Schlumberger (SLB) delivered decent Q1 financial results. The company beat on revenue by $20 million and also beat on eps. SLB finished down 1% Friday on the news. Below is my takeaway on the quarter.

Has North America Jumped The Shark?

North America land drilling has been the white-hot sector of the oil services industry. In Q1 2018 Schlumberger received 36% of its revenue from North America, up from 27% in the year earlier period. The company has been amplifying its exposure to the region as well; it recently acquired Weatherford’s (WFT) U.S. pressure pumping assets for $430 million which could help it close the gap between it Halliburton (HAL) and Baker Hughes, A GE Company (BHGE).

The U.S. rig count for the week ended April 20th was up 5 to 1,013; this represented an 18% increase Y/Y. Schlumberger’s North America revenue was only up 1% sequentially. According to management North America land drilling continues to grow, but Q1 results were negatively impacted by pricing pressure and lower than expected pressure pumping activity. Oil services firms with strong liquidity will likely survive any pricing war. This would play into Schlumberger’s hands given its fortress balance sheet; however, it would not be positive for earnings in a region where the company has increased it investment in. In Q2 2017 Halliburton’s management team intimated North America shale oil plays may pull back on additional E&P. If Q1 2018 results are any indication then North America may have already jumped the shark.



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