Weatherford & Sinopec to Form JV - Analyst Blog

Services giant, Weatherford International Ltd WFT has teamed up with Sinopec Oilfield Service Company (SOSC) and Shengli Highland Petroleum Equipment to form a joint venture (JV) to focus on development of unconventional oil and gas resources in China.

Shengli is a JV between Weatherford and a subsidiary of Sinopec that produces drilling tools.

The move will give the Chinese state energy firm, Sinopec the lead in exploring the nation's uncharted vast shale resources. The JV aims to combine Weatherford's expertise in technology and management with the Chinese oil major's ability to extend its upstream business.

According to sources, the JV has registered capital of more than $50 million. Initially, the JV intends to focus on development of high-end products such as those used for high-temperature and high-pressure shale gas drilling. Sinopec, which will manage the JV, will cover overseas operations as well.

In 2013, SOSC earned over 100 billion yuan ($16 billion) in revenues and aims for a public listing by end-2015 or earlier, according to two sources.

China is believed to hold the world's largest technically recoverable shale gas resources. The nation intends to replicate the shale boom that changed the U.S energy landscape. However, technological and environmental issues due to complex geology, high population density and water shortages are the challenges it has to overcome.

The JV operations will include provision of technical services to oil and gas drilling, well completion and the manufacture of tools.

Weatherford is a leading oilfield services company. It manufactures and provides equipment and services used in drilling, completion, and production of oil and natural gas wells. The company's operations are divided into four separate geographies: North America, Latin America, Europe/West Africa/CIS, and the Middle East/North Africa/Asia. It has manufacturing facilities and sales, service and distribution locations throughout the world.

Weatherford currently carries a Zacks Rank #3 (Hold). Some better-ranked oil and gas stocks worth considering include Encana Corp ECA, Matrix Service Company MTRX and CVR Refining, LP CVRR. All these stocks sport a Zacks Rank #1 (Strong Buy).

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