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Analyzing Schlumberger's Earnings prior to Its 1Q17 Results

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Part 3
Analyzing Schlumberger's Earnings prior to Its 1Q17 Results PART 3 OF 9

Where Does Schlumberger Think Energy Production Is Headed?

Schlumberger’s joint venture with Weatherford

On March 24, 2017, Schlumberger (SLB), the largest oilfield equipment and services (or OFS) company, and Weatherford International (WFT) announced that they had inked an agreement to form a joint venture (or JV) called OneStimSM.

The JV will deliver completions products and services in unconventional onshore resource plays in the United States and Canada. Read more about this JV and SLB’s recent project awards in What to Expect from Schlumberger Stock after JV with Weatherford.

Where Does Schlumberger Think Energy Production Is Headed?

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Update on the JV

In an investor presentation on March 27, 2017, Schlumberger’s management released further details on the JV, which will include the following:

  • multistage completions through contributions from Weatherford
  • close relationship with SLB’s North American onshore business units such as Xtreme Coiled Tubing services, Wireline Thrubit logging, Cameron flowback, and CAMShale
  • the benefit of SLB’s vertical integration program and automated surface delivery system, geo-engineered completions, and HiWAY and BroadBand Fluid systems

Schlumberger’s take on energy production

Paal Kibsgaard, Schlumberger’s chair and CEO, said in an investor presentation, “US crude production is set to increase in 2017 and in the years to come, however, it is unlikely that North American unconventional alone can address the global supply deficit.”

There have been dramatic falls in energy producers’ exploration and production (or E&P) budgets. Energy production has stayed high even though there haven’t been significant additions to proved developed reserves.

According to SLB’s management, “The industry indeed is heading towards a supply crunch in the coming years unless there is a significant global increase in E&P investments.” Higher E&P spending should benefit OFS companies such as Schlumberger and National Oilwell Varco (NOV).

SLB makes up 0.55% of the SPDR S&P 500 ETF (SPY). SPY tracks the price and yield performances of the S&P 500 Index (SPX-INDEX). The energy sector makes up 6.6% of the S&P 500.

Next, we’ll discuss how SLB’s management’s outlook has shaken out in recent quarters.

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