Schlumberger Makes Itself The Go-To Oil Services Firm
Jul. 31, 2007 (Investor's Business Daily delivered by Newstex) --
Republish : Zulfikar
He who controls the past controls the future. Schlumberger's (NYSE:SLB) efforts to build up its business over the last 30 years have set it up for future dominance.
The oil field services giant SLB has established itself in local markets around the world. It is truly a global company.
The Houston-based firm offers project management services and searching techniques to national oil companies as well as international and domestic energy firms.
It has set up local centers for its products and services around the world. It uses local employees from the country where it operates.
The three-decade effort allowed Schlumberger to penetrate new markets as well as win some of the oil industry's most lucrative contracts.
With 70% of its business staked overseas, Schlumberger is poised to take advantage of increased demand for oil services abroad.
Analyst David Rewcastle of Argus Research expects worldwide spending on oil services to grow more than 10% this year and in 2008.
He says spending should hit well over $600 million for the next two years.
"Though this is slower than the growth in 2005 and 2006," Rewcastle said, "it continues an expansion not seen in more than a quarter century, due to a shortage of services to satisfy demand."
Schlumberger (it's pronounced SHLUM-ber-ZHAY) is the company that can fulfill the starving needs of the oil industry.
It has two business segments, Oilfield Services and WesternGeco. Combined, the units helped Schlumberger increase its second-quarter sales 21% to $5.64 billion. It was the 10th straight quarter of 20% or better sales growth.
Earnings Growth
The company earned $1.02 a share in the quarter, up 40% from last year. Analysts were expecting 95 cents.
The Oilfield Services segment had sales of $4.97 billion, up 21%. The unit provides exploration and production, well completion and geological evaluation. It also offers consulting, software and technology services.
The WesternGeco unit does reservoir imaging, monitoring and seismic surveys. Sales rose 18% to $664.6 million in the quarter.
The company continues to see strong demand for its services. National oil companies from Russia to Malaysia have paid top prices for seismic exploration services in an effort to expand capacity.
Schlumberger's seismic imaging is some of the world's best, said analyst Stephen Gengaro of Jefferies (NYSE:JEF) & Co. Its Q-Technology searches and finds new reserves. It can also tell the quality of the oil or gas.
The world is in constant demand to find new reserves. Analysts agree that seismic spending will continue to grow over the next few years.
CEO Andrew Gould told analysts in a conference call that second-quarter results were driven by the increasing pace of international activity.
The company signed contracts worth $3.8 billion over the last six months, Gould said. The contracts and a backlog of $1.2 billion will cover its business in the Middle East, Latin America, Russia, North Africa, Europe and Malaysia, he said.
"Sequential revenue growth for Oilfield Services accelerated in all areas except North America, where higher activity on land and in the Gulf Coast was not sufficient to completely offset a significant downturn in Canada," Gould said in the call.
The Canadian rig count in the second quarter fell 74% to 139 from last year, according to Baker Hughes (NYSE:BHI) BHI. The oil field services firm tracks global rig counts.
The firm said the U.S. was up nearly 8% to 1,757 rigs last quarter. But most of the demand for the company lies overseas.
"What's impressive is management's ability to minimize margin erosion in North America in light of sluggish Canadian activity," Gengaro said. "But international demand is what's driving the bus as far as growth for Schlumberger."
The global rig count rose 10% to 1,002 rigs last quarter. Baker Hughes found that rig activity is the strongest in Africa and the Middle East. Europe and Asia-Pacific had solid rig growth as well.
All of this bodes well for Schlumberger. Its geographic footprint in these regions places it right in the middle of the action.
The company has outspent rivals on research and new products, Rewcastle says. This has paid off for Schlumberger, whose clients range from national oil companies to big guns like Exxon Mobil (NYSE:XOM) XOM.
"It's a powerhouse," said Rewcastle. "Its services are useful to any party in search of oil or gas. It can find the sweet spot almost anywhere and help the client extract it."
World Domination
Schlumberger is a dominant force all over the world. But it still faces several risks.
First, a recession could force the price of oil to plummet. Then drilling activity would drastically slow down.
"Oil prices in the 60s and 70s are not crucial to the profitability of oil service firms," Rewcastle said. "Sustained prices around $35 per barrel are necessary to stimulate projects with an adequate return. I expect the current environment of high prices to continue."
But with robust outlooks for the industry expected for next few years, there is a more imminent risk for the oil services giant.
Schlumberger operates in some politically unstable countries. These nations are heavily dependent on oil exports. It could be forced to close down business due to sanctions or volatility.
In the early 1940s, Texaco paid for its own dealings with hostile regimes such as Nazi Germany and Imperial Japan. And there are similarities with Schlumberger's business in Sudan, Iran and Venezuela, Rewcastle says.
Schlumberger is the only major E&P company left in Iran and Sudan, he says.
But its operations are well-diversified throughout the world. Its business sprawls over regions where drilling demand is surging, Gengaro says.
"Part of the cost of doing business is the political risk," he said, "But there are other state oil companies with sufficient capital to keep Schlumberger busy, such as Russia. Its positioning in the world and its technological innovation will keep it dominant
The oil field services giant SLB has established itself in local markets around the world. It is truly a global company.
The Houston-based firm offers project management services and searching techniques to national oil companies as well as international and domestic energy firms.
It has set up local centers for its products and services around the world. It uses local employees from the country where it operates.
The three-decade effort allowed Schlumberger to penetrate new markets as well as win some of the oil industry's most lucrative contracts.
With 70% of its business staked overseas, Schlumberger is poised to take advantage of increased demand for oil services abroad.
Analyst David Rewcastle of Argus Research expects worldwide spending on oil services to grow more than 10% this year and in 2008.
He says spending should hit well over $600 million for the next two years.
"Though this is slower than the growth in 2005 and 2006," Rewcastle said, "it continues an expansion not seen in more than a quarter century, due to a shortage of services to satisfy demand."
Schlumberger (it's pronounced SHLUM-ber-ZHAY) is the company that can fulfill the starving needs of the oil industry.
It has two business segments, Oilfield Services and WesternGeco. Combined, the units helped Schlumberger increase its second-quarter sales 21% to $5.64 billion. It was the 10th straight quarter of 20% or better sales growth.
Earnings Growth
The company earned $1.02 a share in the quarter, up 40% from last year. Analysts were expecting 95 cents.
The Oilfield Services segment had sales of $4.97 billion, up 21%. The unit provides exploration and production, well completion and geological evaluation. It also offers consulting, software and technology services.
The WesternGeco unit does reservoir imaging, monitoring and seismic surveys. Sales rose 18% to $664.6 million in the quarter.
The company continues to see strong demand for its services. National oil companies from Russia to Malaysia have paid top prices for seismic exploration services in an effort to expand capacity.
Schlumberger's seismic imaging is some of the world's best, said analyst Stephen Gengaro of Jefferies (NYSE:JEF) & Co. Its Q-Technology searches and finds new reserves. It can also tell the quality of the oil or gas.
The world is in constant demand to find new reserves. Analysts agree that seismic spending will continue to grow over the next few years.
CEO Andrew Gould told analysts in a conference call that second-quarter results were driven by the increasing pace of international activity.
The company signed contracts worth $3.8 billion over the last six months, Gould said. The contracts and a backlog of $1.2 billion will cover its business in the Middle East, Latin America, Russia, North Africa, Europe and Malaysia, he said.
"Sequential revenue growth for Oilfield Services accelerated in all areas except North America, where higher activity on land and in the Gulf Coast was not sufficient to completely offset a significant downturn in Canada," Gould said in the call.
The Canadian rig count in the second quarter fell 74% to 139 from last year, according to Baker Hughes (NYSE:BHI) BHI. The oil field services firm tracks global rig counts.
The firm said the U.S. was up nearly 8% to 1,757 rigs last quarter. But most of the demand for the company lies overseas.
"What's impressive is management's ability to minimize margin erosion in North America in light of sluggish Canadian activity," Gengaro said. "But international demand is what's driving the bus as far as growth for Schlumberger."
The global rig count rose 10% to 1,002 rigs last quarter. Baker Hughes found that rig activity is the strongest in Africa and the Middle East. Europe and Asia-Pacific had solid rig growth as well.
All of this bodes well for Schlumberger. Its geographic footprint in these regions places it right in the middle of the action.
The company has outspent rivals on research and new products, Rewcastle says. This has paid off for Schlumberger, whose clients range from national oil companies to big guns like Exxon Mobil (NYSE:XOM) XOM.
"It's a powerhouse," said Rewcastle. "Its services are useful to any party in search of oil or gas. It can find the sweet spot almost anywhere and help the client extract it."
World Domination
Schlumberger is a dominant force all over the world. But it still faces several risks.
First, a recession could force the price of oil to plummet. Then drilling activity would drastically slow down.
"Oil prices in the 60s and 70s are not crucial to the profitability of oil service firms," Rewcastle said. "Sustained prices around $35 per barrel are necessary to stimulate projects with an adequate return. I expect the current environment of high prices to continue."
But with robust outlooks for the industry expected for next few years, there is a more imminent risk for the oil services giant.
Schlumberger operates in some politically unstable countries. These nations are heavily dependent on oil exports. It could be forced to close down business due to sanctions or volatility.
In the early 1940s, Texaco paid for its own dealings with hostile regimes such as Nazi Germany and Imperial Japan. And there are similarities with Schlumberger's business in Sudan, Iran and Venezuela, Rewcastle says.
Schlumberger is the only major E&P company left in Iran and Sudan, he says.
But its operations are well-diversified throughout the world. Its business sprawls over regions where drilling demand is surging, Gengaro says.
"Part of the cost of doing business is the political risk," he said, "But there are other state oil companies with sufficient capital to keep Schlumberger busy, such as Russia. Its positioning in the world and its technological innovation will keep it dominant
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