By Alison Sider And Lisa Beilfuss 

Schlumberger Ltd., the world's largest oil-field service company, said Wednesday it would buy smaller rival Cameron International Corp. for about $12.74 billion in cash and stock.

Massive consolidation is expected across the energy space as companies struggle to deal with low oil prices and a pullback in drilling activity. The deal comes months after Schlumberger's two biggest competitors, Halliburton Co. and Baker Hughes Inc., agreed to merge as a way to weather the downturn. That $35 billion deal is still undergoing regulatory review.

The price tag values Houston-based Cameron--which makes drilling equipment and supplies maintenance equipment to pipelines, refineries and oil-and-gas wells--at $66.36 a share, a 56.3% premium to Tuesday's closing price. Cameron's shares have been falling as the price of oil plunged over the past year, with shares down 42% in the last 12 months. But stock in Cameron surged 41% to $59.81 midday Wednesday. Shares of Schlumberger fell 4.7% to $69.11.

The combination of Schlumberger and Cameron, two of the best known names in oil-field services, will create an energy technology powerhouse, executives from the two companies said Wednesday during a conference call.

Schlumberger's expertise is focused underground, helping companies find new oil and gas reserves and coax more fuel out of existing discoveries.

Cameron creates the equipment that sits on the surface at the top of a well, and is perhaps best known as the maker of a piece of safety equipment that malfunctioned and helped trigger the 2010 Deepwater Horizon oil spill disaster. It settled with BP, the well's operator, for $250 million. Cameron later benefited from new regulations on oil wells as companies upgraded their equipment in the wake of the disaster.

"The real excitement here is around what we can create by combining our technology offerings," said Schlumberger Chief Executive Paal Kibsgaard, adding "we will basically generate better performance for our customers."

Helping oil companies unlock oil and gas stores more cheaply has become especially pressing for oil-field service providers as crude-oil prices linger at their lowest levels this decade. Companies like Schlumberger and Halliburton, as well as smaller service providers, have had to lay off tens of thousands of workers around the world this year and idle hundreds of drilling rigs amid sharp spending cuts by their energy company customers.

Analysts said the deal didn't come as a complete surprise. Schlumberger and Cameron are already partners in a joint venture, OneSubsea, which focuses on drilling and managing subsea wells in extremely deep water offshore.

The deal is also unlikely to be the last combination of oil-field service companies, the part of the energy industry that has borne the brunt of the pain inflicted by lower oil prices.

While many energy observers had hoped oil prices might recover in the second half of 2015, expectations for weaker demand from China and the possibility of new crude supplies flowing out of Iran have pushed back expectations for a rebound. Analysts at UBS AG say oil-field service companies could be under pressure until 2017, which could prompt more mergers and acquisitions.

"We believe that more M&A opportunities are likely to evolve between the larger oil service and equipment companies," Wells Fargo analyst Judson Bailey said. "The driving force, in our view, will be the ability to provide a suite of technology and product lines to help the world's biggest operators lower costs and enhance returns in areas like deep water and U.S. shale."

Schlumberger is taking advantage of sharp share price declines during the downturn. Although it is paying a high premium based on Cameron's current price, the bid represents a 10% discount to where the company's shares traded a year ago.

Other parts of the energy sector, including pipelines and oil-and-gas producers, are also consolidating amid languishing oil prices.

Earlier this year, Royal Dutch Shell PLC said it would pay nearly $70 billion for Britain's BG Group PLC; pipeline giant Energy Transfer Equity LP offered $48 billion to buy Williams Cos.; and a partnership controlled by refiner Marathon Petroleum Corp. announced plans to acquire MarkWest Energy Partners LP for $15.8 billion.

Paris-based Schlumberger said it expects to complete the Cameron acquisition in the first quarter of 2016, subject to approval by Cameron shareholders as well as regulatory clearance.

The enterprise value of the deal, which is $14.8 billion, includes the assumption of $1.1 billion in debt, a Schlumberger spokesman said.

The company expects pretax synergies of about $300 million in the first year and $600 million in the second year after the deal closes. The transaction will add to per-share profit by the end of 2016, Schlumberger said.

Write to Alison Sider at alison.sider@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

 

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

August 26, 2015 13:16 ET (17:16 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.
Schlumberger (NYSE:SLB)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Schlumberger Charts.
Schlumberger (NYSE:SLB)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Schlumberger Charts.