Schlumberger (NYSE:SLB) acquired the remaining equity in the privately-held Framo Engineering AS.  The Norwegian firm will augment Schlumberger’s existing capabilities in subsea flow assurance and surveillance capabilities. This should help the company gain an edge over competitors like Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI) in the growing market for services that enhance production at declining oil fields.
We have a $105 price estimate for Schlumberger, which is at a premium of about 20% over its current market price.
Framo’s Technology Has Strong Potential
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The 500-member strong Framo Engineering is a leading player in the design and development of multiphase subsea pump & meter systems and other technology focused on the deepwater market.  Paal Kibsgaard, Chief Operating Officer of Schlumberger, commented that the transaction was an important step for the company in its efforts to provide solutions to improve hydrocarbon recovery and lower costs in the subsea environment.
Players such as Halliburton have also announced plans to expand services for production enhancement in declining wells, as the under-served and fragmented market is an attractive opportunity for growth. 
Improving hydrocarbon recovery has been a focus area at Framo’s home country of Norway, after crude oil production in the country fell by almost 50% after a 11 years of decline.  The government has announced that it will increase supervision of existing offshore wells and ask operators to draw up plans to improve recovery. According to estimates from the Norwegian Petroleum Directorate, more than half of the available crude oil may be left underground if steps are not taken to enhance recovery from existing fields. Increased spending by oil firms on recovery technology will boost revenue per rig figures for Schlumberger.
Deepwater Increasingly Important
Framo also specializes in other subsea systems for oil & gas exploration and production activity such as swivels and marine systems. Deepwater production is expected to rise significantly over the future, as in the last 10 years more than half of the oil and gas discoveries came from offshore locations. The IEA estimates that by 2030, almost a third of the oil demand may be met by offshore production. 
Deepwater production activity is expected to increase in Brazil and other Latin American countries, the Gulf of Mexico and in the Asia-Pacific region. In particular, the development of the pre-salt finds in Brazil is of significant importance for Schlumberger.Notes:
- Schlumberger Acquires Remaining Equity Shares of Framo Engineering AS, Schlumberger [↩] [↩]
- 2010 Analyst Day – Impacting the Decline Curve, Halliburton [↩]
- Norway Says Needs Urgent Measures as Oil Production Declines, Bloomberg [↩]
- World Energy Outlook 2009, IEA [↩]