Schlumberger Limited - Company Profile, Information, Business Description, History, Background Information on Schlumberger Limited



277 Park Avenue
New York, New York 10172-0266
U.S.A.

Company Perspectives:

Our people, their motivation and dedication to customer service worldwide, in a safe and clean environment, are our main asset. Our commitment to technology and quality is the basis for our competitive advantage. Our determination to produce superior products is the cornerstone for our future independence of action and growth.

History of Schlumberger Limited

As oil is found all around the world, so is Schlumberger Limited providing a range of oil field services that includes the pinpointing of oil reserves, both on- and offshore; the drilling of boreholes; precise determination of the depth and extent of oil and gas pockets; the pumping and monitoring of oil flow; and the rehabilitation of old or discontinued wells. In addition to its large market share of such services, Schlumberger's Measurement & Systems Group is the world's largest manufacturer of meters for gas, water, and electric utilities; develops and supplies electronics transactions systems, such as smart cards; and builds systems for semiconductor design and manufacture.

Founding an "Electrical Prospecting" Firm in 1919

Schlumberger was the creation of two brothers of that name, Conrad, born in 1878, and Marcel, younger by six years. Rooted in the Alsace region of France, the Schlumberger family had made its mark in both politics and business; the Schlumberger brothers' great-grandfather served as prime minister under Louis Philippe and their father, Paul Schlumberger, later amassed a fortune in the textile industry. Conrad Schlumberger early displayed a genius for science and, by 1907, had become a professor of physics at the École des Mines, while his brother Marcel pursued mechanical engineering and business. Conrad became interested in the electrical resistance generated by different types of rock formation and was soon testing his results on the family's summer estate in Normandy. In 1914 Conrad successfully completed the first commercial application of this technique, locating a body of copper ore for a client in Serbia. World War I brought all experimentation to a halt, but in 1919 Conrad and Marcel Schlumberger set up a modest business in Paris to pursue the further evolution of electrical prospecting, as it was called.

At this point the brothers received crucial financial backing from their father, who made it clear that he considered their work a type of scientific inquiry, and only secondarily a means to monetary rewards. This scientific bias has remained strong at Schlumberger, which has always depended on its technological superiority. Bolstered by this aid, which eventually reached Ffr 500,000, Conrad resigned from his teaching position in 1923 to devote his energy to the new company, Société de Prospection Électrique. In that same year the brothers received their first order from an oil company, resulting in the successful mapping of an oil-rich salt dome in Romania.

A few years later the Pechelbronn Oil Company of France asked the Schlumbergers to make such measurements not from ground level, but from the interior of an already drilled borehole. Conrad asked Henri Doll, his son-in-law and longtime technical supervisor, to design the necessary equipment, and in September 1927 the men compiled the first "wireline log" by lowering an electrical recording device down a Pechelbronn oil well and measuring the resistance every few feet. The results were accurate, meaning that oil deposits could now be located and measured without resorting to expensive and time-consuming mechanical coring.

The world did not immediately beat a path to the Schlumberger door, however. By the time logging teams had been sent to Venezuela, the United States, and the Soviet Union, the Great Depression had taken hold, and drilling activity had come to a virtual halt. The Venezuelan tests went so well that Royal Dutch Shell became interested and ordered additional work to be done in Romania, Sumatra, and Trinidad. Furthermore, the Soviet Union proceeded with its drilling in the Baku oil fields regardless of the Depression, and there the Schlumbergers landed sufficient orders to get them through the first lean years. An ardent socialist, Conrad Schlumberger was pleased to do business in Soviet Russia.

Successfully Expanded into U.S. Market in 1932

The young company's biggest break came with its introduction to the U.S. market in 1932, when Shell asked it to run logs in California and on the Texas gulf coast. These again proved successful and Schlumberger was soon picking up business among the many wildcatters in Texas and Oklahoma. In 1934 the brothers founded Schlumberger Well Surveying Corporation in Houston, Texas, to meet the growing demand for their services, and this U.S. division soon became the largest and most profitable of the parent company's worldwide business.

Once under way, Schlumberger expanded rapidly, despite the Depression. The brothers had a long technological lead on any would-be competitors, an advantage the company has maintained to this day by consistently hiring top engineering talent and spending liberally on research and development. In addition, Schlumberger remained very much a family organization, with the resulting high degree of trust and unity helping to keep employees motivated and loyal. This became of greater importance after the death, in 1936, of Conrad Schlumberger. Marcel Schlumberger assumed control of a burgeoning business, which was already doing more than 1,000 logs a month in North America alone, but he soon had help from other members of the extended family.

As world depression gave way to World War II and France was overcome by Germany, Marcel Schlumberger worked with Jean de Ménil to move the corporation from Paris to Trinidad. De Ménil, the husband of Conrad Schlumberger's daughter Dominique, was a banker who became head of Schlumberger's financial affairs in 1939. De Ménil is generally credited with managing the move to Trinidad. De Ménil remained overseas and eventually became head of Schlumberger's South American and Middle Eastern businesses, operating out of the Houston office.

Although information is sparse, it is clear that the war was not good for Schlumberger's business. It was necessary to retreat before the Nazi advance, and the war effectively scattered key members of the Schlumberger family. Doll, the company's top technician, fled to Connecticut, where he formed a company called Electro-Mechanical Research that went on to do important work for the Allied war effort. Schlumberger eventually bought out Electro-Mechanical, and Doll emerged as the head of all technical research for Schlumberger worldwide. On the other side of the Atlantic Ocean, Marcel's son-in-law René Seydoux spent two years as a German prisoner of war before assuming control of all European operations. In Houston Pierre Schlumberger, Marcel's son and the only male heir of either of the founders, began to rebuild the U.S. business in 1946 and guided it back to a position of leadership.

Thus fragmented by war, the Schlumberger family was held together largely by Marcel, whose devotion to the business became legendary. In 1940, when it was clear that France would soon fall and many thought that the Schlumbergers would be ruined, Marcel Schlumberger was offered $10 million for his business by the head of rival Halliburton Oil. It is said that Marcel did not even respond to the suggestion, but instead showed his guest to the door.

When Marcel Schlumberger died in 1953, the remaining Schlumbergers were unable to decide on a successor. The firm was left divided, roughly between Doll, who controlled technical research; de Ménil, who controlled the business in South America and the Middle East; Seydoux, who controlled the company's European business; and Pierre Schlumberger, who ran the company's U.S. operations.

Incorporated in the Netherlands Antilles in 1956

Pierre Schlumberger, the natural candidate to follow his father as president, strongly favored incorporating the company and selling stock to raise capital needed to take advantage of the booming postwar economy. Other family members resisted the idea, fearing a loss of both control and quality, but in 1956 Schlumberger Limited was formed in Cura&ccedil, Netherlands Antilles. That location was chosen for tax purposes. Pierre became president and Henri Doll was named chairman.



The new corporation was headquartered in Houston. It remained under family control, as it does to this day, but it began to sell stock, and the fresh capital allowed Schlumberger to expand rapidly at a time when postwar U.S. oil drilling was at its peak. As the undisputed technical leader in the field, Schlumberger charged what it pleased, and when the initial financial statements were made public in 1958 they showed a first year profit of $12.2 million.

The next 25 years may someday be thought of as the company's golden age. By carefully managing the high profits earned by its wireline business, Schlumberger diversified slowly into a number of related fields, giving each acquisition the time and resources needed to make it healthy. Aside from a pair of French electronics firms, the company's first significant purchase was the 1959 acquisition of Forages et Exploitations Pétrolières (Forex), a French oil drilling company. A complementary deal was the 1960 formation of Dowell Schlumberger, a joint venture with Dow Chemical to provide oil well completion services such as cementing and flow stimulation. Schlumberger was now a complete oil services company, able to set up drilling operations anywhere in the world.

As oil drilling gradually fell from its 1957 peak, Pierre Schlumberger and his advisors thought it prudent to expand further into the electronics field. This was a natural extension, as Schlumberger had always used sophisticated electrical monitoring devices and was at home in the electronics field. Accordingly, the firm made a major acquisition in 1961 when it swapped stock with Daystrom, a manufacturer of various electronic instruments primarily for military use. With $90 million in sales, Daystrom was nearly as large as Schlumberger ($130 million), but did not turn a profit for several years after. The parent company pursued many other electronics concerns, eventually absorbing 11 French companies and several in England and the United States. Most of the newcomers required years of work before paying dividends; in 1966, for example, 42 percent of Schlumberger's $343 million in sales was generated by the electronics division, whose operating deficit held down overall corporate profit to $28 million.

After a few wobbly years in the early 1960s, the Schlumberger board of directors decided that Pierre Schlumberger should step down as president. Promoted to his place was Jean Riboud, a longtime friend of the Schlumbergers, particularly Marcel. Riboud guided Schlumberger for the next 20 years, during which time the company's net income and worldwide reputation rose with equal regularity.

Riboud immediately moved corporate headquarters from Houston to New York City and reorganized the now diffuse company on the basis of product lines rather than geography. In 1970 Riboud further diversified the Schlumberger portfolio with the $79 million purchase of Compagnie de Compteurs, an aging French manufacturer of utility meters, which also took a few years to become profitable. By 1980 it had made Schlumberger the largest meter manufacturer in the world and formed the heart of one of the company's four divisions.

The 1973 OPEC oil embargo spurred a massive worldwide increase in oil exploration and drilling, with Schlumberger positioned to benefit from every new well. Its wireline services helped to find new oil, Forex-Neptune drilled the wells, and Dowell Schlumberger kept them pumping. In the space of five years Schlumberger sales jumped from 1972's $812 million to a robust $2.2 billion in 1977, with profit exceeding $400 million in 1977. Schlumberger earned spectacular profits by delivering a superior and much-needed product.

Unwise Acquisitions and an Oil Glut Deflate Profits in the 1980s

The boom years at Schlumberger reached their peak in 1982. At that time the company had sales of $6.3 billion and profits of $1.35 billion, a staggering 21 percent ratio that made Schlumberger the most profitable of the world's 1,000 largest corporations. The firm's hold on the wireline logging business rivaled that of IBM's in computers, with seven out of every ten logs in the world taken by Schlumberger. Its drilling operation was the world's largest, and it produced more utility meters than anyone else.

As 1982 drew to an end, however, a close observer would have noticed that Schlumberger's quarterly profits were slipping, and they continued to do so as a world recession and greater oil conservation combined to put the brakes on oil exploration. In addition, Chairman Riboud had made a tactical mistake, and he was about to make a second. In 1979 Riboud paid $425 million to buy the leading American semiconductor manufacturer, Fairchild Camera and Instrument Corporation. Schlumberger hoped that Fairchild's technical expertise would help keep it ahead of the pack in its various fields, but the move was a failure from the beginning. Fairchild lost money and drained valuable research and development dollars from the rest of Schlumberger; the parent company was forced to write off much of Fairchild's assets and sell the rest to National Semiconductor in 1987, at a loss of $220 million.

Schlumberger's, and Riboud's, second mistake came in 1985, when it paid $1 billion for SEDCO, another enormous drilling company. Riboud apparently assumed that the oil glut would soon turn around; it did not. Riboud died in 1985 and was succeeded by Michel Vaillaud, who was ousted the following year by the board of directors, during a year that turned out to be the first one in which Schlumberger posted a loss ($1.6 billion) since incorporation. Next in the chairman's seat came 30-year Schlumberger veteran Euan Baird, a Scottish geophysicist and the first non-Frenchman in history to run the company.

Turnaround Engineered by Baird in the Late 1980s and 1990s

As the oil glut continued, Baird quickly moved to turn the company around by refocusing on the core oil field services and measurement and systems business groups. In addition to selling Fairchild, other noncore businesses were divested. Schlumberger also underwent a restructuring to cut costs and become more cost-effective to survive in the difficult economic environment.

At the same time Baird was creating a leaner Schlumberger, he also invested heavily in research and development to keep the company at the technological forefront. From 1987 into the early 1990s, research and development spending was 37 percent higher than before Baird took over. The result was successful innovations, such as EB-Clean and Maxis.

EB-Clean, introduced in 1990, was an additive used in a well bore to enlarge cracks. After it drained away, more oil and gas was able to flow through the now larger cracks. The additive was developed by a joint venture with Dow Chemical called Dowell Schlumberger, which Schlumberger later owned outright when it bought Dow's half in 1993 for $800 million in cash and warrants.

Maxis, also developed in the early 1990s, was a premium imaging system that provided much clearer, more detailed, and faster evaluations of potential well sites than previous systems had done. When rival Western Atlas introduced a competitive system, Schlumberger was ready with a new Maxis Express unit that was smaller and 50 percent cheaper to operate.

In addition to new product development, Baird also actively sought out acquisitions to enhance Schlumberger's oil field services core. Soon after becoming chairman, Baird moved the company into a new area of oil field services, seismic data, which involved using and measuring sound waves bounced off the earth's surface to search for oil-bearing formations. In 1986 the Norwegian firm GECO, one of the world's top seismic companies, was acquired. Five years later Schlumberger acquired 51 percent of Prakla Seismos, a leader in onshore seismic operations, from the German government. In 1992 Seismograph Service Limited was purchased from Raytheon Co. The following year, Schlumberger purchased the remaining 49 percent of Prakla. All of the company's seismic operations were then combined within a Geco-Prakla division. The seismic area proved to be highly competitive and not immediately profitable, but by 1995 Schlumberger's focus on improvements to seismic technology had begun to pay off.

Another important acquisition came in 1992 when GeoQuest Systems Inc. was purchased, also from Raytheon. GeoQuest specialized in computing and information technology services geared to hydrocarbon exploration and production. In late 1994 Schlumberger formed a joint venture, Omnes, with Cable & Wireless plc to provide communications and information technology systems for oil, gas, and other companies with operations in remote areas.

Baird had successfully turned Schlumberger around from that bleak year of 1986, as evidenced by 1994 and 1995 revenue of $6.7 billion and $7.6 billion, respectively, and net income of $536.1 million and $649.2 million, respectively. Schlumberger's wireline testing services remained the industry's unchallenged leader, and its growing stable of electronic subsidiaries should help keep the company at the forefront of technical innovation. So long as oil remains one of the primary sources of energy, it seemed likely that oil companies would turn for advice to Schlumberger.

Principal Operating Units: Oilfield Services; Measurement & Systems; Omnes.

Additional Details

Further Reference

Allaud, Louis, Schlumberger: The History of a Technique, New York: Wiley, 1977.Auletta, Ken, The Art of Corporate Success: The Story of Schlumberger, New York: Penguin Books, 1984.Brown, Stanley H., "It's a 'Slumber-Jay' and It's a Money Gusher," Fortune, September 1973.Hager, Bruce, "How Euan Baird Is Pumping Life Back into Schlumberger," Business Week, July 9, 1990, pp. 52-53.Headden, Susan, "Drilling Deep for Dollars: Oil Services Giant Schlumberger Uses New Technology To Coax Out Crude," U.S. News & World Report, July 10, 1995, pp. 40-41.Reingold, Jennifer, "Reading the Rock: Schlumberger Outmaneuvers Its Competition To Keep the Lead in Oil Field Services," Financial World, March 15, 1994, pp. 26-27.Schlumberger: The First Years, New York: Schlumberger, 1979."This Is Schlumberger," New York: Schlumberger, 1988.Toal, Brian A., "The Path to Profits: Schlumberger Ltd.'s Oilfield Services Group Is Integrating New Technologies and Services To Fit Client Needs," Oil and Gas Investor, December 1993, pp. 60-63.

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