Talking to analysts in Paris this month, Schlumberger chairman Euan Baird was bullish on the oil price and on prospects for the new combined Schlumberger Sema Group (SSG). Following the announcement of Schlumberger’s takeover of the Anglo-French consultancy, Schlumberger’s share price has lost some 30%, with the poor performance of the tech segment more than offsetting the stronger oil sector. Baird presents the Sema acquisition as the last step in a long process of building an integrated oilfield services offering, from the automated oilfield into the networked office.
Interface
Schlumberger’s strategy remains unchanged - that of “working on the shifting interface between what our clients do themselves, and what they outsource.” Baird is convinced that the arrival of a very powerful private networking capability, “not the internet,” will shift this interface further in Schlumberger’s favor. The company’s involvement in networking dates back to 1985 with the first commercial global network (SINET). The Sema acquisition adds a hitherto missing element, that of large scale systems integration. This adds a new culture to Schlumberger, making the company a credible competitor to major integrators like IBM and Accenture. En passant, Baird gave himself a pat on the back for IndigoPool, with a claimed $4 billion of assets currently on the portal, and also for the WesternGeco joint venture. This has created a seismic behemoth with a market share three times that of its nearest competitor. Baird’s predictions for the future of the oil price remain fundamentally bullish. Spare capacity in the Middle East is down from 10 to 2 million bbl/day, with most of this heavy, sulfurous crude. Oil companies “must spend more” to assure future supply - especially as natural depletion is currently running at around 8%. All this translates into a rosy future for Schlumberger’s high-tech reservoir focused offering. Fighting the down-trending depletion curve means technology - as witnessed by the high current spend on domestic US produced oil - an indicator of future world-wide spending patterns. A component of this spend is the increasing linkage of technical and business systems - where Sema’s expertise in integration with Enterprise Resource Planning systems will be deployed. Baird claims “enormous” interest from oil and gas clients on the potential of this technology transfer into real-time reservoir monitoring and control.
Festooned
Notwithstanding the bullish future, Baird recognizes that the IT sector is “festooned with pessimism!” - but believes that costs synergies and a couple of strategic asset disposals will allow SSG to bring home the bacon with 20% revenue growth in financial 2003, maintaining a debt to capitalization ratio of below 30%. But Baird’s underlying conviction, and indeed the lynchpin of his strategy, is that client companies “want to deal with a company that does everything.”
Q&A
Analysts expressed concern for the near term with difficult times ahead in the technology sector and with a slow-down in IT spend in the European Union. Baird defended the medium term outlook while acknowledging that, if the worst came to the worst “We will react appropriately, as you all know we can.” Despite the ongoing pressure on Schlumberger stock, Baird ruled out a buy-back “unless the situation gets a lot worse.” Baird also ruled out any more acquisitions for the next year or so - “All our bandwidth is dedicated to consolidating what we have now.”
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