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Schlumberger N.V. (SLB) |
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WIKI ANALYSIS
Schlumberger Limited (NYSE:SLB) provides oil & gas drilling & exploration companies technologically advanced equipment and management services that aid in the extraction and production of crude oil and natural gas. Schlumberger provides its services to oil and gas companies operating across the world. Although Schlumberger is headquartered in Houston, more than half of the company's sales in 2009 came from Europe, Africa, the Middle East, and Asia. Its abroad operations, especially those located in Latin America, are among the fastest growing segments in terms of sales, but Schlumberger's worldwide presence exposes the company's revenue and profitability to regional uncertainty, instability, and currency volatility. Nearly all of Schlumberger's revenue comes from providing services and equipment to oil and gas rigs, and the worldwide levels of oil and gas production heavily effect Schlumberger's revenues as a result.[1] In 2009, lower rig activity in North America and several other GeoMarkets led to lower service pricing and less demand for Schlumberger's products.[2]
Company Overview
The company's oilfield services segment accounts for about 90% of the company's revenue and allows Schlumberger to provide oil production equipment and services covering the entire life cycle of a reservoir.[3] Within this segment, Schlumberger's Integrated Product Management model provides drilling rig management and services to well constructions and operational rigs.[4] WesternGeco, which accounts for about 10% of the company's revenue, provides reservoir imaging, monitoring, and development services to land, marine, and shallow-water well projects.[5] In 2010, Schlumberger has engaged in several strategic acquisitions. The acquisitions of Smith International, Nexus Geosciences, and Geoservices are designed to improve the range of products offered by Schlumberger and the company's global presence.[6]
Oilfield Services (2010 revenue of $22.08 billion):
Through its oilfield services segment, Schlumberger provides technology, project management tools, and information solutions to companies engage in the exploration and production of oil and natural gas. Schlumberger divides the company's oilfield services operations geographically into segments called GeoMarkets.[8] The principle GeoMarkets include North America, Latin America, Europe/CIS/Africa, and the Middle East & Asia. When the company was first formed, Schlumberger sold its wireline logging technology in order to provide detailed oil-and-gas well information to exploration and production companies.[9]Through acquisitions and its own research and development department, Schlumberger offers a full range of services and equipment for the entire life cycle of the reservoir.[10] The company's oilfield products include wireline logging, directional drilling technology, well testing, artificial lifts, and information solutions. Schlumberger's operates using a business model known as Integrated Project Management(IPM), which provides its customers with the necessary products and technology as well as the management to operate those products.[11]
In October 2010, Schlumberger agreed to sell all of its drilling, sidetrack and workover rigs operating in West Siberia to Eurasia Energy (FRA:E1R) in exchange for Eurasia's drilling services business.[12] In addition to obtaining Eurasia's drilling services business, from approximately 2010 to 2015, Schlumberger will be the preferred supplier of drilling services to Eurasia for as many as 200 rigs.[13] The sale of Eurasia's drilling services business could start a trend as other Russian oil producers, such as Gazprom and Bashneft (RTD:BANE), may have the potential of putting up their services businesses for sale in order to focus on their production businesses.[14]
In November 2010, Schlumberger completed a deal with Exxon to drill 10 wells in Iraq's West Qurna Phase One oilfield.[15] Several massive oilfield development contracts have been awarded to oil majors as Iraq aims to quadruple its output capacity over 2010 to 2017.[16] These contracts are long-term and have the potential of leading to long-term business for oilfield service companies like Schlumberger.[17] In March 2010, Schlumberger was awarded a contract to drill new wells in the Rumaila oilfield.[18]
For the full-year 2010, Schlumberger reported revenue of $22.08 billion, which represents an 8% increase from 2009.[19] As the North American economies recovered from the global recession beginning in 2007, land performance and demand for drilling services increased substantially.[20] 2010 revenue increased 35% year-over-year for Schlumberger's oilfield services operations in North America. In 2010, revenues from operations in the Middle East & Asia and operations in Latin America experienced a year-over-year rise of 7% and 2%, respectively.[21] On the other hand, 2010 revenue from operations in Europe/CIS/Africa declined 4% compared to 2009. Lower activity in Europe/CIS/Africa as well as lower levels of deepwater drilling in the US Gulf of Mexico led to a decline in operating margin of 82 basis points.[22]
WesternGeco (2010 revenue of $1.99 billion):
Schlumberger's WesternGeco operations provide reservoir imaging, monitoring and well development services, and seismic crews and data processing centers.[23] WesternGeco sells its 3D and time-lapse (4D) seismic analysis services for prospective and current reservoirs.[24] Through its WesternGeco operations, Schlumberger provides seismic imaging and monitoring services to land-based, marine, and shallow-water reservoirs.[25]
In 2010, Western Geco reported revenues of $1.99 billion, a drop of 6% compared to 2009 levels.[26] While offset by higher margins from Multiclient operations, lower pricing and activity in Marine operations as well as reduced profitability for Land and Data Processing partially led to the decline in operating income. Pretax operating margin declined 194 basis points to 13.4%. Pretax operating income of $267 million was 18% lower than 2009.[27]
M-I SWACO (Acquired in 2010)
M-I SWACO is a supplier of drilling fluid systems that aid in drilling performance.[28] In August 2010, M-I SWACO became part of Schlumberger through its merger with Smith International. Fourth-quarter 2010 revenue increased 4% sequentially, reach $1.18 billion.[29] Pretax operating income for the final quarter of 2010 was $149 million, which was a 6% increase from the previous quarter in 2010.[30] Late in 2010, revenue and earnings growth has been partially drive by increases in Canadian rig counts and demand for drilling technology and solutions in North America.[31]
Smith Oilfield (Acquired in 2010)
Acquired in August 2010, Smith engages in the design, manufacture, and provision of the most advanced drill bits for all environments.[32] The company also offers services, including services and products for reaming, jarring, fishing, and sidetracking, together with a wide selection of tubulars and surface equipment. Smith Oilfield reported revenue of $729 million for the final quarter of 2010.[33] The 11% sequential growth in revenue was partially due to strong demand for drill bits in North America and Europe/CIS/Africa areas. For the fourth quarter 2010, pretax operating income of $106 million was up 54% sequentially.[34]
Trends and Forces
Schlumberger seeks to expand its operations and geographical reach through acquisitions
In 2010, Schlumberger announced the acquisition of Smith International.[35]From the deal, Schlumberger acquires Smith's drill bit manufacturing business, a segment in which Schlumberger did not have significant operations. The company expects the demand for service-intensive deep water and shale gas drilling to rise in the future, and drill bit manufacturing operations have the potential of giving Schlumberger an advantage in both the types products it offers and overall efficiency. The Smith acquisition was completed in late August 2010.[36]
In 2010, Schlumberger also acquired Nexus Geosciences, Inc., a Houston-based company provides integrated seismic software and services for rapid imaging, and Geoservices, an oilfield services company with expertise in mud logging, slickline, and production surveillance operations.[37] Acquisitions provide Schlumberger the opportunity to diversify and expand upon the services it offers. However, numerous acquisitions has the potential of requiring schlumberger to increase its debt-load for financing.
Providing advanced technology to oil majors has the potential of playing an important role in Schlumberger's involvement in deepwater drilling
Many western oil majors are spending billions of dollars on exploration operations in the Gulf of Mexico, offshore Brazil, and offshore West Africa in the hopes of making similar finds.[38] For companies like Schlumberger, the deepwater oil finds have the potential of boosting sales of advanced, and expensive equipment.[39] However, increased deepwater drilling also has the potential of creating a technological race between many of the big oilfield services companies.
Schlumberger's Worldwide Operations Have Potential for Growth, but Expose Company to Regional Risks
By operating in over 80 countries worldwide, a majority of Schlumberger's revenue growth comes from operations outside of the United States.[40] Schlumberger operates worldwide for a good reason; the company's two fastest growing GeoMarkets are the Latin America and Europe/CIS/Africa operations because operations in sales of well testing and well development equipment and services in Russia, Venezuela, and Brazil.[41] Operations in these countries required Schlumberger's equipment and operational knowledge in order to test, analyze and developed oilfields discovered.[42]> Developing new fields in Russia, Venezula, and Brazil requires technologically advanced equipment, and Schlumberger's sales in these regions have the potential of benefiting from increased investments in the development of new and current oilfields.
However, Schlumberger's vast operations expose the company's operations and profitability to regional political risk. Regional instability or economic uncertainty have the potential of affecting oilfield developments in a country, and reduces the need for equipment from service companies like Schlumberger.[43]
Currency inflation also has the potential of reducing revenues from the sale oilfield services. Revenues from Latin American operations have the potential of declining or rising based on the country's inflation rate.[44]
Competition
Baker Hughes (BHI): Baker Hughes is an oilfield services company that sells drilling equipment and provides technology services that help oil E&P companies to drill oil wells.[45] The company operates in two segments: the Drilling and Evaluation segment, and the Completion and Production segment.[46] The drilling and evaluation operations supply products and services like drill bits and wireline logging that are used to drill and evaluate oil and natural gas reservoirs.[47] The company's Completion and Production segment supplies equipment and provides services that aid exploration and production companies from the completion of a well to the end of the reservoir's life.
Halliburton Company (HAL): Halliburton supplies oill and natural gas companies equipment and services that help them extract crude oil and natural gas from the ground.[48] The company's Completion and Production operations consist of production enhancement services, completion tools and services, and cementing services designed for completed and operational wells.[49] Oil and natural gas companies can use the equipment and technology provided by Halliburton's Drilling and Evaluation Segment to analyze potential well sites and begin drilling.[50]
BJ Services Company (BJS): BJ Services provides pressure pumping and other oilfield services to oil and natural gas exploration and production companies.[51] BJ Service's oilfield services operations provide equipment that help oil and natural gas companies develop and maintain wells.[52] BJ Services is now owned by Baker Hughes.
WEATHER FORD
Notes
- ↑ slb.com: Company Background
- ↑ Business Week: Schlumberger Profit Falls as Customers Cut Spending (Update5), January 2010
- ↑ slb.com: Investor Center, Revenue and Income from Operations, April 2009
- ↑ Schlumberger Company Background
- ↑ slb.com: Company Background
- ↑ Tradingmarkets.com: SLB stock alert, April 2010
- ↑ : SLB Annual Report 2008
- ↑ SLB 2008 Annual Report Pages 19-22
- ↑ SLB 2008 Annual Report Pages 19-22
- ↑ SLB 2008 Annual Report Pages 19-22
- ↑ SLB 2008 Annual Report Pages 19-22
- ↑ Bloomberg: Eurasia to Swap Russian Drilling Assets With Schlumberger, October 2010
- ↑ Bloomberg: Eurasia to Swap Russian Drilling Assets With Schlumberger, October 2010
- ↑ Bloomberg: Eurasia to Swap Russian Drilling Assets With Schlumberger, October 2010
- ↑ Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010
- ↑ Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010
- ↑ Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010
- ↑ Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ SLB 2008 Annual Report Pages 23-24
- ↑ Annual SLB 2008 Annual Report Pages 23-24
- ↑ Annual SLB 2008 Annual Report Pages 23-24
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
- ↑ WSJ: UPDATE: Smith Shares Jump, Schlumberger Down On $11B Takeover, Feb 2010
- ↑ business week: Schlumberger completes acquisition of Smith
- ↑ Schlumberger Press Release: Schlumberger Acquires Nexus Geosciences, March 2010
- ↑ WSJ: Oil Investors Embark on Voyage of Oil Discovery, September 2009
- ↑ Reuters.com: Schlumberger plans Brazil subsalt research center, September 2009
- ↑ SLB 2008 Annual Report, page 7
- ↑ SLB 2008 Annual Report, page 17
- ↑ SLB 2008 Annual Report, page 17
- ↑ SLB 2008 Annual Report, page 7
- ↑ SLB 2008 Annual Report, page 19
- ↑ BHI company profile, May 2009
- ↑ BHI company profile, May 2009
- ↑ BHI company profile, May 2009
- ↑ Reuters: HAL Company Profile, May 2009
- ↑ Reuters: HAL Company Profile, May 2009
- ↑ Reuters: HAL Company Profile, May 2009
- ↑ Retuers: BJS Company Profile, May 2009
- ↑ Retuers: BJS Company Profile, May 2009
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