Schlumberger Ltd. (SLB:US)’s profit erosion from Russian sanctions on oilfield technology such as fracking and deep-water drilling is expected to spread to peers in the coming weeks.
U.S. and European Union sanctions may shave 3 cents a share off third quarter earnings at the world’s largest oilfield services provider as the penalties restrict people and equipment in Russia. Sanctions are lowering efficiency and raising costs, the Houston- and Paris-based company said in a statement today.
Halliburton Co. (HAL:US), Baker Hughes Inc. (BHI:US) and Weatherford International Plc (WFT:US), the largest competitors to Schlumberger, each generate 4 percent to 5 percent of their global sales from Russia, while Schlumberger gets 5 percent to 7 percent, according to RBC Capital Markets.
“We think these sanctions could impact Russia service revenue for all EU/U.S.-based companies,” Kurt Hallead, an analyst at RBC Capital Markets, wrote today in a note to investors. Schlumberger’s peers are expected to follow with similar updates “in the coming weeks,” Hallead wrote.
The European Union and the U.S. decided last month to tighten sanctions against Russia over its support of separatists in eastern Ukraine. The new measures target the banking, energy and defense industries, threatening business in Russia for companies from Schlumberger and Halliburton to Siemens AG (SIE) and Renault SA. (RNO)
Schlumberger is expected to earn $1.51 a share this quarter excluding some items, based on the average of 28 analysts’ estimates compiled by Bloomberg. The range is $1.45 to $1.55 a share.
The stock fell 1.2 percent to close at $107.87 in New York. Schlumberger has risen 20 percent this year.
Stephen Gengaro, an analyst at Sterne Agee, called the third quarter impact on Schlumberger minor in a note to investors today.
“Although other large-cap service companies have exposure to Russia, we believe the effect is also minimal,” Gengaro wrote.
Baker Hughes is still assessing any possible impact from the sanctions, Melanie Kania, a spokeswoman, said in an e-mail.
Emily Mir, a spokeswoman at Halliburton, reiterated what the company told analysts and investors on a July 21 earnings call, that sanctions have not had a material impact on activity levels “at this point.” There’s “some risk” to projects being tendered later this year, Chief Financial Officer Mark McCollum said on last month’s call.
A representative for Weatherford did not return phone and e-mail messages seeking comment.
Schlumberger Chief Executive Officer Paal Kibsgaard saw no impact from Russia sanctions last month.
“In Russia so far this year, activity has been as planned or slightly stronger,” Kibsgaard told analysts and investors on a July 18 conference call.
Russia relies on companies including Exxon Mobil Corp. (XOM:US), BP Plc (BP/), Halliburton and Schlumberger for the latest technology and expertise it needs to develop an estimated $7.58 trillion in oil and natural gas resources that sprawl across nine time zones.
Exploration and production companies such as Exxon were expected to spend $51.7 billion in Russia this year, according to estimates from Barclays Capital Inc. -- much of which would go to service and equipment companies such as Schlumberger and Halliburton.
Despite the earnings revision, Schlumberger investors are not concerned, according to Luke Lemoine, an analyst at Capital One Southcoast in New Orleans, who rates the shares a buy and owns none.
“I think most people yawned and moved on,” Lemoine said in a phone interview. “It’s less than a 2 percent impact to 3Q EPS. People were expecting the impact to be more than that.”
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