Global oilfield services firm Schlumberger (NYSE: SLB) announced results that BEAT expectations.

Revenue came in at $8.22 billion, 1% ahead of consensus of $8.16 billion, while earnings per share of $0.39 beat the consensus estimate of $0.37 by 5%.

Full-year revenues were flat compared to 8% growth in 2018 over 2017, demonstrating a tough environment for oil and gas companies. 

The market may bid up the stock today on this beat, but in the medium term, there is not much to get excited about with flat oil prices and belt-tightening among many customers.


Even still results were decent compared to a U.S. rig count that declined 5% in the fourth quarter and weak pricing that continued in the U.S. as oil producers pull back on activity in key shale basins to rationalize spending. 

Growth in all international regions made up for continued weakness in North America. 

U.S. Oil Rig Count Decline Continued in the Fourth Quarter

Source: Baker Hughes

Regional Performance

In the fourth quarter, Europe/CIS/Africa was the best performing region for the company, up 10% on a year over year basis.

North America revenue was down 13%, while international revenue increased 8%.

International results were driven by strength across the board.

North America continued to see weak results from a pullback in rig count and a fall in pricing and shale activity. 

 

Energy Off to a Tough Start in 2020

Schlumberger continues to face headwinds as U.S. oil companies pull back on drilling rigs as a result of falling oil prices and dwindling cash flows.

So far this year, oilfield service stocks and energy stocks in general, are underperforming the broader market as stock prices cool off after international tensions between Iran and the U.S. caused oil prices to spike temporarily.

Schlumberger stock is down 4.5% while U.S. competitor Halliburton is down about 4%. U.S. equipment provider National Oilwell Varco is down more than 7%.

This compares to the S&P 500 which is up 1% for the year.

Schlumberger continues to face headwinds as U.S. oil companies pull back on drilling rigs as a result of falling oil prices and dwindling cash flows.

Schlumberger’s revenue growth has been falling with oil prices and rig activity over the last year.

Schlumberger’s multiple premium to peers has fallen in the last six months but has remained stable over the last two years.

The problem all these companies face is that revenue growth is slowing, dragging stock prices down with it.

SLB Revenue Growth Is Down but Premium to Peers Is Not.

Source: YCharts

Ongoing geopolitical strife has not had a meaningful positive impact on oil prices yet, likely due to the significant excess capacity of OPEC.

Schlumberger continues to be the best of a bad bunch and we think investors would be better served investing in tech names instead of an oil industry that has failed to generate meaningful gains for investors for far too long.

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