Yahoo Finance Schlumberger’s Year-to-Date Returns Better Than Industry’s
What to Expect from Schlumberger's 3Q15 Earnings on October 15
Schlumberger’s stock market performance
Schlumberger (SLB) is set to announce its 3Q15 earnings after the market closes on October 15, 2015. Since January 1, Schlumberger has slightly outperformed the oilfield service (or OFS) industry and some of its peers.
Schlumberger’s year-to-date return is -14%. The Market Vectors Oil Services ETF (OIH) has returned -21% year-to-date. Schlumberger accounts for 19.6% of OIH.
Schlumberger’s performance relative to its peers
From the beginning of the year through August 26, Cameron International (CAM) was performing at par with Schlumberger, its much larger market cap peer. Year-to-date, CAM has significantly outperformed SLB and OIH, posting returns of ~28%. The reason for the sudden sharp rise in CAM’s share price is its proposed merger with SLB.
On August 26, SLB and CAM signed a definitive merger agreement. To understand the deal and the subsequent price reactions, you can read Market Realist’s article Market Responses to the Schlumberger-Cameron International Deal.
Although Schlumberger’s revenues and net income were hit by the recent energy sector weakness, its performance was steadier than some of its close peers such as National Oilwell Varco (NOV) and Cameron International (CAM).
Why energy stock returns have been low
Most energy stocks have tumbled since June 2014 when the price of crude oil started to crash. This negatively affected oil producers’ revenues and margins. Many upstream energy companies cut expansion investment.
Year-to-date, approximately 54% of US rigs have been idled. These are negative developments for OFS companies. OFS stocks have reacted sharply to the lower drilling activity, which lowers revenues and profits. This explains why OIH’s returns have been so poor.
What can change this underperformance?
If energy prices start rising, OFS stocks may start to look up again, as upstream companies drill more and production increases. In the past three months, the fall in rig count has slowed down considerably. From July to September, only 3% of US rigs have gone offline, hinting at stabilization.
The price of crude oil, however, has remained weak, falling another 19% by the end of September compared to the first week of July. Performance for OFS companies will start improving again only when there’s a turnaround in drilling activity for a sustained period.
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