SLB delivers solid results, setting the pace for energy earnings

SLB, the world’s largest oilfield services provider, delivered solid fourth-quarter 2024 results, surpassing analyst expectations on both earnings per share (EPS) and revenue. Adjusted EPS came in at $0.92, exceeding the $0.90 consensus estimate, and revenue was reported at $9.28 billion, surpassing the $9.18 billion forecast. This performance was underpinned by robust activity in both North America and international markets, along with growth across key segments such as Digital & Integration and Production Systems.

Regional and Segment Breakdown

Revenue from SLB’s international operations, which account for approximately 80% of its total revenue, grew 3% in the quarter, driven by strong contributions from the Middle East and Asia. North America revenue also rebounded, rising 7% year-over-year as demand for drilling equipment and technology improved.

In terms of segment performance:

Digital & Integration: Revenue rose 10% year-over-year to $1.16 billion, beating estimates of $1.13 billion. The segment benefited from increased adoption of digital technologies, supporting operational efficiencies for customers.

Reservoir Performance: Revenue grew by 4.3% to $1.81 billion, narrowly missing expectations of $1.82 billion. This segment’s growth was driven by higher activity levels in reservoir evaluation and intervention services.

Production Systems: Revenue climbed 8.6% to $3.20 billion, surpassing the $3.13 billion estimate. Growth was fueled by increased demand for production equipment, particularly in offshore and international markets.

Well Construction: Revenue matched estimates at $3.27 billion but declined 4.6% year-over-year, reflecting pricing pressures and subdued activity in some regions.

Free Cash Flow and Capital Returns

SLB generated free cash flow of $1.63 billion for the quarter, a 28% year-over-year decline and slightly below the $1.69 billion analyst estimate. Operating cash flow came in at $2.39 billion, aligning with expectations but reflecting a 21% decrease compared to the prior year. Despite the softer cash flow, SLB’s capital returns remain a key focus. The company raised its quarterly dividend by 3.6% to $0.285 per share and announced an accelerated share repurchase (ASR) program worth $2.3 billion, with 80% already completed as of mid-January.

SLB’s total return to shareholders is expected to increase from $3.3 billion in 2024 to a minimum of $4 billion in 2025, highlighting its commitment to rewarding investors. Net debt was reduced by 12% quarter-over-quarter to $7.41 billion, demonstrating improved balance sheet strength.

Key Drivers of Performance

The company’s performance was driven by robust international activity, particularly in the Middle East and Asia, where revenue growth reached 18% and 13%, respectively, for the full year. SLB’s digital transformation initiatives also contributed significantly, with full-year digital revenue growing 20% to $2.44 billion. Production Systems saw strong offshore demand, while improvements in North America reflected a rebound in drilling activity.

However, challenges persisted in Well Construction, where margins were pressured by competitive pricing and oversupply in certain markets. Management acknowledged that upstream investment growth remains subdued in the short term due to global oil oversupply but expressed optimism about a gradual market recovery.

Insights on the Energy Sector

SLB’s results offer valuable insights into the broader energy market. The modest recovery in North America and robust international growth underscore the sector’s uneven recovery. CEO Olivier Le Peuch emphasized that global economic growth, energy security concerns, and rising demand from AI and data centers are expected to support long-term investment in oil and gas.

SLB’s commentary suggests that the oil supply imbalance is gradually abating, setting the stage for increased upstream investments. The company’s strong offshore performance also reflects a broader shift towards deepwater exploration and production as companies seek to secure long-term reserves.

Market Reaction and OIH ETF Implications

Shares of SLB rose 3.5% in premarket trading, reflecting investor optimism about the company’s better-than-expected results and shareholder return initiatives. As a major component of the VanEck Oil Services ETF (OIH), accounting for 20% of its weighting, SLB’s performance has significant implications for the ETF and broader energy services sector. The positive earnings surprise and capital return commitments could bolster investor sentiment towards energy service stocks.

Conclusion

SLB’s strong fourth-quarter results highlight its resilience in a challenging operating environment. With robust international growth, a focus on digital transformation, and disciplined capital returns, the company is well-positioned to navigate near-term headwinds and capitalize on long-term energy demand trends. While challenges persist in Well Construction and cash flow generation, SLB’s strategic initiatives and commitment to shareholder value underscore its leadership in the oilfield services industry.