EOT Trade Alert – July 6, 2012

| July 6, 2012

July 6, 2012

Trade Alert:

   Buy SLB August $67.50 2012 calls at $1.85 or better

Company Background:

Schlumberger (SLB) is the leading oilfield services company.  They provide equipment and technology to the oil and gas industry worldwide.  SLB operates in two primary business segments… the Oilfield Services space and the Western Geco, its seismic division.  The company is largely focused on international operations.  North America generates about 33% of Oilfield Services total revenues and 41% of the segment’s pretax operating income from the high activity levels associated with US shale plays.

Short-Term Catalyst:

As oil and gas wells increase in age, it becomes increasingly difficult and expensive to maintain or expand production.  As a result, the need arises for more advanced production techniques or equipment to do so.

This ‘decline rate’ is present in oil and gas reservoirs worldwide, including the US Gulf of Mexico and the North Sea.  This makes it increasingly difficult for oil supply to expand.

Combined, I think these supply-demand dynamics have contributed to the general trend of historically elevated oil and gas prices, as supply struggles to keep pace with demand.

With this information, upstream oil and gas companies have an incentive to continue their high levels of capital spending on both the drilling and completion of new wells, and on techniques to enhance the productivity of existing wells.

And SLB is one such company that will benefit from these needs.

Schlumberger is in the perfect position to outperform its oilfield services peers.  For one, Schlumberger has recently entered the Russian oil services market, which is poised for years of growth.

I think the company has an insurmountable lead over its competitors as a result of years of building relationships with Russian national oil companies.

In addition, SLB continues to win many integrated project-management efforts in Mexico, where it manages most of its oil field operations from shooting seismic to drilling wells.

Decades of services experience and close relationships with national oil companies will help SLB win some of the largest contracts moving forward.

Lastly, their research and development segment is rocking.  There are 7,000 people working in 25 R&D centers around the world.

Bottom line…

Schlumberger is one of the top companies in the oil services industry.  I believe they are well-positioned to benefit from the industry’s current weakness and future rebound.

And given its financial strength, geographical and product diversification, and well-regarded research labs, will be a big plus in the future.

The company’s focus on making acquisitions to provide deeper insights into solving oil field issues will result in an edge over smaller peers as conditions improve.

Let’s grab call options on SLB to profit from increasing demand for their diversified products and services.

Trade Details:

Underlying Stock Symbol: SLB
Current Bid-Ask Price: $1.77 – $1.80
Option “Buy Up To” Price: $1.85
Break-Even On Stock At Expiration: $69.35
Maximum Risk Per Contract: $185

Exit Strategy:

SLB is trading at $65.34 per share.  Resistance levels will be at $70.00 and again at $72.50.  Don’t forget, we want this stock to move higher.  Support levels will be at $62.50 and $60.00.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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