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Schlumberger Q3 Earnings Shine

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The world’s largest oilfield services provider Schlumberger Ltd. (SLB - Free Report) reported adjusted third quarter 2013 earnings of $1.29 per share (excluding special items), beating the Zacks Consensus Estimate of $1.24 with ease.

Also, the quarter’s results increased from $1.04 per share earned a year ago. The results were boosted by the company’s strong international exposure, focus on execution and integration capabilities.

Income from continuing operations, excluding charges, was $1.71 billion, up approximately 24% year over year.

Total revenue of $11.61 billion increased 11% from the year-earlier level of $10.50 billion and in line with the Zacks Consensus Estimate. Pre-tax operating income of more than $2.50 billion increased 20% year over year.

Third Quarter Highlights

Of the total revenue, International Area revenues were $7.91 billion while North America Area revenues were $3.60 billion.

All the three business segments – Reservoir Characterization Group, Drilling Group and Production Group – registered growth.

Reservoir Characterization Group: This segment posted revenues of $3.23 billion, up 7% year over year. Pre-tax operating income was $983 million, which increased 23% from the prior-year quarter.

Drilling Group: Revenues recorded by this group were $4.41 billion, which improved 3% annually. Pre-tax operating income was $894 million, up 23% year over year.

Production Group: The revenues for this group climbed 3% year over year to $4.02 billion. Pre-tax operating income was $707 million, up 32% year over year.


As of Sep 30, 2013, the company had approximately $6.44 billion in cash and short-term investments and $9.92 billion in long-term debt. In the reported quarter, Schlumberger repurchased 10.1 million shares of its common stock at an average price of $82.61 for a total purchase price of $833.3 million.

Our Take

Schlumberger’s overall outlook for 2013 remains largely unchanged from its earlier projections. The company remains unperturbed despite some of the major emerging economies witnessing mixed fortunes in the third quarter. Demand for oil in 2013–14 is expected to remain strong while international natural gas prices remain steady.

Looking forward, Schlumberger’s optimism on rising rig count and customer activity will likely lead to its increased international spending on exploration, higher production and stepped up activity in the U.S. Gulf of Mexico. The company also expects steady growth in key regions of Sub-Sahara Africa, Russia, the Middle East, China and Australia.

Schlumberger generates about two-thirds of its revenues internationally, marking the highest ratio among the biggest oilfield service providers, which include Halliburton Company (HAL - Free Report) and Baker Hughes Inc. . 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 to perform well over the coming years. While the company makes most of its money outside North America, it bears the brunt of industry-wide weakness in U.S. hydraulic fracturing services as well as softness in the land coiled-tubing business.

Schlumberger currently holds a Zacks Rank #2 (Buy). There are other better-placed oil field service providers such as Zacks Ranked #1 (Strong Buy) Gulfmark Offshore, Inc. (GLF - Free Report) .

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