Shares in Oilfield Services Provider Cameron Jump 41 Per Cent after Schlumberger Deal

Cameron International Corporation (NYSE:CAM), which provides flow equipment products, systems and services to worldwide oil, gas and process industries, is to be acquired by Schlumberger Limited. (NYSE:SLB) in a cash-cum-stock deal worth US$12.71 billion.

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Shares in Cameron vaulted 41.28% to close at $60.00 on Wednesday (August 26) after the news broke, and in after-hours trading were up another $0.45.

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Cameron was the manufacturer of the blowout preventer on the ill-fated Deepwater Horizon rig that suffered a massive explosion in 2010 and unleashed a huge oil spill.

(Read our earlier article “Largest Environmental Settlement in History: BP to Pay $18.7B for Gulf Oil Spill”)

Under the terms of the merger, Cameron shareholders will receive 0.716 shares of Schlumberger common stock and cash of $14.44 for every share held by them. Based on Cameron’s closing price of $42.47 as on Tuesday (August 25) Schlumberger’s payout is worth $66.36 per share of Cameron, a premium of 56%. According to the companies, the transaction is valued at US$14.8 billion.

The merger will create a powerhouse in the oilfield equipment and services sector – one that had a pro forma revenue of US$59 billion in 2014, and is described as a “pore-to-pipeline” products and services offering to the global oil and gas industry.

In a statement Schlumberger said it expected to realize cost savings of about $300 million and $600 million in the first and second year after the merger through pre-tax synergies such as reduced operating costs, streamline supply chains and better manufacturing processes.

“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,” said Paal Kibsgaard, Chairman and Chief Executive Officer of Schlumberger. “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.”

In July this year, Mr Kibsgaard observed that oil producers were increasingly resorting to innovative technology amidst the global oil bust in a bid to make it cheaper to get each barrel of crude out of the ground. It’s no longer just the capital costs of drilling and completing oil wells – the new focus is the cost per barrel of oil produced.

“They see the importance of moving away entirely their focus from driving down the well costs to driving down the cost per-barrel for the production that they have. We are nearing the absolute totals of how cheaply you can drill and complete these wells,” Mr Kibsgaard observed. You’re going to have to get more production out of them, and I think it is evident that the only way to get that done is through new technology and new workflows.”

In fact, the two companies have already been collaborating for the past three years in an innovative alliance called OneSubsea to develop new technologies for boosting oil production and recovery rates from complex deep-water reservoirs.

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Image from OneSubsea – Ceiba field, Equatorial Guinea

“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,” Mr. Kibsgaard said.

Post the merger, Cameron shareholders will have an effective stake of about 10% in Schlumberger. The transaction is expected to complete in the first quarter of 2016, subject to statutory and regulatory approvals.

Image credits

Title image and offshore platform – Cameron brochures

Ceiba field – OneSubsea

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