Schlumberger Poised at Neutral

We maintain our Neutral recommendation on Schlumberger Limited ( SLB - Analyst Report ) , a leading oilfield services company, providing technology, project management and information services to the global oil and gas industry.

The company’s first quarter results showed steady improvement from the prior-year quarter aided by strong performance in global exploration and deepwater activity as well as efficiency in operations.

In the international arena, we expect activity levels to increase going forward. In the first quarter, international growth was driven by deepwater and exploration activity in Nigeria, Angola and East Africa, and land activity in the Middle East and North Africa. Promising indications from Iraq, Saudi Arabia, offshore Norway, Mexico, Brazil, Argentina, Ecuador, Canada and Indonesia should continue to improve the company’s top line going forward.

We believe Schlumberger's combination of balance sheet strength, technological leadership and management focus will be beneficial in the long term. We also believe the company is favorably positioned to benefit from the current trends in oilfield services, given improving activity levels and the greater need for stimulation and completion of services in North America.

Schlumberger expects an increase in technology introductions throughout 2012, a rise in the pricing of seismic and high seismic vessel utilization and a continuous shift towards performance-based contracts. The new alliance with Petrofac also bodes well for future growth in margin and market share.

However, Schlumberger's financial and operational performances face a number of headwinds, including changes in exploration and production spending patterns, commodity price fluctuations, geopolitical risks, regional spending trends, competition, the emergence of new technology and changes in economic conditions. Additionally, foreign currency fluctuation is a threat to the company's profitability.

While Schlumberger hopes to gain more market share than its peers in 2012, we expect pricing and margins to remain restricted in North American pressure pumping as new capacity continues to enter the market. Further, weak natural gas prices have affected the demand for gas-directed activity in North America. As Schlumberger has vast exposure in the region, its share prices may be depressed going forward.

Schlumberger holds a Zacks #3 Rank, which translates to a Hold rating for a period of one to three months. The company faces competitive threats from Baker Hughes Incorporated ( BHI - Analyst Report ) .