Is Schlumberger's Customer Appeal Slipping?

Jan.20.08 | About: Schlumberger Limited (SLB)

Given Schlumberger’s (NYSE:SLB) generally lackluster performance in North America over the last couple of quarters, some might be inclined ask whether its much publicized emphasis on national oil companies (NOCs) as the customers of the future has caused the company to lose at least some of its focus and edge in North America. Our data suggests Schlumberger’s appeal with customers in the U.S. & Canada might be slipping, especially when it comes to pressure pumping and completions-related products and services. In EnergyPoint’s latest independent surveys covering these areas, respondents' ratings of Schlumberger lagged that of certain key competitors.

To be sure, Schlumberger’s products and services have always been perceived as pricey by many in the oilfield. But now, with moderating natural gas prices and incremental demand appearing to be met as much by LNG imports as by domestic drilling, we suspect some customers might be balking at some of Schlumberger’s more expensive product and service offerings. It’s ironic to think that $8.00/mmbtu gas and $90/bbl oil is not enough to allow customers to look past supplier pricing, but the fact is contractors have raised their prices so much during this cycle that some customers would rather switch suppliers or shelve projects altogether than pay historically high rates.

In addition, while hitching its wagon to NOCs is admittedly an attractive growth story for Schlumberger, it is not without risk. Providing NOCs with the same products and services it provides international oil companies (IOCs) like Exxon Mobil and Shell is certainly no sin. But it’s difficult to look past the fact that by doing so Schlumberger helps to undermine IOCs’ traditional role with NOCs. In other words, Schlumberger is now arguably a quasi-competitor of IOCs; and since many IOCs are large customers of Schlumberger, we wonder if Schlumberger’s results, along with its recent announcement to reduce headcount in North America, indicate that IOCs have begun to diversity their supplier relationships away from Schlumberger.

Disclosure: none