What Rhymes with Schlumberger?

SLB generally charges first out of the earnings gate each quarter.  Q1 2019 revealed revenues of $7.9B, which was a dip from the prior quarter.  This disappointed shareholders, who punished the company’s stock by selling down 4%.

Since 2018 ended with a whimper, oil company boards entered 2019 with shockingly low expectations for the year. They drilled new wells as if oil prices would never recover, despite oil prices rising the entire time.

So we’ve run an analysis that asks this question:  If actual WTI oil prices averaged about $58 for Q1 2019, what price did oil companies APPEAR to be using for their Q1 drilling activity? (We used SLB’s revenues as a proxy for the entire oil industry worldwide.)

We fired up our new tool, the Oilfield Investor Workbook, and plugged in various oil prices for Q1 2019 until we got a Schlumberger global revenue number that matched what they reported.  

Remember, the actual oil price average was $58.

The oil price that SLB customers acted on?  $52

So what if E&P companies look out the window and realize that oil prices are actually above $60 and might trend toward $70 later this year?  What if they start drilling wells using today’s price of oil?

Here’s what Schlumberger does by quarter through the end of 2019:


Instead of Q1’s revenues of $7.9B, Q4 2019 rises to $9.1B, an increase of 15%.

To be in the oil industry means to be an eternal optimist.  We see E&P companies increasing their activity as each month ticks by, recognizing that the commodity they sell is earning them tanker-loads of profits, and knowing that more of these profits will be plowed back into new drilling.