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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: John Carpenter who wrote (47803)7/13/1999 12:46:00 PM
From: Tomas  Read Replies (2) of 95453
 
After four decades in the water, Schlumberger is paddling for shore
Financial Times, Lex Column, Tuesday July 13

The giant oil services group is spinning off Sedco
Forex - its offshore drilling business which supplies oil
companies with drilling rigs, and merging it with
Trans-ocean, a US-quoted rival, to create a $6bn company.

Offshore drilling faces a litany of woes, from overcapacity
and rising rig construction costs to a volatile oil price and
increasingly onerous demands from the oil majors.

By joining with Transocean, Schlumberger is seeking
refuge in sheer scale. The combined group will be easily
the world's biggest offshore driller, with a fleet of 75 rigs
and a global spread. Schlumberger brings valuable client
relationships, while Transocean has expertise in extreme
deepwater drilling, which is the most profitable niche.

But Schlumberger is paying dearly for its escape. Sedco
had a net profit margin of 35 per cent last year and
accounted for a quarter of group profits, while
Schlumberger's remaining operations produced net
margins of 9 per cent. Yet Sedco is being valued at just
eight times 1998 earnings in the merger with Transocean
(which is on a similar multiple), while Schlumberger
trades on 26 times - hardly a value-enhancing demerger.
And cost savings will be minimal. Schlumberger's
eagerness to throw in the towel points to a bleak future
for smaller drillers.
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