Oilfield services giant SLB reported strong fourth-quarter 2022 earnings on Jan. 20, propelled by its prospering digital unit and upticks in offshore and Middle East operations.
Both quarterly and year-over-year results beat analysts’ estimates. For the quarter, SLB reported earnings per share (EPS) of $0.71, a 13% increase over the previous quarter, and one that exceeded the Wall Street aggregate forecast of $0.68/share. Full-year earnings rose 70% to $2.18/share.
The company, which rebranded from Schlumberger in 2022, recorded $7.88 billion in the quarter, outpacing the same period in 2021 by 27% and again surpassing analyst estimates. Full-year revenue totaled $28.1 billion—a 23% year-over-year increase.
CEO Olivier Le Peuch said the company expects to build on the results in 2023.
“We laid the foundation for further growth and market expansion through pricing improvements and a solid pipeline of incremental contract awards,” Le Peuch said during a Jan. 20 call with analysts. “In the Middle East … we expect record levels of upstream investment by NOCs [national oil companies] to continue in the next few years.”
Analyst assessments were mostly positive on SLB’s results.
Tudor, Pickering, Holt & Co. (TPH) noted that the company beat its EPS estimate of $0.67 and outperformed its expectation of $7.8 billion in revenue. SLB’s EBITDA margin of 24.4% also surpassed TPH’s forecast of 24% and the consensus 23.8%.
Evercore ISI said it expected the earnings report to have positive implications for the stock price.
“SLB’s fourth quarter pretax segment operating margins and EPS were the highest since 2015, which demonstrates its enhanced earnings power and potential as activity growth momentum continues over the next few years,” Evercore wrote in a research note before the earnings call.
Free cash flow underwhelms
Analysts registered some disappointment regarding SLB free cash flow.
“The only thing that didn’t come through as expected was FCF [free cash flow], which was lighter due to working capital not releasing as expected,” Piper Sandler analysts said in a Jan. 20 report. “But this isn’t a concern to us as it’s just a timing difference.
“The international and offshore expansion is in full force, and although the magnitude of the EBITDA came down in 4Q, we believe these could accelerate in 2H23.”
Cowen analysts acknowledged that EPS, revenues and EBITDA results all beat its own and consensus expectations, but free cash flow of $855 million fell well below its expectation of $1.5 billion. Cowen’s take on the stock was “neutral.”
SLB’s stock price slipped by $0.35/share in morning trading following the earnings call. The share price climbed almost 70% in 2022, which Benzinga noted was well ahead of rivals Halliburton and Baker Hughes.
SLB announced a 43% dividend increase, which followed a 40% increase in April 2022.
Revenue from SLB’s Digital and Integration division grew to $1.01 billion in the quarter, a 12% increase over the third quarter and 14% increase year-over-year. Year-end exploration data licensing sales in the Gulf of Mexico and Africa, and higher sales in Europe, Africa and Latin America accounted for the boost.
Among the contracts landed:
- Brazilian NOC Petrobras awarded SLB a five-year deal to provide AI and machine-learning capabilities to support its aggressive production development plans;
- Norway-based Equinor contracted with SLB to deploy digital leak detection and virtual flow metering solutions in the Johan Sverdrup offshore field; and
- Kuwait Oil Co. partnered with SLB to develop a digital workflow to monitor water production in a producing field.
Geographically, operations in the Middle East and Asia saw revenue rise by 7% in the quarter to $2.51 billion. Latin American operations also recorded a 7% revenue gain to $1.62 billion, which was a 34% year-over-year increase. SLB attributed that to higher drilling activity and higher prices in the region.
North American activity moderates
By contrast, business in North America went in the opposite direction in midyear.
“In the second half of the year, the pace of growth in North America significantly moderated,” Le Peuch said. “At the same time, international accelerated.”
He stressed that North America has been a source of success for SLB in the past 18 months. Quarterly revenue rose 6% to $1.63 billion, which was a 27% year-over-year increase. Year-end exploration data licensing sales in the Gulf of Mexico accounted for much of that. North American well construction revenue rose 5% quarterly and 48% year-over-year to $652 million in the quarter. Production systems revenue was up 19% year-over-year to $575 million.
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