The oilfield services industry may well be poised for a strong 2014 driven by higher oil prices as well as improving conditions in some of the world’s largest economies. According to the Global 2014 E&P Spending Outlook published by Barclays in early December, global exploration and production spending is expected to grow by around 6.1% to a record $723 billion in 2014. The overall spending mix is expected to move away from large infrastructure projects towards oilfield services such as drilling, evaluation and completions, which could translate to better business for oilfield service companies. While North America is expected to see a recovery, with spending projected to rise by around 7% to around $156 billion, a significant part of the absolute spending growth is expected to come from national oil companies (NOC) in international markets such as Latin America and the Middle East. This gives us reason to believe that Schlumberger (SLB), the worlds largest oilfield services company, could be poised to become a prime beneficiary of this growth, owing to its relationship with NOCs and its sizable international footprint.
According to Barclays, while oil majors such as BP have been slowing down on their expansion plans as they focus on improving shareholder returns, national oil companies, particularly from regions such as Latin America and the Middle East, are likely to play a key role in driving overall spending growth. In the Middle East for instance, total exploration and production spending is expected to rise by around 14% to close to $40 billion in 2014, led by an increase in spending by Saudi Aramco (Saudi Arabia’s NOC) as well as the Kuwait Oil Co. In Latin America, spending is expected to rise by around 13% to around $84 billion, driven largely by increased spending from Venezuela’s state run oil firm PDVSA (which is expected to increase its capital spending by roughly 50%) and Mexico’s PEMEX.
Schlumberger has a relatively longstanding relationship with most of these large state controlled oil companies and also has an extensive presence in these markets. In 2012, Schlumberger’s revenues from the Latin America and the Middle East /Asia geomarkets were more than those of both its key rivals Baker Hughes (BHI) and Halliburton (HAL) combined. Schlumberger derived close to 32% of its revenues from NOCs as of 2010 and the number is likely to have grown since then. While many national oil companies have been improving their in house capabilities for oilfield services, they still require assistance with more challenging and technology-intensive operations. This puts Schlumberger at an advantage compared to its rivals given its technological edge, particularly in complex areas such as reservoir characterization.
Disclosure: No positions