Schlumberger: In the Chute and Ready to Run
It's my strong belief that oil-field services kingpin Schlumberger is a unique font of superior information about circumstances in the global oil (and gas) patch. On Friday, the King Kong of services will be the first major member of the energy contingent to tell us about its quarterly results and its assessment of present and future global activity levels.
Indeed, the information typically dispensed by Schlumberger in its earnings release, its post-release conference call, and on its website, is typically of such value that it seems to somewhat subordinate the importance of the company's specific periodic metrics. This quarter, for instance, we know that the financial results will be somewhat lower than we once had anticipated.
Management told us as much in mid-December, attributing a softening of quarterly expectations to a combination of contractual delays in Europe, the Commonwealth of Independent States (former Soviet Union countries), and Africa. Further, sluggish land activity in both the U.S. and Western Canada apparently also tapped the brakes for the quarter's results.
As we bear down on the actual numbers, analysts who follow the company have arrived at a consensus per-share figure of $1.08, down only slightly from $1.11 for the final quarter of 2011. That level would result in full-year per-share earnings of nearly $4.20, still about a 15% year-over-year bump. The second-largest of the services companies, Halliburton , will report on Friday of next week. Since its operations are more sensitive to North American issues than are Schlumberger's, its management's sense of likely trends on our continent will deserve attention.
As you may know, there are few energy venues in any of the world's corners or crevices -- on land or offshore -- where Schlumberger isn't active. It's able to remain productive in about 85 countries by employing a total "crew" of about 115,000. Its customers run the gamut from the biggest national oil companies, such as Russia's Rosneft and Brazil's Petrobras -- with which it's cooperating on developing methods for dealing with pre-salt conditions -- to ExxonMobil , et al.
Schlumberger's specific programs with the biggest of Big Oil companies includes work on Exxon's West Qurna-1 field in Iraq. Among independent producers, it's participated with the likes of Whiting Petroleum on a fracking and microseismic monitoring project in North Dakota's Bakken play.
The tremendous importance of technology
I've noted to Fools in the past (but it's sufficiently important to warrant repeating) that, beyond its size, Schlumberger benefits mightily from the virtual king's ransom -- about $1.1 billion annually -- that it spends on research and development. Concurrently, it gains from the significant number of joint ventures in which it is involved. As such, it is able to develop specific solutions for particular technological, geographic, and regional challenges.
For instance, early in the quarter, the company announced that it had agreed to form a joint venture with Houston-based oil-field equipment manufacturerCameron International . The combination is being called OneSubsea. It will be charged with developing and manufacturing products and systems for the subsea oil and gas market. Under the terms of the agreement, Schlumberger is acquiring a 40% stake in OneSubsea for $600 million.
Cameron's subsea business is joining with Schlumberger's Framo subsidiary, along with its surveillance, flow assurance, power, and controls units. Cameron will hold a 60% interest in the venture, will be responsible for its management, and will consolidate it in its financials. Clearly, the unit stands to benefit from increased offshore -- and especially deepwater -- emphases among global oil and gas producers.
Getting going with Gazprom
Additionally, last month, Schlumberger announced jointly with a subsidiary of Russia's Gasprom, Gazprom Geologorazvedka, the formation of a technology cooperation agreement with "a focus on maximizing the efficiency of exploration for Gasprom's land and offshore fields and license areas in the Russian Federation." The agreement will benefit from the introduction of Schlumberger's technology solutions and its software products. Also included will be the formation of a personnel training program.
At the unveiling of the combination, Alexey Davydov, general director of the Russian company, said:
Our company is focused on efficient hydrocarbon exploration. Today we carry out exploration in 49 license areas in the most challenging regions: beyond the Arctic Circle, in the tundra, and on the Arctic Shelf."
Prior to the announcement of the Gazprom relationship, Schlumberger disclosed that its Smith Bits unit has developed a new family of drill bits that are especially effective for drilling in Russia. These specific polycrystalline diamond compact (PDC) bits are especially suited for drilling in the low torque and low hydraulic power conditions that are prevalent in Russian land operations. The bits are being manufactured in Russia, Italy, and Norway.
The Foolish takeaway
Along with these key strengths, it's important to note from an investment perspective that all but three of the 34 analysts who follow Schlumberger -- a total of 91% -- rate the company at least a "Buy." Given that preponderance of opinion, along with the company's first-out-of-the-chute reporting status, I urge Fools with even the slightest taste for energy investments to pay careful attention to the information imparted by the company's management on Friday.
Perhaps only National Oilwell Varco measures up to Schlumberger among compelling oil-field services companies. NOV is a top-notch investment in the energy sector due to its industry-leading 60% market share. This company is poised to profit in a big way; its customers are both increasing the number of new drilling rigs, as well as updating an aging fleet of offshore rigs. To help determine if NOV is a nice fit for your portfolio, check out our premium research report with in-depth analysis on whether NOV is a buy today. For instant access to this valuable investor's resource, simply click here now and claim your copy today.
The article Schlumberger: In the Chute and Ready to Run originally appeared on Fool.com.David Lee Smith has no position in any stocks mentioned. The Motley Fool recommends Halliburton and Petroleo Brasileiro S.A. (ADR). The Motley Fool owns shares of ExxonMobil and Halliburton. 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.
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