December 19, 2024
Year to date (YTD), SLB SLB has experienced a 29.9% decline, significantly underperforming the industry’s overall fall of 8.6%. The reduced demand for SLB's products and services due to a slowdown in both North American and international drilling activities has adversely impacted its offerings, such as well placement optimization and drilling efficiency solutions. These are some of the key reasons for the company’s underperformance in the stock market.
YTD Price Chart
So, what should investors’ approach to the stock be? Before addressing this, let’s examine some fundamental aspects of this energy major.
In its latest worldwide rig count report, Baker Hughes Company BKR revealed the North American rig count of 789 for November, significantly lower than 816 rigs recorded in the same month of 2023. This decrease suggests that exploration and production companies have been reducing their capital expenditure budgets for drilling activities. The shift is primarily due to the growing pressure from shareholders, who are prioritizing capital returns over additional investments in exploration and production.
The report also indicated that the international rig count for November was 919, marking a notable decline from the 978 rigs recorded a year ago. Thus, it is evident that there has been a global slowdown in drilling activities, hurting demand for SLB’s services from upstream players.
Also, the U.S. Energy Information Administration's latest short-term energy outlook projects U.S. crude oil production to reach 13.5 million barrels per day (MMB/D) in 2025, up from an estimated 13.2 MMB/D in 2024 and 12.9 MMB/D in 2023. However, the year-over-year growth rate is expected to remain steady at 2.3% in 2025, mirroring the growth seen in 2024. This indicates that drilling activities in North America are unlikely to see a significant uptick next year, further confirming that there will likely be subdued demand for services from major oilfield service provider SLB.
Nevertheless, there is no need for concern, as SLB has shown significant progress in expanding its presence in offshore and international markets, which remains a cornerstone of its growth strategy.
SLB recently secured a contract from Petrobras PBR to provide integrated services across all offshore fields operated by PBR in Brazil. This contract encompasses more than 100 wells in ultra-deepwater rigs, showcasing SLB's advanced capabilities in drilling, cementing and fluid technologies. Read more: Petrobras Awards Major Offshore Contract to SLB Worth $800 Million.
Another notable achievement was the award of two subsea raw water injection systems (RWI) for the Búzios field. These systems will enhance production efficiency, reduce greenhouse gas emissions and improve field development economics.
SLB's positive developments also include its efforts to integrate low-emission technologies, such as subsea raw water injection systems, which help reduce the carbon footprint of offshore operations. Innovations like artificial intelligence (AI)-driven drilling systems contribute to minimizing operational emissions while maximizing resource recovery.
However, there are certain uncertainties surrounding the stock. Since SLB offers oilfield services to exploration and production companies, its business is highly sensitive to fluctuations in oil and natural gas prices. Additionally, expanding the scalability of new technologies like Neuro™ geosteering across various markets could create operational challenges.
Despite these hurdles, which partly led to the YTD stock price decline, most analysts are optimistic that the Zacks Rank #3 (Hold) energy giant will achieve industry-leading margins, supported by its unique operational footprint and advanced technical and digital capabilities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
Nevertheless, investors may want to await a more favorable entry point. This is because, at this moment, the company’s shares are somewhat expensive on a relative basis, with the current 7.02X trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization trading at a premium to the broader industry average of 6.42X.
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