Schlumberger (SLB) to Divest WesternGeco Assets to Shearwater

Schlumberger Limited SLB recently announced that the company has agreed to divest its business unit WesternGeco’s marine seismic acquisition properties to Shearwater GeoServices Holding AS through a cash and stock deal. Shearwater will pay the acquiree $600 million in cash. The deal is expected to close in the fourth quarter of 2018, following which Schlumberger will receive an additional 15% equity interest in Shearwater. Additionally, Shearwater will pay Schlumberger for the usage of the acquired vessels in the future over and above some specific thresholds for a limited time period.

Divestment Details

Per the deal, Schlumberger will give 10 high-end seismic acquisition vessels involved in the business to Shearwater along with WesternGeco’s proprietary marine seismic technology. The manufacturing and development properties located in Norway and Malaysia are also included in the transaction. The deal entitles Schlumberger with the option of using two Shearwater vessels for potential “multiclient work” during the first two years post-closing of the transaction.

Divestment Rationale

Schlumberger included WesternGeco activity in its Reservoir Characterization segment. The divestment is in line with Schlumberger’s strategy of making the segment an asset-light business. The company decided to get rid of the land and marine seismic acquisition business in January, as it could not meet its future return expectations. Even in the second quarter of 2018, lower WesternGeco activity led to a decline in Reservoir Characterization segment revenues.

Shearwater’s Point of View

On the other hand, Shearwater — a Norwegian marine geophysical services company, which is a joint venture between GC Rieber Shipping and Rasmussengruppen — expects to gain substantially from the marine seismic acquisition assets. The deal will increase its fleet size from four to 14 and is expected to boost its operational efficiency as well. Shearwater intends to inject $50 million in the business, lending it a strong financial platform. It will fund the transaction through a new cash equity and debt financing, both worth $325 million each.

Price Performance

Houston, TX-based Schlumberger has gained 3.6% over a year against 2.1% decline of its industry.

Zacks Rank & Stocks to Consider

Currently, Schlumberger has a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks like McDermott International, Inc. MDR, Subsea 7 S.A. SUBCY and Canadian Natural Resources Limited CNQ. While McDermott and Subsea sport a Zacks Rank #1 (Strong Buy), Canadian Natural carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based McDermott is an equipment provider for energy companies. The company’s top line for 2018 is likely to improve 145% year over year. In the last four reported quarters, the company delivered an average positive earnings surprise of 101.7%.

Luxembourg-based Subsea is an oilfield service providing company. In the trailing four quarters, the company delivered an average positive earnings surprise of 318.6%.

Calgary, Canada-based Canadian Natural Resources is an upstream energy company. The company’s top line for 2018 is anticipated to improve 41.3% year over year, while its bottom line is expected to increase more than 200%.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
McDermott International, Inc. (MDR) : Free Stock Analysis Report
 
Canadian Natural Resources Limited (CNQ) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Subsea 7 SA (SUBCY) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research