Rigging for Tech

Schlumberger digs it, not just oil fields

Oil industry powerhouse Schlumberger has launched a $6 billion foray into information technology, making observers wonder if its drilling a very deep, dry hole — or on the verge of hitting gushing success in the New Economy.

Just five weeks after Schlumberger announced a $5.2 billion bid for information technology (IT) firm Sema, the oil field services giant is launching a company called MetaDot. The start-up will provide custom open source-based Web software and systems integration services to small and midsized companies, selling software to link multiple facets of a companys operations to a Web-based interface.

France-based Schlumberger, the worlds second-largest oil field services company, has been moving fast into new technologies.

So what is an oil services company that brought in $9.6 billion last year doing in the computer business? Schlumbergers defenders said it has been a leading technology company for decades and has developed many breakthrough technologies in seismic exploration and oil field development. Schlumberger Chief Executive Euan Baird said the deal with Anglo-French systems integrator Sema will "create revenue synergies" in many of Schlumbergers businesses, including wireless technology. It will also let the company offer a wider range of computer services to its energy clients, he said.

Schlumberger also hopes its move into IT will garner new customers for its smart cards, a business it expects will generate $1 billion in revenue this year. Smart-card-enabled computers will allow companies to restrict access to certain types of critical information, said Daniel Guermeur, president and CEO of MetaDot. "Passwords dont work. The smart card is the only totally secure solution," he said. "Nobody can read what is on the chip."

While Schlumberger is betting it can gain market share and revenue outside of the oil field, there are plenty of doubters.

"Schlumberger does not have a great track record of diversification outside oil services," said Douglas S. Altabef, managing director at New York investment firm Matrix Asset Advisors, which does not own any Schlumberger stock. Some analysts are "scratching their heads about the potential synergy between Schlumbergers old oil businesses and the information technology business," he said.

Schlumbergers big bet on Sema also concerns John L. Nichol, a portfolio manager at Federated Utility Fund, owned by Federated Investors in Pittsburgh. Nichols fund has a big position in Schlumberger, and he believes the company paid too much for Sema, which missed its profit projections last year. "When one shoe drops, another is sure to come," he said. Nevertheless, Nichol is still bullish on Schlumberger, thanks to surging energy prices. If the Sema deal works, he said, "it could be a big home run for them."