Cameron Group Softens Blow For Schlumberger In 2016

Schlumberger Ltd.’s (NYSE: SLB) decision to bring Cameron International Corp. under its wings more than a year ago helped the oilfield services giant add $4.2 billion in revenue to its coffers in 2016.

But the acquisition, which created a pore-to-pipeline one-stop shop for oilfield services onshore and offshore, was not enough to reverse the impacts of a profit-killing downturn. Schlumberger saw its full-year 2016 revenue drop by 22% year-on-year to $27.8 billion. Without Cameron, the company’s consolidated revenue would have been down by 34%, Schlumberger said Jan. 20 in its latest earnings release.

The good news is that market conditions are improving and Schlumberger is determined to make moves wherever it sees a path to profit. With E&P surveys pointing to an anticipated spending increase of about 30% this year in North America, Schlumberger's CEO Paal Kibsgaard said North America—with the Permian Basin at the helm—is expected to lead activity growth, which will be followed by slower recovery in the international market.

Kibsgaard compared Schlumberger’s international business to a “highly-compressed coiled spring.”

“Activity levels in key market segments such as exploration and deepwater are at record lows and although we do not expect a dramatic short-term recovery, the trends can only be positive from this point on,” Kibsgaard said during a conference call Jan. 20.

The company reported fourth-quarter 2016 revenue of $7.1 billion, down 8% compared to the same quarter last year but up 1% sequentially. International revenue for the quarter was $5.2 billion, and North America revenue was about $1.8 billion—sequential gains of 1% and 4%, respectively.

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In North America, Kibsgaard said the company continues to invest in “the underlying efficiency of our operations as well as in new technologies and further vertical integration.

“As the market level starts to recover, we will aggressively redeploy our capacity in any product line in any basin that shows a clear path toward profitability,” he said. “This, together with the strong market position of the Cameron product lines, will allow us to further expand the North American leadership position we’ve held in recent years in terms of both margins and pre-tax operating income.”

With an integration team still in place, Cameron Group President R. Scott Rowe said the focus in 2017 will shift from cost synergies to growth synergies.

“Several technologies will be commercialized in 2017 that will drive incremental revenue and margins,” Rowe said. “We continue to find opportunities around the world when we leverage the expansive footprint of Schlumberger.”

At $1.3 billion, the Cameron Group’s fourth-quarter 2016 revenue, mostly from international markets, was essentially flat compared to the previous quarter. OneSubea’s “strong project activity and execution in the Europe/CIS/Africa and Latin America areas” combined with strong surface systems sales in the Middle East, resulted in an 11% revenue gain; however, that was outweighed by lower drilling systems and valves and measurement activities.

Yet, “our persistent focus on cost control and the acceleration of the integration program has allowed us to deliver high relative margins throughout 2016,” Rowe said.

He highlighted ways the group was able to capture opportunities in a tight market. These included securing:

• Two 10-year pressure control equipment management service contracts, valued at more than $350 million, from Transocean Ltd. (NYSE: RIG). As part of the contracts, Schlumberger will manage Transocean’s risers in the U.S. Gulf of Mexico, maintaining BOP systems and other pressure control equipment for nine of Transocean’s rigs, among other duties. Rowe said the company will apply the latest technology on sensors, diagnostics and condition-based monitoring to improve reliability and uptime in deepwater drilling, while reducing costs;
• An engineering, procurement and construction contract (EPC) from Statoil to provide the subsea production system for the Utgard gas and condensate field in the North Sea; and
• The industry’s first deepwater integrated subsea EPC, installation and commissioning multiphase boosting system contract. Awarded by Murphy Exploration & Production Co.—USA to OneSubsea, the contract involves installing the longest multiphase boosting tieback to date at 35 km (22 miles).

In addition, Rowe said he expects the group’s valves and measurement and surface businesses to outperform in the second half of 2017, “given their strong market conditions coupled with their broad international reach.”

However, he warned that first-quarter 2017 will be “a low for the Cameron Group in both revenue and margins due to the reduced backlog and the normal cyclical nature of our business.” Growth is anticipated starting in the second quarter, he added, as the group leverages its North American position and capitalizes on its larger international presence.

Working through the downturn while integrating into Schlumberger made 2016 a challenge, Rowe said, but he said he was pleased with Schlumberger’s approach and Cameron’s performance.

“Despite the challenges, we delivered strong results throughout the year and we are positioned better than any of our peers to fully capitalize on the growing opportunities in 2017,” he said.

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Velda Addison can be reached at vaddison@hartenergy.com.