Morningstar

Schlumberger’s Acquisition of Cameron Will Strengthen Its Wide Moat

Though the valuation seems a bit rich, we otherwise view the acquisition favorably, says Morningstar’s Allen Good.

Securities In This Article
Schlumberger Ltd
(SLB)

On Wednesday,

Though the valuation seems a bit rich relative to our fair value estimate for Cameron, we otherwise view the acquisition favorably. Schlumberger already was partnered with Cameron in the OneSubsea joint venture, which combined the former's large customer base and reservoir management expertise with the latter's subsea experience and manufacturing capability. Peers later replicated this type of partnership, but we viewed OneSubsea as best of the breed. Now, Schlumberger is in effect adding Cameron's surface operations, which primarily focus on North American onshore activity, to its reservoir management expertise, which should open new avenues of growth. It will also leave Schlumberger better equipped to compete in what is likely to be a sustained low oil price environment with ongoing pressure on service providers.

Schlumberger's wide economic moat is based in part on the breadth of products and services it offers, which creates meaningful switching costs through process and product integration. On initial view is that the addition of Cameron strengthens this advantage, leaving our wide moat rating intact. We will incorporate the acquisition into our fair value estimates for Schlumberger and Cameron and adjust as necessary.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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