Schlumberger Limited (SLB) said that the political unrest in the Middle East and Africa, along with severe weather-related hindrances in Australia, will likely hurt its first quarter earnings of 2011.
The company stated that political instability in Egypt, Tunisia and Libya has hit the company’s revenues hard. Disruptions in the Ivory Coast, Yemen, Bahrain, Oman and Algeria also had a minor impact on the company’s earnings. Consequently, these factors will likely affect the first quarter 2011 earnings by 8 cents to 10 cents per share. Additionally, weather-related impediments in Australia (flood issues in its eastern states and Cyclone Yasi in its northeastern coast) have upset the company’s operations.
Although Egypt and Tunisia have resumed normal operations, the company expects continued disturbances in Yemen, Libya and Bahrain.
Recently, Weatherford International Ltd. (WFT) also narrowed its earnings forecast for the first quarter of 2011 owing to the political disruption rife in North Africa and severe weather conditions in Australia. Further, Halliburton Company (HAL) plans to cut its first-quarter profit by 3 cents to 4 cents per share.
Despite a curtailed first-quarter outlook, Schlumberger continues to hold a positive stance for the year 2011 based on increased activity, coupled with higher technology needs for exploration, deepwater operations, and tight gas activity, particularly outside North America. Specifically, Saudi Arabia aims at increasing its production capacity to exploit the tightness in the global energy markets. Schlumberger’s presence in Saudi Arabia bodes well for the company.
Last quarter, Schlumberger reported robust earnings of 85 cents per share (excluding one-time items), substantially beating our expectation. The improvement was driven by strong activity in the liquid rich plays in North America and overall improvement in Canada. Although the company did not specify any earnings guidance for the first quarter of 2011, we expect it to post earnings of 82 cents a share.
We remain on the sidelines owing to the ongoing political as well as weather disruptions affecting the company’s operations and maintain our long-term Neutral recommendation at this stage. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
HALLIBURTON CO (HAL): Free Stock Analysis Report
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
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