I wrote last month about Exxon’s record annual earnings. It got me interested in the petroleum industry, since it’s ultimately a big chunk of the energy that rest of the world. I read more today about a company called Schlumberger (what a boring name!), and it piqued my interest.
Schlumberger appears to eschew direct ownership of oil fields, and instead targets where to inject itself in the value chain. It partners with nationalized petro companies like Saudi Aramco, Mexico’s Petróleos Mexicanos (Pemex), Gazprom and Rosneft from Russia:
The company is increasing its cooperation with Big Oil’s most prominent rivals, state-owned oil companies, and it’s helping a group of smaller upstarts that are seeking to get into the business, such as hedge funds and private equity outfits. Just outside a suburban neighborhood near Dallas, for instance, it has drilled a half-dozen gas wells financed by New York hedge fund Och-Ziff. While the majors typically want to own rights to oil reserves in the fields they operate—and take a share of the profits—Schlumberger has long been happy to work on a contract basis, getting paid a fixed fee for its services. “Schlumberger is the indispensable company,” says J. Robinson West, chairman of PFC Energy, a Washington consulting firm. “They are involved in every major project in every important producing country.”
This makes sense given rise of nationalization in the oil industry, where as much as 90% of the oil supply is run by governments. Ultimately, the profit is to be found in the human assets and involvement.
Comparing Exxon and Schlumberger is interesting. Schlumberger gets a return on invested capital of 27.12% and a return on assets of 20%. Exxon has done about 28% over the past 12 months, which is similar, but it’s return on assets is 17%. Exxon’s income per employee is $494,640. Schlumberger does $73,950 of income per employee. So Schlumberger ties up less capital equipment in assets to produce its profits, which is admirable. However, they are not as effective at turning their employees’ efforts into profit. I am just getting famliar with using ROIC and ROA as a measuring stick, so for reference I looked up Microsoft. It does 51% and 26% respectively. Not surprisingly, software burns less money to product it’s profit.