The world’s largest oilfield services provider Schlumberger Limited (SLB) expects its first quarter drilling activity in North America (:NAM) to be weaker than its anticipation. The news hit the Schlumberger stocks by 3.85% on Monday, Mar 18.
The company said that lower-than-expected U.S. drilling activity has resulted to an unclear outlook for the North America land market for the to-be-reported quarter. Although Schlumberger’s asset deployment recovered from a holiday slowdown and the costs of its key hydraulic fracturing constituents (like guar) were lower, it continues to expect negative pricing pressure in many product lines for the first quarter.
Because of Schlumberger’s far-reaching international presence and deep-water exploration, it faces less North America exposure than rivals Halliburton Co. (HAL) and Baker Hughes Inc. (BHI).
Weak natural gas prices, arising out of hydraulic fracturing technique, have affected the demand for gas-directed activity in North America. Importantly, fourth quarter 2012 results have already registered deterioration in growth and profitability from the North American market.
In the international arena, although Schlumberger experienced a choppy fourth quarter due to transitory issues, activity levels are expected to enjoy growth throughout 2013. The company also aims at double-digit earnings growth for this year, provided North America land activity and pricing levels are up to its expectations. The earnings assumption also takes into account a proper solution in Venezuela, where the company registered a major slowdown in payment collection last quarter.
The company is aiming for continued international improvement underpinned by Saudi Arabia, Iraq, Russia, China and Africa for the coming quarters. In the Gulf of Mexico, however, the activity level remains temporarily affected by the substitution of subsea connector bolts on some rigs in the region. The U.S. controllers notified the rig contractors last month about the inspection of the bolts over there after the spill.
For the first quarter, the Zacks Consensus Estimate is $1.00 a share. With the year-ago profit level at 98 cents per share, the projected growth rate stands at 2.5% for the first quarter. For 2013, the Zacks Consensus Estimate is $4.73, which represents a year-over-year growth rate of 13.5%.
Schlumberger shares currently retain a Zacks Rank #3, which translates into a short-term Hold rating. However, Zacks Ranked #1 (Strong Buy) oilfield service provider RPC Inc. (RES) appears to hold more promise for the next one to three months.
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