SLB (formerly Schlumberger), the world’s largest oilfield services company, reported a 13% increase in profit in the third quarter of 2024, demonstrating strong performance despite a complex market. However, the company also issued a cautious outlook for the fourth quarter, citing limited spending from international producers and weak oil prices as main concerns. This analysis examines SLB’s financial performance, its market prospects and the broader implications of these developments for the oilfield services sector.
SLB reported net income of $1.27 billion in the third quarter of 2024, an annual increase of 13%. Earnings per share of $0.89 slightly beat analysts’ expectations of $0.88, according to data from financial firm LSEG. However, total revenue for the quarter came in at $9.16 billion, below the expected $9.25 billion. This revenue disappointment, despite earnings growth, reflects the complex dynamics SLB is navigating in the global energy sector.
Performance of SLB’s International Operations
SLB’s international operations, which represent 81% of its business, were a key driver of the third quarter results. Revenues from international markets increased 12% compared to the same period the previous year, supported by increased sales in Saudi Arabia, the United Arab Emirates, Iraq and Kuwait, as well as North Africa. This growth offset declines in drilling activity in Mexico and Guyana, affected by oil price volatility and changes in local exploration policies.
Slowdown in International Growth
However, the growth rate of SLB’s international business slowed, marking its lowest annual increase in a year. In contrast, the company had recorded 18% growth over the previous three quarters. This deceleration signals potential headwinds in the global energy market, particularly as oil prices remain low and geopolitical uncertainties continue to weigh on the industry.
Cautious Market Outlook
SLB CEO Olivier Le Peuch provided a cautious outlook for the remainder of 2024 during the company’s post-earnings conference call. Le Peuch noted that low oil and gas prices have led to a more conservative approach to spending among many of the company’s customers, both internationally and in North America. This has led to a decline in discretionary spending on new projects, particularly in the exploration and drilling sectors.
Situation in North America
In North America, SLB reported a modest 3% sequential increase in revenue, primarily driven by increased activity in the U.S. Gulf of Mexico. This was partially offset by a reduction in onshore drilling in the United States, where activity remained low. The North American market is expected to remain weak in the near term, with Le Peuch forecasting that any increase in gas drills will likely be offset by falling order rates due to increased operational efficiencies.
Optimistic International Outlook
Internationally, the outlook is more optimistic, particularly for natural gas projects in Asia, the Middle East and the North Sea. These regions are expected to continue to grow regardless of OPEC+ decisions to reduce oil production. However, Le Peuch warned that overall international market spending is expected to increase by only a few mid-single digit percentages in 2025, reflecting the industry’s cautious approach to continued oil price volatility and geopolitical risks. .
Strategic Movements and Cost Management
To face these challenges, SLB has implemented several strategic measures aimed at preserving its profitability and improving its operational efficiency. In the third quarter, the company launched a cost reduction program, including resource adjustments in response to lower activity in North America and the centralization of certain digital delivery services. These efforts helped SLB maintain a resilient profit margin, with the company reiterating its target of delivering an adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin of at least 25% for the full year.
Another significant move by SLB was the sale of its interests in the Palliser Block in Alberta, Canada, for approximately $430 million. This sale not only generates cash for the company, but also helps reduce its well abandonment liabilities, thereby strengthening its balance sheet.
Market Reactions and Wider Implications
Despite the strong third-quarter profit, SLB’s stock fell 3.6% to $42.38 following the release of its financial results. This negative market reaction reflects investors’ concerns about the company’s dampened fourth-quarter revenue outlook and the broader challenges facing the oilfield services sector. Lower-than-expected revenue growth also dragged down shares of SLB’s competitors, underscoring the interconnectedness of the sector and the broader impact of oil price volatility on service providers.
Resilience of SLB Faced with Challenges
However, analysts noted that SLB’s focus on profit margins has made its profits more resilient in the face of industry headwinds. Peter McNally, analyst at Third Bridge, highlighted that SLB’s cost-cutting measures and its ability to maintain a strong EBITDA margin are key factors that have helped the company navigate through challenges such as customer consolidation , geopolitical uncertainty and a softer oil market.
SLB’s third-quarter results demonstrate the company’s resilience despite challenging market conditions, but its cautious outlook for the fourth quarter highlights the broader uncertainties facing the oilfield services sector. Although international markets, particularly natural gas projects in Asia and the Middle East, offer some growth opportunities, the overall industry remains constrained by low oil prices and reduced discretionary spending by producers. . SLB’s strategic focus on cost management and profitability will be crucial as the company navigates through these headwinds and seeks to maintain its leading position in the global oilfield services market.
