What to Expect from Schlumberger Earnings with OPEC+ and Record Natural Gas Production

The world’s largest oil fields service company Schlumberger report third quarter earnings Friday before the market open, stepping up this quarter’s Energy earnings. Last quarter $SLB increased its full fiscal year outlook as it’s EPS soared 66%. Higher demand for its services and equipment, as producers capitalize on a rebound in crude and natural gas prices. Growth was driven by its core divisions. The oil service giant results compare with its peers Baker Hughes (BKR) on Wednesday and Halliburton (HAL) next week.

Schlumberger Vintage

Schlumberger Ltd NYSE: SLB Report Before Open Friday

Schlumberger Earnings Preview

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

  • Consensus EPS Estimates: $0.55
  • Consensus Revenue Estimates: $7.10B
  • 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 $42.95 +0.79 (+1.87%). Year-to-date, the Schlumberger stock price is up +11.23 (+35.40%).
  • 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.

Q2 Earnings Recap

Schlumberger Limited (NYSE: SLB) reported for the June quarter on Friday net income of $959 million. This came to adjusted earnings per share of 50 cents slightly higher than the consensus estimate of 40 cents, according to a survey of analysts tracked by FactSet. Revenue of $6.8 billion was more than the $6.27 billion analysts had expected.

Cash flow from operations was $408 million. The Board approved quarterly cash dividend of $0.175 per share.

Global oil and natural gas prices have climbed substantially since the start of 2021 to over $120 a barrel and $8.00 Btu HH on the back of a vaccine-fueled demand recovery and the Russian invasion of the Ukraine.

Second-Quarter Growth Broad-Based Across All Geographies

  • International revenue increasing 12%
  • North America revenue growing 20%.
  • International growth was widespread across all areas with more than 90% of our GeoUnits experiencing revenue growth.
  • Growth was led by Europe/CIS/Africa which experienced 20% sequential growth due to higher Production Systems sales in Europe and Scandinavia, the seasonal drilling activity rebound in the Northern Hemisphere, and offshore activity increases in Sub-Sahara Africa benefitting all Divisions.
  • Latin America sequential revenue growth of 10% was due to higher stimulation activity in Argentina, increased Production Systems sales in Brazil and Mexico, and higher offshore drilling in Guyana.
  • Middle East & Asia revenue 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.
  • In North America, sequential revenue growth of 20% was driven by a significant increase in land and offshore drilling activity and higher exploration data licensing in the US Gulf of Mexico.

Growth was driven by its core divisions:

Le Peuch said, “These results demonstrate the power of Schlumberger’s Core, which is performing exceedingly well and benefitting from the effects of improved operating leverage, favorable offshore activity mix, greater technology adoption, and an improving global service pricing environment.”

Well Construction and Reservoir Performance.

  • The Production Systems led the sequential growth, posting an 18% revenue increase on higher product deliveries and backlog conversion during the quarter, mostly internationally.
  • Well Construction revenue increased 12% sequentially due to higher land and offshore drilling activity both in North America and internationally, in addition to improved pricing.
  • Reservoir Performance revenue grew 10% due to higher intervention, evaluation, and stimulation activity, both on land and offshore along with improved pricing.
  • This solid performance in the Core was complemented by Digital & Integration, which experienced an 11% sequential revenue increase, driven by higher exploration data licensing sales.

Maintained Dividend

Schlumberger also announced a quarterly cash dividend of $0.175 per share signaling a positive outlook for earnings/cash flow trajectory.

Outlook

SLB updated its forecast for the remainder of 2022. The company expects full-year revenue of at least $27 billion. In Q1, the company increased its revenue by 14% in the first-quarter, to $5.9 billion. Its EPS jumped 62% to 34 cents. SLB had maintained its full-year guidance, expecting year-over-year revenue growth in the midteens and adjusted EBITDA margins at least 200 basis points higher than Q4 2021.

Schlumberger’s capital expenditures for the first six months of 2022 increased 58% to $664 million. Capital investment for 2022 is expected to be approximately $2 billion, according to the company.

“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,” CEO Olivier Le Peuch said in a news release Friday.

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.

Source: SLB, AlphaStreet

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