Schlumberger beat earnings estimates and increased its full fiscal year outlook with its second-quarter results Friday. The Houston-based multinational's EPS ballooned 66%. SLB stock rose Friday.
SLB is the third oil services firm to report Q2 earnings this week. Halliburton kicked off results Tuesday, beating earnings estimates. Baker Hughes followed Wednesday, missing analysts' forecasts with its second-quarter earnings. The oilfield services giant cited inflation and its suspension of operations in Russia as reasons for its Q2 results. BKR stock plunged Wednesday and for the week
Schlumberger Earnings
Estimates: Analysts projected the company would post EPS of 40 cents and revenue of $6.27 billion in Q2.
Results: Sales increased 20% to $6.8 billion. Schlumberger's EPS increased 66% to 50 cents.
Outlook: SLB updated its forecast for the remainder of 2022. The company expects full-year revenue of at least $27 billion. In Q1, the company increased its revenue by 14% in the first-quarter, to $5.9 billion. Its EPS jumped 62% to 34 cents. SLB had maintained its full-year guidance, expecting year-over-year revenue growth in the midteens and adjusted EBITDA margins at least 200 basis points higher than Q4 2021.
"We expect this higher revenue to result in earnings that exceed our previous expectations, given our ambition to exit the year with adjusted EBITDA margins 200 basis points higher than in the fourth quarter of 2021," CEO Olivier Le Peuch said in a news release Friday.
Schlumberger's capital expenditures for the first six months of 2022 increased 58% to $664 million. Capital investment for 2022 is expected to be approximately $2 billion, according to the company.
SLB stock was up 4.3% to 35.07 during Friday market trading, up 8.6% for the year. The company is one of the world's largest providers of offshore drilling services. It also provides technology for well drilling, production, and oil and gas processing.
Like its peer oil stocks, Schlumberger has dived sharply below both its 50-day moving average and 200-day lines. Since June 10, SLB's relative strength line has also fallen off.
Schlumberger ranks fourth in the oil and gas field services industry group and has a Composite Rating of 69. Its Relative Strength Rating is 71 and its EPS Rating is 79.
Oil stocks and prices rose sharply earlier this week following news that Saudi Arabia did not plan to boost its oil output beyond OPEC+ quotas. Against that backdrop of tight oil and gas supplies, rising demand and soaring energy industry costs, major oilfield service and infrastructure firms announced second-quarter earnings this week.
The reports — from Halliburton, Baker Hughes and finally Schlumberger — should give investors clues on whether oilfield activity points to added supply, and whether oilfield inflation is set to gnaw further into the industry's capital expenditure budgets.
Oil Stocks Up As Prices Rebound
U.S. crude oil jumped Monday back above $100 a barrel, after Saudi Arabian foreign minister Prince Faisal bin Farhan Al Saud said oil was not discussed at the U.S.-Arab Summit on Saturday. Partners and members of the expanded Organization of Petroleum Exporting Countries, known as OPEC+, would continue to assess and respond to market conditions.
U.S. crude oil prices added to gains Tuesday. Oil futures decreased modestly Wednesday, Thursday and Friday. The near-month contract down 3% to $97.59 a barrel, the third straight weekly decline.
Meanwhile, U.S. natural gas was up more than 29% in July through Friday, a year-to-date gain of almost 88%. Gas prices at the tank on Friday were $4.41 a gallon, according to AAA data, well off their June 14 record high above $5.
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For much of the year, oil stocks have led the market's upside by long strides. Recent recession fears, and worries of another Covid wave in China, have slightly dimmed the glow of energy stocks.
While many companies, including Exxon Mobil and Chevron, reported strong capital-expenditure increases in the first-quarter reporting season, oil and gas businesses have shown an unwillingness to scale up production operations.
However, this week's earnings reports could be a bellwether of industry production changes. For the past week, there were 758 active oil rigs in the U.S., an increase of two from the previous week, according to Baker Hughes. BKR releases weekly oil rig counts every Friday. In early June, there were 727 active U.S. oil rigs, a 60% increase from last year's depressed activity.
Halliburton Earnings
Estimates: Wall Street predicted Halliburton earnings per share of 45 cents and revenue of $4.7 billion for the energy sector giant.
Results: Halliburton earnings per share ballooned 88% to 49 cents in Tuesday's report. Revenue in the second quarter increased 38% to $5.1 billion.
Halliburton recorded a pretax charge of $344 million in the second quarter related to its decision to exit Russia due to sanctions. In Q1, the company also recorded a similar charge of $22 million.
"I expect the international markets will experience multiple years of growth, and I am confident that Halliburton is positioned to benefit more from this multi-year upcycle than ever before," CEO Jeff Miller said in a statement. "We have a leading technology portfolio, the right geographic presence, and new service line opportunities that align perfectly with our strategy to deliver profitable international growth."
Halliburton is one of the world's largest providers of products and services to the energy industry. The company reports that it has contracts in the Middle East and throughout the Americas, Europe and Africa.
Capital spending in the first six months of 2022 was up 39% to $410 million. HAL also increased its spending by 17% compared to Q1. Halliburton expects its capital expenditures to be 5%-6% of its revenue for the full year.
Third Bridge analyst Peter McNally wrote that profitability has been a concern for Halliburton, adding that the 17% operating margins increase is the "highest level achieved since 2014."
Supply chain challenges and the market's appetite to spend on drilling projects are concerns moving forward, according to McNally.
"In the case of Halliburton, the customers are the major oil producers who have generally been hesitant to spend more on developing oil & gas reserves," McNally said. "Drilling activity is up, but it has lagged the pace at which the industry employed the last time commodity prices were this high."
HAL stock rose on earnings but fell 1.4% for the week.
Like many oil stocks right now, Halliburton's chart is not a pretty picture. HAL collapsed after attempting to break out from a cup-without-handle pattern in June. Shares triggered the automatic sell rule, diving in heavy volume below both their 10-week and 40-week moving averages.
Still, Halliburton stock ranks second in the oil and gas field services industry group. HAL stock has a Composite Rating of 77. It has a 77 Relative Strength Rating, which gauges share-price movement with a 1 to 99 score. The rating shows how a stock's performance over the last 52 weeks holds up vs. all the other stocks in IBD's database. HAL stock's EPS rating is 80.
Baker Hughes Earnings
Estimates: Analysts estimated Baker Hughes earnings per share of 22 cents on $5.3 billion in sales in the second quarter.
Results: The company reported $5 billion in revenue, a 2% decrease year-over-year. Q2 EPS increased 10% to 11 cents.
BKR stock tumbled 9.75% for the week to 24.08, hitting a 2022 low.
The Texas-based company supplies oilfield services, products, technology and systems to the global oil and natural gas industry. The firm operates through multiple segments and provides products and services for on- and offshore operations.
Baker Hughes had missed Q1 earnings views with a 25% per-share gain to 15 cents, with revenue up 1% to $4.8 billion.
"Our second-quarter results were mixed as each product company navigated a different set of challenges ranging from component shortages and supply chain inflation to the suspension of our Russian operations," CEO Lorenzo Simonelli said in a statement.
BKR's capital spending has increased nearly 17% to $351 million in 2022 while its oilfield equipment segment failed to make an operating profit for the second straight quarter. The company also had $426 million in non-operating losses related to its oilfield services business in Russia.
Simonelli said that demand for oil for the next 12-18 months is "deteriorating, as inflation erodes consumer purchasing power and central banks aggressively raise interest rates to combat inflation." However, he added that the need to replace Russian production could keep commodity prices at elevated levels "even in a scenario of moderate demand destruction."
BKR also expects oil production operations to increase in the second half of 2022. Oil rig activity in the U.S. has tracked above the company's expectations and it is forecasting growth of 50% or greater for the year.
"We believe the outlook for oil prices remains volatile, but still supportive of strong activity levels as higher spending is required to reorder the global energy map and likely offsets demand destruction in most recessionary scenarios," Simonelli said.
Like Halliburton, BKR is broken down and searching for a bottom. It's down 30% from its 52-week high of 39.78. Baker Hughes ranks fifth in the oil & gas machinery/equipment industry group. BKR has a 65 Composite Rating and a 71 Relative Strength Rating. Its EPS Rating is 88.
The Oil Market, Oil Stocks
U.S. crude futures tested technical lows Friday, falling to around $94 per barrel. The U.S. oil benchmark dropped almost 7% last week and has been declining since mid-June on growing recession concerns and fears that China may reinstate widespread Covid-19 lockdowns.
The price of crude oil has been on an upward trajectory since the beginning of last year. Prices angled sharply higher following Russia's invasion of Ukraine in February, and as a global backlash against the invasion shunned purchases of Russian oil. Spot prices for U.S. oil briefly touched $130 in March.
U.S. natural gas prices increased around 5% to $8.3 per million British thermal units Friday. Prices had rocketed up more than 8% Wednesday before dropping off around 1.5% Thursday.
On Monday, Russia's Gazprom declared force majeure on gas supplies to Europe, citing "extraordinary" circumstances that would not allow it to fulfill its supply obligations, according to Reuters. The Nord Stream pipeline is cutting Russia's gas supply to Germany, amid already sky-high demand and tight supply.
Gazprom's Nord Stream pipeline, which connects Russia's gas fields with Europe, has been closed for annual maintenance but began flowing again on Thursday. In June, Gazprom had announced that supply from the Nord Stream pipeline would be limited by 40%.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
