Newspaper article THE JOURNAL RECORD

Schlumberger Investments Pay Off

Newspaper article THE JOURNAL RECORD

Schlumberger Investments Pay Off

Article excerpt

NEW YORK -- For years, investors compared Schlumberger Ltd. with International Business Machines Corp. -- and not as a complement, either.

The world's biggest oil-drilling services company stumbled through the last 16 years with a total annual return of less than 6 percent, worse than Big Blue's lackluster 8 percent and less than half the 16 percent return of the Standard & Poor's 500 Index.

The comparison is more flattering now. Schlumberger, like IBM, spent heavily over the past decade to develop new technology and revamp its operations so it can do more work with fewer people. That investment is paying off with rapidly increasing earnings -- Schlumberger's third-quarter net income jumped 36 percent from a year earlier -- and investors are taking another look at a company they'd learned to hate. "There are reasons for buying it now," said John Tozzi of Cambridge Associates, which started acquiring Schlumberger shares last year. "Their cash flow and earnings are poised for dramatic increases, and if there was ever any doubt about that the third quarter confirmed it." Schlumberger shares have climbed more than 50 percent this year - - twice the rate of the S&P 500 -- and some analysts say they could double again by the year 2000 amid a worldwide boom in oil and exploratory drilling. The shares recently traded at 103. "Short of a crash in oil prices, there's not much that is going to derail this," said James Stone, an analyst with Schroder Wertheim & Co. Of course, that's what some analysts said in 1980 when Schlumberger shares peaked at a split-adjusted 86 37/64, a level they wouldn't reach again until March of this year. Schlumberger went into a steep decline in the early 1980s as first an oil glut and then collapsing prices decimated drilling activity. History won't repeat itself, analysts say, because New York-based Schlumberger is a different company. In 1980, it was little more than a one-product business, providing an expensive service known as wire- line logging -- invented by Alsatian scientists Conrad and Marcel Schlumberger in the early 1900s -- in which electronic probes are lowered into a well to help confirm the presence of oil-bearing rock. Schlumberger's wire-line and testing revenue soared to $2.7 billion in 1982, then plunged on a worldwide decline in drilling activity to $1.5 billion in 1987, little more than the unit's pretax profit five years before. Schlumberger's a better-balanced company now, analysts say. It sold its money-losing Fairchild Semiconductor unit in 1987 and focused on new businesses such as its Dowell pressure-pumping unit and Sedco Forex, one of the world's biggest offshore drilling contractors with more than 50 rigs. Sedco Forex will power Schlumberger's earnings over the next two to three years as rig rental rates climb, said Ken Miller, a Cambridge Associates partner. …

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