Barclays has just produced a compendium of reports on the ‘big four’ oil and gas service companies, Baker Hughes (BHI), Halliburton (HAL), Schlumberger (SLB) and Weatherford (WFT) comprising individual reports of around 90 pages and an overview. Barclays recommends all four as buys and sees 2013 as ‘the year of the large-cap diversified companies.’ The big fours’ ongoing success is ascribed to ‘one of the largest strategic mistakes of the last 50 years—the divestment and lack of investment in the oil service and drilling industry by oil companies.’
The big four differentiate themselves from smaller players through consistently investing in new technologies and processes. SLB leads the field in R&D with an $11 billion spend since 1997, 2% more than the other three combined. SLB was the first to use a multi-national tax structure and its tax rate has been almost 10% below its peers for a decade.
Prior to the 2009 downturn, the big four’s share of the North American oilfield services and equipment business was around 15%. Since the recovery, the market has increased to some $180 billion in 2012—of which around 25% went to the big four. Growth has been spectacular in the non conventional sector with a 35% per year hike in the horizontal rig count which stood at 1,150 in 2012. Barclays anticipates continued expansion in horizontal drilling.
Coverage of information technology is light. Petrel is described as ‘the glue that binds SLB’s reservoir characterization products and services.’ Schlumberger Information Solutions (SIS) and PetroTechnical Services are dwarfed by the rest of the behemoth and bring in around 2% of the Reservoir Characterization division. The latter, although SLB’s smallest segment by revenue today (27% of total in 2012), is by far the most profitable with an operating margin of 28% and representing ‘38% of total EBIT.’
Halliburton’s Landmark unit ‘has a powerful position in seismic interpretation.’ Landmark generates roughly 2-3% of HAL’s revenue. HAL’s acquisition of Petris last year gets a mention in the context of Landmark’s focus on managing the ‘ever-greater volumes of E&P data’ where oils ‘lack effective integration and collaboration technology.’ Weatherford’s Field Office also gets a mention with an installed base of ‘over 400,000 wells.’ The reports, authored by Barclay’s James West, recommends investment in all of the big four, but sees most upside in Halliburton and Schlumberger.
© Oil IT Journal - all rights reserved.