Schlumberger Sells Fracking Unit to Liberty Oilfield Services

Schlumberger sold its U.S. fracking unit to Liberty Oilfield Services in exchange for a 37% stake in the buyer valued at $448 million.
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Schlumberger  (SLB) - Get Report, the world's largest oilfield-services company, said on Tuesday that it was selling its U.S. fracking unit, OneStim, to Liberty Oilfield Services.  (LBRT) - Get Report

In exchange, Schlumberger gets a 37% stake in Denver-based Liberty, valued at $448 million.

The slump in oil prices and demand during the coronavirus pandemic has sharply hurt companies like OneStim, whose pressure pumping business helps draw oil and gas from shale wells. U.S. oil prices have dropped 29% this year.

In July, Schlumberger termed the drop in OneStim’s sales “precipitous,” Bloomberg reports.

The companies hope to complete the deal in the fourth quarter, Schlumberger said.

Liberty shares at last check jumped 29% to $8.35. They had fallen 42% in 2020 through Monday.

Schlumberger shares recently traded at $18.84, down 0.2%, They had dropped 53% year to date through Monday.

Morningstar analyst Preston Caldwell sees some glimmers of light for the company. It’s “well positioned to ride out the tough near-term industry conditions,” he wrote in a commentary after Schlumberger’s latest earnings report in July.

“The company has $3.6 billion in cash versus only $1.2 billion in debt coming due in the next two years. It continues to generate free cash flow, including $465 million in the second quarter.”

Caldwell notes that adjusted operating margins narrowed to 4.4% in the second quarter from 7.4% in the first quarter. “This equates to decremental operating margins of 15%,” he said.

“Stripping out the impact of impairments on lower depreciation and amortization expense, margins would've been about [2 percentage] points lower (and decrementals at about 20%). 

"Still, this is a relatively resilient profitability performance given the massive drop in revenue [28% sequentially], reflecting the contribution from Schlumberger's cost-cutting program.”

Caldwell puts fair value for the company’s stock at $48.