What’s Schlumberger’s Free Cash Flow Estimate?


Dec. 5 2016, Updated 11:05 a.m. ET

Schlumberger’s operating cash flows

In this part, we’ll analyze how Schlumberger’s (SLB) operating cash flows trended over the past few quarters. We’ll also discuss how its capital expenditure impacted its free cash flow.

Schlumberger’s CFO (cash from operating activities) fell 49% in 3Q16 compared to 3Q15. In 3Q16, Schlumberger generated $1.4 billion in CFO. Schlumberger’s revenues fell in the past year, which lowered the CFO.

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Schlumberger’s free cash flow and capex

Schlumberger’s capital expenditure fell ~32% in the past year until 3Q16. Its lower capex couldn’t offset the falling CFO. The free cash flow fell 54% in the past year. In 3Q16, Schlumberger’s free cash flow was ~$1.0 million—compared to ~$2.2 billion last year. Schlumberger’s free cash flow has been positive in the past 13 quarters.

In comparison, National Oilwell Varco’s (NOV) free cash flow was $51 million in 3Q16. Currently, National Oilwell Varco’s market capitalization stands at $14.2 billion—compared to Schlumberger’s market capitalization of $117.7 billion. Schlumberger accounts for ~1.2% of the iShares S&P 500 Value ETF (IVE).

Schlumberger’s capex plans for 2016

In 2016, Schlumberger plans to spend $2.0 billion in capex—excluding SPM and multiclient investment. Compared to 2015, the capex is expected to fall ~17% in 2016.

What are Schlumberger’s free cash flow estimates?

Management expects the operating margin and free cash flow to improve as a result of its cost reduction measures. In the 3Q16 earnings press release, Paal Kibsgaard, Schlumberger’s chairman & CEO, said, “With the unparalleled cost and cash discipline we have established, we are confident in our capability to deliver incremental margins north of 65% and a free cash conversion rate above 75%. Going forward, this will give us significant flexibility to both re-invest in our business and steadily return cash to our shareholders.”

In the next part, we’ll discuss the returns from Schlumberger’s stock price.


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