As the price of oil continues to remain low, Schlumberger Limited announced Wednesday that they would acquire smaller rival Cameron International for the generous sum of $12.7 billion, with about 22 percent being in cash and 78 percent in stocks.
With both companies being two of the most well known names in the oil-field industry, consolidation is expected. Houston-based Cameron International specializes in manufacturing and servicing the heavy-duty offshore drilling rigs and other deepwater equipment used to pump oil as well as supplying maintenance equipment to pipelines and refineries. They are possibly most known for making the defective equipment that caused the 2010 Deepwater Horizon oil spill disaster in which they settled with BP for roughly $250 million. Schlumberger focuses mainly on what goes on underground, finding new oil and gas reserves as well as obtaining the most fuel possible out of existing sites. The combination of these two companies is expected to create a powerful conglomerate that will not only be extremely efficient but also cost-effective to both the company itself and its clients.
For Schlumberger this is good diversification into deepwater hardware and equipment,” says Dennis Cassidy, managing director at AlixPartners. “It’s bullish longterm that Schlumberger was willing to pay a mid-cycle valuation for Cameron right now. For Cameron shareholders it has pulled all that value forward.
According to Forbes, Cameron and Schlumberger have already worked together in a joint venture called OneSubsea where they focused on combining their services in deepwater oil drilling technology. Currently, however, the demand for deepwater drilling equipment is so low that much equipment is sitting idle, making Schlumberger’s purchase of Cameron International seem unwise as Cameron’s stocks had plunged over the past year due to dropping oil prices.
As of Wednesday, there was a 41 percent surge in stock prices, so maybe that is an indication that better times could be coming in the oil-field service industry.