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Schlumberger Expects North America Revenues to Fall in Q4

Zacks

The executive vice president of Schlumberger Limited SLB, Wells Patrick Schorn recently said in a conference that the company’s total fourth-quarter revenues from the North America can be impacted by a 15% sequential fall, owing to declining hydraulic fracturing pricing. The region is currently witnessing more-than-expected reduction in hydraulic fracturing activities. Notably, in the third-quarter earnings call, the company projected its earnings per share to decline sequentially, due to the above negatives. Affected by the weakness in prices, producers in the North America are pulling back from fracking and well completions.

What’s Ahead?

Schlumberger, one of the largest oilfield services companies of the world, generated $3.2 billion revenues from the North America (accounting for 37.5% of the total revenues) in the third quarter of 2018. This reflected a 2% increase from the year-ago figure. However, the company now expects fourth-quarter 2018 revenues from the region at around $2.7 billion, representing a 3.6% fall from the year-ago quarter. First-quarter 2019 revenues will also bear the brunt of low hydraulic fracturing activities. However, Schlumberger expects the region to undergo a gradual recovery till the first half of 2019.

Schlumberger expects its international revenues, excluding the effects of Cameron businesses, to be in line with estimates. However, a few Latin American countries can reflect signs of weakness.

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Stock Price Movement

The investors were not thrilled with the above news, as the stock fell 3.7% in the last session. Notably, in the past six months, the stock has declined 36% compared with the 28.4% collective fall of the industry it belongs to.

Where is it Headed?

WTI crude, the American benchmark, which popped above $76 per barrel and touched multi-year highs in early October, plunged to $50.29 on Nov 28. The volatility in oil prices has brought uncertainty, which is expected to affect exploration and production expenditures for the coming year. This will, in turn, affect the results of oilfield services companies. Schlumberger expects its clients to choose more conservative ways until the recent volatility diminishes.

Exploration and production companies in the United States are looking forward for budget cuts in 2019 due to the current pricing scenario. For example, Anadarko Petroleum Corporation APC estimated $1.6 billion adjusted free cash flow, assuming $60 per barrel of oil, for 2019. Needless to say, the close $50 price level is going to hinder that estimate. Hence, the company has reduced its full-year 2019 capital expenditure guidance to $4.3-$4.7 billion, compared with its $4.9 billion capital expenditure in first three quarters of 2018.

Therefore, until the current volatility in the oil market clears up, the situation will keep hurting the oilfield services providers. The OPEC/Non-OPEC meeting slated to be held this week is expected to play a huge decisive role in this context.

Zacks Rank and Stocks to Consider

Currently, Schlumberger carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks given below:

Houston, TX-based Enterprise Products Partners L.P. EPD has a Zacks Rank #1 (Strong Buy). The company’s earnings for 2018 are expected to surge more than 36% year over year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rome, Italy-based Eni S.p.A. E has a Zacks Rank #1. Its earnings for 2018 are expected to grow more than 100% from the 2017 level.

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