We maintained our Neutral recommendation on Schlumberger Ltd (SLB - Free Report) on Jan 27, 2014. Schlumberger carries a Zacks Rank #3 (Hold).
We expect Schlumberger's combination of a strong balance sheet, technological leadership and efficient management to prove beneficial in the long term. We also believe that 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’s overall outlook for 2014 remains largely bullish on an improved global economic scenario. The company remains unperturbed despite some of the major emerging economies witnessing mixed fortunes in 2013. Demand for oil in 2014 is expected to remain strong while international natural gas prices remain steady.
Looking ahead, 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. Schlumberger generates about two-thirds of its revenues internationally, marking the highest ratio among the biggest oilfield service providers. Its strength also lies in effective implementation, strong contracts and new technologies.
In the international arena, the company experienced a strong quarter and we expect activity levels to increase and enjoy healthy growth throughout 2014. Schlumberger expects its international spending on exploration and production to climb over 6% in 2014. The company is aiming for continued margin improvement underpinned by the Middle East/Asia and Europe/CIS/Africa regions. Russia, Middle East, Sub-Saharan Africa, China and Australia, in particular, are expected to be sources of strength in the coming quarters.
However, management expects first half of 2014 to be challenging in Mexico and Brazil as additional equipment mobilization to Mexico is expected to take place in the latter half of 2014. In addition, the likely slowdown in Mexico later this year on reduced Chicontepec activity, flat activity in Southern Iraq in the first half of 2014 as well as weaker pricing from key contract rollovers and re-negotiations are expected to have a negative influence on the company’s performance.
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