Please ensure Javascript is enabled for purposes of website accessibility

What Is Schlumberger Preparing to Tell Us?

By David Smith - Apr 17, 2013 at 3:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The kingpin of the oil-field services world will release its earnings on Friday, April 19. The company's releases and subsequent calls are always ultra-informative for energy investors.

On Friday, oil-field services giants Schlumberger (SLB 0.20%) and Baker Hughes (BHI), one of its largest peers, will kick off earnings season for their sector. Unless the 34 analysts who follow the bigger company are proverbially out in left field, its results are anticipated to be about flat year over year.

As things now stand, the consensus expectation for the quarter has per-share earnings coming in at about $0.99, just a penny higher than the equivalent figure for the first quarter of 2012. Revenues for the quarter are anticipated to reach about $10.75 billion, up from $10.61 billion for the comparable quarter a year ago.

For the sake of sequential comparisons, in the December quarter, Schlumberger's adjusted per-share figure came in at $1.08, again a penny higher than the consensus expectation. Revenues for the quarter were $11.17 for last year's final quarter. It's important to note, however, that the last quarter of each year tends to be buoyed at Schlumberger by operators' last-minute purchases of multi-client seismic data.

The reasons for flatness
Results for the first quarter of 2013 will likely be affected positively to the tune of about $0.02 per share by the company's having reached a new compensation agreement with PDVSA, Venezuela's state-controlled oil and gas firm. In a statement immediately following the close of the quarter, Schlumberger management said that receipts from the energy-rich country "have improved to the point we will recognize all revenue" from the first quarter. The company had been experiencing difficulty obtaining timely payments for its services from PDVSA.

In an effort to focus on causal factors that might suppress results for the quarter, the most logical expectation is that – as has been the case for several recent periods – weak North American natural gas drilling stands out as the major culprit. While Schlumberger's relative exposure to North America is less pronounced than that of, say, Halliburton (HAL 0.39%), the second-largest member of the services contingent, it nevertheless has sufficient exposure on our continent to be of consequence. In addition, it's probable that downtime for rig maintenance in the Gulf of Mexico also played a part in Schlumberger's inability to keep pace with last year's 14% revenue gains.

A superior lowdown
As with no other company, Schlumberger provides a clear and usable look at global operational, economic, and geopolitical conditions for the industry. That approach renders attention to the company's release and subsequent conference call worthwhile even for those with little interest in the company as a potential investment. There's no reason to anticipate that CEO Paul Kibsgaard and his team will fall short of that standard on Friday.

A rundown on achievements
Among the specific subjects almost certain to be elaborated on the post-release call will be Schlumberger's attractive new deal in the red-hot Eagle Ford play of south Texas. Under the terms of an agreement with Forest Oil (NYSE: FST), wherein the two companies will develop 27,000 acres in the play, Schlumberger will pay $90 million in "drilling carry."

In essence, those funds will finance Forest's drilling expenses. In exchange, Schlumberger will receive a half interest in Forest Oil's Eagle ford acreage. One observer has calculated the value of the agreement at $3,300 per acre for Schlumberger, vastly lower than the going rate in excess of $20,000 per acre for recent Eagle Ford deals.

At the same time, we'll likely be informed that Schlumberger's WesterGeco seismic unit has initiated the acquisition of its Ice Bear 2 multi-client 3D survey in the western Barents Sea. That body of water lies in the Arctic, north of Norway and Russia. The area being surveyed in Ice Bear 2 is north of the prior Havis and Skrugard discoveries.

A Foolish takeaway
It's reasonable to anticipate that Friday could be the most significant single day during earnings season for the energy sector. I suggest that energy-investing Fools listen in to Schlumberger's conference call, if only for their own edification on conditions in the worldwide quest for oil and gas.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Schlumberger Limited Stock Quote
Schlumberger Limited
$43.90 (0.20%) $0.09
Halliburton Company Stock Quote
Halliburton Company
$38.48 (0.39%) $0.15
Baker Hughes Incorporated Stock Quote
Baker Hughes Incorporated

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.