Schlumberger (SLB +0.1%) clings to a gain after Credit Suisse resumed coverage of the stock with an Outperform rating and $80 price target, saying SLB is "exceptionally well positioned to gain share, improve margins, and post higher returns near a cyclical bottom."
SLB's just-completed merger with Cameron (NYSE:CAM) makes the company more efficient, integrated and technologically capable and help SLB to shift to a more performance-compensated business model by being present at the wellhead for a longer period of time, Credit Suisse's James Wicklund says.
The firm says SLB’s commitment to superior profitability and technology, especially given the backdrop of a company that was able to transform during a down cycle, combined with the company’s wide capabilities, would minimize the impact of any slowing in deepwater and exploration activity.
"Deepwater drilling will recover... What I can't tell you is when," the CEO said; in the meantime, DO is not only eliminating its dividend, but also considering mergers and/or acquisitions, buying distressed assets, and other crisis measures.
Analysts like DO's new service agreement with GE, which is expected to help lower idle time for rigs on hire - crucial for drillers struggling to lease out offshore rigs and cut costs as oil and gas producers scale back spending.
DO loses up to $500K of revenue each day a rig is down, while the oil and gas producing customer also loses as much money, Edwards says, calling downtime the industry's "Achilles' heel."
Evercore ISI analyst James West says the service model will create a much more visible stream of cash flow for equipment providers compared with the cash flow from selling equipment, "which is very cyclical and very lumpy."
Among companies that could adopt a similar model are offshore rig providers such as Noble Corp. (NYSE:NE), which could tie up with oilfield equipment manufacturers such as National Oilwell Varco (NYSE:NOV) and Cameron (NYSE:CAM), analysts say.
The European Union approves Schlumberger's (NYSE:SLB) pending acquisition of Cameron International (NYSE:CAM), saying it had no major competition concerns.
The EU says CAM's and SLB's activities present limited overlaps in the markets of produced water treatment and on the drilling chokes market, and that the deal would raise no competition concerns, "given the very limited overlaps between the companies' activities and the modest increment in market shares brought about by the transaction."
Antitrust experts have predicted that the deal would draw minimum scrutiny since the companies offer complementary product lines, while Halliburton's (NYSE:HAL) proposed $35B offer for Baker Hughes (NYSE:BHI) would face a tougher time because of concerns it could push up prices for oil and gas exploration in Europe.
U.S. antitrust regulators cleared the deal without conditions last November.
Schlumberger (NYSE:SLB) +0.5% AH after reporting better than expected Q4 earnings but a 39% Y/Y drop in revenue as it faced a continuing decline in rig activity, project delays and cancellations and other problems resulting from lower oil prices.
Q4 revenue totaled $7.74B, down from $12.64B in the year-ago period, as revenue in North America plunged 55% Y/Y and revenue for operations outside North America fell 30%.
SLB says its cost of revenue fell 35% in Q4, partly the result of cutting 10K jobs in the quarter; it had cut 20K jobs earlier in 2015.
SLB expects to close its acquisition of Cameron (NYSE:CAM) by the end of Q1, and says the large stock component - 78% in stock and 22% in cash - insulates the deal from market volatility.
SLB also unveils a new $10B share buyback program to replace the 2013 program for the same amount that is nearing completion.
Cameron (CAM -1.9%) shareholders easily approve Schlumberger's (SLB -2.3%) takeover of the company in a deal worth ~$12.7B, paving the way for the transaction to close early next year.
The U.S. Department of Justice cleared the deal last month without conditions, but the companies still await regulatory approval from the European Commission as well as other jurisdictions that have not been publicly identified in documents.
Once finalized, CAM shareholders will receive 0.716 SLB shares for every share of CAM plus $14.44 in cash.
The "lower for longer" consensus on crude oil prices is overly conservative, and prices will begin bouncing back next year, Guggenheim analysts say as they upgrade the oil services sector to Buy and see plenty of upside for the major players given current market conditions.
Guggenheim is calling for oil prices to return to $100/bbl by 2018, and sees 10% upside across the board for oil services stocks in the next year resulting from the group's unique exposure to crude prices.
Within the group, the firm prefers Rowan (RDC +1.8%) and Atwood Oceanics (ATW +1.6%), as their backlogs should help reduce near-term risk, RDC has no newbuild commitments and ATW is finalizing a contract in Brazil for one of its two uncontracted rigs, utilization in the Middle East (NYSE:RDC) and Australia (NYSE:ATW) should be resilient on a relative basis, and both have fleets that make them more interesting M&A candidates.
Example: Technip (OTCQX:TNHPF) is cutting 6K jobs and using white paint instead of yellow on underwater equipment because adding pigment is more expensive.
The oil downturn has left even the world's biggest oil services company, Schlumberger (NYSE:SLB), vulnerable; in its Q3 results, the company reported big drops in earnings and revenue.
Next year could be even worse as producers cut more than $200B in spending this year and next; consult Wood Mackenzie expects only 10 new projects globally to attract investment commitments, which would hit a sector that typically has the capacity to support an average of 40-50 new projects a year.
Cowen analyst James Crandell thinks the current down cycle in oil is "the worst ever" in terms of magnitude of the decline in exploration and production spending and thus in its impact on oil services companies (NYSEARCA:OIH); unlike past cycles, Crandell says there is a growing realization that a strong recovery in oil prices is not likely.
Crandall estimates that when all is said and done, the 2015-16 down cycle will see a decline in global E&P spending of 35%-40%, with a drop internationally of 30% and in North America of 50%.
The analyst cuts his price target on Baker Hughes (NYSE:BHI) to $56 from $61, Halliburton (NYSE:HAL) to $38 from $40, and Schlumberge (NYSE:SLB) to $90 from $100, but raises his target on Cameron International (NYSE:CAM) to $65 from $51.
Sclumberger’s (NYSE:SLB) purchase of Cameron International (NYSE:CAM) should easily close, with optimism growing that Halliburton's (NYSE:HAL) bid for Baker Hughes (NYSE:BHI) also will close, and the deals mean more oil company M&A is on the way, FBR Capital analyst Thomas Curran believes.
The wave of heavyweight deals likely is not over yet, Curran says, seeing Weatherford (NYSE:WFT) as the highest probability takeout with the broadest set of plausible strategic suitors; National Oilwell Varco (NYSE:NOV) is viewed as having a high likelihood of entering into a big deal, although probably as an acquirer, and FMC Tech (NYSE:FTI) could puruse a full combination with Technip, its 50/50% JV partner in Forsys Subsea.