Round of cuts for beleaguered Schlumberger’s JV in China

National flag of China
Source: DollarPhotoClub

The largest oilfield company in the world, Schlumberger, might suffer a setback in China as its partnership in the country with Anton Oilfield Services Group has been slower to develop than expected – Bloomberg reports.

Sichuan-based Tongzhou IPM Services Co., a $12 million joint venture set up in September 2012, is 60 per cent owned by Houston and Paris-based Schlumberger and 40 per cent owned by Anton. Schlumberger bought a 20 percent stake in Anton in July 2012 for HK$635 million ($82 million).

In the face of poor results, Tongzhou is betting on increasing efficiencies, cutting operating costs and laying people off. So far there’s no indication that the company might be closed.

“We think the unit could still be competitive in the oilfield-services market if we improve efficiency, control cost and react more quickly to market demand,” Wang Bo, Anton’s Hong Kong-based spokesman told Bloomberg.

Foreign oilfield services are facing difficulties in China for several reasons. Margins in the oilfield services business have been squeezed as China’s main on-shore oil and gas explorers cut spending and handled service contacts internally. The low gas and crude prices don’t help the situation.

“Chinese oil companies award those high-margin projects to their own oilfield service units, leaving only less-profitable projects to outside service companies,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai. “The situation may get worse in case oil companies cut spending further in 2015 in the face of lower crude prices.”

On top of that, China has recently halved its planned shale output. The recently signed deals with Russia – to annually supply China with 70 bcm of gas – as well as the agreement to increase gas deliveries from Turkmenistan to 65 bcm by 2020, make shale exploration in China a less pressing issue.

Anton, whose shares have tumbled 59 percent in the past year, has already felt the squeeze, expecting the company’s full-year profit to decline more than 80 per cent.

However, the companies are not yet ready to pull the plug on the under-performing JV. Tongzhou is positioned to develop unconventional resources in China, Schlumberger Chief Executive Officer Paal Kibsgaard said in September 2012. Schlumberger’s position in China might be considerably weakened if Tongzhou is dismantled.

According to Wang Bo, the eventual fate of Tongzhou will be decided by both partners “at an appropriate time.”

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