SLB Schlumberger Ltd

We maintain our Neutral rating on Schlumberger Limited (SLB), a leading oilfield services company, providing technology, project management and information services to the global oil and gas industry.

Schlumberger registered a string of high profile exploration successes of late in areas like French Guyana, Northern West Africa, East Africa and Norway. We see these as boding well for Schlumberger’s seismic and geophysical offerings.

Although third quarter results were adversely affected by start-up delays on several of the company’s large land seismic projects, we believe these issues as transient and expect a strong seismic market in 2012. The world's largest oilfield-services provider ahead of Halliburton Co. (HAL) missed the Zacks Consensus Estimate for the third quarter but recorded a 40% improvement year over year.

Further, promising indications in Iraq, Russia, the North Sea and the Gulf of Mexico (GoM) should continue to improve Schlumberger’s top line going forward. Given the spate of rig deliveries slated for the next few years, we expect the demand of deepwater services to grow.

Management also pointed out that the HiWAY technology is starting to gain momentum in the international markets. Consequently, the company is expected to continue gaining traction with this technology.

However, we expect pricing and margins to remain restricted in North American pressure pumping as new capacity continues to enter the market. The company’s increasing debt-to-capitalization ratio and capital expenditure also pose threats.

Schlumberger's financial and operational performances face a number of headwinds, including changes in exploration and production spending patterns, commodity price fluctuations, geopolitical risks, regional spending trends, competition, the emergence of new technology and changes in economic conditions. Additionally, foreign currency fluctuation is also a threat to the company's profitability.

As such, we expect the Houston, Texas-based oilfield behemoth’s growth potential to be restrained with little room for meaningful upside from current levels. Schlumberger shares currently retain a Zacks #4 Rank, which translates into a short-term 'Sell' rating.

Schlumberger (NYSE:SLB)
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