Categories Earnings, Energy

Schlumberger (SLB) likely to be hurt by exploration costs in Q3

Schlumberger (NYSE: SLB) is set to release its third-quarter earnings results on Friday before the market opens. The oilfield services provider’s bottom line will be hurt by higher costs and expenses while high offshore exploration-led activity will continue to drive the top line.

The company continued to be hurt by the negative sentiment towards the oil & gas industry, which tends to be highly sensitive due to the global economic slowdown. The oilfield services industry continues to face low capacity utilization and depressed margins due to lower exploration and production capital expenditure.

Schlumberger likely to be hurt by exploration costs in Q3
Image for representation. Courtesy: Monika Wrangel from Pixabay

The oil market sentiments are expected to remain balanced for Schlumberger. For 2019, the oil demand forecast has been lowered slightly on trade ware concerns and global geopolitical tensions but the company does not anticipate a change in the structural demand outlook for the mid-term.

On the supply side, Schlumberger continues to see US shale oil as the only near-to-medium-term source of global production growth, albeit at a slow rate, as exploration & production operators continue to transition from growth to cash and returns, with consequent restraining effects on investment levels.

The results will be hurt by slowing production growth in the US despite rebounding international capital expenditure. However, the company will be benefited from the normalization of international activity relative to North America.

Read: Citigroup Q3 earnings review

Analysts expect the company’s earnings to plunge by 13% to $0.40 per share while revenue remained virtually unchanged at $8.5 billion for the third quarter. The results matched the analysts’ expectations thrice in the past four quarters. The majority of the analysts recommended a “buy” rating with an average price target of $45.60.

For the second quarter, Schlumberger posted a 14% jump in earnings driven by lower costs and expenses as well as the exclusion of the previous year’s workforce reduction charges. The results were benefited by double-digit growth in the Mexico & Central America GeoMarket due to high offshore exploration-led activity for the IOCs and increased Integrated Drilling Services (IDS) onshore activity.

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