Schlumberger Wins Panuco Bid - Analyst Blog

Oilfield services behemoth Schlumberger Limited (SLB), along with its partner, U.K.’s oil Petrofac Ltd., won an integrated production service contract in Mexico for Pánuco in an auction led by Mexico's state-run oil company Petroleos Mexicanos, or Pemex to boost production at mature fields in its northern region. The contract — with a span of 30 years — is scheduled to be signed in late August, with the start-up of field operations expected in the first half of 2013.

Discovered in the early 1900s, the Pánuco Contract Area comprises four mature onshore fields with approximately 6.8 billion barrels of oil.  The fields — operated by Pemex — include about 1,600 wells. Of these, approximately 200 are presently generating 1,500 barrels of oil per day in total.  Petrofac and Schlumberger are entitled to develop the fields jointly.

Petrofac, holding the operatorship of the fields, committed an initial investment of about $17.5 million for the first two years on the Panuco fields. However, for the remaining contract period, capex will be on a per barrel basis, depending on the quantum of remaining undeveloped 2P reserves.

The other winning bidders in the Pemex-led auction are Pico International Petroleum of Egypt for the Altamira site and the Latin American consortium — represented by Monclova Pirineos Gas and Alfasid del Norte —for both the Tierra Blanca and the San Andres sites.

Per the integrated contracts, the companies will deliver oil to Pemex in exchange of a per-barrel production fee as well as incentives for production beyond a certain level. These integrated contracts were intended to augment investment in the oil sector and increase the declining production.

Halliburton Co. (HAL), Repsol SA, Baker Hughes Inc. (BHI) and Saipem SpA (SPM) were the companies present in the bidding process for the expansion of the fields Altamira, Arenque, Atun, Panuco, San Andres and Tierra Blanca. The areas may hold up to 1.7 billion barrels of oil equivalent.

Houston, Texas-based Schlumberger is a leading oilfield services company, providing technology, project management and information services to the global oil and gas industry. We believe the company is favorably positioned to benefit from the current trends in oilfield services, given its technological leadership and management depth.

The new alliance with Petrofac not only demonstrates Schlumberger's strong and longstanding commitment to Mexico but also bodes well for the company’s future growth in margin and market share.

We maintain our Neutral recommendation on Schlumberger. The company currently holds a Zacks #3 Rank, which translates to a Hold rating for a period of one to three months.

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