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Why Schlumberger Foresees a Slowdown in 2016

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Dec. 4 2020, Updated 10:52 a.m. ET

Schlumberger’s revenue by segment

We’ve already discussed Schlumberger Limited’s (SLB) fiscal 1Q16 revenues and earnings. We’ll now look into its performance by segment in fiscal 1Q16. SLB is 0.61% of the SPDR S&P 500 ETF (SPY).

All of Schlumberger’s three product group segments’ revenue fell in fiscal 1Q16 over fiscal 1Q15. The Production segment saw the biggest revenue decline (a 36.6% fall), closely followed by Drilling (a 36.4% fall) and Reservoir Characterization (a 34% fall). The decreases were due to the following.

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  • lower onshore activity and offshore project delays in North America
  • persistent pricing pressure for SLB’s products and services in North America
  • muted multiclient seismic license sales
  • less drilling activity in Australia and Asia-Pacific
  • severe weather, a project completion slowdown, and job cancellations in Europe, CIS, and Africa, due primarily to weakness in Russia and Central Asia

Schlumberger’s segment margin analysis

Schlumberger’s Reservoir Characterization group’s fiscal 1Q16 operating income margin fell to 19% from 25% a year ago due to lower shares of high-margin Wireline services. The Production group also experienced a huge operating margin decline from fiscal 1Q15 to fiscal 1Q16 (14.7% versus 9%). This was due to further pricing weakness in SLB’s pressure pumping services in North America.

Schlumberger expects 25% lower E&P spending

Schlumberger’s management maintained its crude oil market outlook from the previous quarter. The company believes upstream companies will continue to reduce spending on exploration and drilling while energy supply and demand will remain tight in 2016.

In the fiscal 1Q16 earnings press release, SLB’s chair and CEO, Paal Kibsgaard, commented, “Recent spending surveys for 2016 now indicate sharper declines than previously forecasted. Global spending reductions in 2016 are approaching 25%, corresponding to reductions between 40% to 50% in North America and around 20% internationally.” Led by a weaker energy market, Nabors Industries’ (NBR) fiscal 1Q16 adjusted earnings are expected to fall to -$0.336 from -$0.22 in 4Q15.

Next, we’ll discuss Schlumberger’s returns.

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