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Schlumberger Posts Mixed Q3 - Management Calls Cycle Bottom

Author: Roman Kanyuka, Published: October 21, 2016, Category: Earnings Review

Summary
  • Schlumberger reported 3Q16 revenue of $7B (QoQ decrease of 2%) and pretax operating income of $815M (QoQ increase of 9%)
  • Reported Adj. EPS were $0.25 vs Est. $0.22
  • Cash Flow from Operations was $1.4B and Free Cash Flow was $699M
There are several key takeaways from Schlumberger’s (NYSE:SLB) 3Q16 earnings conference call. Schlumberger Chairman and CEO Paal Kibsgaard commented, “After seven quarters of unprecedented activity decline, the business environment stabilized as expected in the third quarter, confirming that we have indeed reached the bottom of the cycle.” The primary reason for missed revenue figure was the reduced activity at Cameron due to continued backlog. Excluding Cameron, higher activities in North America, Middle East, Russia and Australia increased revenue by 1%. The company sees an increase in drilling activity across different regions; however, hydraulic fracturing market remains significantly oversupplied. Overall, based on the results of the third quarter, the management was able to deliver strong financial results with well executed allocation of CAPEX investments and was able to maintain the company’s dividend commitments. 

Management also sees a growing interest for SPM services across all customer groups in various geographic locations. According to Paal Kibsgaard, Schlumberger’s compensation for the major portion of SPM portfolio contracts is fee/barrel based which reduces profitability exposure to prevailing and forward-looking crude prices. However, as the industry recovers from the bottom of the cycle, the company may consider changing its compensation structure for a share of its portfolio linking it to the oil price.  
In regards to macro factors, Schlumberger management believes that the supply-demand for crude is now more or less in balance based on the flattening global inventories. According to Paal Kibsgaard commentary during the conference call, “The period of oversupply and inventory build is over and that market segments should soon change, paving the way for an increase in oil prices and subsequently E&P investments.” 

Source: Schlumberger Third-Quarter 2016 Results

The author of this article has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in this article represent the author’s opinions. Click here to visit Roman's contributor page.
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