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Schlumberger Said To Spinoff Oilfield Supplier Business

|Includes: Schlumberger Limited (SLB)

Schlumberger Limited (NYSE:SLB) is known for being the largest oil-services company in the world. A recent Bloomberg article reported that SLB may be seeking buyers for a portion or parts of its oilfield supply business. SLB has not confirmed that they are in fact attempting any sale.

Assumptions can be made if the rumor is true or false. That being said, for the sake of speculation it is logical to ponder, what Schlumberger may stand to gain by spinning off a small portion of a downstream operation that contributes marginally to total revenue?

In short, the answer is growth. Schlumberger has a PEG Ratio of 0.97 a P/E of 21.09 and a Forward P/E of 12.94. Considering the size and market cap of SLB, the growth prospects are impressive.

It is fair to imply that Schlumberger can benefit immensely from oil and gas production expansion. As the industry goes so goes SLB. However SLB is not an organization of complacency nor will they assume that industry growth will entitle them to organizational growth.

As any student of business can tell you, spinning off a division can enable a company to streamline business, improve productivity or shed dead weight. It cannot come to surprise that SLB may be considering a divestiture in the oilfield supply business as it is possibly the least profitable arm of the company. It is hard to quantify the impact to cash flow or income that a hypothetical spinoff may have and if a sale comes to fruition it may only benefit SLB in a slight way. However, with a proven growth record and excellent execution, it can be expected that SLB will continue to take measures to become more efficient by either selling assets or exploiting growth opportunities from outside of the firm and within.

Disclosure: I am long SLB.