This article is part of Our Top 5 Energy Stocks for 2012 series.

Energy constitutes the single most important sector in today's topsy-turvy market. Beyond that, I'll maintain without the slightest equivocation that the industry's key stock -- the one that should be in every Fool's portfolio -- is none other than the 800-pound gorilla of the oilfield services group, Schlumberger (NYS: SLB) .

Even if you've never touched an energy stock (in which case, shame on you) you've undoubtedly noticed the tremendous changes that have transformed the industry in just the past half-decade or so. Those changes generally are technological or geographic, and it seems clear that there's a host of other advancements that will continue to emerge for decades to come, essentially altering the world as we know it.

On that basis, there are numerous services stocks that warrant your attention, including Schlumberger's two biggest companions, Halliburton (NYS: HAL) and Baker Hughes (NYS: BHI) . And if you agree that the major advances in the industry in recent years are the use of hydraulic fracturing -- "fracking" -- and the movement to drill in progressively deeper waters, I'd urge you not to ignore the likes of Diamond Offshore (NYS: DO) and National Oilwell Varco (NYS: NOV) .

Four among many attractions
But, from the perspective of being able to influence and participate in the entire spectrum of continued energy transformation, Schlumberger offers unquestioned leadership. However, rather than expecting you to swallow that blanket claim, let me give you four basic reasons why the company tops the group:

  • Technological leadership: The incredible amount -- $920 million in 2010 -- Schlumberger spends on research and development has made its presence felt.
  • Geographic spread: With 110,000 employees operating in about 80 countries, it's in the employ of most national, public, and private companies and is participating in all significant venues.
  • Management strength: Sports metaphors are overused, but with its longtime and ultra-capable CEO Andrew Gould having just retired, the company was able to call on a deep bench.
  • Communications capability: Despite our infrequent attention to corporate communications, as a Schlumberger investor you'll become well versed in the nuances of energy.

A world ablaze in technology
You may not think of energy as technologically sophisticated. If so, let me direct you to a Foolish article I ginned out more than three years ago. In it, I talked about Mr. Gould, the finest teacher in the industry. He'd noted the development by Russia's Gazprom, along with Total (NYS: TOT) and Statoil (NYS: STO) , of the Shtokman project in the challenging Barents Sea. "Shtokman," he said, "is not putting a man on the moon, but it's not that far away in terms of technical complexity."

So it's crucial from an all-important technological perspective that Schlumberger has the wherewithal to both develop and acquire the industry's most advanced systems and equipment. In November, for instance, its Smith Bits unit -- an impeccably named group -- announced the introduction of an advanced roller cone bit for demanding geothermal and high-temperature applications.

And just last week, Schlumberger told us that it had acquired ThruBit, a Shell Technology Ventures Company. The new acquisition is able to convey the smallest openhole logging tools in the industry. It does so by using a unique through-the-bit deployment technique.

Help in fracking ever so necessary
As you know, fracking has dramatically increased natural gas and liquids reserves in the United States. Nevertheless, the process is expensive and hardly without its detractors. Indeed, a couple of weeks ago the always vigilant Environmental Protect Agency released a "draft" report indicating that nearby hydraulic fracturing may have contaminated groundwater around the thriving metropolis of Pavillion, Wyo., population 150. The situation has numerous industry observers proverbially up in arms, although The Wall Street Journal did a yeoman's job of rebutting the contention in a Monday editorial.

At the same time, fracking has generated controversy in Europe, where it resulted in a major gas find in England, and where Poland is employing it all-out in an effort to reduce its dependence on undependable Russia. Nevertheless, Schlumberger recently noted that, for a variety of reasons, including a lack of expertise and infrastructure, fracking may be about three times as costly in Poland as it is in the U.S.

China is also gearing up to begin fracking to tap its huge unconventional gas sources. With this bevy of rapidly expanding activity, mixed with intensifying controversy surrounding fracking, I would expect Schlumberger, likely along with Halliburton, to play a major role in developing the technology and processes needed to make hydraulic fracturing more acceptable worldwide.

The world's oil magician
It's amazing to contemplate that fully a third of the world's oil discoveries in the past five years have occurred off the shore of Brazil. Is Schlumberger involved in this amazing phenomenon? Let me just note that the company first worked in Brazil in 1945, and a year ago opened a new research and geo-engineering center in Rio de Janeiro. You therefore can look to the company to be at the forefront of solutions to the demands inherent in producing oil from the prolific Santos Basin, where the hydrocarbons lie beneath thick salt layers, topped by thousands of feet of water.

Across the world, the company operates the Schlumberger Dhahran Carbonate Research Center in Saudi Arabia. The circumstances there vary significantly from those in Brazil, but hydrocarbon production is never without challenges. As the company notes on its website, the facility "... plays a central role in the collaboration of major clients in the Middle East with Schlumberger operations."

You really shouldn't avoid this stock
I could easily go on ad infinitum about the strengths of Schlumberger and its compelling stock. But I trust you get the picture. The rapidly changing and progressively more important world of finding and producing oil and gas requires a steady flow of solutions to complex problems. Schlumberger has long been a leader in providing those solutions and in supporting oil and gas companies across the world. It's quite simply a stock that no self-respecting portfolio should be without. 

I think Schlumberger is a great pick for the future, but our analysts have selected a different stock that they believe is poised for tremendous growth in 2012. Find out which company in our new free report: "The Motley Fool's Top Stock for 2012." Thousands have already requested access and it'll only be available for a limited time. Simply click here -- it's free."

At the time this article was published Motley Fool newsletter services have recommended buying shares of National Oilwell Varco, Statoil, and Total. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith does not own shares in any of the companies named in this article. The Motley Fool has a disclosure policy.  

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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