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What to Expect from Schlumberger Stock after JV with Weatherford

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What to Expect from Schlumberger Stock after JV with Weatherford PART 1 OF 4

Why Are Schlumberger and Weatherford Partnering Up?

Schlumberger and Weatherford to form a JV

On March 24, Schlumberger (SLB), the largest oilfield equipment and services (or OFS) company, and Weatherford International (WFT) announced that they would form a joint venture (or JV) named “OneStimSM.” The JV will deliver completions products and services in the unconventional onshore resource plays in the United States and Canada. The JV, once formed, will include one of the largest hydraulic fracturing fleets in the oilfield industry.

Why Are Schlumberger and Weatherford Partnering Up?

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What’s the JV’s structure?

Schlumberger will own 70% of the JV, while WFT will own 30%. Both SLB and WFT will dedicate their entire North America land hydraulic fracturing pressure pumping assets, multistage completions, and pump-down perforating businesses to the JV. In addition, SLB will pay $535 million cash to WFT, according to the terms of the JV agreement.

SLB’s and WFT’s North America revenue growth

From 3Q16 to 4Q16, SLB’s revenues from North America rose 4%. During the same period, WFT’s revenues from North America rose 8%. However, revenues for both these companies in 1Q17 were lower compared to 4Q15. If crude oil price and upstream drilling and completion activity stay strong, it could improve the joint venture’s revenues in 1Q17. Schlumberger makes up 7.4% of the iShares US Energy ETF (IYE).

Why was the JV formed?

In the past one year, crude oil prices, which had dropped to ~$29 in February 2016, have recovered nearly 22% as of March 2017. The US rig count has surged 74% in the past one year as of the week ending March 24, 2017. The better price dynamics and increased drilling efficiency have led to increased completion activity, particularly in unconventional shales, which has renewed OFS companies’ interests in US onshore resource plays. For more industry analysis, read about Keane Group (FRAC) in Market Realist’s Keane Group’s IPO: Is the Timing Right?

Recently, SLB awarded a contract to BP (BP), one of the largest integrated energy companies. For more information on the contract, continue to the next part of this series.

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