Company Reports

SLB, formerly known as Schlumberger, is the largest oilfield services provider in the world, with a product portfolio that addresses nearly every end market in the industry. The firm has developed an impressive reputation as one of the leading innovators in oilfield services. Roughly 20% of its annual revenue comes from new technology, and the efficiency gains well operators realize through SLB’s services have earned the firm dominant market share in several categories, including wireline services, production testing, and logging-while-drilling.

SLB, formerly known as Schlumberger, is the largest oilfield services provider in the world, with a product portfolio that addresses nearly every end market in the industry. The firm has developed an impressive reputation as one of the leading innovators in oilfield services. Roughly 20% of its annual revenue comes from new technology, and the efficiency gains well operators realize through SLB’s services have earned the firm dominant market share in several categories, including wireline services, production testing, and logging-while-drilling.

SLB posted impressive first-quarter earnings as its international market strength made up for weakness in North America. We see its 13% year-over-year revenue increase to $8.7 billion and a similar 15% year-over-year adjusted EBITDA bump as reinforcement of the company’s solid competitive position among peers. Both results were in line with our expectations for a strong start to 2024. At first glance, we do not anticipate a change to our $62 fair value estimate or narrow moat rating.

Israel has launched strikes against Iran in retaliation for an attack on April 14 (see our April 15 note for more analysis). The limited scope of Israel’s attack, which also included targets in Syria and Iraq; Iran's subdued response; and the ample warning Israel provided confirm our view that both parties wish to de-escalate tensions. We’d characterize this as a de-escalation attack. This view is in line with broader US and Group of Seven goals.

We believe the Iranian drone and missile attack on Israel over the weekend places some additional stress on the oil markets. However, the ample warning from Iran ahead of time publicly and privately amid rising geopolitical tensions means the attack was already reflected via a higher geopolitical risk premium in oil prices, in our view. We attribute nearly all of the increase in oil prices to around $91 a barrel from the mid-70s in February to geopolitical concerns versus supply risks. On the supply side, Saudi Arabia and OPEC+ have about 5 million barrels per day of supply—if not more—that can be returned to the oil markets if prices were to overheat and spike well above $100 a barrel. We expect there to be more downside risks than upside at the moment to oil prices. In fact, we see higher potential to touch $75 by the end of 2024 versus a sustained movement beyond $100 a barrel.

SLB has agreed to acquire ChampionX in an all-stock transaction to be completed by the end of 2024. After incorporating ChampionX into our SLB model, our fair value estimate remains unchanged at $62 as does our narrow moat rating. Our ChampionX fair value estimate increases to $46 from $32, as it reflects SLB’s offer of 0.735 SLB shares for each share of ChampionX. We consider this a good outcome for ChampionX shareholders. The overpayment by SLB based on our prior ChampionX fair value estimate is not material enough to move our SLB fair value.

SLB, formerly named Schlumberger, is the largest oilfield services provider in the world, with a product portfolio that addresses nearly every end market in the industry. The firm has developed an impressive reputation as one of the leading innovators in oilfield services. Roughly 20% of its annual revenue comes from new technology, and the efficiency gains well operators realize through SLB’s services have earned the firm dominant market share in several categories, including wireline services, production testing, and logging-while-drilling.

We see narrow-moat-rated SLB’s agreement to combine its carbon capture business with Aker Carbon Capture and own 80% of the combined entity as a prudent step toward building a sizable presence in the carbon capture and storage, or CCS, market. SLB’s acquisition makes sense in the context of past pronouncements from the company about wanting to move into the carbon capture and storage space given pressure from regulators to move toward net zero greenhouse gas emissions goals. In addition, we expect SLB’s customers to be interested in the technology to optimize oil extraction, as captured carbon can be used to derive more oil from a given well. The goal of the deal is to lower carbon capture costs (about 50%-70% of the total spending for a project) to expedite the adoption of the technology, particularly across industrial sectors.

SLB, formerly named Schlumberger, is the largest oilfield services provider in the world, with a product portfolio that addresses nearly every end market in the industry. The firm has developed an impressive reputation as one of the leading innovators in oilfield services. Roughly 20% of its annual revenue comes from new technology, and the efficiency gains well operators realize through SLB’s services have earned the firm dominant market share in several categories, including wireline services, production testing, and logging-while-drilling.

OPEC announced that its voluntary cuts due to expire at the end of March have been extended until the end of June. Since oil markets remain weak, we had expected OPEC and its allies to extend the voluntary cuts for another quarter. The 2.2 million barrels per day in voluntary cuts, largely shouldered by Saudi Arabia and to a lesser extent Russia, were originally implemented as a temporary effort last year but have been extended several times as the market has remained oversupplied, in our view.

SLB, formerly named Schlumberger, is the largest oilfield services provider in the world, with a product portfolio that addresses nearly every end market in the industry. The firm has developed an impressive reputation as one of the leading innovators in oilfield services. Roughly 20% of its annual revenue comes from new technology, and the efficiency gains well operators realize through SLB’s services have earned the firm dominant market share in several categories, including wireline services, production testing, and logging-while-drilling.

After incorporating SLB’s full financial and operating results for fiscal 2023, we’re raising our fair value estimate to $60 from $56, mainly due to our improved outlook for profitable revenue growth over the next five years. Several factors drive our forecast, most notably SLB’s expanded offshore exposure and the continued widespread adoption of its digital and integration solutions. We estimate annual top-line growth will average more than 8% over the next five years, with steady adjusted EBITDA expansion, exiting 2028 with a 26% margin. We maintain our narrow moat rating and at the time of writing, shares trade at a roughly 10% discount to our fair value estimate.

SLB, formerly named Schlumberger, is the largest oilfield services provider in the world, with a product portfolio that addresses nearly every end market in the industry. The firm has developed an impressive reputation as one of the leading innovators in oilfield services. Roughly 20% of its annual revenue comes from new technology, and the efficiency gains well operators realize through SLB’s services have earned the firm dominant market share in several categories, including wireline services, production testing, and logging-while-drilling.

SLB delivered solid fourth-quarter results, in line with management guidance. Revenue grew 14% year over year and 8% quarter over quarter. Adjusted EBITDA margin was 25%, up about 90 basis points year over year and 30 basis points quarter over quarter. We’ll incorporate the firm’s full financial and operating results shortly, but after this first look, we maintain our $56 fair value estimate and narrow moat rating.

Angola announced that it will leave OPEC in what we think is more of a blow to the group’s unity than a material impact on the overall oil markets. The timing is not ideal, as OPEC+ is struggling to defend oil prices. Angola’s recent production level of about 1.2 million barrels per day is only about 2% of the total output of OPEC+. The imminent addition of Brazil (3.8 million bbl/d of oil production), while not subject to a quota, helps offset this loss. We had suggested in our Nov. 30 note that Angola's departure was a possibility, since the country had immediately said it would produce above the 1.11 million bbl/d quota set for it at the last OPEC meeting.

Our key takeaway from the latest OPEC meeting is that the internal member dynamics are highly divisive and chaotic. We don't anticipate this to bode well for the overall oil markets, as investors have less certainty and trust with regard to expected OPEC+ volumes delivered to the market, putting upward pressure on prices. However, even allowing for that uncertainty, we believe the production cuts of 896,000 barrels per day are likely to keep the market in a supply deficit or close to one, keeping prices in what seems to be OPEC+'s preferred band of $80-$100/bbl for the time being. However, we do expect Saudi Arabia will likely need prices to average $100/bbl over the next five years to support its more than $1 trillion investment in Saudi Vision 2030.

Narrow-moat SLB maintained its solid growth trajectory in the third quarter, with revenue increasing 11% year over year, the firm's ninth straight quarter of double-digit growth. Adjusted EBITDA margin was 24%, up more than 100 basis points both year over year and sequentially. We'll incorporate the firm's full financial and operating results shortly, but after this first look, we maintain our $56 fair value estimate.

The Hamas attack against Israel over the weekend should ultimately not be material for oil markets, in our view. Gaza produces no oil, while Israel produces only a small amount for its own use. However, oil prices were up as much as 5% at one point before retreating, as we think investors are concerned the conflict could destabilize the wider Middle Eastern region, which serves as a transit point for nearly one in every five barrels produced globally.

SLB, formerly known as Schlumberger, is the largest oilfield services provider in the world, with a product portfolio that addresses nearly every end market in the industry. The firm has developed an impressive reputation as one of the leading innovators in oilfield services. Roughly 20% of its annual revenue comes from new technology, and the efficiency gains well operators realize through SLB’s services have earned the firm dominant market share in several categories, including wireline services, production testing, and logging-while-drilling.

SLB posted strong second-quarter results, setting the stage for similar performance in the second half of the year. Total revenue jumped 5% quarter over quarter, while the firmwide adjusted EBITDA margin expanded 114 basis points to 24%. Accelerated onshore and offshore activity in international markets—composing about 80% of SLB's overall business—drove quarterly gains. About half of SLB's international markets posted year-over-year growth exceeding 30%, led by the Middle East and Asia. We expect SLB will continue to benefit from elevated demand and favorable operating dynamics through at least year-end. We’ll incorporate the firm’s full financial results shortly, but after this first look, we maintain our $56 fair value estimate and narrow moat rating.