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-'''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. 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-irhome slb.com: Investor Center, Revenue and Income from Operations, April 2009]</ref> Within this segment, Schlumberger's Integrated Product Management model provides drilling rig management and services to well constructions and operational rigs.<ref>[http://www.slb.com/content/about/backgrounder.asp? Schlumberger Company Background]</ref> 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.<ref>[http://www.slb.com/content/about/backgrounder.asp? slb.com: Company Background]</ref> +'''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.<ref>[http://www.slb.com/content/about/backgrounder.asp? slb.com: Company Background]</ref> In 2009, lower rig activity in North America and several other GeoMarkets led to lower service pricing and less demand for Schlumberger's products.<ref>[http://www.businessweek.com/news/2010-01-22/schlumberger-4th-quarter-profit-falls-as-customers-cut-spending.html Business Week: Schlumberger Profit Falls as Customers Cut Spending (Update5), January 2010]</ref>
-Schlumberger provides its services to oil and gas companies operating across the world. Although Schlumberger is headquartered in Houston, 57% of the company's sales in 2008 came from Europe, Africa, the Middle East, and Asia. Its abroad operations, especially those located in Latin America, are 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.<ref>[http://www.slb.com/content/about/backgrounder.asp? slb.com: Company Background]</ref> When oil prices peaked around $147/barrel during the first half of 2008, oil exploration and production companies were attempting to extract as much oil from the ground as possible.<ref>[http://www.slb.com/content/about/backgrounder.asp? slb.com: Company Background]</ref> For Schlumberger, quarterly revenues increased by 15.10%, 19.60%, and 22.50% for the first, second, and third quarter of 2008 when compared to those quarters in 2007.<ref>[http://www.slb.com/content/about/backgrounder.asp? slb.com: Company Background]</ref> When oil prices fell in the second half of 2008, and crude oil inventories increased, the amount of crude oil produced declined, which has meant less of a need for oilfield services.<ref>[http://www.slb.com/content/about/backgrounder.asp? slb.com: Company Background]</ref> With fewer contracts and lower sales, Schlumberger has cut its capital expenditures budget for 2009 and has laid off 6% of its work force as of January 2009.<ref>[http://www.slb.com/content/about/backgrounder.asp? slb.com: Company Background]</ref> 
== Company Overview == == Company Overview ==
-[[Image:Energybreakdown.png‎|thumb|400px|Breakdown of Revenue Segment 2004 to 2008<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual : SLB Annual Report 2008]</ref>]]+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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-irhome slb.com: Investor Center, Revenue and Income from Operations, April 2009]</ref> Within this segment, Schlumberger's Integrated Product Management model provides drilling rig management and services to well constructions and operational rigs.<ref>[http://www.slb.com/content/about/backgrounder.asp? Schlumberger Company Background]</ref> 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.<ref>[http://www.slb.com/content/about/backgrounder.asp? slb.com: Company Background]</ref>
 +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.<ref>[http://www.tradingmarkets.com/symbols/SLB/news/stock-alert Tradingmarkets.com: SLB stock alert, April 2010]</ref>
-For 2009, weak demand and lower pricing negatively led to declines in both revenue and profitability. For the year, revenue form its oilfield services operations reached $5.74 billion, a 17% decline from 2008.<ref>[http://www.businessweek.com/news/2010-01-22/schlumberger-4th-quarter-profit-falls-as-customers-cut-spending.html Business Week: Schlumberger Profit Falls as Customers Cut Spending (Update5), January 2010]</ref> Revenues from WesternGeco fell 8% when compared to revenues from 2008. In 2009, there were an average of 1,385 rigs operating in North America, 40% less than in 2008.<ref>[http://www.businessweek.com/news/2010-01-22/schlumberger-4th-quarter-profit-falls-as-customers-cut-spending.html Business Week: Schlumberger Profit Falls as Customers Cut Spending (Update5), January 2010]</ref> Lower levels of rig activity contributed to the 44% drop in revenues from North America. For the company, gross margin fell by 3%, which contributed to the 31% drop in annual profits. In 2010, Schlumberger plans to raise its capital expenditures budget by 24% for oilfield services operations and cut it by 35% for WesternGeco.<ref>[http://www.businessweek.com/news/2010-01-22/schlumberger-4th-quarter-profit-falls-as-customers-cut-spending.html Business Week: Schlumberger Profit Falls as Customers Cut Spending (Update5), January 2010]</ref>+===[[Oilfield Services]] (2010 revenue of $22.08 billion):===
- +
-Schlumberger's performance in the fourth quarter of 2009 showed improvement in several GeoMarkets and the deepwater drilling industry.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-newsarticle&ID=1377972 Schlumberger Announces Fourth-Quarter and Full-Year 2009 Results, Januaray 2010]</ref> Revenue for the final quarter of 2009 increased sequentially in North America, Latin America, the Middle East, and Asia. Due to rising rig counts, especially deepwater rigs, software and product sales rose in the fourth quarter.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-newsarticle&ID=1377972 Schlumberger Announces Fourth-Quarter and Full-Year 2009 Results, Januaray 2010]</ref> Overall, net income for the fourth quarter was $795 million, a 45% decline compared to the same quarter in 2008.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-newsarticle&ID=1377972 Schlumberger Announces Fourth-Quarter and Full-Year 2009 Results, Januaray 2010]</ref> Fourth-quarter pretax operating income of $1.01 billion was down 3% sequentially and 37% year-on-year.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-newsarticle&ID=1377972 Schlumberger Announces Fourth-Quarter and Full-Year 2009 Results, Januaray 2010]</ref> Profit margins fell 1.57% from the third quarter due to lower sales in Russia and Mexico as well as lower pricing on its products.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-newsarticle&ID=1377972 Schlumberger Announces Fourth-Quarter and Full-Year 2009 Results, Januaray 2010]</ref> Using Schlumberger's fourth quarter earnings as an indicator for 2010, CEO Andrew Gould argued that oil prices are likely to remain near the $70 to $80 region. On the other hand, he believes the natural gas markets "remain generally oversupplied," which has the potential of keeping prices relatively low.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-newsarticle&ID=1377972 Schlumberger Announces Fourth-Quarter and Full-Year 2009 Results, Januaray 2010]</ref> +
- +
-===[[Oilfield Services]]( 90.4% of 2009 Revenue<ref>http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual Schlumberger 2010 10-K Page 15</ref>)===+
[[Image:Geosegmentrev.png‎|thumb|400px|Breakdown of 2008 revenue from oilfield services by geographical region<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual : SLB Annual Report 2008]</ref>]] [[Image:Geosegmentrev.png‎|thumb|400px|Breakdown of 2008 revenue from oilfield services by geographical region<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual : SLB Annual Report 2008]</ref>]]
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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 19-22]</ref> 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 19-22]</ref>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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 19-22]</ref> 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 19-22]</ref> 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 19-22]</ref> 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 19-22]</ref>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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 19-22]</ref> 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 19-22]</ref>
-In this segment, 2009 full-year revenues decreased 15.5% to $20.52 billion from the previous year's revenue of $24.28 billion<ref>http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual Schlumberger 2009 Annual Report Page 2</ref>. Revenue fell across most geographic divisions. Revenue from operations in North America fell by 37%, the most severe drop among all regions and primarily the result of lower gas prices. Revenue from European and African markets fell by 13% due to reduced demand and unfavorable exchange rates. The bright spot among the segments regional activity was the Latin American region, which saw a negligble decline in revenue and was bolstered by strong gains in the Mexican, Central American, and Brazilian GeoMarkets<ref>http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual Schlumberger 2009 Annual Report Page 2</ref>.+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.<ref>[http://www.bloomberg.com/news/2010-10-05/eurasia-to-swap-russian-drilling-assets-with-schlumberger.html Bloomberg: Eurasia to Swap Russian Drilling Assets With Schlumberger, October 2010]</ref> 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.<ref>[http://www.bloomberg.com/news/2010-10-05/eurasia-to-swap-russian-drilling-assets-with-schlumberger.html Bloomberg: Eurasia to Swap Russian Drilling Assets With Schlumberger, October 2010]</ref> 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.<ref>[http://www.bloomberg.com/news/2010-10-05/eurasia-to-swap-russian-drilling-assets-with-schlumberger.html Bloomberg: Eurasia to Swap Russian Drilling Assets With Schlumberger, October 2010]</ref>
-====WesternGeco (9.3% of 2009 Revenue<ref>http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual Schlumberger 2010 10-K Page 15</ref>)====+In November 2010, Schlumberger completed a deal with [[Exxon]] to drill 10 wells in Iraq's West Qurna Phase One oilfield.<ref>[http://www.reuters.com/article/idUSLDE6AS06T20101129 Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010]</ref> Several massive oilfield development contracts have been awarded to oil majors as Iraq aims to quadruple its output capacity over 2010 to 2017.<ref>[http://www.reuters.com/article/idUSLDE6AS06T20101129 Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010]</ref> These contracts are long-term and have the potential of leading to long-term business for oilfield service companies like Schlumberger.<ref>[http://www.reuters.com/article/idUSLDE6AS06T20101129 Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010]</ref> In March 2010, Schlumberger was awarded a contract to drill new wells in the Rumaila oilfield.<ref>[http://www.reuters.com/article/idUSLDE6AS06T20101129 Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010]</ref>
- +
-Schlumberger's WesternGeco operations provide reservoir imaging, monitoring and well development services, and seismic crews and data processing centers.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 23-24]</ref> WesternGeco sells its 3D and time-lapse (4D) seismic analysis services for prospective and current reservoirs.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 23-24]</ref> Through its WesternGeco operations, Schlumberger provides seismic imaging and monitoring services to land-based, marine, and shallow-water reservoirs.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 23-24]</ref>+
-Full-year 2009 revenue of $2.12 billion was 25% lower than in 200.<ref>http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual Schlumberger 2010 10-K Page 15</ref>.WesternGeco saw reductions in revenue across all of its product lines. Marine and Multiclient unit revenue dropped most severely, primarily as a result of lower pricing necessary to compete in a market with significantly lower demand, a result of many clients trimming of their discretionary spending budgets<ref>http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual Schlumberger 2009 Annual Report Page 2</ref>.+For the full-year 2010, Schlumberger reported revenue of $22.08 billion, which represents an 8% increase from 2009.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref> As the North American economies recovered from the global recession beginning in 2007, land performance and demand for drilling services increased substantially.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref> 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.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref> 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.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref>
-== Trends and Forces ==+===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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report Pages 23-24]</ref> WesternGeco sells its 3D and time-lapse (4D) seismic analysis services for prospective and current reservoirs.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reports Annual SLB 2008 Annual Report Pages 23-24]</ref> Through its WesternGeco operations, Schlumberger provides seismic imaging and monitoring services to land-based, marine, and shallow-water reservoirs.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reports Annual SLB 2008 Annual Report Pages 23-24]</ref>
-===In 2010, Schlumberger seeks to expand its operations and geographical reach through acquisitions===+In 2010, Western Geco reported revenues of $1.99 billion, a drop of 6% compared to 2009 levels.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref> 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.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref>
-Schlumberger, already the largest oilfield services company by revenue, announced the acquisition of Smith International in February 2010.<ref>[http://online.wsj.com/article/BT-CO-20100222-709938.html?mod=WSJ_Deals_LEFTLatestHeadlines WSJ: UPDATE: Smith Shares Jump, Schlumberger Down On $11B Takeover, Feb 2010]</ref> The all-stock transaction is estimated to be $11 billion, and, as a result of the merger, Schlumberger's revenues have the potential of being double of its nearest rival, [[Haliburton]].<ref>[http://online.wsj.com/article/BT-CO-20100222-709938.html?mod=WSJ_Deals_LEFTLatestHeadlines WSJ: UPDATE: Smith Shares Jump, Schlumberger Down On $11B Takeover, Feb 2010]</ref> 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. However, Schlumberger has the potential of divesting some of its newly acquired assets for anti-trust and other reasons.<ref>[http://online.wsj.com/article/BT-CO-20100222-709938.html?mod=WSJ_Deals_LEFTLatestHeadlines WSJ: UPDATE: Smith Shares Jump, Schlumberger Down On $11B Takeover, Feb 2010]</ref> 
-In March 2010, Schlumberger announced the acquisition of Nexus Geosciences, Inc. The Houston-based company provides integrated seismic software and services for rapid imaging, modeling and interpretation, enabling oil and gas companies to rapidly build, update and validate their velocity models.<ref>[http://www.slb.com/en/news/press_releases/2010/2010_0309_slb_nexus.aspx Schlumberger Press Release: Schlumberger Acquires Nexus Geosciences, March 2010]</ref> Nexus' software provides information has the potential of reducing uncertainties even in the most complex geological environments. As a result, Schlumberger plans to integrate Nexus Geosciences into the company's WesternGeco unit.<ref>[http://www.slb.com/en/news/press_releases/2010/2010_0309_slb_nexus.aspx Schlumberger Press Release: Schlumberger Acquires Nexus Geosciences, March 2010]</ref> Through this acquisition, Schlumberger seeks to draw in exploration and production companies that have begun investigating increasingly complex geographical environments and require advanced equipment and software to do so.<ref>[http://www.slb.com/en/news/press_releases/2010/2010_0309_slb_nexus.aspx Schlumberger Press Release: Schlumberger Acquires Nexus Geosciences, March 2010]</ref>+===M-I SWACO (Acquired in 2010)===
-In late March 2010, Shlumberger completed the acquisition of Geoservices, a privately owned oilfield services company with expertise in mud logging, slickline, and production surveillance operations. Shlumberger particularly valued the mud logging portion of Geoservices as it will allow customers to better analyze the increasingly complex geography that they must drill through to reach lucrative oil fields. Geoservices has a range of other new technologies that aim to support the exploration and analysis of potential wells, including the expanding deepwater drilling market <ref>[http://www.slb.com/en/news/press_releases/2010/2010_0324_geoservices.aspx "Schlumberger Acquires Geoservices from Astorg and Minority Shareholders"]</ref>.+M-I SWACO is a supplier of drilling fluid systems that aid in drilling performance.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref> 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.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref> Pretax operating income for the final quarter of 2010 was $149 million, which was a 6% increase from the previous quarter in 2010.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref> 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.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref>
-===Providing advanced technology to oil majors has the potential of playing an important role in Schlumberger's involvement in deepwater drilling=== +===Smith Oilfield (Acquired in 2010)===
-In September 2009, companies including [[BP]], [[Petroleo Brasileiro]] and [[Eni]] found nearly 10 billion barrels of oil equivalent of potential reserves offshore.<ref>[http://online.wsj.com/article/SB125320630244720133.html WSJ: Oil Investors Embark on Voyage of Oil Discovery, September 2009]</ref> 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.<ref>[http://online.wsj.com/article/SB125320630244720133.html WSJ: Oil Investors Embark on Voyage of Oil Discovery, September 2009]</ref> Altough BP's and Petrobras' discoveries are expected to be massive, they are both located in subsalt regions, which have the potential of posing problems for two reasons.<ref>[http://www.reuters.com/article/rbssEnergyNews/idUSN1019969520090910 Reuters.com: Schlumberger plans Brazil subsalt research center, September 2009]</ref> First, the crude oil must be pumped through a thick layer of salt that shifts under geological pressure.<ref>[http://www.reuters.com/article/rbssEnergyNews/idUSN1019969520090910 Reuters.com: Schlumberger plans Brazil subsalt research center, September 2009]</ref> Also, oil drillers must ensure that paraffin in the oil does not solidify due the low sub-sea temperatures and clog pipelines. As a result, the ability of oil drillers to overcome these challenges depends on the equipment they use.<ref>[http://www.reuters.com/article/rbssEnergyNews/idUSN1019969520090910 Reuters.com: Schlumberger plans Brazil subsalt research center, September 2009]</ref> For companies like Schlumberger, the deepwater oil finds have the potential of boosting sales of advanced, and expensive equipment.<ref>[http://www.reuters.com/article/rbssEnergyNews/idUSN1019969520090910 Reuters.com: Schlumberger plans Brazil subsalt research center, September 2009]</ref> However, increased deepwater drilling also has the potential of creating a technological race between many of the big [[oilfield services]] companies. In September 2009, Schlumberger signed an agreement with the Federal University of Rio de Janeiro to build a subsalt research center. Schlumberger is acting quickly as well: the 86,111 square feet facility has the potential of being completed within a year.<ref>[http://www.reuters.com/article/rbssEnergyNews/idUSN1019969520090910 Reuters.com: Schlumberger plans Brazil subsalt research center, September 2009]</ref>+Acquired in August 2010, Smith engages in the design, manufacture, and provision of the most advanced drill bits for all environments.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref> 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.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref> 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.<ref>[http://www.slb.com/news/press_releases/2011/2011_0121_q4_earnings.aspx Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011]</ref>
-===Fluctuating [[crude oil]] and [[natural gas]] production had significant impact on Schlumberger's profitability in 2008 and 2009===+== Trends and Forces ==
-Because Schlumberger's services help [http://www.wikinvest.com/industry/Oil_%26_Gas_Drilling_%26_Exploration oil E&P] companies extract [[oil]] and [[natural gas]] from the ground, the company's revenue is strongly effected by the production and consumption of oil and natural gas. In 2008, Schlumberger's quarterly revenue growth closely resembled the changing price of oil. Year-over-year quarterly revenues increased by 15.10%, 19.60%, and 22.50% for the first, second, and third quarter of 2008. During those quarters, oil prices were rising, peaking at $147 per barrel in July 2008.<ref>[http://www.slb.com/content/about/backgrounder.asp? slb.com: Company Background]</ref> By the end of 2008, oil prices had fallen to under $40 per barrel.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-sec# Schlumberger 2008 10-K Report, page 17]</ref> Due to lower consumption of oil products, the number of operational U.S. drilling rigs dropped 25% between September 2008 and January 2009.<ref>[http://online.wsj.com/article/SB123269653355309735.html?mod=yahoo_hs&ru=yahoo WSJ: Schlumberger's Net Falls 17% Amid Pullback in Oil Drilling, January 2009]</ref>In the fourth quarter, Schlumberger’s profit fell 17% from a year earlier as costs rose 19% due to numerous high cost projects involving far offshore drilling.<ref>[http://online.wsj.com/article/SB123269653355309735.html?mod=yahoo_hs&ru=yahoo WSJ: Schlumberger's Net Falls 17% Amid Pullback in Oil Drilling, January 2009]</ref> As result, cutting costs became the focus of Schlumberger's management in early 2009. +===Schlumberger seeks to expand its operations and geographical reach through acquisitions===
-While profits also fell for first quarter 2009, Schlumberger was able to reduce its operating costs. For the first quarter of 2009, Schlumberger reported revenues of $6 billion versus revenues of $6.89 billion in the fourth quarter of 2008, and $6.29 in the first quarter of 2008.<ref>[http://www.slb.com/modules/news/press/release_details.asp?id=21178 SLB 2009 1Q Earnings, April 2009]</ref> Operating income decreased 25% when compared to the fourth quarter of 2008 and 28% year on year.<ref>[http://www.slb.com/modules/news/press/release_details.asp?id=21178 SLB 2009 1Q Earnings, April 2009]</ref> The overall decline in [[natural gas]] rigs in North America and Russia meant less need for [[oilfield services]] equipment and services and brought on the decline in quarterly revenues for the company's oilfield services segment, which were 13% lower when compared to the fourth quarter 2008.<ref>[http://www.slb.com/modules/news/press/release_details.asp?id=21178 SLB 2009 1Q Earnings, April 2009]</ref> In anticipation of lower demand for its products and services for the rest of 2009, Schlumberger has cut operating costs significantly through layoffs and capital expenditure cuts. Operating costs fell by $405 million in the first quarter of 2009 versus the fourth quarter of 2008.<ref>[http://www.slb.com/modules/news/press/release_details.asp?id=21178 SLB 2009 1Q Earnings, April 2009]</ref>+In 2010, Schlumberger announced the acquisition of Smith International.<ref>[http://online.wsj.com/article/BT-CO-20100222-709938.html?mod=WSJ_Deals_LEFTLatestHeadlines WSJ: UPDATE: Smith Shares Jump, Schlumberger Down On $11B Takeover, Feb 2010]</ref>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.<ref>[http://www.businessweek.com/ap/financialnews/D9HS4FIO0.htm business week: Schlumberger completes acquisition of Smith]</ref>
-While sales to international oil producers increased, revenues from U.S. operations continued to decline in the second quarter of 2009. Sales in the U.S. reached a five-year low in the second quarter; revenue from North America was 31% lower sequentially and 43% lower year-on-year.<ref>[http://www.slb.com/modules/news/press/release_details.asp?id=21189 Schlumberger.com: Schlumberger Announces Second-Quarter 2009 Results, July 2009]</ref> In the U.S., the rig count declined approximately 27% and pricing continued to drop.<ref>[http://www.slb.com/modules/news/press/release_details.asp?id=21189 Schlumberger.com: Schlumberger Announces Second-Quarter 2009 Results, July 2009]</ref> Although not as severe, revenue declined in almost every GeoMarket in the second quarter of 2009. Operations in Russia were an exception. Sequentially, revenue from Russia increased from offshore activities in the East and generally improved activity levels in East and West Siberia. Overall, net income decreased 13% sequentially and 42% year-on-year.<ref>[http://www.slb.com/modules/news/press/release_details.asp?id=21189 Schlumberger.com: Schlumberger Announces Second-Quarter 2009 Results, July 2009]</ref> While costs continued to decline, Schlumberger CEO Andrew Gould said that oil prices must reach $70/barrel for oil production activity to increase worldwide.<ref>[http://online.wsj.com/article/BT-CO-20090724-708847.html?mod=wsjcrmain WSJ.com: Schlumberger CEO: $70/Bbl Oil Price Needed To Boost Activity, July 2009]</ref>+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.<ref>[http://www.slb.com/en/news/press_releases/2010/2010_0309_slb_nexus.aspx Schlumberger Press Release: Schlumberger Acquires Nexus Geosciences, March 2010]</ref> 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.
-Several of these trends continued through the third quarter of 2009. Earnings fell 48% in the third quarter due to weak demand and pricing.<ref>[http://online.wsj.com/article/SB10001424052748703573604574490862248641136.html?mod=wsjcrmain WSJ: Schlumberger Profit Drops 48% on Weak Demand, October 2009]</ref> However, drilling declines slowed internationally and in the U.S..<ref>[http://online.wsj.com/article/SB10001424052748703573604574490862248641136.html?mod=wsjcrmain WSJ: Schlumberger Profit Drops 48% on Weak Demand, October 2009]</ref> Although these are signs of stabilization, Schlumberger believes that prices are unlikely to improve by the end of 2009.<ref>[http://online.wsj.com/article/SB10001424052748703573604574490862248641136.html?mod=wsjcrmain WSJ: Schlumberger Profit Drops 48% on Weak Demand, October 2009]</ref> Not only are crude prices expected to remain weak, but seasonal factors and price concession made in the first half have the potential of leading to further drops in earnings in 2009.<ref>[http://online.wsj.com/article/SB10001424052748703573604574490862248641136.html?mod=wsjcrmain WSJ: Schlumberger Profit Drops 48% on Weak Demand, October 2009]</ref>+===Providing advanced technology to oil majors has the potential of playing an important role in Schlumberger's involvement in deepwater drilling===
-For the first nine months of 2009, many of Schlumberger's competitors have faced cash shortages, which have negatively impacted their ability to continue their current operations as well as their ability to expand. [[Baker Hughes]], [[Weatherford]], and [[Smith International]] all have cash problems that have the potential of curtailing expenditures and expansions into 2010.<ref>[http://www.google.com/hostednews/ap/article/ALeqM5ize9f6xf3BEWiopgyoOnDK1JWPNAD9C5EBD00 Associated Press: Schlumberger shares rise as analyst upgrades stock November 2009]</ref> Schlumberger has avoided many of the problems facings these companies due to the rise in international sales as well as better operating margins.<ref>[http://www.google.com/hostednews/ap/article/ALeqM5ize9f6xf3BEWiopgyoOnDK1JWPNAD9C5EBD00 Associated Press: Schlumberger shares rise as analyst upgrades stock November 2009]</ref> While international drilling has begun rising, drilling in North America has remained relatively stagnant, which has hurt companies that typically derive most of their sales from the region. As a result of its stronger balance sheet and cash-on-hand, Schlumberger has the potential of gaining market share. <ref>[http://www.google.com/hostednews/ap/article/ALeqM5ize9f6xf3BEWiopgyoOnDK1JWPNAD9C5EBD00 Associated Press: Schlumberger shares rise as analyst upgrades stock November 2009]</ref>+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.<ref>[http://online.wsj.com/article/SB125320630244720133.html WSJ: Oil Investors Embark on Voyage of Oil Discovery, September 2009]</ref> For companies like Schlumberger, the deepwater oil finds have the potential of boosting sales of advanced, and expensive equipment.<ref>[http://www.reuters.com/article/rbssEnergyNews/idUSN1019969520090910 Reuters.com: Schlumberger plans Brazil subsalt research center, September 2009]</ref> However, increased deepwater drilling also has the potential of creating a technological race between many of the big [[oilfield services]] companies.
-For 2009, low demand for services and discounted pricing contributed greatly to 17% decline in annual Revenue and the 3% drop in gross margin.<ref>[ http://online.wsj.com/article/SB10001424052748704509704575018694293494812.html WSJ: Schlumberger's Profit Falls as Demand Sags, January 2010]</ref> CEO Andrew Gould argued that low gas and oil prices during the first half of 2009 led to less demand for energy services for 2009. As a result, the trend of rising energy prices in the second half of 2009 has the potential of improving the company's profitability in 2010.<ref>[ http://online.wsj.com/article/SB10001424052748704509704575018694293494812.html WSJ: Schlumberger's Profit Falls as Demand Sags, January 2010]</ref> While Gould believes that the world supply of usable gas and oil was too high by the end of 2009, government stimulus spending and new drilling projects from companies like [[General Electric]] and [[Chevron]] have the potential of leading to a rebound in the demand for drilling services.<ref>[ http://online.wsj.com/article/SB10001424052748704509704575018694293494812.html WSJ: Schlumberger's Profit Falls as Demand Sags, January 2010]</ref> 
===Schlumberger's Worldwide Operations Have Potential for Growth, but Expose Company to Regional Risks=== ===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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 7]</ref> 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 17]</ref> Operations in these countries required Schlumberger's equipment and operational knowledge in order to test, analyze and developed oilfields discovered in 2007 and 2008.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 17]</ref> In 2008, Brazil began developing oil wells in its Tupi fields, an offshore oil basin discovered to have a potential 8 million barrels of oil.<ref>[http://oilshalegas.com/braziltupioil.html Oilshalegas.com: Brazil Tupi Oil Field Information - Santos Basin, August 2008]</ref> 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. +By operating in over 80 countries worldwide, a majority of Schlumberger's revenue growth comes from operations outside of the United States.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 7]</ref> 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 17]</ref> Operations in these countries required Schlumberger's equipment and operational knowledge in order to test, analyze and developed oilfields discovered.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 17]</ref>> 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 7]</ref> 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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 7]</ref>
-Schlumberger's Venezuelan operations have the potential of being taken over by the Venezuelan government. By June 2009, Venezuelan President Hugo Chavez had nationalized most of Venezuela's oil operations, and, beginning in May 2009, Chavez began to seize several small oil service companies along with U.S.-owned gas compression units.<ref>[http://www.reuters.com/article/reutersComService_3_MOLT/idUSTRE55519L20090606 Reuters: Chavez to expand Venezuela oil nationalizations, June 2009]</ref> Chavez has not taken over the Venezuelan operations of large service companies like Schlumberger, [[Baker Hughes (BHI)]], and [[Halliburton Company (HAL)]] as of June 2009.<ref>[http://www.reuters.com/article/reutersComService_3_MOLT/idUSTRE55519L20090606 Reuters: Chavez to expand Venezuela oil nationalizations, June 2009]</ref> However, the company's Venezuelan assets have the potential of being seized by the government if Schlumberger refuses to accept the terms that are on offer or refuse a write-down on their debt.<ref>[http://www.reuters.com/article/reutersComService_3_MOLT/idUSTRE55519L20090606 Reuters: Chavez to expand Venezuela oil nationalizations, June 2009]</ref>+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.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 19]</ref>
- +
-Currency inflation also has the potential of reducing revenues from the sale oilfield services. In the fourth quarter of 2008, revenues from Latin American operations declined 2% compared to the prior quarter as a result of currency inflation in many Latin American countries.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 19]</ref> Overall, currency changes in the last quarter of 2008 resulted in a 3% decline in revenues when compared to the third quarter.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 19]</ref>+
- +
-In March 2009, Schlumberger finalized a $687 million drilling contract with Petroleos Mexicanos, or Pemex.<ref>[http://online.wsj.com/article/BT-CO-20090311-713200.html?mod=wsjcrmain WSJ: Schlumberger Wins $687M Drilling Contract In Mexico, March 2009]</ref> While Pemex's production declined 9% in 2008, the company plans on reversing that trend by increasing the money it spends on exploration and production projects.<ref>[http://online.wsj.com/article/BT-CO-20090311-713200.html?mod=wsjcrmain WSJ: Schlumberger Wins $687M Drilling Contract In Mexico, March 2009]</ref> Schlumberger singed a three-year contract for Pemex's Chicontepec region, a field located in northern Mexico.<ref>[http://online.wsj.com/article/BT-CO-20090311-713200.html?mod=wsjcrmain WSJ: Schlumberger Wins $687M Drilling Contract In Mexico, March 2009]</ref>+
- +
-===The demand for new equipment and technology is vital to Schlumberger's revenue growth ===+
- +
-In 2008, 89.5% of Schlumberger's revenue came from the sale of its oilfield services. As a result, the ability to provide its customer's with technologically advanced and accurate equipment has the potential of effecting Schlumberger's revenues substantially.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 17]</ref> Revenues from Schlumberger's oilfield equipment experienced double-digit growth in 2008, especially equipment used in the development and analysis of complex wells.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 17]</ref> In response, research and development expenditures increased 12.5% in 2008 when compared to 2007. The need for technologically advanced equipment is capable of determining amount of capital Schlumberger devotes to developing new technology in 2008.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 17]</ref> Many [[Oil & Gas Majors]] have reduce their oil production for the first quarter of 2009, which has resulted in lower sales of Schlumberger's technology.<ref>[http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-reportsAnnual SLB 2008 Annual Report, page 17]</ref>+
== Competition == == Competition ==
-'''Baker Hughes ([[BHI]]):''' Baker Hughes is an [[oilfield services]] company that sells drilling equipment and provides technology services that help [http://www.wikinvest.com/industry/Oil_%26_Gas_Drilling_%26_Exploration oil E&P] companies to drill oil wells.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BHI.Nreuters.com: BHI company profile, May 2009]</ref> The company operates in two segments: the Drilling and Evaluation segment, and the Completion and Production segment.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BHI.Nreuters.com: BHI company profile, May 2009]</ref> 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.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BHI.Nreuters.com: BHI company profile, May 2009]</ref> 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. In April 2008, the Company acquired two reservoir consulting firms.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BHI.Nreuters.com: BHI company profile, May 2009]</ref>+'''Baker Hughes ([[BHI]]):''' Baker Hughes is an [[oilfield services]] company that sells drilling equipment and provides technology services that help [http://www.wikinvest.com/industry/Oil_%26_Gas_Drilling_%26_Exploration oil E&P] companies to drill oil wells.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BHI.Nreuters.com: BHI company profile, May 2009]</ref> The company operates in two segments: the Drilling and Evaluation segment, and the Completion and Production segment.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BHI.Nreuters.com: BHI company profile, May 2009]</ref> 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.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BHI.Nreuters.com: BHI company profile, May 2009]</ref> 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 [[oil]]l and [[natural gas]] companies equipment and services that help them extract crude oil and [[natural gas]] from the ground.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=HAL.N Reuters: HAL Company Profile, May 2009]</ref> 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.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=HAL.N Reuters: HAL Company Profile, May 2009]</ref> 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.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=HAL.N Reuters: HAL Company Profile, May 2009]</ref> '''Halliburton Company ([[HAL]]):''' Halliburton supplies [[oil]]l and [[natural gas]] companies equipment and services that help them extract crude oil and [[natural gas]] from the ground.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=HAL.N Reuters: HAL Company Profile, May 2009]</ref> 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.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=HAL.N Reuters: HAL Company Profile, May 2009]</ref> 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.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=HAL.N Reuters: HAL Company Profile, May 2009]</ref>
-'''BJ Services Company ([[BJS]]):''' BJ Services provides pressure pumping and other oilfield services to oil and natural gas exploration and production companies.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BJS.N Retuers: BJS Company Profile, May 2009]</ref> Pressure pumping services include cementing and stimulation services employed in the completion of new onshore and [[offshore]] wells and in remedial work on existing wells and accounts for 81% of the Company's 2008 revenue.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BJS.N Retuers: BJS Company Profile, May 2009]</ref> BJ Service's oilfield services operations provide equipment that help oil and natural gas companies develop and maintain wells.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BJS.N Retuers: BJS Company Profile, May 2009]</ref>+'''BJ Services Company ([[BJS]]):''' BJ Services provides pressure pumping and other oilfield services to oil and natural gas exploration and production companies.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BJS.N Retuers: BJS Company Profile, May 2009]</ref> BJ Service's oilfield services operations provide equipment that help oil and natural gas companies develop and maintain wells.<ref>[http://www.reuters.com/finance/stocks/companyProfile?symbol=BJS.N Retuers: BJS Company Profile, May 2009]</ref> BJ Services is now owned by Baker Hughes.
- +
- +
-{| border="1" cellpadding="3" style="border-collapse:collapse"+
-|+ '''Oilfield Services Financial Data ($ Millions)+
-|- bgcolor=lightblue+
-!+
-!2008 Revenue+
-!2008 Operating Income+
-!2008 R&D Expenses+
-!2008 Gross Profit +
-!2009 Revenue+
-!2009 Operating Income+
-!2009 R&D Expenses+
-!2009 Gross Profit+
-|-+
-|[[Schlumberger]]<ref>[http://quicktake.morningstar.com/StockNet/Income10.aspx?Country=USA&Symbol=SLB Morningstar: SLB Financial Statements]</reF>+
-|27,162.9+
-|6,450.6+
-|818.8+
-|8,195.9+
-|22,975.0+
-|3,934.0+
-|802.0+
-|5,307.0 +
-|-+
-|[[Halliburton]]<ref>[http://quicktake.morningstar.com/StockNet/Income10.aspx?Country=USA&Symbol=HAL Morningstar: HAL Financial Statements]</ref>+
-|18,279.0 +
-|4,010.0+
-|N/A+
-|4,230.0+
-|14,675.0+
-|1,994.0+
-|N/A+
-|2,196.0+
-|-+
-|[[Baker Hughes]]<ref>[http://quicktake.morningstar.com/StockNet/Income10.aspx?Country=USA&Symbol=BHI Morningstar: BHI Financial Statements]</ref> +
-|11,864.0 +
-|2,376.0 +
-|426.0+
-|3,910.0+
-|9,664.0+
-|732.0 +
-|397.0 +
-|2,267.0+
-|-+
-|[[Transocean]]<ref>[http://quicktake.morningstar.com/StockNet/Income10.aspx?Country=USA&Symbol=RIG Morningstar: Financial Statements for RIG]</ref>+
-|12,674.0 +
-|5,357.0 +
-|N/A+
-|7,319.0+
-|11,556.0 +
-|4,371.0 +
-|N/A+
-|5,748.0 +
-|}+
- +
-{{clr}}+
 +WEATHER FORD
==Notes== ==Notes==

Current revision

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):

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Breakdown of 2008 revenue from oilfield services by geographical region[7]

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

  1. slb.com: Company Background
  2. Business Week: Schlumberger Profit Falls as Customers Cut Spending (Update5), January 2010
  3. slb.com: Investor Center, Revenue and Income from Operations, April 2009
  4. Schlumberger Company Background
  5. slb.com: Company Background
  6. Tradingmarkets.com: SLB stock alert, April 2010
  7. : SLB Annual Report 2008
  8. SLB 2008 Annual Report Pages 19-22
  9. SLB 2008 Annual Report Pages 19-22
  10. SLB 2008 Annual Report Pages 19-22
  11. SLB 2008 Annual Report Pages 19-22
  12. Bloomberg: Eurasia to Swap Russian Drilling Assets With Schlumberger, October 2010
  13. Bloomberg: Eurasia to Swap Russian Drilling Assets With Schlumberger, October 2010
  14. Bloomberg: Eurasia to Swap Russian Drilling Assets With Schlumberger, October 2010
  15. Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010
  16. Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010
  17. Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010
  18. Reuters:Schlumberger wins contract in Iraq's W.Qurna-sources, November 2010
  19. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  20. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  21. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  22. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  23. SLB 2008 Annual Report Pages 23-24
  24. Annual SLB 2008 Annual Report Pages 23-24
  25. Annual SLB 2008 Annual Report Pages 23-24
  26. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  27. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  28. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  29. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  30. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  31. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  32. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  33. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  34. Schlumberger Press Release: Schlumberger Announces Fourth-Quarter and Full-Year 2010 Results, March 2011
  35. WSJ: UPDATE: Smith Shares Jump, Schlumberger Down On $11B Takeover, Feb 2010
  36. business week: Schlumberger completes acquisition of Smith
  37. Schlumberger Press Release: Schlumberger Acquires Nexus Geosciences, March 2010
  38. WSJ: Oil Investors Embark on Voyage of Oil Discovery, September 2009
  39. Reuters.com: Schlumberger plans Brazil subsalt research center, September 2009
  40. SLB 2008 Annual Report, page 7
  41. SLB 2008 Annual Report, page 17
  42. SLB 2008 Annual Report, page 17
  43. SLB 2008 Annual Report, page 7
  44. SLB 2008 Annual Report, page 19
  45. BHI company profile, May 2009
  46. BHI company profile, May 2009
  47. BHI company profile, May 2009
  48. Reuters: HAL Company Profile, May 2009
  49. Reuters: HAL Company Profile, May 2009
  50. Reuters: HAL Company Profile, May 2009
  51. Retuers: BJS Company Profile, May 2009
  52. Retuers: BJS Company Profile, May 2009
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