Morningstar | Schlumberger’s Pressure Pumping Business Leads 2Q Results
Narrow-moat Schlumberger posted strong second-quarter results as revenue grew 6% sequentially and operating margins improved to 13.2% from 12.4% previously. The production segment accounted for the bulk of the sequential improvement in results. Our $65 fair value estimate is unchanged for now.Within the production segment, North American pressure pumping was the key contributor, as Schlumberger put to work previously stacked equipment purchased from Weatherford late last year. Furthermore, although pricing remained flat, Schlumberger was able to realize margin benefit from increased efficiency levels.
The drilling segment also contributed solidly to top-line growth as several new projects started, but margins slipped owing to the impact of project startup costs, as had been previously guided by management. Nevertheless, the drilling segment should see substantially improved margins in the second half of this year as these one-time costs dissipate. Moreover, we are optimistic about Schlumberger’s ability to drive higher margins via its increasing share of integrated drilling services contracts, in which the company is incentivized for superior operational performance. Schlumberger will have approximately doubled its amount of integrated drilling work by the end of 2018 versus the beginning of the year.
Most of the expected growth in the drilling segment is set to come from international customers (in the Middle East, Latin America, and elsewhere), and indeed management is optimistic about international growth across the company's product lines for the rest of 2018 and 2019. In addition to increasing activity levels, management expects to see modest pricing improvement going forward.
Schlumberger provides technology for reservoir characterization, drilling, production and processing to the oil and gas industry. The company has four segments: Reservoir Characterization, which consists of the principal technologies involved in finding and defining hydrocarbon resources; Drilling, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells; Production, which consists of the principal technologies involved in the lifetime production of oil and gas reservoirs; and Cameron, which consists of the principal technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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