By Bryan White
Since the financial crisis of 2008, spending on exploration for oil and gas has dried up.
But after two years of lackluster spending, and with oil flirting with $100 a barrel, I expect oil companies to aggressively begin spending on exploration.
Which is where my energy stock, Schlumberger [NYSE: SLB], comes in. It provides the picks and shovels these oil and gas companies need.
But I keep coming back to Schlumberger, despite the run it's been on, as a stock to buy before the next wave of exploration spending begins.
Schlumberger is the clear leader in oilfield services in terms of size, scope, and technology, and it's in a superior position to benefit from a ramp up in oil exploration spending.
The company's size -- which dwarfs its nearest competitors Halliburton, Baker Hughes, and Weatherford -- makes it a key partner for the largest oil companies in the world. And it helps produce the most attractive profit margins when business is booming.
National and major public integrated oil companies will likely be aggressive investors in the next spending cycle, which I expect to occur in international oilfields and deepwater drilling.
This scenario puts Schlumberger in the sweet spot, since it's a one-stop shop with close ties to national oil companies. Schlumberger is one of the few companies with the ability to integrate technology, from seismic all the way to well completion, in one integrated package, which attracts large oil companies.
What's more, the company's focus on international operations is a hidden catalyst as customers ramp up spending. After all, international rig counts recently reached an all-time high.
Schlumberger's geographical reach, which put it at a disadvantage to competitor Halliburton over the past year as spending heated up in North America, should reverse as the exploration focus shifts overseas. With more than 40% of sales coming from exploration and roughly a third of that from international markets, Schlumberger is poised to grow its share of oil services revenue.
Schlumberger's size has also differentiated it from its peers thanks to its clear technological lead -- plus a research and development budget that's larger than that of its three closest competitors combined.
The bulk of service and equipment spending over the past year came from gas shale plays in North America, where independent exploration and production companies spent primarily based on equipment price versus quality.
This should reverse as Schlumberger's major customers beef up spending in harder to reach places like the deep waters off the coasts of West Africa and Brazil.
Oil is not getting any easier to find, and Schlumberger's strong technological lead will be key in the next spending cycle.