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Schlumberger And Cameron See Path Clear For Merger

The world’s top oilfield services provider Schlumberger announced last week it has received approval from the Chinese antitrust authorities for its acquisition of Cameron International, a provider of oilfield technology and equipment.

The approval, granted by the Chinese Ministry of Commerce, is unconditional and clears the way to concluding the deal on April 1, the company said. It is the last approval Schlumberger needed, after earlier receiving an unconditional green light from the U.S. Department of Justice and the European Commission.

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The tie-up between the two companies is an excellent example of the current environment in energy: with oil and gas prices at multi-year lows, the time is ripe for some major M&A activity in the sector.

We recently saw the completion of the Shell-BG Group merger, which is expected to bring solid synergies for both companies, although the timing of the deal was arguably not the best for Shell.

There is also another merger in the works, in oilfield services: that between Halliburton and Baker Hughes. This one has sparked doubts about the timing of such a high-level deal, as well.

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Against this background, Schlumberger seems to be the smartest buyer. First of all, it will pay much less for Cameron ($14.8 billion) than Shell paid for BG Group ($50 billion) or Halliburton is ready to pay for Baker Hughes ($35 billion). True, Cameron is a smaller company, but it complements Schlumberger’s own operations in a much better way than the other two targets.

Here’s why.

Shell and BG Group play in the same sector, which is exploration and production. That is, their operations largely overlap, so when the market is bearish, the combined company will suffer. The same is true for Halliburton and Baker Hughes, with the added problem that because they are peers, their merger has been delayed by regulators, worried that it will create too large a company. This leads to more problems and is quickly erasing the advantages of the deal.

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Unlike Shell and Halliburton, Schlumberger is acquiring a company narrowly specialized in drilling, processing, and flow control equipment and technology. That is a niche that will be added to Schlumberger’s own portfolio of services, turning the combined company into a one-of-a-kind fully integrated oilfield equipment and services provider.

Schlumberger played it safe and struck a deal at the right moment and with the right target. This will most likely solidify its top spot in the industry and help it weather the downturn, which, like all downturns, will be temporary, much better than Shell and Halliburton.

By Irina Slav for Oilprice.com

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