Investors, giddy about early signs of a revived energy sector, evidently lost all enthusiasm as they began selling off shares of the largest oilfield services provider in the world.
The stock of global energy giant Schlumberger (SLB) slid amid market fears of plunging oil prices. Oil hit its highest level since 2014 this week, but it was short-lived, falling by 1% in trading.
One contributing factor may have been the impact of a tweet from President Trump, criticizing the Organization of Petroleum Exporting Countries (OPEC) for “artificially” raising the cost capping on production.
Schlumberger appeared to bear at least some of the brunt of investor angst as it was its turn to divulge first-quarter earnings before the bell. Smaller competitors like Halliburton Co. (HAL, Financial) were also down before market close. Integrated oil and gas giants like Exxon Mobil (XOM, Financial), BP (BP, Financial) and Chevron (CVX, Financial) struggled on Friday as well.
Before market close, Schlumberger was down 1.49%. Its shares stood at just over $69 a share.
First-quarter earnings
In the first quarter, Schlumberger managed to meet the Street’s forecasts, despite a tough environment. It saw production declines in Angola, Norway, Mexico, Malaysia, China and Indonesia. Schlumberger also saw challenges in its North America hydraulic fracturing market. Like other companies, severely cold temperatures hampered the delivery of sand to use in fracturing.
In North America, Schlumberger boosted drilling efforts, but overcapacity in the pressure pumping and supply chain inefficiency affected margins.
Schlumberger also saw expenses climb to over $6.8 billion, which includes a large commitment to capital expenditures.
It eked out 38 cents in diluted earnings per share, the target consensus of a total of 12 analysts. First-quarter earnings were lower by 10 cents than the previous quarter, but 13 cents higher than a year ago.
For revenue, the company posted $7.8 billion in the first quarter compared to $8 billion in the prior quarter. Revenues stood at $6.89 billion a year ago.
GuruFocus shows revenues have been declining over the last five years, in part, because of rock-bottom low oil prices and related factors.
In net income, it produced $525 million compared to $279 million a year ago.
Its operating margin for the quarter was 12.4%, up from 11% a year ago.
In today's call with analysts, Schlumberger executives said the company has a competitive edge over rivals, like Halliburton and Baker Hughes (BHI), a unit of General Electric (GE, Financial), on performance-based contracts, which are becoming more commonplace in the industry. It has at least one performance-based agreement, a lump-sum turn-key contract, in Saudi Arabia. The driller also expects to improve operations with drilling equipment of 1 million horsepower.
Gurus like the stock
It has been a popular stock among some of the world’s top investors, including Ken Fisher (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio), in part, because of a steady dividend. Both investors increased their holdings in the final months of the year, records show.
The company today announced it had spent $976 million to repurchase 1.4 million shares at an average price of $69.69 per share.
Boosted by a robust research and development budget, some gurus believe the company will greatly improve earnings once the environment becomes more friendly to energy.
Financial figures
There’s a strong demand for oil across the globe. Estimates show demand is for a minimum of 1.5 billion barrels per day. On the supply side, the industry has seen two consecutive years of underinvestment in the worldwide production base. Schlumberger executives said global oil supply and demand are now in balance.
Year to date, Schlumberger stock hit a peak of almost $80 a share in early January, then tumbled to $65 less than two weeks later. According to the information that is available on the Peter Lynch chart, it is trading above fair value.
The company reported long-term debt of $13.5 billion in the first-quarter, compared to $14.87 billion in the final months of the year. It also reported $4.1 billion in cash and short-term investments, compared to $5 billion in the prior quarter.
Schlumberger has a market cap of $96 billion. GuruFocus ranks it a 5 out of 10 in finacial strength and profitability and growth.
Executives released earnings in a conference call during a visit to Moscow, where the company has 11,000 employees. Worldwide, it has over 100,000.
The company’s U.S. headquarters is in Houston, but it has offices in Paris and other parts of the world.
