The past six months have seen a sweeping wave of upstream M&A that will potentially affect the oilfield service industry in profound ways. And some of the largest deals have yet to close: Chevron’s deal to buy Hess; Exxon Mobil’s power play for Pioneer Natural Resources; and Diamondback’s transaction for Endeavor.

In those deals, and others, most acquirers aim to slow down the pace of drilling and preserve core inventory. SLB’s all-stock $7.74 billion deal to buy ChampionX, announced April 2, may have been, in part, a reaction to that.

TD Cowen analyst Marc Bianchi wrote in an April 2 commentary that while SLB had made an attractive deal, “we wonder if this is also a consequence of slowing upstream spending growth.”

Analysts generally welcomed the deal, particularly the addition of ChampionX’s chemicals business to SLB’s own. The deal also appears to strengthen SLB’s position as a frontrunner in well optimization and resource recovery.

Olivier Le Peuch, CEO and director of SLB, pitched the deal on a conference call as a way to add some safety rails in a business that is often choppy as commodity prices fluctuate. Adding ChampionX expands the company’s presence in “a less cyclical and growing production and recovery space in a way that is closely aligned with our returns-focused, capital-light strategy,” Le Peuch said.

“The majority of ChampionX's revenue is driven by opex, which will become an increasing part of overall upstream, exploration and production spend.”

Bianchi viewed the acquisition as seemingly “neutral before synergies and attractive after.”

“The combination increases SLB's presence in production / opex spending and offers an opportunity to grow the CHX business internationally,” he said.

SLB’s “returns-focused, capital-light strategy” looks to improve efficiencies in the production and reservoir phase, James West, analyst for Evercore, wrote about the deal.

West also saw the deal as a way to expand SLB’s “exposure to the less cyclical and growing base of production globally.”

M&A chemistry

SLB will also pick up ChampionX’s chemicals business — a specialty of the company.

Luke Lemoine, an analyst at Piper Sandler, wrote on April 3 that the deal wasn’t expected because “we believed SLB was likely done with large M&A.”

From a product line perspective, however, the transaction elevates SLB's production chemical business from No. 6 globally “to a very clear #1 position.”

“SLB was already the worldwide leader in artificial lift, and the acquisition adds the #5 player to SLB's portfolio,” Lemoine said. “The acquisition does hit what we believe will be two major themes in the coming years: 1) production optimization and 2) reservoir recovery.”

The chemicals sector offers a steady and stable baseload of activity that is decoupled from traditional rig count cycles and commodity prices, Le Peuch said.

“As assets age, chemical intensity and usage will further accelerate,” he said. “And ChampionX is vertically integrated in this market with a significant manufacturing network that is well positioned to deliver on this growing demand.”

Additionally, offshore environments are more chemically intensive, playing to the strengths of SLB.

“As we go more and more integrated into our offering for production, producing assets with customers, there is more and more opportunity to combine and to innovate on the production chemicals,” Le Peuch said, “using the full panel of these solutions also to combine with our equipment process capability in surface, in subsea, in FPSO or in land installation.”

Complementary bonds

ChampionX and SLB’s portfolios mesh well together, fortifying where each company was lacking and giving SLB a more robust offering, executives said. Combined, the companies will offer world-class production chemicals and artificial lift technologies.

An enhanced production and recovery portfolio, as well as increased geographical reach, is expected to pay off. SLB expects annual pre-tax synergies to reach $400 million within the first three years — with between 70% and 80% realized in 2026. The synergies consist of reduced operating costs, supply chain optimization and reduced administrative expenses. Revenue synergies will be driven by SLB's new technology innovation due to the expansion of ChampionX's reach.

Both SLB and ChampionX have made significant investments to integrate digital capabilities and artificial intelligence. Applying these to the full production and recovery cycle will create additional value for customers by lowering the cost and carbon intensity of oil and gas production, Le Peuch said.

Sivasankaran Somasundaram, president, director and CEO of ChampionX, concurred during the webcast, saying production chemicals, artificial lift and good digital technology are needed once the well goes into production.

“With the combination of the capabilities and the global reach, I think we will see our ability to support our customers and maximize value of those producing assets for a long time to come,” he said.

The transaction also creates great value for shareholders of SLB and ChampionX, contributing to gradual growth of free cash flow per share in 2025 and earnings per share in 2026. Due to their confidence in the value of the merger, SLB has raised their 2024 target for total returns of capital to shareholders to $3 billion from $2.5 billion and set their 2025 target at $4 billion.

As part of the merger, ChampionX shareholders will receive 0.735 SLB shares for each share they have of ChampionX. Upon closing of the transaction, ChampionX shareholders will own approximately 9% of outstanding SLB shares.

Latham & Watkins served as advisers for this transaction. Requests for comment were not immediately returned.