SLB Schlumberger Ltd

Houston, Texas-based Schlumberger Limited (SLB)’s local branch secured the right to drill a mature oil field offered by Mexico’s state oil monopoly Petroleos Mexicanos (Pemex) after the original winner – Mexican concern Administradora en Proyectos de Campos – failed to comply with the legal formalities of the contract and did not furnish the required financial backing for the project.

The contract to extract oil from the Carrizo field was given to Schlumberger as it was the bidder with the second lowest bid in the public tender process held in August. Schlumberger will charge $9.40 per barrel of oil for the onshore field which is lower than Pemex ceiling price of $12.31. The terms of the original tender remains unchanged.

The contract, which is Pemex’ one of the first incentive-based proposal offered under oil-sector reforms passed in 2008, allows it to exploit the technology of private companies to extract more oil from existing fields. Additionally, Pemex wants to attract firms to drill in deep water Mexican fields using performance-based contracts.

As of January 2010, the Carrizo field in Tabasco state, southern Mexico had proven, probable and possible reserves of 49.8 million barrels of crude oil and 5.8 billion cubic feet of gas.

The deal with Pemex highlights Schlumberger’s strong relationships with state-owned oil companies and will help to boost its growth prospects in Mexico by adding to its already significant presence in the country.

We like Schlumberger’s lead position in the global oilfield services market, along with its broad and technologically complex product and service offerings, and its robust financial profile.

We believe Schlumberger is well positioned to benefit from demand improvement in select North American basins, as operators continue to focus on investing in exploring unconventional resources.

The oilfield services behemoth believes that bullish near-term U.S. land drilling trends, with activity driven by horizontal drilling and liquids-rich plays, will be supported by high oil prices.

Schlumberger holds a Zacks #3 Rank which translates into a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the stock. The company faces tough competition from Baker-Hughes Incorporated (BHI) and Weatherford International Ltd. (WFT).

 
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