An Oilfield Services Sponge

Just when you thought National Oilwell Varco (NYSE: NOV  ) couldn't get much bigger, it went ahead and absorbed the largest drill pipe company in the world.

I don't mean to pigeonhole target company Grant Prideco (NYSE: GRP  ) . It also faces off against Tenaris (NYSE: TS  ) and Vallourec in the market for premium tubular products, and Grant's drill bits compete with those of Baker Hughes (NYSE: BHI  ) and Halliburton (NYSE: HAL  ) . Nevertheless, the high-margin drill pipe business seems to be what NOV desires the most. After all, it's highly complementary to the products feeding NOV's booming offshore backlog.

Invariably, deal-doers will point to synergies, cost savings, and earnings accretion. This tie-up is no exception, but what concerns me about the transaction is not a financial matter. Not directly, anyway.

All too often, we're stuck listening to what companies have to say about themselves. That's why I'm a big fan of the work done by Doug Sheridan and the rest of the team at EnergyPoint Research. Their customer satisfaction surveys provide an invaluable glimpse into the quality of services provided in the oil patch.

In a note today, Sheridan hit on a matter quite distinct from the usual Wall Street take. In terms of customer satisfaction, Grant Prideco rated at or near the top of the pile in both drill pipes and drill bits in 2007. NOV, on the other hand, was rated dead-last overall by large and multinational respondents.

Grant Prideco customers may be rightfully concerned about seeing their quality of service deteriorate as the company is merged. If this does happen, driving customers to defect, Sheridan argues that Smith International (NYSE: SII  ) , an able competitor in both drill pipes and drill bits, would benefit most. I think it's fair to say that Tenaris would benefit as well, though as the leader in tubular products, it has less to gain by grabbing market share from Grant.

Related Foolishness:

Help us in our goal to give every young person around the globe a financial education!  Learn more about the new direction of Foolanthropy, now in its second decade, here.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 555801, ~/Articles/ArticleHandler.aspx, 11/28/2014 10:09:34 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement