Schlumberger - Reflections on Recent Earnings
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Schlumberger (NYSE: SLB) reported earnings last week for the second quarter of 2012 and the financial report and associated conference call contained an immense amount of information on the company’s recent quarter as well as important management commentary on future trends. Here are some important items that an investor might have overlooked.
Schlumberger closed on one previously announced acquisition and disclosed five other purchases that were made during the second quarter of 2012. Two of these purchases will extend the company’s business in various emerging markets and strengthen its international portfolio.
Schlumberger purchased a 20% stake in Anton Oilfield Services Group, an oil services operator that provides drilling, completion, stimulation and tubular goods to exploration and production companies in China. Schlumberger established a strategic cooperation agreement with the company in 2010 and now becomes an owner as part of its international growth strategy.
Schlumberger already owned a minority stake in Radius Service, an oil services company active in Russia, and reported the purchase of the balance of the company during the second quarter of 2012. The company specializes in down hole motors and drilling tools used in the land market in Russia.
Schlumberger is optimistic about the oil services market in Russia and said that it expects this region to be the fastest growing international market in 2012. One reason for this growth is the presence of large international companies that are increasing activity here. ExxonMobil (NYSE: XOM) recently agreed to partner with Rosneft, the Russian state-owned oil company, to develop tight oil resources in Siberia. Rosneft estimates that these resources may eventually produce up to 300,000 barrels per day of oil and has signed similar development agreements with Statoil and Eni.
China also has ample unconventional oil and gas resources and future development of these resources also motivated Schlumberger’s investment. Anton Oilfield Services Group provides services to the large Chinese oil and gas companies, including CNOOC Limited (NYSE: CEO) and Sinopec (NYSE: SHI).
Royal Dutch Shell (NYSE: RDS-A) is also active here and signed a production sharing contract (PSC) in April 2012 for shale gas exploration and development on the Fushun-Yongchuan block. The government will soon offer a second batch of concessions and expects strong interest from the oil and gas industry.
Despite concerns on slowing business in North America, Schlumberger had enough cash flow to repurchase 7.5 million shares of its common stock during the second quarter of 2012. The company spent $499 million on this program.
Schlumberger approved this repurchase program back in 2008 with a total authorization of $8 billion through the end of 2011. The company spent $7 billion buying back stock by the end of the second quarter of 2012 and has extended the program through the end of 2013.
Investors expected the worst in North America in the second quarter but appeared to be pleasantly surprised by results here. The company did disclose weakness in pricing for hydraulic fracturing services, but said that strong business trends in the Gulf of Mexico and other oil service lines offset this weakness. Schlumberger mentioned seismic, wireline and drilling services as areas where pricing was stable during the quarter.
Earnings for the oil services sector in the second quarter of 2012 seems to have surprised many investors, with Schlumberger and several other large operators reporting less problems than expected in the North American onshore. Schlumberger also saw excellent growth in the International segment and continued to make investments here to generate future growth for the company.
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