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AQR Capital Slashes Holdings in Schlumberger by 84%

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AQR Capital’s holdings in Schlumberger

AQR Capital decreased its stake in Schlumberger (SLB) from 906,369 shares in 3Q14 to 142,640 shares in 4Q14. This represented a massive 84% decrease. The stock formed 0.03% of the fund’s fourth-quarter portfolio.

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About SLB

Schlumberger is a leading global supplier of information solutions, technology, and integrated project management. The company serves the global oil and gas production and exploration industry.

SLB operates via the following segments:

  • The Reservoir Characterization Group handles the major technologies involved in defining and discovering hydrocarbon resources.
  • The Drilling Group comprises the major technologies involved in the positioning and drilling of gas and oil wells.
  • The Production Group handles the major technologies concerned with the lifetime production of gas and oil reservoirs.

Schlumberger is part of the Energy Select Sector SPDR Fund (XLE) and the iShares US Oil Equipment & Services ETF (IEZ) with exposures of 7.25% and 21.14%, respectively.

SLB’s 4Q14 results

Revenues for the fourth quarter of 2014 totaled $12.6 billion, showing an increase of 6% on a year-over-year (or YoY) basis. Earnings per share (or EPS) of $1.50 represented an 11% increase over the prior-year period.

In the company’s earnings release, CEO Paal Kibsgaard commented, “Fourth-quarter results were led by record revenue in North America due to continued efficiency improvements and new technology uptake in pressure pumping land and by the recovery of activity in the US Gulf of Mexico.”

Revenue for the Reservoir Characterization Group fell 6% in 4Q14 on a YoY basis owing to a “seasonal drop in marine seismic activity in the North Sea and eastern Canada.”

Drilling Group revenue was $4.7 billion, showing both a 5% increase over the prior-year period and a 3% decrease over the previous quarter. The decrease might have been due to “unfavorable currency effects and activity declines in Russia for Drilling & Measurements and M-I SWACO Technologies.”

Revenue for the Production Group was $5 billion, indicating a 17% increase over the prior-year period and a 5% increase over the previous quarter.

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According to Schlumberger’s earnings release, “Improved activity in Western Canada, higher uptake of technology specifically for broadband services, continued efficiency improvements, and improved logistics in pressure pumping in North America land accounted for the strong sequential revenue growth. Year-end sales of Completions and Artificial Lift products also contributed to the sequential increase.”

SLB has a dividend yield of 2%. Peers Halliburton (HAL), Baker Hughes (BHI), and National Oilwell Varco (NOV) have dividend yields of 1.4%, 1%, and 3.5%, respectively.

Capital expenditure cuts and workforce reduction

According to a Forbes article dated January 16, 2015, contracts drive the oilfield services industry. This explains why the turmoil in oil prices did not negatively affect Schlumberger’s adjusted quarterly earnings.

The short-term outlook for companies in the oilfield services business is not encouraging. Cash flows will likely feel pressure if oil prices remain at their current subdued levels for the rest of the year. Given this backdrop, oil and gas firms could trim their exploration budgets for 2015.

Schlumberger took one-time charges pertaining to asset value write-downs and noted that about 9,000 jobs would be cut amid lower anticipated spending in production and exploration. The company could also lower capital expenditure from $4 billion for 2014 to $3 billion for 2015.

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