Schlumberger announces EPS of $0.88 per share
Oilfield services giant Schlumberger (ticker: SLB) released its second quarter results yesterday, beating expectations substantially despite lower revenues. SLB announced adjusted earnings per share (EPS) of $0.88 per share, beating the consensus of $0.79 per share by 11%.
Schlumberger reported total revenue of $9.0 billion dollars for the quarter ended June 30, 2015, down 12% from the first quarter, and 25% from Q2’14 when the company reported revenue of $12.1 billion. The company’s lower revenue was due largely to the drop in rig count in North America, said Schlumberger CEO Paal Kibsgaard.
“Schlumberger second-quarter revenue decreased 12% sequentially, driven by the dramatic decline in North American land activity as the rig count dropped by a further 40% and as pricing erosions continued in both North America and the International Areas. North America revenue fell 27% sequentially, while International revenue was 5% lower as customer budget cuts and pricing concessions impact results for a full quarter,” he said.
Kibsgaard said that despite today’s price environment being even worse than the downturn in 2009, the company has been able to weather the storm more effectively. “Overall pretax operating margins were maintained at levels well above the previous downturns as we continued to proactively manage costs and resources, carefully navigate the commercial landscape, and further accelerate our transformation program. The success of our efforts can be seen in pretax operating margins of 10.2% in North America and 24.5% internationally while generating $1.5 billion in free cash flow, representing 132% of earnings.”
Schlumberger reported a year-over-year revenue drop of 26% in its North America section, and 14% in its international regions. The company delivered first-half decremental margins of 37% in North America and 18% internationally. “These results represent a marked improvement over the equivalent figures that were both in excess of 70% for the same period in 2009,” said Kibsgaard.
The reason for Schlumberger’s stronger results was better “[management of] costs and resources, carefully navigating the commercial landscape and further accelerating [Schlumberger’s] transformation program throughout the organization,” Kibsgaard said during the company’s conference call.
Despite the companies improved performance from the last down-cycle, the company’s Q2 release called for lower spending from North American E&Ps than in its first quarter release. Schlumberger expects spending to decline by more than 35% compared to more than 30% last quarter, with international spending expected to decline more than 15% compared to approximately 15% in last quarter’s release.
During Schlumberger’s conference call, Kibsgaard said that he sees oil markets continuing to tighten, even as Iran prepares to export its crude oil internationally following the lifting of sanctions. “I would say that we are relatively confident in the tightening of the supply/demand balance for the second half of the year,” he said, “even with additional supply from Iran.”
Despite markets tightening, Kibsgaard does not expect prices to translate into much higher spending from E&Ps. “If we see some improvement in the oil price in the second half of this year, I don’t think there is going to be any huge impact on the current year budget, but I think it’s a positive indicator that we might have some increases next year.”