I last visited Schlumberger N.V. (SLB) in mid November and took the position that the stock would be a good buy at about the '62' level for the long term investor. As the stock was trending down, I also suggested a short term income play. This is what I suggested:
The Options Play
It's trading at 68.48.
- Buy the March 2013 put with a strike of '70.00' (priced at $5.65)
- Sell the March 2013 put with a strike of '67.50' (priced at $4.25)
- Net Debit to Start: $1.40
- Maximum Profit: $0.90
- Maximum Risk: net debit
- Maximum Length of play 4 months
Reasoning behind the trade
- Play the present trend.
- Short term numbers are not good enough to turn the stock around yet.
- Oil and gas still sinking lower.
It is a bit too early to reverse the trade but the stock is still moving in the right direction to make the trade work and I still have plenty of time before expiration. The stock still looks like it is headed down and not ready to turn around.
Growing in Subsea Oil Services is Its Future
Schlumberger announced a joint venture with Cameron International to develop products and services for the subsea oil and gas market. Working with both companies, clients should be able to improve production and recovery from offshore wells. Here is a summary of the agreement:
- Schlumberger will pay Cameron $600 million to acquire a 40% stake in the joint venture company called OneSubsea.
- The deal will combine Schlumberger's Framo subsidiary as well as its surveillance, flow assurance and power and controls divisions with Cameron's subsea business.
- Cameron will manage the joint venture and consolidate it in its financial statements.
How will Schlumberger benefit? Offshore oil will continue to become more and more lucrative as land-based oil fields become less accessible. Companies are looking offshore more and more. In the last decade almost 50% of the discoveries have been in offshore locations. Offshore oil field services will continue to benefit from this rise in exploration. 200 new subsea fields could be activated in the next 4 years and 11,000 new wells by 2020. Since subsea services demand attractive rates, Schlumberger should profit greatly.
Moving steadily into this market, SLB also acquired Framo Engineering that has technologies that will help the company focus on subsea markets. SLB should be able to provide services that will help companies with productivity improvement. The demand will be high as companies always look for ways to improve recovery rates.
Long Term Investing in Schlumberger
The stock is still moving down and I am still taking the position that an investor should wait until the stock drops closer to '62' and confirm a support level has been reached. With the movement of revenue opportunity going into subsea exploration and extraction, I believe the company is positing itself very well for the future. So I am comfortable with the long term investment, but the timing of the investment is what I believe is important.
The stock has consistently moved down in a peak and valley bearish pattern that moves up and down between the upper and lower Bollinger bands since early September. Presently the journey down has cost the stock about 12% in value. Both the MACD and RSI support the move down but it is the MACD that looks like it has a weak positive divergence. If it is true, then this is a signal of a possible consolidating phase that could come in the near future.