VALUATION HIGHLIGHTS

1. Drilling constitutes 37% of the Trefis price estimate for SLB's stock.
2. Production Systems constitute 25% of the Trefis price estimate for SLB's stock.
3. Reservoir Performance constitutes 19% of the Trefis price estimate for SLB's stock.

WHAT HAS CHANGED?

SLB Q4 Snapshot

SLB beat both on the top and bottom lines in its fiscal fourth quarter. The company reported adjusted EPS of $0.92 (up 7% year-over-year) on $9.3 billion (up 3% y-o-y) in revenue. The market was anticipating $0.90 and $9.18 billion, respectively. SLB's quarterly performance was a mixed bag, marked by robust growth in digital and integration segments and hindered by challenges in its Well Construction and Latin American businesses. Sales in North America rebounded in the last quarter of 2024, rising by 4% from Q3 and 7% compared to the same period of 2023. Overall, the company's full-year 2024 revenue jumped by 10% y-o-y to $36.3 billion, with North American revenue down by 1% to $6.7 billion and International revenue (led by Middle East & Asia and Europe & Africa) rising by 12% to $29.4 billion. The company's North American revenues represent only around 20% of the total revenue - so the rest of the world's revenues are critical to the company.

It should be noted that SLB's international revenue increase was supported by strong digital sales and the addition of the Aker subsea business, which was added as part of its OneSubsea joint venture in Q4 2023. The acquired business generated revenue of $1.93 billion during the full year of 2024.

Note: SLB FY'24 ended on December 31, 2024

Outlook

Although upstream investment growth is expected to remain slow in the near term due to global oversupply, we anticipate that the oil supply imbalance will gradually correct itself. Looking ahead, SLB forecasts a promising outlook for the oil and gas industry. Key regions such as the Middle East, led by Saudi Arabia and the UAE, as well as offshore markets in Brazil, Guyana, Angola, and Norway, are expected to drive investment to record levels beyond 2025. Furthermore, the industry's long-term investment outlook will be underpinned by steady global economic growth, a heightened focus on energy security, and increasing energy demand fueled by emerging technologies like AI and data centers.

BUSINESS SUMMARY

SLB provides upstream reservoir characterization, drilling, and exploration services for the oil and gas industry. SLB's services are required by integrated oil companies such as Exxon Mobil, National Oil Companies (NOCs) like Saudi Aramco, and independent producers to explore, develop, and service their oil resources. The company has an extensive geographical reach, conducting business in over 80 countries and providing products and services for oil and gas exploration, including seismic services, drilling, and post-drilling services.

KEY TRENDS

High Oil Prices Pushing Drilling Demand

Oil prices started plummeting in mid-2014 due to the demand-supply mismatch in the global oil markets. This resulted in weaker oilfield service activity throughout 2015 and 2016, as oil and gas companies curtailed upstream spending due to falling cash flows. This severely hit the business of oilfield services companies till 2019. Then, the impact of the COVID-19 pandemic hammered the oil industry in 2020, as governments closed businesses and restricted travel. However, oil prices saw a rebound on the news of the planned rollout of multiple COVID-19 vaccines by the beginning of 2021.

Oil prices rose early in 2022 as a surprising economic rebound drove demand for oil after several months of lockdowns. Secondly, the supply was not able to respond to increased demand as OPEC was probably cautious not to oversupply the market again, and the fact that oil production has long investment cycles. Lastly, the oil prices also increased sharply due to the conflict in Ukraine and sanctions on Russia.

To limit the excess supplies and stabilize prices, the OPEC+ group in April 2023 decided to cut production. Despite the OPEC+ group’s decision to extend their production cut, weakness continued in global oil markets on faltering demand from China and swelling American supplies in 2024. Escalating geopolitical tension also added pressure on the demand outlook of the commodity. Oil has been trading in a tight range since the last year. It was broadly congested inside the $67-$90 per barrel range on worries that supplies will exceed demand.

SLB is largely at the mercy of market conditions, and the tepid oil price growth is not helping either. Several key factors are poised to shape the global oil market in 2025. The oil market has been impacted by President Trump's renewed calls for OPEC+ to reduce prices. Earlier this year, oil prices soared to multi-month highs above $82 per barrel after the previous U.S. administration imposed new sanctions on Russia. However, prices have since dropped due to hopes of a peace deal between Russia and Ukraine, potentially boosting Russian oil exports.

The Trump administration's plan to eliminate Iran's oil exports has prevented the oil prices from falling further, underscoring the complex interplay between geopolitics and the global oil market. A significant rebound in China's oil demand is anticipated, potentially boosting global oil trade, while the new U.S. administration's stance on key oil-producing nations, including China, Russia, and Iran, will be closely monitored. The uncertain geopolitical landscape could lead to tighter supplies and higher prices. However, rising output from the U.S. and other non-OPEC countries, such as Canada and Brazil, has been balancing the market, limiting price increases. As all these factors intersect, the global oil market will likely experience a complex and dynamic year, with multiple influences shaping its direction.

Exploration of deepwater and other remote sources of oil and gas

Increasingly over the past few years, significant oil and gas finds have been in deepwater and other remote locations such as the CIS and Iraq. The exploitation of these sources adds tremendous logistical and technical complexities to the exploration projects, which translates into higher revenues and lower competition for upstream products and services firms such as SLB. Additionally, projects such as Deepwater provide opportunities for longer-term contracts and the ability to provide integrated services.

New oil and gas discoveries in Brazil and other Latin American countries

Several of the largest oil and gas discoveries in the past five years have been in Latin America, including several multi-billion-barrel offshore finds in Brazil. These discoveries are attracting investments from local oil companies such as Petrobras, as well as foreign oil majors such as Chevron and PetroChina. Exploration in this area is expected to improve SLB's revenue and profit outlook in the region.

Exploration for unconventional sources in Europe, Latin America, the Middle East, and Asia

Exploration for unconventional sources such as shale and tight gas is expected to pick up in Argentina, Mexico, Poland, China, and Saudi Arabia over the next several years, resulting in higher revenues and operating profits for SLB in these regions.

Efforts to arrest decline rates in aging fields

Oil firms are investing in technology to help them reduce the decline rates seen in major fields over their lifetime. For instance, Mexico's Pemex has been engaged in efforts to arrest the decline in its Canterall fields, while Saudi Aramco has also made it a priority to reduce the decline in its fields by 2-3% per year.