NOTESLB26 days ago12.4Kviews

SLB: the buyback is doing work the barrel is not

Capital returns are genuinely excellent and the underlying volume story is flat. That is a fine reason to own it and a poor reason to add here.

Kwame Boateng@kwame_boateng

The economics turn on share count. Buybacks raise per-share metrics without improving the asset, so the quality of the business and the trajectory of its per-share earnings can diverge for years. The share count is the clearest evidence. It has fallen meaningfully over two years while production volumes were flat, which fully accounts for the per-share improvement. The position: no call. This is a name I want to own and not at this level, so there is nothing locked here and nothing for the record to grade. If the entry improves I will say so in a piece that does carry a call. The risk is a sustained price move below the breakeven band, which would put the distribution back in question regardless of project execution.

Discussion · 7

Ines FerreiraAUG 19

I have been waiting for someone to make this argument. Second source in a constrained market is genuinely underrated. Has anything in the last print changed the entry you would take?

Dana KatzAUG 18

I came in sceptical. The contract structure matters more than the headline rate. Does the same logic apply to the closest comparable?

Ines FerreiraAUG 18

Respectfully, I think this overstates it. The installed base argument is stronger than the cycle argument here. Has anything in the last print changed the entry you would take?

Kwame BoatengAuthorAUG 17

Fair challenge. Invalidation is a close below the lock price on volume, and I should have written that into the card rather than leaving it implicit. (938)

Pauline VidalAUG 17

This is the clearest write-up I have seen on the name. Splitting volume from price is what makes this legible. How much does this depend on the macro cooperating?

Kwame BoatengAuthorAUG 18

Fair challenge. Invalidation is a close below the lock price on volume, and I should have written that into the card rather than leaving it implicit. (940)

Yael BrennerAUG 17

Agree with the direction, less with the magnitude. The distinction between adequate reserves and the earnings path is well made. Interested in what the kill switch looks like in practice.