Schlumberger's (NYSE:SLB) purchase of a 20% stake in Chinese oilfield services company Anton could lead to stronger ties between the two companies. Anton plans to strengthen its ties with Schlumberger, especially in the shale exploration industry, targeting China's plans to exploit its unconventional natural gas reserves. [1]  Remarks from Anton's chairman confirmed our earlier view that the stake purchase was a result of Schlumberger targeting growth in the Chinese shale exploration industry. (See: Schlumberger Buys Minority Stake In Chinese Oilfield Services Firm)

We have a $93 price estimate for Schlumberger, which is at a 40% premium to its current market price.

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Chinese push

According to EIA estimates, China holds more shale reserves than the U.S. However, the industry is still nascent in the country and the government is looking to encourage private investments in the sector to help meet growing local demand for natural gas. If the shale exploration industry takes off in China, it could result in a major opportunity for oil field services providers in the region. Shale extraction can result in higher rig count as well as higher revenue per rig because of higher service intensity of the process. Anton has said that shale exploration will be the focus of its partnership with Schlumberger.

Earlier this week, Schlumberger purchased a 20.1% stake in Anton. The two companies have cooperated in the past on drilling fluids and well cementing services. The two companies have also worked together on gas storage and exploration work in the Tarim basin in the country. Anton has about 1,000 employees and Schlumberger could use the company's manpower in China to expand in the country and benefit from a potential shale gas boom.