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A Pre-Earnings Analysis of Schlumberger before 3Q17

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Part 3
A Pre-Earnings Analysis of Schlumberger before 3Q17 PART 3 OF 8

Could the Stalling US Rig Count Impact Schlumberger in 3Q17?

US rig count

From June 30, 2017, to the week ended September 29, 2017, the US rig count remained unchanged at 940. Crude oil prices have increased ~10% since June 30. The US rig count has been stagnant despite higher crude oil prices in the past three months.

A stagnation in the US rig count, which had increased significantly until 2Q17, can negatively affect Schlumberger’s (SLB) revenues and earnings in 3Q17.Could the Stalling US Rig Count Impact Schlumberger in 3Q17?

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Revenues by geography

In 2Q17, Schlumberger’s revenue share from North America increased to 30% compared to 28% in 1Q17. Schlumberger’s revenues from international operations reached 70% in 2Q17. From 1Q17 to 2Q17, SLB’s aggregate revenues increased 8%.

In comparison, Weatherford International’s (WFT) 2Q17 revenues decreased 2% over 1Q17. Nabors Industries’ (NBR) revenues increased 12%, while Superior Energy Services’ (SPN) revenues increased 17% from 1Q17 to 2Q17.

SLB comprises 0.44% of the SPDR S&P 500 ETF (SPY). SPY increased 17% in the past year compared to SLB’s 12% fall during this period. The S&P 500 Index (SPX-INDEX) also increased 17% in the past year.

Did upstream companies’ capex affect SLB’s margin?

From 1Q17 to 2Q17, 19 upstream companies increased their capex 6% in aggregate. During the same period, SLB’s EBITDA1 margin (or EBITDA as a percentage of revenues) improved marginally from 22% to 23%.

Higher upstream capex typically results in higher prices for oilfield services and equipment (or OFS) companies’ services and products, which can increase OFS companies’ revenues and operating margins.

Next, we’ll discuss Schlumberger’s growth drivers for 2Q17.

  1.  earnings before interest, tax, depreciation, and amortization
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