SLB Schlumberger Ltd

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

Schlumberger, which ranks ahead of Halliburton Company (HAL) as the largest member of the oilfield services contingent, posted strong results in the fourth quarter of 2011 aided by significant multi-client seismic sales and mobilization of a second wide-azimuth seismic fleet. Price improvements in wireline and drilling related product lines, both on land and offshore also attributed to the growth.

In the international arena, we expect activity levels to increase moving forward. In the fourth quarter, international growth was driven by deepwater and exploration activity in East and West Africa and land activity in the Middle East and North Africa. Promising indications from Iraq, Saudi Arabia, China, Mexico, Brazil, Columbia and Angola should drive the company’s top line going forward.

We believe Schlumberger will benefit in the next several quarters from its strong product and services portfolio, the continued shift in drilling activity to liquids from gas and the restructuring of its U.S. land operations. The company has pointed out that its activities in the U.S. were strong in the reported quarter due to heightened technology services in the GoM. Activities in Canada are also tracking ahead of projections.

Schlumberger's combination of balance-sheet strength, technological leadership and management depth will be beneficial in the long term. We also believe the company is favorably positioned to benefit from the current trends in oilfield services, given improving activity levels and greater need for stimulation and completion of services in North America.

However, 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.

Moreover, while Schlumberger hopes to gain market share against its peers in 2012, we expect pricing and margins to remain restricted in North American pressure pumping as new capacity continues to enter the market.

Considering these factors, we believe Schlumberger’s current valuation adequately reflects its growth profile, and would rather wait for a better entry point before accumulating shares. Our on-the-fence stance is supported by a Zacks #3 Rank, which translates into a short-term Hold rating.

 
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