenue increased due to higher drilling activity and increased sales of surface production systems, while Canada land revenue increased despite the spring breakup due to higher Asset Performance Solutions (APS) project revenue.
  • Compared to the same quarter last year, North America revenue grew 42%.
  • All Divisions experienced significant growth primarily from higher drilling and intervention activity, increased sales of production systems, increased exploration data licensing, and strong contribution from the APS project in Canada.

Earnings Insight:

  • Schlumberger has posted better than expected EPS figures in 8 straight quarters, missing revenue expectations only twice in that period.
  • SLB stock has traded between $27.65 and $49.83 over the past year. Today it trades $48.65 +2.96 (+6.48%) today after earnings
  • Year-to-date, the Schlumberger stock price is up +13.25 (+38.63%)
  • 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%.

Schlumberger $800M sale of valves business

Analysts will be listening for updates from Schlumberger on Bloomberg reports it is exploring a sale of part of its U.S. valves business for more than $800M last week.

Schlumberger bought the assets back in 2016 as part of its acquisition of Cameron International Corp.. There is expected to be strong bids with the supply and energy crises. There is a rush to increase production in oil and natural gas, U.S. natural gas dry production reached a record high of 98 bcf/d in September.

Deals in the oilfield services space are relatively rare in North America, particular when not stressed sales. The sector is largely consolidated, with most activity centered around smaller, private equity backed transactions.

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.

WTI prices rose accordingly trading over $87.60 and Brent over $92 having bounced sharply from recent lows. Brent crude had dropped below $83 a barrel for the first time since January which triggered OPEC+ in their decision. The cut will take place from November and is not to be phased in.

Piper Sandler resumed coverage of Schlumberger & Halliburton on October 9, 2022

  • Schlumberger Ltd. (NYSE: SLB): Piper Sandler resumed coverage with an Overweight rating and $50 targe.t Shares closed on Friday at $42.59.
  • Halliburton Co. (NYSE: HAL): Piper Sandler resumed coverage with an Overweight rating and a $36 target. Shares closed on Friday at $42.59.

SLB Peer’s Earnings

About Schlumberger

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.”

Source: SLB, AlphaStreet
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