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A Pre-Earnings Analysis of Schlumberger before 3Q17

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Part 4
A Pre-Earnings Analysis of Schlumberger before 3Q17 PART 4 OF 8

Schlumberger’s Earnings Drivers in 2Q17

Schlumberger’s 2Q17 revenues by geography

Schlumberger’s (SLB) Europe–CIS1–West Africa region witnessed the company’s highest revenue decline in 2Q17. Revenues from this region decreased 10% in 2Q17 compared to 2Q16.

Schlumberger’s Middle East–Asia region reported a 2% fall in 2Q16. The company’s revenues from North America staged a noteworthy recovery, rising 27% from 2Q16 to 2Q17.

Schlumberger’s Earnings Drivers in 2Q17

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Schlumberger’s segment margin analysis

Schlumberger’s Reservoir Characterization group’s 2Q17 operating income margin remained unchanged at 17% compared to 2Q16. SLB’s Production group experienced operating margin improvement from 4% in 2Q16 to 9% in 2Q17. The Drilling group’s operating margin expanded from 8% in 2Q16 to 14% in 2Q17.

SLB’s positive earnings drivers

  • strong rig count and fracking activity leading to accelerated completion activity in North America
  • better pricing for SLB’s products and services
  • higher demand for SLB’s rotary steerable systems and drillbit technologies resulting from longer laterals and change in rig design
  • strong performance in Russia, Mexico, and CIS regions
  • increased upstream activity in the North Sea in Europe

SLB’s negative earnings drivers

  • lower offshore revenues due to pricing pressure in the Gulf of Mexico
  • decelerated rig-related work in Western Canada due to spring breakup
  • weak upstream activity in Venezuela and Brazil
  • lower revenues from Kuwait
  • lower revenues from India as monsoon affected rig activity negatively

Net earnings comparison with peers in 2Q17

Schlumberger’s reported net loss was ~$74.0 million in 2Q17. In comparison, Nabors Industries’ (NBR) reported net loss was ~$115.0 million in 2Q17. In 2Q17, Flotek Industries’ (FTK) net loss was $1.1 million, while Weatherford International’s (WFT) net loss was $165.0 million.

You can read more about WFT in What’s Keeping Weatherford Down despite Margin Improvement? Schlumberger accounts for 5.9% of the ProShares Ultra Oil & Gas ETF (DIG). DIG declined 8% in the past year compared to a 12% fall in SLB’s stock price.

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