Schlumberger (SLB) reports Q4 earnings January 19th. Analysts expect revenue of $8.13 billion and eps of $0.45. The revenue estimate implies about 3% growth sequentially. Investors should focus on the following key items:

North America Land Drilling May Still Have Legs

North America land drilling has been white hot. In Q3 2017 Schlumberger received 33% of its revenue from the segment, which pales in comparison to Halliburton (HAL) who has over 55% exposure to North America. Schlumberger's North America revenue grew 18% Y/Y in Q3, while total revenue was up 8%.

OPEC supply cuts helped drive oil prices up, and North American shale plays have been able to turn a profit. E&P for North America rose, pricing among oil services firms was attractive and profits surged. The prevailing theory was that if oil prices struggled to stay above $50 then shale oil plays might tap the brakes on more E&P.

For the week ended January 12, 2018 the U.S. rig count was up over 40% Y/Y and up by 15 versus the previous week. Oil prices are hovering around $70 and the question now is, "How high can oil prices go?" OPEC has held the line on supply cuts and geopolitical tensions in Iran could cause prices to spike higher. Schlumberger's recent acquisition of pressure pumping assets from Weatherford (WFT) looks pretty smart right now. The deal gives Schlumberger more exposure to the hottest segment of the oil services market. It also has the heft to survive any decline in the oil patch.

Latin America Could Be Telling Us Something

Revenue from Latin America was off by 8% in Q3, likely due to management's decision to curtail some of its operations in Venezuela. Schlumberger has over $6 billion in cash in securities and had previously used its balance sheet to finance equipment and services for PDVSA, Venezuela's state-owned oil company. Otherwise, it risked losing business to Chinese firms who have been more than willing to win business by providing capital to PDVSA.

In Q3 2017, Schlumberger had a promissory note with a fair value of $184 million with PDVSA; the note had been as much as $700 million previously. A decline in oil production has since wreaked havoc on PDVSA's oil production. Accusations of corruption by certain PDSVA's executives has not helped the situation. It now appears to be smart move by Schlumberger to cut exposures to Venezuela, but that also means its revenue from Latin America could fall further in Q4. Secondly, while global oil prices and global economies have been propped up by orchestrated moves from OPEC and/or central bankers, Venezuela's financial woes could be telling us something. The global economy may not be as strong as some think and selling oil and other commodities to China may not be a winning strategy long-term.

What happens to oil prices and commodities prices if central banks unwind their stimulus efforts or the OPEC deal ends?  Market chatter suggests Russia could consider exiting from the OPEC supply cut deal. Any pull back in oil prices could cause North America and Latin America markets to pull back simultaneously. That would not be good for Schlumberger who has made heavy investments in North America.