Schlumberger And The Price Of Oil

Huge oil field services provider, Schlumberger (SLB), tends to trade with the price of oil, but there are some strengths to the company's business that go beyond the daily price per barrel. The company provides products to oil and gas exploration firms, and , with prices still near their high-water mark, the company is likely to do well over the next few quarters.

The advantage that SLB has now is that as oil and gas become harder to locate and drill, the services the company has to offer the industry become more valuable. The depth of the company's R&D and product range make it difficult for any other company in the world to compete with it.

The argument against owning an oil industry service stock is that the pricing cycles tend to hurt the company when price-per-barrel drops. There is some true to this, but SLB has managed to make money in even lean years.

Over the last ten years, the companies revenues have gone up and down, linked primarily to the price of oil. Over the last ten years, revenue has been as high as $14.3 billion, which the company hit in 2005, and as low as $8.8 billion in 1999. And, operating income has been positive in each of the ten years except 2002. In 2005, operating income hit $2.8 billion.

According to Morningstar, SLB has also done a great deal to improve its balance sheet. The company cut its debt from nearly $5 billion in 2002 to $1 billion at the beginning of 2006.

SLB has pulled back from its 52-week high of $74.75 to $56.12, in some part because of the drop in oil prices.

However, price-per-barrel remains near historically high levels, and, the need for SLB's services should rise as the commodity becomes harder to find and retrieve.

With a forward P/E of 16, the shares of SLB could be a bargain.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.