Prepared by Jun Yu
Summer 2011
Target price: $105
Dividend: $1.00 (1.2%) Payout ratio: 24%
Business Summary
Schlumberger Limited and its subsidiaries supply technology, integrated project management, and information solutions to the oil and gas industry worldwide. The company operates in four segments, Oilfield Services, WesternGeco, M-I SWACO, and Smith Oilfield and Distribution. The Oilfield Services segment provides a range of exploration and production services required during the life of an oil and gas reservoir. The WesternGeco segment provides reservoir imaging, monitoring, and development services, as well as operates data processing centers and a multi-client seismic library. M-I SWACO is a leading supplier of drilling fluid systems engineered to improve wellbore quality and increase drilling performance. The Smith Oilfield segment provides a comprehensive suite of premium products and services used in oil and natural gas development activities. Schlumberger Limited was founded in 1927 and is based in Houston, Texas.
Strong oil demand will continue as the economy slowly recovers. A price between $90 and $100 seems reasonable due to the necessity of the revenues that is provides to the OPEC countries as it is the main source of income to fulfill their expenditures. There is also the price relationship to supply/demand.
In Q2, almost all the oil companies reported a huge profit. SLB reported 2nd quarter earning of 87 cents, which beat estimates of 85 cents per share. Continuing Operation increased by 45% year over year.
Natural gas meets an opposite condition in which too much supply puts a continuous downside pressure on the price. But it seems that the spring of natural gas is on the way. Natural gas fueled transportation is obstructed by the limited number of fuel stations, but new stations are being constructed.
Strategies
During the Q2, Schlumberger continued their repurchasing program and bought back 8.2 million of its shares for a total of about $706.7 million, at an average price of $86.27.
Schlumberger has announced that it will acquire the remaining shares of Framo Engineering AS, which gives a boost to its subsea footprint. SLB also set its foot in Russia since some big oil & gas companies intend on increasing output.