Free-flowing technology
The BusinessWeek 50

For a company in such an old, dirty business as providing oil-field services, Schlumberger Ltd. (SLB ) has made its mark in a decidedly newfangled way. The industry leader has maintained its position for most of its 80 years by being far and away the most technologically advanced player in the game. Maybe it's encoded in the company's DNA: The business started in a Paris office in 1920 based on Conrad Schlumberger's revolutionary idea of using electrical measurements to map subsurface rock bodies.

Today, its menu of services for Big Oil is broader than that of such peers as Halliburton (HAL ) Co. or Baker Hughes Inc. Schlumberger can do everything from sizing up the geology of a site to assisting directional drilling to extract oil, from managing information about reserves and production for super-majors such as Shell Oil Co. to cementing the holes on a completed well. With oil and gas prices at record levels and exploration budgets bulging, Schlumberger's revenues and profits are surging. Demand for its high-margin services has propelled the New York company into the No. 5 spot on the BusinessWeek 50 this year.

Credit is due in large part to Chief Executive Andrew Gould, who upon taking over in early 2003 righted Schlumberger's course after an ill-fated, multibillion-dollar foray in information-technology consulting. Investors have certainly welcomed Gould's sensible retrenchment: The stock price has tripled since his arrival.

Gould, a 30-year company vet who works in Paris, has a simple plan: Exploit Schlumberger's advantages in scale, breadth, and industry-leading technologies. Last year, the company's R&D budget was $506 million -- substantially more than any of its competitors, according to brokerage A.G. Edwards (AGE ) Inc. "Schlumberger has the clear leadership position and is very committed to maintaining that," says analyst Poe Fratt. In November the company cut the ribbon on a 53,000-square-foot addition to its Global Drilling Technology Center in Gloucestershire, England, where 270 engineers vet prototype drilling systems before they're deployed to fields around the globe. Schlumberger can drill horizontal wells so far and with such accuracy, Gould recently boasted, "we can hit a target the size of a tennis court from 10 miles away."

With easy-to-find oil scarce, Big Oil companies are looking to expensive and risky exploration projects deeper in the sea, and Schlumberger technology can improve the chances that wells will find substantial oil or gas reserves. That's a big reason revenues jumped 25% in 2005, to $14.3 billion. Late last year, for example, Norsk Hydro ASA (NHY ), a Norwegian oil-and-gas producer, employed a Schlumberger sonic scanner that uses acoustics to help provide data on oil fields that previous technology wasn't able to yield. Also working for ConocoPhillips (COP ) in Alaska's North Slope, Schlumberger's PeriScope system helped steer a 6,800-foot horizontal well in a reservoir only eight feet thick.

Many exploration and production companies are also returning to older fields where the high price of oil justifies the use of Schlumberger's well-stimulation and information-management processes. Shell, for one, just signed Schlumberger to a three-year contract to squeeze the last bits of oil left in long-forsaken fields all over Europe. The technology, which improves Shell's ability to read seismic data, makes it possible for Shell to make better decisions about stimulating old wells in places such as Norway, Holland, and Scotland.

To be sure, if oil prices fall from their historical highs, Schlumberger's technology will look less affordable to the energy companies. But Gould has said it'll take "several years" to replace today's tight supplies, many of which have been under exploration since the last up-cycle in the 1970s. Gould's biggest problem nowadays is to find enough qualified engineers and other skilled workers to handle the increased workload. It's inevitable that another downturn will visit the energy sector, but with Gould at the helm, expect Schlumberger to keep doing what it knows best.

By Mark Morrison

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