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Why Schlumberger Expects ‘Dramatic Cuts in E&P Investments’

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Oct. 19 2015, Published 1:13 p.m. ET

Schlumberger’s 3Q15 revenues

Schlumberger Limited (SLB) released its 3Q15 financial results on October 15. We’ll discuss its latest quarterly results in this series. First up is a snapshot of Schlumberger’s 3Q15 revenues and earnings. The company recorded total revenues of $8.47 billion for 3Q15, down 33% from the $12.64 billion recorded in 3Q14. SLB’s revenues for the latest quarter decreased mostly due to a slowdown in its North American region. North America has been posting disappointing results for SLB since 1Q15. Before that, this region was SLB’s primary growth driver.

In 3Q15, Schlumberger’s operating income decreased 46% to $1.5 billion from the $2.8 billion recorded in 3Q14.

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Schlumberger’s 3Q15 net income

Schlumberger’s net income for 3Q15 decreased sharply by ~49% to $989 million compared to the previous year’s corresponding figure of $2.0 billion. Its net income margin deteriorated to 11.7% in 3Q15 from 15.4% in 3Q14. Geographically,, earnings decreased mostly in its North American operations. All of Schlumberger’s product groups witnessed weaker results in 3Q15, with the Production group suffering the most.

Compared to 2Q15, too, Schlumberger’s latest quarter’s earnings fared worse. In 2Q15, the company recorded $1.1 billion in net income, 29% lower than in 2Q14. 2Q15 net income margin was also strong at 12.5% from 13.2% a year ago.

What to expect next

In the following quarter, Schlumberger expects demand softness from certain regions while lower supply should start to ease the oversupply situation. In a 3Q15 press release, SLB’s CEO and chairman, Paal Kibsgaard, said, “As we enter the last quarter of the year, the oil market is still weighed down by fears of reduced growth in Chinese demand and the expectations regarding the timing and magnitude of additional Iranian supply. However, the fundamental balance of supply and demand continues to tighten, driven by both solid global macroeconomic growth and by weakening supply as the dramatic cuts in E&P investments are starting to take effect.”

Schlumberger’s earnings per share (diluted) decreased to $0.78 from the $1.49 recorded in the third quarter of 2014. Schlumberger Limited is 7.6% of the Energy Select Sector SPDR (XLE).

National Oilwell Varco (NOV), a major drilling services and equipment provider, is expected to announce its 3Q15 results on October 28. NOV accounts for 1.5% of XLE.

About Schlumberger

Schlumberger Limited (SLB) is a Houston-based oilfield equipment and services company that provides integrated project management, technology, and information services to the oil and gas exploration and production (E&P) companies around the world.

Schlumberger’s planned acquisition of Cameron International (CAM) made some inroads in 3Q15. Read Market Realist’s Will Acquisitions Propel Schlumberger Forward? to learn more.

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