Schlumberger Buys Antonoil Stake

Zacks

The world’s largest oilfield-services provider, Schlumberger Limited (SLB) acquired stakes of a Hong Kong-listed Chinese oilfield services company, Anton Oilfield Services Group (Antonoil).

Schlumberger procured 20.1% interest, or 423,361,944 shares of Antonoil, which declined to comment on the transaction price. However, based on Antonoil’s total market capitalization of $408 million as of July 6, 2012, Reuters projected the value of the shares at approximately $80 million.

Established in 1999, Antonoil is among the few privately controlled oilfield service companies in China that joined hands with Schlumberger back in 2010 related to a cooperation agreement over drilling fluids and well-cementing services. The deal constituted an integral part of the Chinese oilfield services industry.

We believe Schlumberger's combination of technological leadership and management depth will prove beneficial for Antonoil over the long term, boosting the Chinese company’s reputation as one of the country’s foremost oilfield service providers. This will eventually improve Antonoil’s long-term revenue and profit.

The latest deal will not allow Schlumberger to intervene in Antonoil’s management, leaving the latter’s collaboration with other business associates unchanged. Again, this move will aid Antonoil as well as Schlumberger to explore the wide-ranging opportunities in the Chinese market.

We believe Schlumberger is favorably positioned to operate within the current oilfield services scenario, given the acceleration in international drilling activity, pricing improvements and an expected recovery in its seismic operations.

Schlumberger should also benefit from its oil-driven international growth prospects and near-term North American performance, given its leading position in exploration drilling. The company’s top line should continue to improve going forward due to promising indications from Africa, the Middle East and the Gulf of Mexico. The Middle East and Asia constituted 23% of Schlumberger’s revenue last year.

Schlumberger, which ranks ahead of Halliburton Company (HAL) as the biggest member of the oilfield services contingent, holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain a Neutral recommendation on the stock.

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