Smith buyout gives Schlumberger access to new drilling technology

Paris: Schlumberger Ltd, the world's largest oilfield-services provider, said its $11 billion (Dh40 billion) purchase of Smith International Inc will broaden its service offerings and strengthen its competitive position as advances in drilling technology spur oil and natural gas production.

Smith stockholders will get 0.6966 Schlumberger share for each Smith share they own, a value of $44.51 a share based on Friday's closing prices, the companies said on Sunday in a statement announcing the all-stock transaction.

Future supplies of fossil fuels are increasingly dependent on breakthroughs in drilling techniques to access deposits in difficult-to-reach areas, such as crude oil in ultra-deep water or natural gas locked in hard shale rock, Schlumberger CEO Andrew Gould said in the statement. The company is based in Houston and Paris.

"The next breakthrough will be through engineered drilling systems that optimise all the components of the drillstring, allowing our customers to drill more economically in demanding conditions," Gould said. "Smith's drilling technologies, other products and expertise complement our own, while the geographical footprint of Schlumberger means we can extend our joint offerings worldwide."

Smith, which owns the M-I Swaco drilling fluids joint venture with Schlumberger, is the second-biggest provider of drill bits, a "critical link" for Schlumberger in offering a full range of drilling products and services, RBC Capital Markets said on Friday in a note to clients.

The buyout, Schlumberger's largest, would be the biggest US merger this year, according to Bloomberg data. It's also the biggest purchase of an oilfield-services company since Bloomberg began tracking merger statistics more than a decade ago.

"If anyone was going to buy Smith, Schlumberger was the logical buyer," said Dan Pickering, an analyst at Tudor Pickering Holt & Co in Houston. "It was really integrating the bits together with fluids and the other Schlumberger product" lines, he said on Sunday in an interview.

Schlumberger and Smith have talked off and on about merging over the years, a person with knowledge of the matter said. The two companies came close to reaching a stock-for-stock deal last year, only to have the talks fall apart after Smith's shares declined following a drop in its earnings, said three people with knowledge of the talks.