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Understanding Schlumberger’s First-Quarter Drivers

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Schlumberger’s revenue analysis by segment

Schlumberger’s production group witnessed the highest revenue growth (~35%) in the first quarter compared to Q1 2017, followed by the Drilling (7.1%) and Cameron (5%) groups. On the other hand, the Reservoir Characterization group saw a 3.8% revenue fall. SLB is 6.2% of the iShares U.S. Energy ETF (IYE). IYE provides exposure to US companies that produce and distribute oil and gas. IYE increased 16% in the past year versus a 4% increase in SLB’s stock price.

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Schlumberger’s operating margin analysis

Schlumberger’s revenue from North America did much better in the first quarter versus a year ago (up 51.5%). SLB’s revenues from Latin America fell 8.6% while its revenue from the Middle East and Asia remained steady year-over-year in the first quarter.

Schlumberger’s drivers: Positives

  • increased sales of drilling and measurement products and services in North America due to high demand for rotary steerable systems required in drilling longer laterals for shale oil production
  • SLB’s Cameron group’s strong business in Russia and Asia
  • higher testing services activity in Brazil, Qatar, and Egypt
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Schlumberger’s drivers: Negatives

  • increasing capacity additions in hydraulic fracturing activity and disruption in sand rail deliveries leading to lower utilization and reduced pricing for SLB’s Production group offerings
  • an adverse effect of a declining project backlog in the offshore business, affecting SLB’s Cameron group results
  • a seasonal decline in wireline activity in Russia and lower WesternGeco multiclient license sales in the Gulf of Mexico
  • seasonality in drilling activity hurting SLB’s international business, including rig-related activities in the Northern Hemisphere and North Sea, integrated drilling service projects in the United Kingdom, continental Europe, East Asia and Australia, and Venezuela

Net loss for SLB’s peers

Compared to SLB’s $525 million net income in the first quarter, FTI’s reported net income was $95.1 million, which was a significant improvement compared to Q1 2017, when FTI reported a ~$18.7 million net loss.

So how much does Schlumberger depend on North America? We’ll discuss this question in the next part of this series.

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