How Schlumberger Earnings Could Stay Ahead of Halliburton and Baker Hughes

Schlumberger (SLB -1.71%) will release its quarterly report on Friday, and after having risen to multiyear highs early in the quarter, the stock has eased off somewhat in recent months. Yet the big question investors are facing right now is whether Schlumberger earnings will be able to grow faster than Baker Hughes (BHI) and Halliburton (HAL 0.91%), especially in light of changing conditions in the oil and natural-gas markets that could have a big impact on production activity in the near future.

Schlumberger has profited immensely from the explosive growth in oil and gas exploration and production activity in recent years, with reasonably high energy prices and a vast wealth of new finds helping to drive greater revenue. Yet the growth in the industry has encouraged more entrants to stake their claims for the profits that are potentially available, forcing even industry leaders like Schlumberger to work harder to defend their turf and maintain their levels of business activity. Let's take an early look at what's been happening with Schlumberger over the past quarter and what we're likely to see in its report.

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Stats on Schlumberger

Source: Yahoo! Finance

Will Schlumberger earnings do better this quarter?
In recent months, analysts have had mixed views on Schlumberger earnings, cutting their fourth-quarter estimates by $0.03 per share but boosting their full-year 2014 projections by $0.02 per share. The stock has topped out after bigger advances earlier in 2013, remaining roughly flat since mid-October.

Schlumberger's third-quarter results showed just how much profit potential there is in energy services right now. Net income jumped 20% on an 11% gain in overall revenue, with international growth playing an especially vital role in Schlumberger's favorable performance. Like Baker Hughes, Schlumberger saw strong growth in the Middle East, with Saudi Arabia, Iraq, Qatar, and the UAE all helping to boost sales. Other parts of Asia also contributed to Schlumberger's growth, including land-based drilling in China and offshore activity in Indonesia and Malaysia.

Going forward, Schlumberger intends for its global reach to give it a sustained competitive advantage over Halliburton and Baker Hughes. The company believes that in addition to the Middle East, areas like Russia, Australia, and sub-Saharan Africa all have great potential to provide new growth opportunities. China also represents a chance for Schlumberger to shine, with both it and Halliburton having moved aggressively to help Chinese production companies benefit from the production methods that Schlumberger has developed in other areas of the world. Moreover, Schlumberger isn't leaving North America untapped, even though Halliburton and Baker Hughes pose larger competitive threats there.

Still, tensions in certain parts of the world have weighed on Schlumberger. For instance, in Iraq, violence between the company and Shiite workers has led to concerns about the company's contract in the region, and Baker Hughes has seen similar difficulties. If Schlumberger doesn't navigate its geopolitical risk more effectively, it could open the door to Halliburton and other rivals to take over lucrative opportunities in conflict-ridden areas. In particular, the successful U.S. negotiations with Iran could lead to further destabilization in the region, especially if Iran's political ambitions continue to have an impact on Iraqi conflict.

In the Schlumberger earnings report, watch for continued signs of whether the oil services giant's best results are coming from, as well as where the company identifies its most promising prospects. By using all of its reach, Schlumberger has the best chance to hold Halliburton and Baker Hughes at bay for the foreseeable future.

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