The Big Daddy of oilfield services has just outperformed estimates. Schlumberger Limited (SLB) posted first-quarter earnings of 62 cents before the market opened on Friday. This beat the Zacks Consensus Estimate of 61 cents per share. The outperformance reflects improving North American as well as international markets.

Earlier this week, Halliburton Company (HAL) reported sharper-than-expected first quarter results, supported primarily by strengthening North American activity levels.

Total revenue for the quarter decreased 6.7% year over year to $5.6 billion. Oilfield Services revenue was down 6% to $5.1 billion. WesternGeco revenue decreased 14% to $0.5 billion.

Segmental Performance

All geographical areas reported lesser revenues from the year-earlier level in the first quarter except Latin America. However, an 18% sequential revenue increase in North America is notable.

North American revenue decreased 13% year over year to $1.03 billion. Pre-tax operating income in the region was down 49% year over year to $83 million. Latin American revenue increased 3% year over year to $1.06 billion, while pre-tax operating income decreased 9% year over year to $185 million.

Europe/CIS/Africa revenue fell 10% year over year to $1.63 billion, while pre-tax operating income in the region decreased 37% year over year to $294 million. Middle East and Asia revenue decreased 4% year over year to $1.32 billion, while pre-tax operating income in the region decreased 10% year over year to $410 million.

At WesternGeco, revenues fell 14% year over year to $472 million, but pre-tax operating income increased 23% from the year-earlier level to $67 million.

Balance Sheet

At the end of the quarter, Schlumberger had a cash balance of $4.2 billion and a long-term debt of $4.69 billion, representing a debt-to-capitalization ratio of 19.4%. During the quarter, the company repurchased 5.3 million shares for a total of $337 million.

Outlook

While the drilling scenario and pricing environment in the North America has been improving, international markets are also gaining traction. With the recent growth in exploration activity, particularly in deepwater Iraq and Russia, the company will benefit from its product and technology portfolio and low-cost provider position. We believe Schlumberger’s return differential versus its peers will continue to gain momentum following the Smith acquisition, which is awaiting approval by antitrust regulators.
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