Schlumberger Sets the Right Tone
Oil-field services giant Schlumberger (NYS: SLB) has disposed of its rig management services. While this segment has never been part of the company's core business, should the latest move make investors sit up and take notice? I don't think so. Not for the wrong reasons, at least.
Calgary-based Saxon Energy bought the rig management services arm from Schlumberger by acquiring 14 of its land rigs connected to operations in the Middle East. Actually, this doesn't come as a total surprise, since the world's largest oil-field company already owns a part of the Canadian driller. In other words, the companies already share a rapport, which only saw further consolidation.
While this may not be a revenue-generating move, efficiency should see a considerable boost, which is critical when it comes to oil-field services. Investors should see merit as management seems to be focusing on the long term.
A pruning at the right time
I see no reason why a $100 billion company which supplies a host of services to oil and gas E&P companies shouldn't shed a noncore business before things become too big to manage.
Schlumberger had always been looking to shed its rigs. With Transocean (NYS: RIG) and Noble Corp. (NYS: NE) being its previous buyers in the past decade, a gradual phasing out of a business indicates intelligence on management's part without rocking the boat.
Oil-field services are seeing a huge boost with the exploration and production industry working on many levels to meet growing worldwide energy demand. Keeping this is mind, shedding a noncore business would be one of the better things.
Schlumberger is not without competition. The advent of shale plays, as well as enhanced deepwater drilling has ensured that the likes of Halliburton (NYS: HAL) , National Oilwell Varco (NYS: NOV) , and Baker Hughes International (NYS: BHI) would be breathing down each other's necks. In the end, it's all about who bags the bigger and more lucrative contracts from E&P companies.
Foolish bottom line
Management at Houston-based Schlumberger seems to be keeping the long term in view, which should be encouraging to investors. Also, as Fool energy editor Dan Dzombak has shown that unconventional drilling will only result in rising oil prices, a substantial chunk of profits should go the way of those companies who provide these services. It's time that their core businesses become more efficient.
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At the time this article was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Noble, Transocean, and National Oilwell Varco. Motley Fool newsletter services have recommended buying shares of National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.