February 20, 2010 2:00 am

Schlumberger closes in on Smith

Schlumberger, the world's largest oil services group, is close to an agreed takeover of the US company Smith International, in a deal that could be worth about $9bn.

The acquisition would extend Schlumberger's lead over its competitors in the international oil services business.

Valued at $79bn, it is already more than twice the size of Halliburton of the US, its closest rival.

Andrew Gould, Schlumberger's chief executive, has been described as one of the most powerful men in the oil industry worldwide, because of the technology the company controls and its strong relationships with leading oil producers such as Saudi Arabia and Russia.

The move comes as many in the industry expect an upturn in the oil services business. Prices for services fell sharply in the global recession as companies cut spending, but after the rebound in the price of oil there are signs that a recovery is under way.

Schlumberger's shares have risen 66 per cent in the past 12 months.

James West of Barclays Capital wrote in a recent note: "We believe [the fourth quarter of 2009] was the low point, and activity will gradually improve through 2010. This will mark the beginning of what we expect to be a long international up cycle."

Smith was hit harder than Schlumberger in the downturn.

Its net profits fell 81 per cent last year to $148m, while Schlumberger's were down 42 per cent at $3.13bn.

Mr Gould said recently he believed the downward pressure on the price of oil services was over.

Contracts signed by international oil companies to develop huge fields in Iraq are expected to increase demand for oil services this year. Smith, like Schlumberger, specialises in sub-surface operations for oil and gas exploration and production, providing products and services for drilling and completing wells.

It is based in Houston but earns two-thirds of its revenues outside the US, employs 21,000 people and last year had revenues of $8.2bn.

Schlumberger, which has headquarters in Paris and Houston, employs 77,000 people and last year reported revenues down 16 per cent at $22.7bn.

There is a risk the proposed deal could fall foul of competition authorities, which have already raised concerns about the relationship between Schlumberger and Smith.

The two companies operate a drilling fluids joint venture, M-I Swaco, which when it was formed in 1999 led to them paying a fine of $14.6m to US antitrust authorities.

Schlumberger's shares fell 2.9 per cent in New York yesterday, while Smith's rose 13 per cent.

Schlumberger refused to comment, and Smith did not return calls.

www.ft.com/oil

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