SLB Schlumberger Ltd

Schlumberger Limited (SLB) has inked an asset sale agreement with National Oilwell Varco, Inc. (NOV). Per the deal, Schlumberger will dispose its distribution operation – Wilson – following customary regulatory approvals. Both parties kept the financial terms of the transaction confidential.

The world's largest oilfield services company, Schlumberger purchased this distribution business in 2010 as part of the Smith International takeover. This unit manufactures pipe, valves, fittings, mill, tool, safety products, along with the related services to the oil and gas industry worldwide. Established in 1921, Wilson runs its operations all over the U.S. as well as in other important international regions with 200 business locations in total and approximately 2,500 employees.

Houston, Texas-based Schlumberger is a leading oilfield services company, providing technology, project management and information services to the global oil and gas industry. Promising indications from Africa, the Middle East and the Gulf of Mexico (GoM) should continue to improve Schlumberger’s top line going forward.

The Smith deal bodes well for development in exploration space as new technologies carry potential for higher margins. However, the company seeks to divest some added assets acquired with the Smith acquisition as it continues to streamline it portfolio to concentrate on its core operations.

However, Schlumberger's financial and operational performances face a number of headwinds, including changes in exploration and production spending patterns, commodity price fluctuations and changes in economic conditions. Therefore, we maintain our Neutral recommendation on Schlumberger, as we think that the current valuation is fair and adequately reflects the company’s growth prospects.

The company retains a Zacks #3 Rank, which is equivalent to a short-term Hold rating.

The deal is also expected to augment National Oilwell’s geographical footprint considering Wilson’s best-in-class distribution performances. National Oilwell is a world leader in the design, manufacture, and sale of comprehensive systems, components, products, and equipment used in oil and gas drilling and production worldwide. We also maintain our Neutral recommendation for National Oilwell, which retains a Zacks #3 Rank (short-term Hold rating).

 
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