Dodge & Cox's Stock Fund Comments on Schlumberger NV

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Feb 16, 2015

Schlumberger (SLB), the world’s leading oil services company, is the most technologically-focused company among the integrated oilfield service companies, with double the R&D budget of its closest peer. We believe that its consistent spending on technology (e.g., enhanced recovery techniques, seismic interpretation, directional drilling) has provided the company with a competitive advantage that is sustainable over time. The company’s innovation efforts have enabled the industry to extract oil and gas from deepwater and shale resources that were previously cost-prohibitive or physically challenging to reach. Schlumberger is the dominant international provider in key markets, including the Middle East and Russia. The majority of its revenues come from outside the United States, and its international business has higher margins than its U.S. operations. We believe that Schlumberger is well positioned to continue to benefit from the long- term relationships it has with international oil companies and producing nations. If the price of oil remains low, the company will face a challenging environment. Relative to competitors, its strong franchises and solid balance sheet and cash flow should allow the company to endure an extended downturn. Weighing this risk with Schlumberger’s valuation and opportunities, we believe that the company (a 2.5% position in the Fund) remains an attractive investment opportunity.

From Dodge & Cox’s Stock Fund Q4 2014 Shareholder Letter.