What's Schlumberger's 'Blue Sky' Scenario?

In a report published Wednesday, Jefferies analysts maintained a Hold rating on

, while raising the price target from $89 to $91. Schlumberger indicated the possibilities of new business models and further integration and ownership of drilling rigs. The analysts mentioned that "Blue Sky" thinking suggests these initiatives could add as much as $0.75 to the Normalized EPS estimate and boost fair value by up to $9. "Footage-based contracting models and rig ownership/control, which allows for integration/coordination with the drill string to optimize performance, are anchored in the view that SLB should get rewarded if it can drill wells faster," the analysts said. "From a stock perspective, in addition to apparently favorable margin impact, we expect SLB can continue to leverage its earnings multiple to lower the cost (of capital) of rig ownership (vs. rig contractors). Assuming the ultimate acquisition of EDCL and a high case of 75 additional rigs is funded with cash, we estimate it would add $0.10 of EPS and $2 to a theoretical PT," the report added. The analysts believe that Schlumberger Production Management (SPM) is highly accretive to earnings. "Recent studies on refrac economics are quite favorable; SLB's willingness to front the capital should encourage trials, in our view. We "blue sky" a potential impact of more production-oriented contracts and 2,000 refracs per year (industry-wide) in the U.S. at $0.65 of EPS and $7 to a theoretical PT," the analysts wrote.