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What's going on?
Schlumberger is the worlds largest oilfield services company that means it does things like provide seismic data and drilling technology to companies that explore and drill for oil. It was the first US energy company to report 4th quarter results and investors seemed pleased as they sent the stock about 2% higher.
What does this mean?
Investors probably didnt love the actual result: Schlumberger lost $1 billion in the quarter while sales fell 40% versus a year earlier. But they knew the low oil price would lead to bad news. But it also announced a $10 billion stock buyback plan, which is positive for existing shareholders as it leaves them with a proportionally higher ownership of the company, thereby increasing the value of a single share.
Why should I care?
The bigger picture: Schlumberger said things are pretty bad out there for energy companies. It warned of a deepening financial crisis in the [exploration and production] industry. Thats not a huge surprise oil is worth less than one-third of what it was just 18 months ago. However, its results on Thursday did coincide with the oil prices biggest one-day percentage gain in almost 3 months. A strong bounce like that could be a sign that oil is over-sold – which means that the oil price has, possibly, been driven too low by the recent selling pressure.
For energy stocks: Expectations are low; high debt is a concern for many. Schlumberger is a market leader in its space and its not over-indebted; thats why its stock is down only 23% in the past year. But many energy companies are carrying way too much debt and debt makes bad news even worse. Thats especially true for owners of stock because if a company goes bankrupt, the debt investors get to keep the companys assets (e.g. its oilfield) and perhaps sell them to recoup some of their losses while stockholders can be left with nothing.
Originally posted as part of the Finimize daily email.
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