The afternoon deal: Deciphering Schlumberger’s deal

February 22, 2010

OIL/Schlumberger’s stock is down, while shares of Smith are up 8 percent. Is Schlumberger’s $11.34 billion all-stock deal for Smith International a bet on gas, a sign of more consolidation to come, overpriced, or a shrewd move?

Here’s what is being said on the Web:

Schlumberger sees gas drill growth in Smith deal (Reuters)
“No doubt, in the long-term, shale gas is going to be one of the big new energy sources in the U.S. and overseas,” Schlumberger Chief Executive Officer Andrew Gould said, “and the capacity to serve that market in North America is of great interest to me.”

Behind Schlumberger’s Smith Deal: A Big Gas Bet (NYT)
“Schlumberger’s $11 billion takeover of smaller rival Smith Industries seems to be a big bet on unconventional natural gas production in the United States,” reports The New York Times.

Drilling Complexity Drives $11B Schlumberger-Smith Deal (WSJ)
“The acquisition underscores the growing difficulty of tapping hard-to-reach oil and natural gas deposits — both in offshore, deepwater developments and in service-intensive shale-rock formations, where well costs are high. It also signals how competition among oilfield service providers for more intricate projects is heating up.” – WSJ

Did Schlumberger Overpay for Smith International? (WSJ)
“Citigroup: “We expect a loud chorus of analysts to claim that Schlumberger is overpaying for Smith. In our view, they are wrong.” – WSJ

This story was written before the deal was announced but provides some good background:
Merger could put Schlumberger back in the bit business (The Houston Chronicle)
“A possible merger between Schlumberger and Smith International could find the world’s largest oil field services company re-entering a business it left just a few years back and swallowing a major Houston firm in its quest to win more business with global oil companies,” reports The Houston Chronicle

A Flood Of Energy M&A: Schlumberger Buys Smith For $11 Billon (24/7 Wall St.)
“The acquisition by Schlumberger Ltd. of competitor Smith International Inc. for $11 billion could be another sign that mergers and acquisitions in the energy sector will pick up in 2010,” reports 24/7 Wall St.

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