Smith, Schlumberger Win with M-I SWACO

To the casual observer, M-I SWACO might appear to be just another oilfield supplier fixated more on market share than on quality. A 60-40 JV between Smith International (SII) and Schlumberger (SLB), the provider of drilling fluids, systems and tools might also seem susceptible to identity issues.

Yet, data from EnergyPoint Research’s independent customer satisfaction ratings suggests nothing of the sort. In fact, our results show the company to be a customer satisfaction leader in its mainstay drilling fluids business.

In our opinion, this has a lot to do with the fact that the JV is operated by Smith (click here for our latest note on Smith), which has traditionally rated well in EnergyPoint’s surveys. M-I SWACO represented almost half of Smith’s $10.7 billion in reported revenues in 2008, ensuring it receives the full attention and support of management.

Since 2008, respondents to EnergyPoint’s surveys have rated M-I SWACO first overall among market share leaders in drilling fluids related products and services. As the graph below shows, the company’s ratings outpaced Halliburton’s (HAL) Baroid unit (click here for our latest note on Halliburton) by a relatively comfortable margin. It’s ratings lead over Baker Hughes was even greater (click here for our latest note on Baker Hughes).

To be sure, M-I SWACO has rated well in EnergyPoint’s surveys going back to 2004; however, the company seems to have performed particularly well in the eyes of customers within the last 18 months. Improved ratings for its sales and field personnel, as well as in the areas of pre-job planning, service and professionalism, and responsiveness to requests for new technologies all contributed. The company also enjoyed strong scores in offshore applications, especially deepwater.

Like most suppliers, there are areas in which M-I SWACO could stand to improve. One relative weakness appears to be the equipment and tools side of its business, which consistently registers lower scores than its drilling fluids offerings. In addition, at least one smaller supplier appears to be catching the eye of customers as a viable competitor. Newpark Drilling Fluids, a division of Newpark Resources (NR), has enjoyed healthy ratings in our surveys since 2005 (click here for our latest note on Newpark). While its market share lags that of M-I SWACO by a material margin, Newpark does seem to offer customers a single-minded focus and performance that M-I SWACO also aspires to provide.

Notwithstanding the ratings weakness in the equipment and tools side of its business and smaller competitors nipping at it heals, our opinion is that M-I SWACO is offering the kind of products and services that customers need from their suppliers in today’s oilfield. In our latest survey, 53% of respondents indicated as “highly likely” (i.e., a “9” or “10” on a 10-pt scale) their intention to utilize M-I SWACO again within the next 12 months. Another 30% characterized themselves as “likely” (i.e., a “7” or “8” on a 10-pt scale) to reuse. But don’t just take our word for it.

Below is a sampling of some of the more positive comments from survey participants, most of which seem to support high levels of intended loyalty towards the company.

Disclosure: No positions