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Schlumberger (SLB) Combines US Fracking Business With Liberty

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Schlumberger Limited (SLB - Free Report) recently announced that it has completed the deal with smaller rival, Liberty Oilfield Services Inc. (LBRT - Free Report) , to contribute its onshore hydraulic fracturing business in the United States and Canada, known as OneStim.

Schlumberger combined pressure pumping, pump-down perforating and Permian frac sand businesses with Liberty’s operations. The move is expected to create one of the biggest pressure pumping firms in North America. Schlumberger has received a 37% stake in the combined entity, per the deal that was closed on the last day of 2020.

Volatile oil price and the coronavirus pandemic have significantly affected upstream companies, which in turn impacted their spending decisions. Conservative spending by clients denotes limited contracts for oilfield services providers. The volatile environment has pushed several energy companies to look for alternative options like restructuring, consolidations, acquisitions and others.

Importantly, Schlumberger’s greater reliance on the lucrative international market is appreciable. Being the leading provider of technology for complex oilfield projects, it is better positioned than most peers to take up new offshore projects in shallow water basins outside North America.

The management team of Liberty will keep leading the operations, while two directors designated by Schlumberger has been incorporated in Liberty’s board of directors. The best part about the deal is that it has created a company with a robust balance sheet having ample liquidity and no debt. This provides the combined entity with significant financial flexibility. The combined company will provide efficient and innovative frac operations for clients. Notably, 2019 pro-forma revenues of the entity were $5.2 billion, the third highest in North America.

Price Performance

The company has gained 17% in the past six months compared with 19.5% rise of the industry it belongs to.

Zacks Rank & Stocks to Consider

Schlumberger currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include Suncor Energy Inc. (SU - Free Report) and Summit Midstream Partners, LP (SMLP - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Suncor’ sales for 2021 are expected to jump 18.3% year over year.

Summit Midstream’s bottom-line estimates for 2021 have increased 24% in the past 60 days.

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