The Oil Services Industry Is Changing, and These Companies Are Set to Benefit

As oil companies cut costs, Schlumberger is set to benefit.

May 1, 2014 at 8:39AM

As oil companies start to rein in costs, oil services companies are being forced to change. While costs are being cut, however, there is still a significant amount of drilling and exploration taking place.

So, to lower costs and maintain high levels of exploration activity, oil companies are now bringing on one contractor for the whole project, asking for standardized solutions where tailor-made designs would have been commonplace in the past.

Norway's Statoil (NYSE:STO) was one of the first majors to ask its contractor to drop costs. Statoil told Aker Solutions (NASDAQOTH:AKKVF) to cut costs by 30% for the design of Statoil's Johan Sverdrup oilfield, a North Sea giant with up to 2.9 billion barrels of recoverable oil present.

To come up with savings of this magnitude, Aker had to change the way it operated, combining work for another field and using project designs that had worked with another project, rather than starting the design process from scratch as per usual.

Aker's solutions could save Statoil up to $900 million of the first stage of the North Sea project, great news for Statoil as the company is able to cut costs while still growing production.

Actually, this project is also good for Aker as the company is able to show what it can do at a low cost, building the company's reputation for low-cost, high-quality projects.

The big players are cutting
ExxonMobil (NYSE:XOM), the largest publicly listed oil company in the world, came out at the beginning of March and revealed that it was going to slash capital spending to $37 billion for 2015-2017, down from $42.5 billion last year.

However, Exxon's production is flagging, and the company is only expecting to produce 4.3 million barrels of oil per day by 2017, only marginally higher than the 4.2 million reported during 2013 but 10% lower than the production target of 4.8 million barrels per day set out by the company a year ago.

Exxon expects to start production at 10 large new projects this year and even more projects are slated to start up through 2017, which in total are expected to add 1 million barrels per day to output but this will only be replacing output from mature fields. If Exxon wants higher output, within its spending budget, it too is likely to be demanding lower costs from its contractors.

These changes are likely to be great news for globally integrated service companies like Aker and Schlumberger (NYSE:SLB).

Indeed, Schlumberger's most recent earnings report shows what kind of trends are currently taking place within the oil services industry and how Schlumberger is likely to drive growth over the next few years.

Schlumberger's CEO Paal Kibsgaard is focusing on driving sales of the company's patents and technology, services that allow oil companies to increase production at a lower cost.

Schlumberger's services include mapping the ground to find oil reserves, and like Aker this is where the company is making an efficiency drive by investing in its portfolio of U.S. patents, which has more than doubled during the past nine years.

Luckily, the technology side of the business, where Schlumberger has been focusing is higher margin than the traditional oil services market, and the company's margins have ticked up as a result, despite sliding revenue and operating profit. In particular, Schlumberger's operating margin stood at 22.4% during the fourth quarter of 2013 but ticked up slightly to 22.7% during the first quarter of this year, despite a 5.4% decline in revenue.

Foolish summary
So overall as oil majors cut their capital spending budgets, high tech oil service companies are set to benefit. Schlumberger is in the perfect position to ride this trend as the company is focused on growing its portfolio of technology patents for use within the drilling and exploration sectors.

Schlumberger is turning into the tech darling of the oil services world, and these developments will drive both profits and margins higher.

Another way to profit from America's energy revolution
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends Statoil (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers