Schlumberger Sees Customer Spending Slowdown in 2009

• The Company: Schlumberger Ltd., the world’s largest oilfield services company.
• The Filing: FORM 8-K filed with the SEC on September 17, 2008.
• The Finding: Although Schlumberger has limited direct credit market exposure, as it enters the fourth quarter, the global banking crisis will likely have an effect on demand for its oilfield service activities, though Chairman and Chief Executive Andrew Gould anticipates this will be largely limited to North America and to some emerging offshore markets overseas.

The Upshot: Schlumberger has no immediate liquidity concerns, with $4 billion in cash and established credit lines committed from the banks, unused of about $2 billion. In addition, the company made almost $1 billion in cash flow (after spending $1 billion in capex) in the third-quarter ended September 30.

At the present time, the company has not witnessed any distressed selling signals from competitors. Slowing global economic growth, limited access to bank borrowing, and lower energy prices — it is inevitable that a slowdown in customers’ exploration and production spending will likely lead to an oilfield services shake-up and consolidation. Most vulnerable could be more leveraged and/or smaller capitalized oilfield firms, with those in the seismic business, pressure pumping, fluids, wireline equipment and well workover segments selling out first.

The Question: Are readers as optimistic as Chief Executive Gould– who believes that any slump in exploration and production would lead to an even stronger recovery?