Schlumberger Projects Divergent Growth across Operations in 2015
What You Can Expect When Schlumberger Releases Its 2Q15 Earnings
Schlumberger’s 2015 projections
Schlumberger (SLB) expects revenue growth at its key North American operations will fall this year. It expects the Middle East business will perform well, but it forecasts reduced activities in Latin America, Europe, Sub-Saharan Africa, and Asia. It also expects subdued energy E&P (exploration and production) activity in Russia.
Schlumberger’s revenue divergence
In the past 11 quarters, revenue growth has diverged between Schlumberger’s North American operations and its international operations. In 1Q15, Schlumberger’s North American and international revenues each declined. But North America took a bigger hit (-25%) than the rest of the world (-16%). Before 1Q15, the average North American revenue growth rate was 3%, while it was 2% for all international territories combined.
Ensco (ESV) revenues increased by 9% in 1Q15 over 1Q14, while National Oilwell Varco’s (NOV) revenues decreased by 1.4% during the same period. Weatherford (WFT) saw a 22% revenue decline in the same time frame.
Schlumberger makes up 0.59% of the SPDR S&P 500 ETF Trust (SPY) and 6.8% of the iShares U.S. Energy ETF (IYE).
Why the divergence?
In North America, Schlumberger expects 2015 E&P activity to fall by 30% over 2014 activity—the sharpest decline among all Schlumberger territories. Less drilling activity is the reason for this projection, as the inventory of uncompleted wells builds, and as the re-fracturing market expands.
In its international operations, Schlumberger expects E&P spending to fall by 15%, less than it will in North America. In the Middle East, drilling activity is expected to stay strong based on the recent OPEC (Organization of the Petroleum Exporting Countries) decision to protect its market share. In Russia, conventional land activity in western Siberia is expected to be resilient in 2015. In most of Schlumberger’s other international operations, E&P activities are expected to remain subdued. Clearly, Schlumberger’s 2015 performance will remain weak if energy prices don’t start to improve.
Less upstream activity can result in less energy production, which will negatively affect midstream MLPs (master limited partnerships) including Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), Williams Partners (WPZ), Plains All American Partners (PAA), and Targa Resources Partners (NGLS).
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