The next oil major? Service firm Schlumberger’s big bet on production
The world’s largest oilfield services company, Schlumberger NV, is spending billions of dollars buying stakes in its customers’ oil and gas projects – investing in the same ventures it supplies with equipment and expertise.
The new business model gives Schlumberger a say in drilling decisions, oilfield management and even on hiring other Schlumberger units for service contracts, the company has told investors.
The expanded operational authority saves Schlumberger from bidding for each of the many jobs that typically require separate contracts on a large drilling project – effectively locking out the firm’s competitors.
Schlumberger’s gamble could upend the service business model throughout the industry, as rivals including General Electric Co’s unit Baker Hughes say they are considering whether to adopt similar strategies.
The model can supercharge profits on a given job but also ramps up risk, giving the firm more exposure to global oil price swings and potentially big losses if individual projects fail. The downsides have some analysts questioning whether the traditionally conservative firm is taking on too many speculative projects too quickly.
Schlumberger already has taken hundreds of millions in write-downs or impairments on some of these joint ventures, according to its financial filings.
Traditionally, oil producers manage the risk and make the financial and operational decisions on projects; they pay service providers a fee to carry out individual jobs. Firms such as Schlumberger typically supply a wide variety of services, such as well design, along with technology and staff to run rigs. Schlumberger declined to make executives available for interviews and did not respond to written questions about its production business.