Oil services giant Schlumberger (SLB) entered into a deal to acquire Cameron International in a US$14.8 billion stock and cash deal that will offer the industry’s first complete drilling and productions systems.
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Image from Schlumberger. |
Schlumberger had set it sights on striking a deal like this as far back as June 2014 to outperform the market.
“This agreement with Cameron opens new and broader opportunities for Schlumberger. At our investor conference in June 2014, we highlighted how the E&P industry must transform to deliver increased performance at a time of range-bound commodity prices. With oil prices now at lower levels, oilfield services companies that deliver innovative technology and greater integration while improving efficiency, which our customers increasingly demand, will outperform the market,” Paal Kibsgaard, Schlumberger chairman and CEO said.
The agreement, unanimously approved by both boards of directors, will offer Cameron shareholders 0.716 shares of Schlumberger common stock and a cash payment of $14.44 in exchange for each Cameron share. As of today (26 August), the deal places Cameron shares at a value of $66.36 each. Upon closing, it is estimated that Cameron shareholders will own approximately 10% of Schlumberger’s outstanding shares of common stock.
The transaction is subject to several approvals, including those by Cameron shareholders. Should all approvals be met, the deal is expected to close as early as 1Q 2016.
Schlumberger is expecting pretax synergies of about $300 million in the first year, and $600 million in the second year, initially by reducing operating costs, streamlining supply chains, and improving manufacturing processes. Beginning in the second year, the goal is to grow a component of revenue synergies. On a pro forma basis, the combined company had 2014 revenues of $59 billion.
“We believe that the next industry technical breakthrough will be achieved through integration of Schlumberger’s reservoir and well technologies with Cameron’s leadership in surface, drilling, processing and flow control technologies. Deep reservoir knowledge further enabled by instrumentation, software and automation, will launch a new era of complete drilling and production system performance,” Kibsgaard said.
Both Houston-based companies have previously joined forces to create the OneSubsea joint venture in November 2012 to explore deeper waters.
“This exciting transaction builds on our successful partnership with Schlumberger on OneSubsea and will position Cameron for its next phase of growth,” Jack Moore, Cameron chairman and CEO said. “Together, we will create a premier oilfield equipment and service company with an integrated and expanded platform to drive accelerated growth.”
Simmons & Co. analysts Bill Herbert and James Book weighed in on the mega merger, in which they said that OneSubsea appears to be the strategic primary driver for this transaction. As we wrote several days ago “OneSubsea value proposition is blossoming, commanding competitive position in subsea boosting is inflecting,” the analysts said.
According to Simmons & Co., the deal should not be a surprise to many given Schlumberger's history of rolling up its joint ventures: Smith, Eurasia Drilling, Saxon, Western Geco.
“SLB has demonstrated its singular financial strength and discipline during this downturn by generating prodigious FCF and reducing capital intensity, which provides strategic flexibility that most of its peers lack. Our interpretation of the subtext of the commentary on its strong financial position is that SLB would be disappointed to exit this downturn without exploiting it from an M&A standpoint,” Simmons & Co. wrote after 2Q 2015 earnings.
The bigger picture, Hebert and Bookout said, is SLB is saying that DW [deepwater] isn’t dead and that with enhanced breadth of capabilities, SLB should be increasingly at the forefront of driving transformation of DW [deepwater] business model. Further, given SLB’s drive to reinvent/modernize the land rig, the acquisition of CAM’s rig capital equipment business appears to make strategic sense as well.
OneSubsea has entered into a number of deals this summer alone, including a contract with Shell to supply subsea services for the 100% Shell-operated Stones ultra deepwater development project in the Gulf of Mexico last week. In July, OneSubsea entered into a deal to form an alliance with Subsea7 to design, develop, and deliver integrated subsea development solutions for the industry. OneSubsea also formed a subsea joint industry program with Chevron to develop subsea systems technology for 20,000-psi applications last month.
Earlier this month, Schlumberger launched a new survey in the Campeche basin in the US Gulf of Mexico to acquire the industry’s first multiclient wide-azimuth survey offshore Mexico. The survey will cover 80,000sq km using two fleets of WesternGeco vessels, including Amazon Class, the world’s first purpose-designed 3D seismic vessels.
Read more:
OneSubsea inks Shell Stones deal
OneSubsea, Subsea 7 form alliance
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