Schlumberger Limited. (SLB): What It’s Saying About the Energy Industry

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Oil-field services company, Schlumberger Limited. (NYSE:SLB)‘s large size and global presence means that it really has a read on the pulse of the global energy industry. When Schlumberger Limited. (NYSE:SLB) executives speak, it’s a good idea for investors to listen closely because the company can provide important industry insights. With that in mind, I’d like to point your attention to a couple of important quotes from the company’s first-quarter conference call.

Schlumberger Limited (NYSE:SLB)Into the deep
Leading off the call was CFO Simon Ayat. He went through the company’s financial numbers and in doing so he made one point that really stood out. He said, “Drilling Group revenue of $4.1 billion increased 9.2%, and margins improved by 57 basis points to 17.9%. These improvements were led by drilling and measurements on strong offshore drilling activity across all international areas and the U.S. Gulf of Mexico.” I’d like to draw your attention to the second part of his statement where he notes that the company saw “strong offshore drilling activity.”

Offshore drilling has been a key growth area for the energy industry, so its an important area to watch to make sure that trend isn’t showing any signs of reversing. The good news is that while last year was the best year ever for deepwater discoveries, 2013 is shaping up to be just as good, if not better. Already this year ConocoPhillips (NYSE:COP) has announced two major discoveries in the Gulf of Mexico which the company views as an important future growth driver. Overall the Gulf of Mexico remains one of the biggest story lines as the industry has truly recovered from the BP disaster.

However, the Gulf isn’t the only area of offshore growth. Anadarko Petroleum Corporation (NYSE:APC) is one of the many companies having a great year. It is partnered with ConocoPhillips (NYSE:COP) on one of those major Gulf of Mexico discoveries; in addition to enjoying the success of that massive find the company announced a major natural gas find off the coast of Mozambique, as well as non-commercial oil off the coast of Kenya. The company plans to keep drilling in Kenya because it was still encouraged by the results. Overall, the industry as a whole is showing no signs of slowing down as these discoveries will continue to drive the strong performance we are seeing in companies like Schlumberger Limited. (NYSE:SLB).

Land ahoy
While offshore drilling has been a very profitable venture for both oil companies and oil-field service providers, it’s not the only driver of profits these days. CEO Paal Kibsgaard led off his remarks on the call by saying: “Our first quarter results were solid, driven primarily by the overall strength and progress of our international business, but also by continued margin resilience in North America, in spite of both activity and pricing challenges.” It’s that margin resilience in North America that’s most interesting to hear.

We know that exploration and production companies are getting much more efficient in drilling wells. Drillers like Continental Resources, Inc. (NYSE:CLR) are drilling more wells per pad, which is lowering completed well cost and is saving both time and money. For example, the company saved $7.5 million and 73 days by drilling a six-well pad compared to drilling six single wells. The company is one of many in the industry to move to multi-well pads; Continental Resources, Inc. (NYSE:CLR) is looking to drill four to eight wells per zone in the future because of this savings. The trend is to use fewer rigs to drill more wells, so oil-field service companies need to manage operations more closely in order to keep margins intact, which is exactly what Schlumberger Limited. (NYSE:SLB) is doing.

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