Setting out the Gould standard
Schlumberger chief has laid out ambitious proposals to get the company back on course,
but investors will wait for results to do the talking
Upstream, March 7
By Blake Wright
Oilfield services giant Schlumberger wheeled out its plans for the future this week via the contractor's first analyst roadshow in two years.
Newly-crowned company chief executive Andrew Gould, in his first presentation to investors since taking the reins on 1 February, took centre stage in New York and laid out ambitious targets for the company's performance outlook.
Gould said the company is targeting a 13% average return on sales in its Oilfield Services business, with peaks of more than 15%.
For seismic -- a business that has been, and continues to be, in utter disarray for all players -- Schlumberger is looking for its 70%-owned Western Geco venture to boast a 12% pre-tax return over the long term.
The company also picked up on a mantra that it had lost over the past few years -- capital discipline.
Schlumberger is targeting overhead cost reductions at support team levels across several different geographic markets, including the CIS, Africa and Europe.
Gould would not lay out how many job cuts would result or how much cash would be saved, saying only that the savings would be "significant", and that investors would see movement by the company on improving its cost base within six months.
Additionally, beginning this year, all Schlumberger regional managers will be compensated based on their return on capital.
The move was applauded by analysts who believe it will bring long-term capital discipline and create higher cash flows once fully implemented.
The company's hopes for its seismic business appear to lie firmly on the shoulders of its single-source acquisition Q technology. Western Geco has four Q marine systems and one Q land system in operation, with no additions currently planned. Schlumberger is betting that once customers get a taste of the quality of data produced by the system, they will be willing to pay a premium for it.
In a business mired by over-capacity, the plan seems a risky one. However, the company appears conscious of this and is giving Q roughly 18 months to prove itself as a breadwinner.
If it does not perform, Gould said Schlumberger would consider reducing its investment in Western Geco. Observers speculate that a retreat from the seismic business altogether may result.
The strategy for SchlumbergerSema remains as outlined last December when the company took a $3.2 billion charge related to the troubled business.
The restructured company will focus on providing its information technology solution to global energy markets while maintaining regional focuses on its other businesses such as telecommunications, finance and transportation.
Many of the non-oilfield businesses of Sema -- such as smart cards, electric meters and semiconductor testing equipment -- are slated to be sold or spun-off in an initial public offering.
One message Gould wanted to make clear is that Schlumberger is first and foremost an oilfield services company with the belief that fossil fuels will continue to be the energy source of choice for at least another two generations.
Overall, his message was a hit with analysts, though some questioned the plausibility of attaining the growth targets in the short term. Others voiced concerns that the targets were not altogether different or better than those of comparable peer companies and, given its competitive position -- number one or two in many oilfield service segments -- Schlumberger should reap premium returns.
Recent rumblings that the contractor has made regional price cuts -- in North America and internationally -- have left some investors scratching their heads wondering if the move is designed to boost market share at the expense of margins.
One thing Gould makes obvious is that he knows the Schlumberger behemoth has been adrift for a while and that it will take some doing to get it back on course.
While some applaud the plan laid out in New York, the realists of the world -- including those inside Schlumberger -- know that talk is cheap. And it is performance that will count. |
