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The world’s largest oilfield services provider Schlumberger Ltd. (SLB - Analyst Report) reported adjusted fourth quarter 2012 earnings of $1.08 per share (excluding special items), which were on par with the Zacks Consensus Estimate.

However, the quarter’s results decreased 1.8% from $1.10 per share earned in the year-earlier quarter. The quarterly results were adversely impacted by the seasonal slowdown, contract delays and mobilization, along with project start-up costs.

Income from continuing operations, excluding charges, was $1,439 million in the quarter, down approximately 2.6% year over year.

Full-year 2012 earnings from continuing operations were $5,578 million or $4.17 a share versus $4,915 million or $3.61 per share earned last year.

Total revenue of $11,174.0 million in the quarter was up 8.5% from the year-earlier level of $10,301 million. The quarterly figure surpassed the Zacks Consensus Estimate of $10,843 million.

Total revenue for 2012 was $42,149 million, reflecting an increase of 14.0% from the year-earlier level of $36,959 million.

Fourth Quarter Segmental Highlights

Oilfield Services: Segmental revenues were up approximately 8% year over year at $11,174.0 million in the fourth quarter. Pre-tax operating income of $2,164 million remained flat year over year.

All groups – Reservoir Characterization, Drilling Group and Production Group – registered sequential growth based on increased exploration activities internationally, offshore demand for Drilling & Measurements and M-I SWACO technologies as well as strong deepwater activities.

Further, robust sales from Artificial Lift and Completions products together with strong international end-of-year Schlumberger Information Solutions (SIS) software sales aided the sequential growth, which was partly offset by continued pricing weakness owing to the hydraulic horsepower oversupply.

Reservoir Characterization: This group posted revenue of $3,150 million in the fourth quarter, up 13% year-over-year. Pre-tax operating income was $917 million, which increased 18% from the prior-year quarter.

Drilling Group: Fourth quarter revenues recorded by this group was $4,137 million, which improved 9% annually. Pre-tax operating income was $696 million, up 7% year-on-year.

Production Group: The revenue for the quarter recorded by this group was $3,924 million, which climbed 6% annually. Pre-tax operating income was $590 million, down 24% year-over-year.


As of December 31, 2012, the company had approximately $6,274 million in cash and short-term investments and $9,509 million in long-term debt, representing a debt-to-capitalization ratio of 21.4% (versus 21.5% as reported in the previous quarter).

Our Take

We maintain our long-term Neutral recommendation on the stock.

Schlumberger remains upbeat about 2013, based on the positive outlook for the international markets. The company expects its international spending on exploration and production to climb 10% this year and activity to increase in the U.S. Gulf of Mexico.

Schlumberger generates about two-thirds of its revenue internationally, marking the highest ratio among the biggest oilfield service providers, which include Halliburton Co. (HAL - Analyst Report) and Baker Hughes Inc. (BHI - Analyst Report). Schlumberger’s strength also lies in effective implementation, strong contracts and new technologies.

The oilfield services behemoth believes that strong leverage to the deepwater segment will help it perform well over the coming years. While the company makes most of its money outside North America, it suffers from the industry-wide weakness in U.S. hydraulic fracturing services as well as weakness in the land coiled-tubing business.

We see Schlumberger performing in line with the broader market and prefer to remain on the sidelines.

Schlumberger shares currently retain a Zacks Rank #3, which translates into a short-term Hold rating.

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