Strategic Management: Schlumberger's Challenges, Benefits, and Choices

This report provides a comprehensive analysis of Schlumberger Limited's strategic management from 2014 to 2017, focusing on the challenges and benefits the company faced within the oilfield service industry. It examines Schlumberger's strategic choices, including mergers and acquisitions, client-oriented approaches, and cost-reduction strategies, in response to fluctuating oil prices and market dynamics. The report highlights the company's efforts to maintain profitability and market share through global investments, low-cost production, and technological innovation. Furthermore, it assesses the impact of the OPEC plan and other external factors on Schlumberger's performance. The analysis concludes with recommendations for future strategic directions, emphasizing sustainable profitability and differentiated capabilities. The report utilizes various sources, including financial reports and industry publications, to support its findings and provide a detailed overview of Schlumberger's strategic position and potential for growth.

Running Head: STRATEGIC MANAGEMENT
Strategic Management
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction..........................................................................................................................2
Discussion on organisation..................................................................................................2
Challenges, benefits and strategic choices of Schlumberger limited..................................3
Recommendations................................................................................................................7
Conclusion...........................................................................................................................9
References..........................................................................................................................10

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Introduction
Oil field service industry involves greater complexity than any other industry. The oil
field services experience tough years during low prices and weak demand. The providers must
work strategically and plan for the future being mindful of the risk. The US oilfield service
providers are preparing for an expected oil-price recovery after struggling for two years. Some
are filing for bankruptcy. Without bankruptcy, the small and middle-sized companies may risk
missing out upturn that could follow the OPEC's plan to cut oil production. The leading oil field
service providing companies face great risk during low oil price environment. During the 2014-
2016 oil price drop, Oilfield Service Providers also suffered under falling profits. It was due to
the issues facing their price cuts, customers, and the wider turbulent business environment. Thus,
there is a need for strategic choices to share the risk and optimise the project delivery. The report
aims to critically analyse the oil field service provider operating during 2014-2017. For this
purpose, the assignment focuses on Schlumberger limited. The rationale for selecting this
provider as this company is worthy of top spot in the list of the oil field services companies.
Schlumberger has the exhaustive portfolio of the oilfield products by virtue of which it ranks 287
in the Fortune Global 500 Company. In the Middle East, it is leading oil field service provider
(www.bloomberg.com. 2017). The report analyses the challenges and benefits during 2014-2017
with appropriate examples. Based on the analysis, the report provides recommendations for the
chosen Oilfield Service Provider to improve their strategic direction.
Discussion on organisation
Schlumberger Limited is no exception to the parameters of oilfield service companies
that is the provision of the equipment, infrastructure, services and intellectual property. These

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parameters are needed by an international industry of this sector to transport the extracted crude
oil from earth to the consumer via refinery. Schlumberger limited supplies information solution
technology and integrated project management and optimises the reservoir performance for
working people in the oil and gas industry. Schlumberger supplies the petroleum industry with
processing, seismic acquisition, well testing, formation evaluation, directional drilling, artificial
lift, well cementing, stimulation, flow assurance and well completion. Schlumberger limited
offers integrate field management solutions. It oversees and operates the assets on behalf of the
company. The company is operating in more than one 85 countries with one of its principal
executive office headquartered in the US (Texas) (www.slb.com 2017). Schlumberger limited
supplies technology product to the oil and gas exploration. The reservoir characterisation group
segment, provides the reservoir development services, imaging and monitoring services, wireless
technologies, slickline services; and petrochemical data servicing. The drilling group segment of
the company markets fixed cutter drill bits provides pressure drilling. Its Production Group
segment offers well services, and lastly, the Cameron Group segment offers drilling equipment
and integrated subsea production systems (www.bloomberg.com. 2017).
Challenges, benefits and strategic choices of Schlumberger limited
The company since last two years has been suffering from the weak financial position.
The company is also exposed to several risks as it gets significant revenue from the Non-US
states. Further challenges come from the high dependency of revenue on the client's expenditure
level. The threats for which the company needs strategic planning are the dynamic prices of the
crude oil and gas. Rise in the substitute fuels and sustaining the high environmental compliance
cost demands the strategic choices (www.bloomberg.com. 2017). The company has faced many
other challenges in regards to the strict demands for the technology solution. It was challenging

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to maintain the high quality of the technical translation. There is a strict observation of
terminology. The main challenge was the professional market adaptation of the materials
translated. Meeting the tight deadlines even for the high volume projects was difficult.
Schlumberger limited always recruited people in the industry with the field of expertise. The
company always valued the client’s wishes by closely interacting with the client (Dugan and
Rothfeld 2012).
As per Mittal and Groening (2016) the company has many benefits due to its globally
competitive advantage. Along with the high skill level of the workers in the information
technology, there is a strong operational basis that is low-cost based. The company is in strong
financial position. Even during the mid-2014 with the down cycle, the company had not failed to
meet its energy service demand. Until 2016 there was no difference in the decisions, and yet it
failed to push high the stock market. In the quarter of June 2016, the 8% increase was marked as
second best growth rate despite the decrease of the crude price by 15% at the beginning of 2017.
Instead, there was an increase in the company revenue and all its groups. There is a possibility
that the capital may expand and it will give a platform to leverage potential investors. Due to its
global developmental centres, the company will be able to support its multinational clients
(Dugan and Rothfeld 2012).
Other than the strong quarter of Schlumberger in US land there were some additional
benefits. Schlumberger’s 2H17 outlook for the business specifically for its international side was
a robust strategy. The activity outlook in the North America in 2017 shows positive signs in the
international market. There is an increase in the activity. It appears from the news buzz that there
are new project plans coming in the GeoMarkets (Mba et al. 2016). It can be interpreted that
company is showing the gradual improvement in fundamentals considering the state of the oil

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and gas with the weak crude oil prices. Further, there is the substantial improvement in the E&P
activity in the US and different geographies. It is highly likely that the company will fire on all
the cylinders (Mittal and Groening 2016).
With the struggling oil price recovery, the investor’s patience is diminishing. In 2016
there is a drop in the SLB's valuations as well as the future EPS expectations. In spite of this,
there was solid performance delivered by Schlumberger. There was a dip in the stock price (-
22% nearly) in 2017 and aims to reach fresh five years lows according to (Mittal and Groening
2016). Kleinberg et al. (2016) argued that if the company maintained the same annualised EPS of
$4.00-$5.00, it could remain consistent with the stock history. It is because this EPS was found
between 2008-2009, a time when recession was profound. The company maintained this EPA
during the crude oil bear of 2014-2016. Talking about the commodity price-sensitive stock,
people need to be more cautious while investing as the company does not come without the
systemic risks.
The main strategic choice of the company is the new merger and acquisition. The
company employs client-oriented approach an effectively reacts to the crisis (Wild et al. 2016).
According to Clark (2016), the company struggles to achieve perfection in all its areas of
activity. The company has won the client's trust for its efficacy in maintaining the confidentiality
of the client's information. The company can develop relationships with the other company with
its technology innovation and infrastructure, extensive service offering and market share
leadership. According to Zargaran et al. (2013), the theory of making acquisition amidst the
down cycle is the best strategy as the valuation is cheaper. It can be explained by the example of
the integration of Cameron International. Even though the revenue was declining, and the
management team were trying to right-size the business, the integration of Cameron International

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was justified for the investors (Das 2015). As per the literature review, the business was growing
smoothly with the integration and was also mentioned by the president of the Cameron Group.
With the help of this integration, the company was able to achieve the first year target of $300
million of synergies. The company achieved the target in the first 10 months of the acquisition.
In the second year, the company is preparing for the $600 million target (Mba et al. 2016).
The transaction strategy of the company was accretive between 2014-2016. In the quarter
of 2017, the business booked $180 million of synergy-related business. The majority of it came
from the Middle East. The company will continue with its integration team, and the new strategy
is to focus on the growth synergies than the cost synergies. It can be expected that certain
market pockets will perform better than other especially as the investors are focusing on recovery
in oil and gas drilling activity (Crowe 2017). The other strategic choice of the company is the
narrowing of the service offering or the recovery in service pricing. With the drop in the rig
count, there was the sequential drop in the revenue. The North American offshore market is
becoming tough. It is the other major challenge of Schlumberger as the pricing remained under
pressure despite the market having technical, operational challenge. To ensure adequate returns
the company is using effective strategy as there is the chance that the business environment may
become unsustainable. It is the strategy of redeployment of resources to the market that can
fetch sufficient return (Gong 2018).
The other major challenge of Schlumberger is the OPEC plan. There is a profound impact
on the production of all the capital spending cuts. This plan with the high market share is looking
to grab all the market share. With the drop in the in North American production, on the supply
side, the non-OPEC production remains under pressure. To offset the falling non-OPEC
production, the OPEC supply production increased and tried to meet the demands. It led to

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decrease in the spare capacity (2 million per day). With the help of the OPEC agreement, there
can be reduction in the production that is 1.8 million barrels per day. It may speed up the
tightening of the oil market. Thus taking hold of the production hold is the effective strategy
(Crowe 2017).
The other strategic decision of Schlumberger is to increase the global investment. It is
effective as it will help hold the production for medium to long-term. With the help of the
investments, it will be possible for the company to address the future challenges. With the
improvement in the E&P cash flow internationally, there is a chance that the E&P investments
will increase in 2018. There is a need of spending high on the offshore projects worth billion. It
will help in carving out comfortable portion of the market as argued by (www.cnbc.com 2017).
The other strategy that is effective for Schlumberger is the low-cost production. For a barrel of
oil, there is a low breakeven price set which may be the part of the more efficient drilling
practices. The strategy of the company is to work at steep discounts. Further, it is also involved
in the financing of the drill work to make more money. It is planning to increase the price of the
contracts as the efforts have helped in bridging the trough of cycle for their customers. The
strategy of watching for per barrel cost is effective for investing in the exploration and
production companies (Chamberlin 2017). As per Maestro et al. (2017) this strategy may be a
bit of smoke and mirrors.
Recommendations
In response to the extended oil price downturn, it can be recommended for Schlumberger
to employ the corporate strategic objectives. There is a need of focusing on sustainable
profitability. It is useless to increase the cost of debt in the expectation that the interest rates will

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rise in future. Therefore, under different price scenarios, there is the need for strategic plan for
profitability (Maestro et al. 2017). For future success, the key factor to be focused is
differentiated capabilities. It is needed because of the variety of operating environments in the oil
and gas sector. The US has unconventional market, so there is a need of tailoring the operating
models to meet the demands of the unconventional production (Badiru and Osisanya 2016).
Some of the companies in the exploration and production companies focus laserlike on the cost
efficiency. This strategy helps them to gain mature assets. It is also evident from the recent
acquisition of Baker Hughes for improving operations via automation, enhanced data analysis.
Further, there is a need to replace the model of single integrated company. Such model discovers
and develops an oil or gas field and operates till its depletion. One of the good examples of this is
the alliance between BP’s with Kosmos. This alliance helped it to seek assets from Mauritius ad
leverage technical exploration skills (Maestro et al. 2017).
It is suggested by Badiru and Osisanya (2016) that there is a change of perspective
regarding the portfolio evaluation. It should not be treated as cash generating divestment.
Instead, it means to restructure the business conditions by forecasting the future. The business
activities should match the capabilities of the organisation. It is better to explore new
technologies such as robotics, for repetitive tasks such as replacing the broken machinery or
connecting pipes, as it will help reduce the labour cost. It is also recommended that the company
should focus more on the innovative approaches to retain and recruit talents. It will be required
for long-term success as there is an enormous cost of human resource in the oil and gas sector. It
will also help in tackling the threat of new entrants (Ghandi and Lin 2014). Schlumberger must
employ the strategies of Wal-Mart, which work through third-party manufacturers. The
bargaining power of the third party agents is low, and it will increase the profitability. The

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exploration and development will fail if there is lack of capacity in this sector. At the time of
increasing demand, it will hamper the new sources of supply as well collaboration between the
multinational and state owned services sector and the producers. Schlumberger Ltd. is the
industry which provides the technical and engineering expertise needed for exploration and
production. However, there is a pressing need of finding new supplies as IEA estimates that by
the year 2035 the demand of the barrels may increase. It may reach up to 99 million barrels a day
(Ghandi and Lin 2014).
Conclusion
It is evident from the critical analysis that Schlumberger limited is demonstrating strong
performance. It can employ the game-changing trend as early as possible by predicting the
uncertainties or risks. More or less the organisation has proved itself that it can reinvent and
innovate itself. Inspire of having tough period from 2014-2016, Schlumberger was able to
manage in the low oil price environment. It is possible to emerge as the robust sector with the
help of flexible and right actions. The exploration and development will fail if there is lack of
capacity in this sector. At the time of increasing demand, it will hamper the new sources of
supply as well collaboration between the multinational and state owned services sector and the
producers. Schlumberger Ltd is the industry which provides the technical and engineering
expertise needed for exploration and production. In conclusion, Schlumberger Ltd to a great
extent has been flexible in its approach to strategy. It has always made the choices during the
turbulent 2014-2016 always with an eye for the future.

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References
Badiru, A.B. and Osisanya, S.O., 2016. Project management for the oil and gas industry: a
world system approach. CRC Press.
Chamberlin, A., 2017. What are Wall Street’s recommendations for Schlumberger? - Market
Realist. [online] Marketrealist.com. Available at: http://marketrealist.com/2015/01/wall-streets-
recommendations-schlumberger/ [Accessed 22 Nov. 2017].
Clark Jr, B.F., 2016. Excerpt from Oil Capital: The History of American Oil, Wildcatters,
Independents and Their Bankers. ONE J, 2, p.23.
Crowe, T., 2017. 5 Things Schlumberger Management Wants You to Know About the Oil
Market in 2017. [online] The Motley Fool. Available at:
https://www.fool.com/investing/2017/01/26/5-things-schlumberger-management-want-you-to-
know.aspx [Accessed 22 Nov. 2017].
Das, S., 2015. Reverse Oil Shock. Wilmott, 2015(77), pp.44-51.
Dugan, I.J. and Rothfeld, M., 2012. Peregrine’s Vast Money Trail. The Wall Street Journal.
Ghandi, A. and Lin, C.Y.C., 2014. Oil and gas service contracts around the world: a
review. Energy Strategy Reviews, 3, pp.63-71.
Gong, B., 2018. The shale technical revolution–cheer or fear? Impact analysis on efficiency in
the global oilfield service market. Energy Policy, 112, pp.162-172.

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Kleinberg, R.L., Paltsev, S., Ebinger, C.K., Hobbs, D. and Boersma, T., 2016. Tight Oil
Development Economics: Benchmarks, Breakeven Points, and Inelasticities. MIT CEEPR
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Evaluation Symposium. Society of Petroleum Engineers.
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