Schlumberger’s bid for Cameron International came as no surprise for the oil field giant that has a track record of soaking up joint venture partners and two years of experience working alongside Cameron through a joint subsea venture.
Analysts now hail the decision by the two companies to form a joint venture called OneSubsea as the precursor to Schlumberger’s plans announced Wednesday to acquire Houston-based Cameron, a major oilfield equipment and technology company.
“The companies know each other and management knows each other and it makes sense from that perspective,” said Rob Desai, an analyst at Edward Jones.
The two joined forces in 2012 to develop new technologies that would boost oil production and recovery rates from difficult-to-tap deep-water reservoirs in a joint venture that married reservoir engineering and subsea equipment expertise.
“Schlumberger knows Cameron very, very well,” said Bill Herbert, an analyst at Simmons & Company International in Houston. “This is a very significant transaction underway with regard to deep water.”
Falling oil prices have hammered the offshore industry as exploration and production companies pull back from the expensive projects, battering the services providers and rig companies that rely on their business, but the Schlumberger-Cameron deal sends a strong signal that deep-water drilling and production still holds allure, analysts at Tudor, Pickering, Holt & Co. wrote in a note to investors. With more than 7 million barrels per day of global oil production coming from deepwater reservoirs, it makes sense that offshore activity will eventually rebound.
“Deep-water activity isn’t going to heal tomorrow,” Tudor, Pickering, Holt & Co. analysts wrote. “There is a logical recovery case, even if not in 2016. (Schlumberger) is making a strategic bet that it can assist with that recovery.”
Like others operating offshore, OneSubsea hasn’t escaped unscathed from the industry’s slowdown, but executives remain pleased with the joint venture’s progress integrating technology and gobbling up market share.
“We knew it would take a bit of time,” Scott Rowe, Cameron’s current president and chief operating officer who has been tapped to replace the outgoing CEO Jack Moore, said in a conference call earlier today. “This is what we’ve been consistently saying to the market about our progress. These are long-cycle projects that take years.”
Cameron isn’t the first joint venture partner bought out by Schlumberger. Four years ago, the company bought out Houston-based Smith International for $11 billion after partnering on a drilling fluids business. Earlier this year, Schlumberger announced plans to acquire an interest in Russian drilling services provider Eurasia Drilling Company Limited after working with the company for four years under an alliance to deploy drilling and engineering services to Russia’s onshore oil patch. That deal is still facing regulatory hurdles.
The deal isn’t likely to touch off a wave of mergers and acquisitions in the oil field services industry because the global crude slump strained the finances of many companies, leaving few able to make such a deal, Desai said.
“If there’s one company in this space that can do it, Schlumberger is by far the best positioned to make an acquisition,” he said. ‘They are free cash flow positive, even in this environment. They have a very strong balance sheet.”
But several potential acquisition targets — all in Houston — in the services industry have seen their stock prices soar Wednesday morning following the announcement. Oceaneering was up nearly 6 percent at $39.16 a share, FMC Technologies was up almost 6 percent to $30.52, and Dril-Quip surged more than 7 percent to $60.60 on the New York Stock Exchange.
“These are world-class franchises that – to analysts like us – are increasingly looking like sensible acquisitions,” Herbert said.
Collin Eaton, Josh Cain and Jordan Blum contributed to this report.