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Company that has the world by the nuts!

Discussion in 'Uncategorized Threads' started by crusha, Jan 4, 2008.

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  1. crusha

    crusha TS Member

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    You've probably all known about "SlumberGay" for a long time, but I thought this article presented some interesting info about their more recent oil exploration activities in the "developing world".
     
  2. Bob Schultz

    Bob Schultz Well-Known Member Supporting Vendor

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    Here are some interesting thoughts on Schlumberger and why the stock is overvalued in the market.... a good read if you like this stuff.

    Under CEO Andrew Gould, Schlumberger has been whipped into fighting shape by selling off noncore assets and sharpening its focus on its core competencies. Additional weapons include best-in-class technological and training leadership, as evidenced by its reservoir-management software Petrel and its extensive training and research centers around the globe. The firm has positioned itself to excel.

    We think the firm's foresight in globalizing its workforce and research and development efforts decades ago will continue to pay off. This positioning is critical to the firm's future success, as oil and gas deposits are being developed around the world. For example, the Dhahran research center is near a leading Saudi Arabian university for petroleum engineers. This global investment allows both scientists and engineers to work closely together on specific local customer issues. In Russia, for example, Schlumberger has increased revenue from $50 million in 1999 to well more than $1 billion today.

    Schlumberger's technology leadership feeds its service portfolio and forms the basis for our narrow moat rating. The company's wide range of technologically advanced oil services, from pressure pumping to seismic surveys, allows it to be an oil-services supermarket, which increases customer lock-in. It spends heavily on research and development to build new service products, such as Q-technology, which implements time-lapse technology for seismic surveys. The firm also acquires products, such as Petrel from Technoguide, to supplement its research efforts.

    The Petrel acquisition excluded, the firm's acquisition efforts have focused largely on acquiring technology and software, rather than specific products. The firm is focusing on developing local technologies for specific reservoirs, recognizing that a custom approach works better than a one-size-fits-all approach. We think this focus will allow Schlumberger to continue winning profitable business.

    Still, we believe that the firm faces some risks--political risk is always a concern when governments can destroy firms for political gain (as we've seen in Russia), or nationalize assets (as we've seen in Venezuela). Also, an inability to commercialize key technology could cost the firm project wins and reduce the impact of its heavy investment in its globalized workforce. Finally, a sustained and significant fall in oil and gas prices would also reduce business for Schlumberger.


    Valuation

    We are raising our fair value estimate to $49 per share from $42 after taking into account the effect of our new oil price assumptions on our revenue growth and operating margin assumptions for Schlumberger. Our expectations are for 14% annual revenue growth during the next five years and for operating margins to average 29% during the same time frame. Our fair value estimate is sensitive to our weighted average cost of capital assumption, which is 10.1%. If we lowered this to 9.1%, our fair value estimate would be $58. If we raised this assumption to 11.1%, our fair value estimate would be $43. We think that the stock is richly priced, as the market price of $95 implies 20% annual revenue growth for the foreseeable future. We believe the odds of Schlumberger meeting those expectations are low.

    Risk

    As with all oil-service companies, Schlumberger could face difficult times if oil and gas prices had a significant and sustained fall. Its reliance on technology and acquisitions to drive revenues could backfire if a competitor developed better technology, or if an acquisition failed to perform up to expectations. The company's extensive infrastructure in Russia could prove to be a liability if Russia decides to treat service companies like it has treated operators, such as Yukos.
     
  3. crusha

    crusha TS Member

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    Didja catch the little part about how 4/5ths of the world's reserves are in the hands of "nationalized companies?"


    Shit, man...this is going to be economic war on an as-yet unseen scale, and the western-capitalist smarties' ability to "free trade" their way to profitability don't mean much when people like Putin and Chavez are the "Jed Clampetts" with the bubb-l-in gold in their backyard...
     
  4. Hipshot 3

    Hipshot 3 TS Member

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    Buzzy....You talking about Pecans?....Almonds?....Chestnuts?......Peanuts?
     
  5. b12

    b12 Well-Known Member

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    I've been saying this for a few years now. I can understand why its such a shock. Putin wants the price of oil as high as the Saudis will make it. He already told them if they raised production or lowered price of crude he would flood the world with oil and the Saudis would loose their sandpapered ass.
     
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