Schlumberger Ltd., the world's largest oilfield-services provider, said its $11 billion purchase of Smith International Inc. will broaden its service offerings and strengthen its competitive position as advances in drilling technology spur oil and natural gas production.

Smith stockholders will get 0.6966 Schlumberger share for each Smith share they own, a value of $44.51 a share based on Feb. 19 closing prices, the companies said yesterday in a statement announcing the all-stock transaction.

Future supplies of fossil fuels are increasingly dependent on breakthroughs in drilling techniques to access deposits in difficult-to-reach areas, such as crude oil in ultra-deep water or natural gas locked in hard shale rock, Schlumberger Chief Executive Officer Andrew Gould said in the statement. The company is based in Houston and Paris.

"The next breakthrough will be through engineered drilling systems that optimize all the components of the drillstring, allowing our customers to drill more economically in demanding conditions," Gould said. "Smith's drilling technologies, other products and expertise complement our own, while the geographical footprint of Schlumberger means we can extend our joint offerings worldwide."

Smith, which owns the M-I Swaco drilling fluids joint venture with Schlumberger, is the second-biggest provider of drill bits, a "critical link" for Schlumberger in offering a full range of drilling products and services, RBC Capital Markets said Feb. 19 in a note to clients.

Eoin Treacy's view There have been a number of large oil discoveries in the last few years but they all share the same characteristic of being in difficult areas to access. In maturing fields, increased technical knowhow is often required to get the most possible production. Specialist oil service companies are therefore in a sound position to benefit from the increased investment needed to bring new supply to market. (Also see Comment of the Day on January 5th 2009.)

Both Halliburton and Schlumberger found support in the region of the 200-day moving average and are currently rallying from that area. National Oilwell Varco has a similar pattern. We can continue to give the upside the benefit of the doubt provided they hold above the ascending moving averages. Baker Hughes is currently pressuring the upper side of the six-week range and a downward dynamic would be required to check potential for a successful upside break.

However, while the above companies are performing more or less in line with the oil price there are a number of European companies doing better, Saipem (Italy), Technip (France) and Acergy (Norway) all remain in consistent uptrends and would need to sustain moves below the 200-day moving average for more than few days to question potential for continued upside over the medium term.

Petrofac (UK) surpassed its previous high near 700p last July and rallied to 1000p by October around which it has been ranging since. This loss of momentum has allowed most of the overextension relative to the MA to be unwound and the share tested the upper side of the range today. A downward dynamic would be required to question potential for additional upside while a sustained move below 900p would break through the moving average and likely signal the unfolding of a larger correction.