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Sept. 5, 2019, 10:10 a.m. EDT

New Schlumberger CEO Outlines Strategic About-Face

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By 24/7 Wall St.

At the Barclays CEO Energy-Power Conference on Wednesday, Olivier Le Peuch, CEO of oilfield services company Schlumberger Ltd. (NYSE: SLB), outlined the company's strategy going forward. Put simply, that strategy is to drive down costs through digitization and shedding non-performing businesses, and thereby drive up returns.

Investors reacted positively to Le Peuch's presentation, of course, especially the bit where he said that "all our future investments will be evaluated through the lens of return on capital rather than growth."

Le Peuch also announced aggressive margin improvements in both its international and North American segments. The company is targeting a 500 basis point improvement in its international margins and the restoration of double-digit margins in its North American segment, up from current margins in the mid-single-digit range.

Along with rationalizing the company's portfolio, making more disciplined investments and optimizing the use of working capital, Le Peuch said that margin growth "will allow us to achieve a target of double-digit free cash flow margins" and eventually will "lead to returns above our cost of capital." He also promised to maintain the company's dividend at its current level of $2.00 per share, a yield of 6.33% at Wednesday's closing share price.

Where former CEO Paal Kibsgaard had pursued a strategy of acquiring a wide range of assets and capabilities, Le Peuch noted that Schlumberger is "committing not to take equity positions in oil and gas assets" and to focus on the company's strength in the digitization of oil and gas exploration and development. Kibsgaard already had begun to shop stakes in assets located in Argentina and Canada as a response to slipping demand for crude.

Without going into specifics, Le Peuch also said that current market valuations and the implementation of the new strategy mean that Schlumberger will take noncash impairment charges related to goodwill, intangible assets and fixed assets when it reports third-quarter results.

Investors generally liked what they heard, pushing the share price up nearly 4% on Wednesday and another 2.5% early Thursday to $33.80, in a 52-week range of $31.03 to $63.65. The 12-month consensus price target on the stock is $48.39.

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This blog is reprinted by permission from 24/7 Wall St, © 2007 24/7 Wall St., LLC All rights reserved.

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