Schlumberger’s (SLB) Patrick Schorn, President of Operations, spoke today at our West Coast Energy Conference and provided additional insight on the outlook for activity, investment opportunities, and additional granularity on the product groups. Schlumberger remains one of our top picks given the company’s continued focus on innovation and efficiency, and its ability to continue to invest through the cycle.
2Q View Unchanged, With Additional Granularity. Schlumberger’s view on 2Q16 remains unchanged, and the company believes that 2Q could represent ”the final approach” the market bottom. While Schlumberger’s overall view has not changed since 1Q16 earnings, the company provided more color among its product groups: Reservoir Characterization revenue expected to decline 10% QoQ in 2Q, with still-elevated decrementals (43% in 1Q); Drilling expected to decline 20%, with decrementals likely greater than 1Q’s 27%; Production expected to decline 10% (decrementals typically >30%); and Cameron revenue expected to be down slightly in 2Q.
Visibility Improving in NAM. Patrick noted improving visibility in North America (NAM), with the rig count expected to increase for the next two quarters. The outlook for international remains challenging particularly for Latin America, while the Middle East and Russia are more resilient.
Opportunities For SPM Increasing. Schlumberger Production Management (SPM) is currently Schlumberger’s only growing business, and presents a growing opportunity set for the company given constrained customer investment abilities, and an increasing propensity for customers to evaluate different business models in the downturn. Notably, Schlumberger sees SPM opportunities across geographies, including in NAM.
Shares of Schlumberger have gained 1.7% to $78.87 at 2:44 p.m. today, while Halliburton(HAL) has climbed 2.2% to $44.77, and Baker-Hughes (BHI) has risen 2% to $46.84.
By: Ben Levisohn (Barrons).
Photo: Fox Business.
Review: Emerging Market Formulations & Research Unit, FLAGSHIP RECORDS.
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