JS Earnings Call Notes 1.24.2016 – Schlumberger

During the recent slump in the price of oil, Schlumberger cited North America as their weakest geographic zone

“The asset impairment charges largely relate to our North America business, which as you know has been the hardest hit during this downturn.

And they have dramatically reduced the pricing of their services in order to keep customers but they’ve also been able to reduce expenses 

“Our fourth quarter revenue of $7.7 billion decreased 9% sequentially. Approximately one-third of the revenue decline was attributable to pricing.  Despite the very challenging environment, both in terms of pricing and activity, pre-tax operating margins only declined by 132 basis points sequentially to 16.6%. This was due to continued strong and proactive cost management across the entire organization.”

Yet despite the weakness, the business still generates a fair amount of cash

“Our cash flow generation continues to be very strong. During all of 2015, we generated $8.8 billion of cash flow from operations. During the fourth quarter, we generated $2.2 billion of cash flow from operations. This is all despite making severance payments of approximately $800 million during 2015 and $200 million during the fourth quarter.  In light of our strong cash flow generation, yesterday our Board of Directors approved a new $10 billion share buyback program.”

Schlumberger (SLB) CEO Paal Kibsgaard called the recent downturn in the oil price a “financial crisis” 

“Negative market sentiments intensified in the fourth quarter with global oil production of oil continuing, extending the various trend in global oil inventories and causing a further fall in oil prices, which reach a 12-year low in December. The worsening market conditions added further pressure to the deep financial crisis throughout the oil and gas value chain and prompt the operators to make further cuts to the already low E&P investment levels.  For many of our customers, available cash and annual budgets were exhausted well before the half way point over the fourth quarter, leading to unscheduled and abrupt activity cancellations, creating an operating environment that is increasingly complex to navigate and where the traditional year-end product and multiclient seismic sales were largely muted.”

Schlumberger (SLB) CEO Paal Kibsgaard added the longer the recession continues in the oil patch, the stronger the company will emerge relatives to its competitors 

“So while we all look forward to a recovery in the oil price, and the market conditions in our industry, it is evident that the longer the current market environment continues, the stronger we will emerge as a Company relative to our competitors when the upturn ultimately comes.”

Schlumberger (SLB) CEO Paal Kibsgaard said new technology in the oil services sector is bringing the cost to pull a barrel out of the ground lower

“Yes, during this downturn the level of new technology sales which is basically technologies that we have commercialized in the past five years is at a significantly higher level than what we’ve seen in previous downturns.  This is partially down to the broad range of technologies that we have, and in fact that a number of them are focused on driving, I would say cost and efficiency for our customers. And these type of technology are as valid in terms of being bought and being operated during the downturn as they are in the upturn.”