SLB to Rename Operating Segments - Analyst Blog

Schlumberger Limited (SLB) is planning to change its financial reporting structure for better representation of its businesses following a string of acquisitions in recent times.

In February 2010, Schlumberger acquired Smith International for approximately $11 billion in an all-stock deal and gave it complete control of its drilling fluids business M-I Swaco. Following this, it also acquired the French drilling analysis company Geoservices for nearly $1 billion.

Previously, Schlumberger's operations were divided into two business segments: Oilfield Services (which contributed 90% of revenue and 93% of pre-tax operating income in 2009) and WesternGeco (contributing 10% and 7%, respectively). From the first quarter of 2011, the company will report in three different segments: Reservoir Characterization, Drilling and Reservoir Production.

The first segment will include WesternGeco and other well testing and consulting services involved in finding and defining oil and gas deposits, while the second segment will comprise M-I Swaco and much of Smith businesses. The third segment will recognize revenues once a well starts production.

Schlumberger is well known for its dominant position in the oilfield services sector with its extensive product and technology portfolio. Reclassification of operating segments shows the company's initiative toward better representation of its financial reporting structure to the investor community.

Given Schlumberger's continued shift in drilling activity to liquids from gas, we believe the company will benefit in the next several quarters. We also believe the company is favorably positioned to benefit from the current trends in oilfield services, given the improving activity level and greater need for stimulation and completion of services in North America.

Schlumberger is facing competition from peers such as Halliburton Company (HAL) and Baker Hughes (BHI). Our Neutral recommendation for Schlumberger remains unchanged at this stage with the Zacks #3 Rank (Hold).

 
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