Schlumberger revenue beats estimates ahead of upbeat forecast for 2019

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Schlumberger has reported fourth quarter net earnings of US$538 billion, or 39c a share, compared to losses of US$2.2 billion, or $1.63 per share, in the corresponding period a year earlier.

Schlumberger Chairman and CEO Paal Kibsgaard commented, “Full-year 2018 revenue of $32.8 billion increased 8% year-on-year and grew for the second successive year. Performance was driven by North America, where revenue of $12.0 billion increased 26% due to the results of our OneStim® business, which grew by 41%. Full-year international revenue of $20.4 billion was essentially flat compared with 2017. However, excluding Cameron, international revenue for the second half of 2018 showed year-over-year growth of 3%, marking the beginning of a positive activity trend after three consecutive years of declining revenues.

“Production revenue of $12.4 billion increased 17%, while drilling revenue of $9.3 billion improved 10%. Reservoir Characterization revenue of $6.5 billion declined 4%, mostly driven by the divestiture of the WesternGeco® marine seismic acquisition business. Cameron revenue of $5.2 billion declined 1% as a further decline in the long-cycle businesses of OneSubsea® and Drilling Systems was largely offset by growth in Surface Systems and Valves & Measurement.

“Fourth-quarter revenue of $8.2 billion declined 4% sequentially driven by lower activity and pricing for most Production- and Cameron-related businesses in North America land. Lower revenue from OneSubsea also drove the decline, but we are now close to the cycle trough of backlog-driven activity as we booked more than $600 million in new project orders during the quarter.

“From a macro perspective, the dramatic fall in oil prices in the fourth quarter was largely driven by the US shale production surprising to the upside as a result of the surge in activity earlier in the year, and as geopolitics negatively impacted the global demand- and supply-balance sentiments. The combination of these factors, together with a large sell-off in the equity markets due to concerns around global growth and increasing US interest rates, created a near perfect storm to close out 2018.

“Looking forward to 2019, we expect a more positive supply and demand-balance sentiment to lead to a gradual recovery in the price of oil over the course of the year, as the OPEC and Russia cuts take full effect; the effect of lower activity in North America land in the second half of 2018 impacts production growth; the dispensations from the Iran export sanctions expire and are not renewed; and as the US and China continue to work toward a solution to their ongoing trade dispute.

“In the meantime, the recent oil price volatility has introduced more uncertainty around the E&P spending outlook for 2019, with customers generally taking a more conservative approach at the start of the year. This will once again push out in time the broad-based recovery in E&P spending that we expected only three months ago.

“However, based on our recent discussions with customers, we are seeing clear signs that E&P investments are starting to normalize and reflect a more sustainable financial stewardship of the global resource base. For the North America land E&P operators, this means that future investments will likely be much closer to the level that can be covered by free cash flow. Conversely, in the international markets apart from the Middle East and Russia, after four years of underinvestment and a focus on maximizing cash flow, the NOCs and independents are starting to see the need to invest in their resource base simply to maintain production at current levels.

“For Schlumberger, this means that even with the current oil prices, we expect solid, single-digit growth in the international markets while in North America land, the increased cost of capital and focus on aligning investments closer to free cash flow has introduced more uncertainty to the outlook for both drilling and production activity.”

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