Schlumberger to buy Cameron for $14.8bn: Update

OREANDA-NEWS. August 27, 2015. Oilfield services giant Schlumberger is acquiring smaller rival Cameron for \\$14.8bn, the second major merger in the oilfield services business since crude prices double-dipped to six-year lows.

Late last year, the second-biggest services company, Halliburton, agreed to acquire Baker Hughes for \\$34.6bn in a bid to gain an edge on the world's biggest, Schlumberger. That deal was the first major industry merger as oil prices began to plummet.

Aside from Shell's move to buy BG for \\$70bn in April, M&A activity has been largely limited to oil and gas acreage and midstream assets such as pipelines and storage facilities.

A recovery in crude prices in the second quarter from near six-year lows touched earlier in the year kept valuations high. But after prices resumed their free fall, most company executives and industry watchers expect the market to remain lower for longer, potentially kicking off M&A activity as companies struggle to fund exploration and repay debt.

"Earlier this year, there was probably a thought that this was a temporary correction and hence the view, you know, I am not interested in doing a whole lot," managing director of institutional research at Simmons & Co Pearce Hammond told Argus. "But now I think it is settling in that this is not going to be a quick recovery. And accordingly there could be more motivation to do things than there was before."

Schlumberger expects pretax cost savings of about \\$300mn and \\$600mn in the first and second years of the merger, respectively. Initially that will come from a reduction in operating costs, streamlining supply chains, and improving manufacturing processes.

"With oil prices now at lower levels, oilfield services companies that deliver innovative technology and greater integration while improving efficiency, which our customers increasingly demand, will outperform the market," Schlumberger's chief executive Paal Kibsgaard said.

The transaction combines two complementary technology portfolios into a "pore-to-pipeline" products and services offering to the global oil and gas industry, Schlumberger said.

"We believe that the next industry technical breakthrough will be achieved through integration of Schlumberger's reservoir and well technologies with Cameron's leadership in surface, drilling, processing and flow control technologies," Kibsgaard said.

On a pro forma basis, the combined company had 2014 revenues of \\$59bn. The deal is expected to close in the first quarter of 2016.

Schlumberger has a partnership to carry out deepwater drilling with OneSubsea. But the acquisition of a maker of equipment needed for deepwater drilling will help lower development costs further in the current weak oil price environment where producers are struggling to reduce spending.

The deal highlights that there is still demand for oilfield equipment manufacturing and that deepwater activity isn't dying down despite the plunge in the market, Tudor Pickering Holt said. Deepwater work may not "heal tomorrow," but with above 7mn b/d of global output coming from deepwater, "there is a logical recovery case, even if not in 2016."

"Schlumberger makes a full leap into subsea equipment with this acquisition," Oppenheimer said. "It combines Schlumberger's subsurface and wellbore expertise with the No. 2 player in a growing subsea equipment market."

Oilfield services companies have so far borne the brunt of the latest market downturn as producers pull down rigs and sharply pullback on exploration to weather the storm, forcing service providers to offer deep discounts to retain their share in a much smaller market.

Schlumberger has shed 15pc of its 115,000 workforce in two rounds, Halliburton also has cut by 15pc, or about 9,000. Baker Hughes has eliminated 10,500 jobs, representing 17pc of its total, while Weatherford International in July raised its target to lower headcount by 11,000 from 10,000 announced earlier. As of 31 December, the company had 56,000 employees.