Schlumberger Ltd. and frequent partner Cameron International Corp. agreed Wednesday to merge in a deal estimated to be worth $14.8 billion, combining complementary technology portfolios that they said would be the industry's first "complete" drilling and production systems.
The transaction between the world's No. 1 oilfield services company, with principal offices in Houston and Paris, and Houston-based Cameron would create a "pore-to-pipeline" products and services company. Cameron, whose portfolio spans upstream to downstream markets, reported $10 billion-plus in revenues for 2014. On a proforma basis, the combined company had 2014 revenues of $59 billion. Schlumberger valued the deal at $14.8 billion, while independent reviews set the value on Wednesday at closer to $12.7 billion.
"This agreement with Cameron opens new and broader opportunities for Schlumberger," Schlumberger CEO Paal Kibsgaard said. Last summer, before oil prices plummeted, Kibsgaard had highlighted how the exploration and production industry had to transform to deliver increased performance at a time of range-bound prices (see Daily GPI, June 26, 2014). Last month he also said the recovery in North America was months away (see Daily GPI, July 17).
"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."
The world's No. 2 and No. 3 global oilfield operators Halliburton Co. and Baker Hughes Inc. last year agreed to a $35 billion merger, which is scheduled to be completed later this year (see Daily GPI, July 13; Nov. 17, 2014).
"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," Kibsgaard said. "Deep reservoir knowledge further enabled by instrumentation, software and automation, will launch a new era of complete drilling and production system performance."
The combination also would "achieve significant efficiency gains through lowering operating costs, streamlining supply chains and improving manufacturing processes while leveraging the Schlumberger transformation platform."
Cameron's 24,000-member workforce would become part of a fourth product group at Schlumberger. About one-third of Cameron's business is U.S.-based. It has more than 80 product brands and 300-plus locations around the world.
Cameron's offshore and onshore products include:
Pressure control and rig systems;
Land and platform production systems for conventional and unconventional applications;
Separation, processing and treatment systems;
Subsea production and processing systems;
Measurement systems; and
Valves and actuators.
In 1922, Cameron founders Jim Abercrombie and Harry Cameron designed the world's first blowout preventer (BOP) in Houston and five years later they developed a BOP with rams that could be closed with steam or water pressure. Cameron in 1962 became the first company capable of designing and delivering a complete underwater drilling system. Cameron manufactured the BOP used for BP plc's doomed Macondo well; it agreed in late 2011 to pay BP $250 million to settle claims related to the disaster, but it admitted no guilt or liability (see Daily GPI, Dec. 19, 2011).
Schlumberger often acquires companies with which it has partnered. Five years ago it paid $11 billion to buy Smith International Inc., which gave it control of M-I SWACO, a drilling fluids business the companies jointly owned (see Daily GPI, Feb. 23, 2010). WesternGeco, which had joined Schlumberger in some ventures, was bought in 2006 (see Daily GPI, April 24, 2006).
Cameron long has been an acquirer itself, integrating many oilfield pioneers into its business that include W-K-M, Thornhill Craver, McEvoy, Demco, Ingram Cactus Corp., NATCO, LeTourneau Technologies' Drilling Systems and Offshore Production divisions, TTS Energy Division's drilling equipment business and Douglas Chero Spa.
"This exciting transaction builds on our successful partnership with Schlumberger on OneSubsea and will position Cameron for its next phase of growth," Cameron CEO Jack Moore said.
OneSubsea was created in late 2012 to leverage the two companies' expertise to manufacture a complete subsea production system from pore space to export space to unlock reserve potential from offshore developments (see Daily GPI, July 14; Nov. 16, 2012).
"For our shareholders, this combination provides significant value, while also enabling them to own a meaningful share of Schlumberger," Moore said. "Together, we will create a premier oilfield equipment and service company with an integrated and expanded platform to drive accelerated growth. By bringing together Cameron and Schlumberger, we will be uniting two great companies with successful track records, performance and value creation."
The combined company expects to create $300 million in synergies in its first year and $600 million in its second. Initially, the synergies primarily would be related to reducing operating costs, streamlining supply chains and improving manufacturing processes, with a growing component of revenue synergies in the second year and beyond. Schlumberger also expects the combination to be accretive to earnings per share by the end of the first year after closing.
For each of their shares, Cameron stockholders would receive $14.44 in cash and a 0.716 Schlumberger share. Once the deal is completed, Cameron shareholders would own about 10% of Schlumberger's outstanding common stock. Based on the closing share prices of both companies on Tuesday, the agreement values Cameron at $66.36/share, a 56.3% premium to its closing price Tuesday and a 37% premium to its 20-day volume weighted average price.
The transaction, anticipated to be completed in early 2016, is subject to Cameron shareholder and regulatory approvals.
Analysts with Tudor, Pickering, Holt & Co. (TPH) said they were surprised by Schlumberger's buyout of Cameron, although it is a partner in OneSubsea, because valves and rig equipment like BOPs aren't within its fairway. However, the "strategic fit and merits of OneSubsea clearly make sense as deepwater development costs need to move a step-function lower," and a big part of Schlumberger's existing portfolio is deepwater-levered "and thus depends on improvement in customers' deepwater economics."
The TPH team doesn't think the merger is going to set off an oilfield service "wave" of mergers. However, the merger "highlights the intrinsic value we see for oilfield manufacturing businesses...and deepwater activity isn't structurally dead..."
Schlumberger, analysts said, "is making a strategic bet that it can assist with that recovery."