斯倫貝謝公司 (SLB) 2004 Q2 法說會逐字稿

Ladies and Gentlemen, thank you for standing by.

Welcome to the Schlumberger conference call.

At this time, all participant lines are in a listen-only mode.

Later, we will conduct a question-and-answer session.

If you have a question, please depress star and then 1 on the touch tone phone.

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As a reminder, this conference call is being recorded.

I'd now like to turn the conference over to Doug Pferdehirt, Vice President of Communications and Investor Relations.

Please go ahead, sir.

Thank you, Lea.

Good morning to all and welcome to today's SEC 2004 Schlumberger Conference Call.

Before we begin today's call, I'd like to review the logistics and agenda.

Some of the information in today's call may include non-GAAP financial measures.

A reconciliation of any non-GAAP measures we discuss are contained in today's press release or will otherwise be posted on our investor relations website at www.SLB.com.

A detailed disclaimer and other important information is included in the FAQ document available on our website or upon request.

Jean-Marc Perraud, our Chief Financial Officer, will begin by highlighting the financial details for the second quarter.

Then, Andrew Gould, our Chairman and Chief Executive Officer will provide additional detail on the performance and activity.

Finally, we'll take questions from the audience, as the entire conference call will be limited to 45 minutes in length, please direct your questions accordingly.

And now, Jean-Marc.

Thank you Doug.

Ladies and Gentlemen, good morning and thank you for participating in this conference call.

First, I would like to stress that all of the figures I will present were restated for Axalto, Electricity Metering and Business Continuity Being reclassified as Discontinued Operations.

So the earnings restated for the first quarter of this year are now 43 cents instead of the 47 cents reported at that time.

And for last year, the second quarter result were 39 cents.

Also, I would like to draw your attention to the fact that on average, most of the forecast for the second quarter, for this second quarter, from the street, included a two to three cents contribution from these now discontinued businesses.

So this being said, second quarter earnings from continuing operations and before charge 48 cent per share up 5 cents sequentially and up 9 cent above same quarter last year.

OFS contributed 4 cents and Western Geco was down 1cent, the balance from lower interest expenses.

Year-on-year, OFS accounted for the 5 cent of the 9 cent increase, Western Geco for 2 cents and the rest from lower interest expenses partly offset by lower investments and currency gains.

Pretax margin of OFS for the second quarter 17.9%, same as previous quarter and last year.

Higher margin in ESEA, our Europe, African, and Middle East Asia, were offset by declining North America and Latin America.

The sequential decline in North America from 17% to 16.1% came from the winter breakup in Canada, mitigated by improved margin in US land due to price increases.

Year-on-year, North America pretax margin showed a significant improvement, 1.7%.

Latin America experienced both the sequential and the year-on-year decline in margin due to a slowdown in the operations in Venezuela.

Sequential improvement in ESEA came from Russia and the Caspian, partly offset by the deterioration in Nigeria, and for the Middle East Asia, Saudi Arabia and the Gulf state were the main contributors for the quarter.

Western Geco reported 5% pre pretax margin versus 10.7 in the first quarter and negative 5.2% margin last year.

Sequentially, the drop reflected lower multi-client sale after an exceptional first quarter due to the Gulf of Mexico lease sale.

Multi-client survey sales in the second quarter reached $83 million versus 135 in Q1 and $87 million in Q2 last year.

Net income for WesternGeco was 6 million, after minority interest, versus 9 million last quarter, and all product lines were breakeven or profitable.

The effective tax rate before charges for Schlumberger as a whole, was 23.1% in line with our previous guidance of mid to low 20s.

We are reaffirming the guidance for the rest of the year.

The return on capital employed by Schlumberger continued to improve and reached 15.1% in the second quarter and one in excess of the cost of capital.

Various exceptional charges for total of $34 million or 5 cents per share were recorded during the second quarter, mainly as a result of the buy back of $250 million of our 6.5 % 2012 bonds issued by SGC.

Cash proceeds from divestitures are in priority once visible applied to the reduction of the long-term financing no longer required.

And now that the divestiture program is now coming to an end, we're not planning any further debt buyback of this stock.

During the second quarter, we sold our remaining stake in Atos for $551 million.

Business continuity for $233 million and 87% of Axalto was IPOed for $603 million.

In July, Electricity Metering was sold for $248 million.

All these units were treated as discontinued operation with a net gain of the quarter, $101 million for 16 cents per share.

The total cash proceed during the quarter and therefore not including Electricity Metering, amounted to $1.4 billion.

At the end of June, our net debt dropped to $1.8 billion, in line with our year-end target, and both Moodys and S&P switched our A-1, A-plus negative outlook to stable outlook.

The Board of Directors approved, yesterday, a share buy back program of up to 15 million shares to be acquired in the open market, before the year-end 2006.

It is our intention to execute this program without increasing materially our current leverage, and without constraining the capital spending required to support the expected solid growth in our business.

Thank you very much, and Andrew Gould and will now comment on the activity, Andrew?

Thank you Jean-Marc.

Good morning, everybody.

We had another quarter of strong growth as high commodity price and the current lack of spare oil production capacity led customers to continue very active drilling programs.

And we expect, absent any slowing of demand, which appears unlikely, that activity will continue to increase over the balance of the year and into 2005.

In North America, US Land was strong both sequentially and year-on-year to continued improvement in the rig count, new technology demand and pricing improvements, although the full affect of these will really be in the third quarter.

ITM well construction made strong progress in the Gulf of Mexico, offsetting weak E&P activity offshore.

Our entry into this markets is extremely successful over the first half year and we expect a solid recovery in Canada following the lower activity during the spring break-up.

In Latin America year-on-year, growth and revenue and pre-tax income was fueled by continued demand for large integrated projects, principally in Argentina or Mexico and we expect continued activity and improvements in Brazil and some activity recovery in Venezuela.

In Europe,CIS West Africa, a strong sequential and year-on-year increase in revenue was due to stellar performance from the Russian and Caspian GeoMarkets.

Particularly satisfying is the increased diversification of the customer base and the completion of two acquisitions in Russia during the quarter.

West Africa continues to have record activity levels due to deepwater projects.

ICM showed strong growth in Russia, while new technology introductions across the area were particularly impressive.

Activity levels, however, remain depressed in both the North Sea and Nigeria.

Middle East and Asia experienced very strong growth due to the general increase in activity around the area.

Three different drivers, are spurring activity in the area.

The need to sustain an increased oil production, the beginning of substantial gas drilling programs and the emergence of a deep water exploration market in several countries in the region.

In Q2 we saw a very satisfactory level of new technology update across most segments and in most areas of the world.

It's difficult to put the emphasis too much on any single product or service, but the uptake of rotary steerable systems continues to be a prime driver, while the continued success of production related services, including analysis behind casing and Fiber Assisted Transport Phase Tester and Phase Watcher, which are all going strongly.

Perhaps more importantly, the current portfolio of technology in [field] test due, which is due for commercialization in the next year, is particularly rich.

Well oil drilling and measurements both have impressive new services that will reach the market in the next few months, while well completions and productivity has some fairly revolutionary products that will come to the field.

For WesternGeco, as I predicted at the end of Q1, lower multi-client revenue in Q2 led to a sequential decline in revenue following the exceptionally high revenues in the first quarter.

Despite this, WesternGeco remained profitable and showed considerable improvement in pre-tax operating income compared to the prior year.

The growing acceptance of Q led us to achieving 100% Q-Marine utilization by the end of Q2 and full utilization of the Q-boats could continue until at least the ends of the year.

The startup of Q land crew in Saudi Arabia was another milestone in the introduction of Q systems.

The growth in WesternGeco's backlog over the last quarter reflects both the growing acceptance of Q, as well as a fairly strong recovery in demand for conventional seismic.

As we pointed out in our analysts meeting in June, strong demand growth and an aging production base have created a shortage of excess production capacity.

The industry will have to work hard to build a comfortable margin of reserve supply.

We anticipate that this will give us continued strong growth over the coming quarters.

I will now hand it over to Doug.

Thank you Andrew.

Lea we will now open the call for questions.

Thank you.

Ladies and Gentlemen, once again, if you would like to ask a question, please depress star and then 1 on the touch tone phone.

As a reminder, you may withdraw yourself from the queue by depressing the pound key.

One moment, please.

And our first question is from Michael LaMotte from J.P. Morgan.

Please go ahead.

Morning, Andrew, good morning, everybody.

Morning, Michael.

Andrew, if I could ask just sort of a general question, first.

Looking at Eastern Hemisphere Operations, particularly Middle East and Asia versus those in Latin America, what are the differences in terms of, I don't know, assets, pricing, competition, whatever it may be that can account for 10 percentage points in margin difference in those two regions?

Well, this is a lot less material in the Middle East and Asia, particularly Middle East, huh?

Therefore, there's a higher -- still a higher proportion of exploration and development as opposed to pure production work.

Entry into markets overseas, particularly in the Middle East is a very, very long process because these markets where people are sensitive to the quality of technology, but they are extremely sensitive to long term relationships as well.

So, I mean, it is probably possible for anyone to enter the markets you have to be extremely patient to do it.

And the Middle East, quite frankly, knows that it relies on the service industry for technology and, therefore, is prepared to pay some form of a premium in order to insure that that technology keeps coming.

And, perhaps, one one of the popular misconceptions the Middle East is not technology-intensive, in fact, it's extremely technology-intensitive.

Just a quick one for Jean-Marc.

The buyback program, I just, using today's price, you're not even using the cash that you generated in the second quarter from your divestitures.

I frankly would have thought with the free cash flow of the Company in streamline form, that the buyback program might have been a little bigger.

Any comments there?

No.

Actually, as I mentioned, you know, we don't want to increase the leverage, so as you pointed it, it has to come the buyback, has to come from the future cash flow with the very minor part coming from further assets sales, I mean about 25% would come from further assets sales.

We kind of carefully considered the cash flow prospect for the next two years.

And obviously, as you know, we have a dividend to pay out around 40% or slightly lower and we factor all that in, including the prospect for fairly significant growth in 2006 and 2005 and we thought the size of the program was adequate.

Okay.

But, it's -- I guess, with the deadline of 2006, it's something that -- I mean, you -- this isn't a one-shot deal?

No.

No, no, it is not a one-shot deal.

We may -- 2006 is the expiration date.

We may exit the program faster if the market conditions allow.

Okay.

Great, thanks, and good quarter.

Thank you.

And we have a question from Kurt Hallead from RBC.

Kurt Hallead.

I had come confusion in the marketplace today.

And for Jean-Marc, you mentioned 2 to 3 sets of discontinue operation in the street consensus number of 49cents today.

Is that what you said earlier?

That's exactly what I said.

If you look at the last quarter, the first quarter, we reported 47 cents.

Now that we restate for the three businesses which were discontinued during the quarter, namely Axalto, Electricity Metering and Business Continuity is 47 cents, became 43 cents and you could expect the same impact in Q2, everything being equal.

Everybody will still have in its model, if you want the result of the three units, is probably overstating by by 3cents.

So then you're continuing operations of 48 cents to beat the street consensus number revised for discontinued ops.

That's what I'm trying to say, yes.

Just wanted to make it clear.

A follow-up question on Latin America, at least relative to my forecast for incremental margins the profit growth didn't match the revenue growth and I was wondering if you could provide color commentary on Latin America?

As we said in the press release, we were currently renegotiating a ICM contract in Venezuela and while we are renegotiating, 3 drilling barges are idol and we expect to go back to work very shortly we're bearing the full cost of those barges being idle and that hit the quarter quite badly.

The next question from Terry Darling from Goldman Sachs, please go ahead.

Thanks.

Andrew, you -- continuing the industry theme here of both the revenue and profit expectations, but I guess, this seems to be the incremental margins across the industry, maybe were not as strong as people might have guessed, based on history, and I'm wondering if you could address the thought process on incremental margins, this cycle versus prior cycles.

Smith talked about mix impacting their results and we haven't seen North American pricing start to kick up and it's more international cycle.

Do you think the incrementals at this point is a function of where we are in the cycle or is this a nature of a different cycle?

No, I think -- you know, the -- if you have North America, Terry, it's a very pure market, supply equals demand and pricing goes up, and it happens relatively fast compared to overseas where things go in waves.

And we always, in previous cycles in Schlumberger would say that a cycle that ended in North America would end in the Middle East 2 1/2 years later.

So, you need -- you know, you cannot expect incremental margins, outside Mann to come the same speed as they came traditionally in the pure North American cycle.

I think we're in a stage where incremental margins are still going to increase, they just may not increase as fast every quarter as you would be used to in a typical North American cycle.

I think that's fair.

Maybe, then, we can focus in a bit more on North America, where I think you're year-over-year incrementals 26% probably don't reflect the kind of improved pricing and pressure pumping that maybe the BJ incrementals did and Alberts North America incrementals reported this morning also were much stronger.

Do you see more of a lag in terms of pricing impacting your business based on the na of contracts?

Were there any other one-time items that impacted your North America results?

Obviously Canada hit you you, but it hit everybody, if we look year-over-year where I'm focused here, the point still stands.

I think, probably, that our incrementals are a little slower to come in function of the client base and the contracts that we have.

But I mean, if you -- you mean in terms of the pricing affect being fully in Q2 or Q3?

Right.

I suspect ours are more noticeable in Q3 than Q2.

Thank you.

The next question from the line of James Stone from UBS.

Please go ahead.

Good morning, guys.

Good morning.

Andrew, you made reference to the increasing size of you client base in Russia, could you update us with your thoughts on Russia, particularly in light of some of the recent events in UDKOS, where your business with them stands, and how you see the market developing, and do you see any changes on how it's developing through the end of the year and into '05?

Well, maybe, if would save time Jamie if I addressed U-cost before somebody asked me.

At this point in time, we're working, normally, for UDKOS and being paid as late as yesterday.

We have no reason to -- we have no basis for understanding exactly what any change in UDKOS will be, despite the press speculation at this point in time.

So, I mean, what -- obviously, it's been one of our objectives for the last two years to diversify our client base away from purely UDKOS and Signia and the first half of this year that's got considerable traction.

One reason is the start up of IOC projects in Sacklin and the other reason because we've been able to penetrate, and I don't want to give the names, a couple of other Russian oil companies.

So, you know, I don't know exactly what the solution to the UDKOS current arguments with the Russian government is going to be.

I don't know whether that will impact the other Russian oil companies.

What I do know is that I think it's highly unlikely that the Russian government would want to affect the level of their oil production and, therefore, one way or another, I suspect the activity will proceed, you know, pretty much as it has been.

Could you give us a rough sense of what percent of your Russian revenue is related to UDKOS and Signia today?

UDKOS and Signia --UDKOS about 30% of our overall revenue, Jamie.

UDKOS?

Yes.

Thank you.

We have Jeff Sieberts from Smith Barney.

My question is on your outlook for the Gulf of Mexico and North Sea today, or over the next 18 months and maybe included in that you could address or elaborate on the comment that North American pricing is improving satisfactorily and what you expect there?

If I start with the Gulf and the North Sea, I think we'll see some improvement in the Gulf in the second half of the year.

To what extent, I really don't have a good feel, Jeff.

And the North Sea I think we'll have a seasonal uptick in Q3, but I really am, particularly in the UK sector, not optimistic anything much will happen before next year.

As you soon, if you get beyond September, people don't start programs until the following summer.

So, I'm not very optimistic for the North Sea.

And North America pricing I don't want to put a figure on it, we'll have considerable incremental pricing and particularly in pressure pumping in the third quarter.

You don't see a sharp improvement in the North Sea outlook over the next 18 months?

Q3, yes, but I don't think the fundamentals are in place in terms of the tax legislation and the terms of divestiture from some of the majors in terms of the transport system within the North Sea for the independents to make major commitments at this point in time.

Does the plan for come increased deep shelf as well as deep water drilling that we're seeing over the next 6-9 months is that important, particularly on the deep shelf, as a result of the program, a big factor in your thinking?

I mean, I think that the success of the deep shelf, at a reasonable cost, is hugely important to the future of the Gulf of Mexico.

But I don't -- I think it's too early to predict exactly whether or not that success is going to -- is there to extend -- you know, people are going to make major commitments.

There are people planning hugely expensive wells and they're going to have to see dramatically good results from the wells to want to continue.

And if I could push my luck, now that you've made such a dramatic change in your balance sheet, are acquisitions back on the table as a consideration?

Yes, Jeff, they are.

And we, in fact, have put together a small acquisition team which will do that, however, if I think I pointed out in Richfield, the acquisitions we're likely to make are going to be niche technology or niche services within a particular geographic area or acquisitions to complement, based in Russia and eventually China, but we're not looking at major acquisitions at this point in time.

Thanks very much.

And we have a question from the line of Ken Sills from Credit Suisse First Boston.

Please go ahead.

Yeah, good morning, gentlemen.

Good morning.

You know, according to my numbers things came in pretty good this quarter and it seems like people are disappointed of what happened at WesternGeco after the positive comments at the analyst meeting.

I was wondering if you could maybe outline how you see the business progressing sequentially and through the course of the ends of the year?

I think that, you know, the positive comments at Richfield were very much designed for the medium term and not the Q2.

Because if you go back to the transcript at the end of the Q1 you'll find I warned everybody the multi-clienting that happened in Q1 was not going to repeat itself.

I think the Q2 disappointment is not really a disappointment in function of the plan that we see for WesternGeco.

So the -- I think that, you know, over the next two or three quarters, given the backlog we now have, we're going to see some substantial progress in the -- in the net income.

And I think that, probably, the next point where you know I will really, really take a hard, long look at how we're doing is at the end of the year.

I mean, we are beginning to have with Q, some unique applications, which, beginning to solve geophysical program problems that have not -- progress in solving some problems not previously solved by other seismic technologies and this is what we really need to justify Q vis a vis our customers.

And I think what you see at the moment is a little bit of recognition on the part of the customers for applications, Q makes a major difference.

We need to see how that continues.

And, then, one follow-on question, on a technology note, you know, one of your -- not really competitors, Grant Fryco is working on intelligent drill pipe, assuming that works, what impact is that going to have on the wireline business?

How much wireline will shift over to MWD, LMD.

Assuming and I think it's a fairly large assumption, that wireline drill pipe can provide wireline-type data rates and then there is a huge potential to shift more measurement -- more complex and high resolution measurements to LWD.

I would point out that -- we don't talk about it, but we have our own system of -- wire drill pipe which in our usual technical modesty consider far superior to what's put out through Intellsa, so it's something that we watch very closely.

I guess for your comments, you think this still pretty as far out?

I think, you know, when you have to break a correction, and electrical connection in a drilling environment, every three stands, and you have to re-establish that connection in order to be able to transmit megabytes of data, it's not obviously.

The problem with the intelligence drill pipe is all around, whether or not you can get the connections to work consistently, every time you make up a standard drill pipe.

Whether you can in that environment, get a strong enough signal to maintain the data rate all of the way holds hope.

These are all problems, Grant Fryco and ourselves are working on and a lot of progress has been made.

In my opinion, to say it's about to become a commercial rival to either MWD or even more to wireline is still quite a long stretch.

Thank you.

We have a question from the line of John Dowd from Sanford Bernstein.

Please go ahead.

Thank you.

You addressed Latin America and I was wondering if you could talk about why operating margins in each of the international oilfield segments were down year-over-year even though revenues increased across the board?

Well, they're all down for different reasons.

In America, Europe, CIS, and West Africa.

Jean-Marc do you want to go ahead.

Maybe I can comment.

You're talking year and year and basically North America deep progress year-on-year significantly in terms of pre-tax margin, that's in America, one down, and I think we outlined previously, one of the main reasons which is our slowdown in Venezuela, each year the Europe CIS Africa unit went down year-on-year basically, because of some local currency issues.

To the extent that some local currency revalued against the dollars and that created about 1 percentage point margin issue year-on-year, since sequentially did improve and year-on-year that's one factor, the main factor for to this region.

Middle East, Asia, basically a pre-tax margin is roughly flat and actually slightly improving because we had, as disclosing the second quarter of last year, we have an exceptional gain of for sale of a rig at that time for $4 million and I think if you adjust for it, you basically have no -- no deterioration in margin and a slight improvement.

Okay.

Thank you.

And if we -- if we allow -- can you elaborate a little bit on Latin America without the Venezuela issues you discussed, would the operating margins have been flat or up year-on-year?

Yes.

Yes.

It would have been -- I didn't do the calculations but I think I consider it would have been at least flat, yeah.

Thank you very much.

And our next question is from the line of Bill Herbert from Simmons and Company, please go ahead.

Thanks, good morning.

Nigeria, with the rug count languishing at pretty subdued levels and this has been the case for a while, what have you done to adjust that reality and what are you doing and what is your outlook there?

So we have done a lot, which is cost in the first half of this year.

In terms of reducing head count, moving equipment, and you know, all of the rest of the normal things one does.

Uh-huh.

Our outlook, bill, is that there be over the next year, some improvement offshore, particularly in the deep water, but we are not counting on any recovery in the delta.

In the foreseeable future.

Okay.

And Jean-Marc was there any market degradation from Nigeria, Q2 versus Q1 in Europe CIS West Africa margins?

Yes.

Forgive me just one second.

Sure.

Yes, sequentially you do have a deterioration.

Okay.

And I assume that with the cost cutting efforts that took place that margins should be at least flat to up in the second half of the year, assuming that nothing dramatically worse happens with respect to the outlook?

You're talking about specifically ECA or Nigeria, then?

Nigeria.

Nigeria, we're obviously trying to adjust so I think that's a fair assumption, yes.

Okay, thanks very much, bye.

And our next question is from Jim Crandall from Lehman Brothers, please go ahead.

Hi, good morning.

I just -- first of all, just a statement, I don't know about others, my numbers didn't include anything from discontinued operations and I guess I'd be surprised if others did as well.

Secondly, Andrew, you talked about the U.S. market, probably being a stagnant market going forward.

No, no, I talked about the Gulf.

No, but I mean this past year and year and a half in conversations that we had, the U.S.

Land business, and I guess my question is:do you still see the U.S.

Land business being a stagnant market past the most recent upturn in an environment of today's oil prices?

Well, I still don't think today's oil prices are having a great deal of affect on the U.S.

Land market if you look at the number for rigs drilling and exploring for oil as opposed to the numbers drilling or exploring for gas.

So the Extrapolation would be to substitute gas for oil in the more applications within the year, in which case, yes.

I think that provided storage doesn't fill too quickly there will be some more increase in the rig count in the third and fourth quarter but I think it's going to slow.

Let me rephrase, I mean for oil and gas prices, if we see today's level of gas prices or even somewhat less continued, do you see -- how do you see U.S.

Land drilling progressing in 2005, 2006?

Well, I predicting the U.S., to me, is not easy.

The question, as you know it today, is not just a question of storage, it's the question of the decline curve on gas wells in the United States, which has got much deeper than it used to be.

And we would postulate the refill storage every year is going to take a level of drilling roughly equivalent to what we have now, providing there's no increase in demand.

Therefore, I don't see, unless gas prices decline substantially, rig activity dropping in the U.S. in the next year, Jim.

Okay.

But, could you see it even if today's oil and gas prices was sustained, activity being flat in '05 and '06, versus let's see a year-end level of 1250 rigs or so?

Well, I mean, I don't -- I think it's great to stay flat.

It's going to imply some sort of better production from the gas wells which are being drilled.

That is unlikely, I think, to come from land.

And it would have to come from offshore or going much, much deeper.

And if you start having deep rigs, then, it will be very good for the business.

It costs a lot of money and it's going -- to start out in deep gas is going to require a very robust gas prices.

Okay.

Just one other follow-up question, if I could.

If you look at your incremental margins, again, I know that others have asked this question, they're certainly very low quarter to quarter and very low versus last year, what would you -- where would you hope that the incremental margins in the oil service business could be over the second half of '04?

I think that the incremental margins over the second half of '04 could, in each of the areas, you know, where we are, the reasons are different.

It's -- the improvement will be fairly general.

I guess I was looking for an estimate overall in percentage terms where you could think--

Well, you know that we don't do that, Jim.

I'm not going to give you a figure, so.

Okay.

That's -- that answers my question, thanks.

Thank you.

Your next question from Robin Shoemaker from Bear Stearns, go ahead.

I had a one question on a relatively small topic.

Weatherford announced yesterday that you're going to be using and marketing their expandable sandscreen worldwide and I just wondered if you could comment on that technology and where you see the applications and the opportunities for Schlumberger to employ if, via this new exclusive agreement.

Yeah.

I mean, in such certain circumstances and by no mean all, expandable sandscreens are a product that will have, you know, considerable application in sand control.

In some areas and not all.

Now, you know, if you look at the expandable screen market, basically there are three companies that have a product today, and it didn't seem to me to make any sense that we would go into all the R&D to produce a fourth product, and on the other hand, Weatherford doesn't necessarily have access to some of the deep completion market that we do and, therefore, it seemed a good commercial arrangement for us, and for Weatherford, that where we need access to expandable sandscreens we reached an agreement with them to be a distributor.

Okay.

And in terms of areas -- or could you point out, perhaps, a few geographic areas where it's not employed now as you see it has applicability?

I think there's more applicability in Africa than is being talked about today.

I think that there be greater applicability in the North Sea and possibly as well, though I'm less certain of this, in the Far East.

Thank you.

Our next question is the line of Mike Urban from the Deutsche Banc, please go ahead.

Thanks, good morning.

Good morning.

The question that I had, Andrew.

You talked a little bit about the potential for growth and emerging deep water markets in kind of the Middle East, Asia region.

I was wondering, specifically, which market you saw the biggest opportunity in, and what kind of order of magnitude, how meaningful and over what kind of timeframe?

Well, I think that there is, probably, a very good exploration, deep water exploration market in India.

They have a program which is going to take them at least three years, in terms of exploration.

I'm sure you've all seen the success of Murphy in Malaysia and there's a potential for a similar success to be had by someone, you know, on other concessions in the Malaysia Brunei area, and there has to be some resolution of [frontier] dispute.

I think the deep water Indonesia is something that is not yet open but is likely to become more popular, particularly if the oil prices stay at this level.

In the short term, India and Malaysia that are going to drive it, and that longer term is going to be, Indonesia will probably join.

Okay.

Thank you.

Lea, we have time for two more questions, please.

Thank you the next person is James Wicklund from Banc of America, please go ahead.

Good morning, guys.

Good morning.

Andrew of the Cap Ex you're going to spend in year and next year, can you talk about the break down and how much is dedicated toward efforts in North America and how much the rest of the world?

Just, in general?

Well, in general, the rule is, that North America has to show me that they have contracts to justify the investments before I build a Cap Ex.

That's not always easy because a lot of the work is call out and of course we make concessions for that particularly when the equipment is easily movable, like tools or drilling drilling and measurement tools.

But for pressure pumping equipment we would be fairly strict that there has to be identical prospects for the use that have equipment over a fairly long period of time for us to build.

Okay.

Just a as a follow-on, do you have any plans to add, since pressure pumping production optimization is one of your best margin businesses, and companies usually like to expand their best margin businesses, do you have any plans to expand pressure pumping capacity in North America this year?

As a follow-on, what areas in the world would expect to add capacity this year?

Just in pressure pump.

This year, we have added considerable capacity in Russian at Caspian.

I think we would be extremely open to adding more capacity in the Middle East.

We would consider, though probably next year, rather than this year, West Africa.

And do I have any current plans in North America?

There are one or two projects that people are looking at, but until they can produce some firm evidence of that, it's going to fly, we're not going to offer on it.

Okay, guys, thanks, very much.

And our final, question, then is from the line of Rob McKenzie from Friedman, Billings Ramsey.

Go ahead.

Good morning, I'll keep it brief.

Andrew, I understand that your position vis a vis UDKOS and no apparent long term hit, but my question centers around receivables.

If the Russian government does seize the UDKOS main production asset what are you doing if anything to try and insure collection of your outstanding receivables and about how much would that be right now?

Well, as I say, we've been paid this week, right?

For the moment, I can't really say that they're poor payors because they're paying us, June, right?

Basically, within 60-days.

And if there was a seizure, you know, we have contracts, we have -- we have all of the normal commercial arrangements with the asset, not with UDKOS head office, therefore, we would assume the person that wanted to operate the asset would honor the obligations that the asset has.

Okay.

So, given what you said, paying 60-days is that a good DSO number to think about?

For the time being, yes.

That's what it is, roughly, now.

Obviously, in the -- with the current circumstances it may slow down, but at this stage we're around 60 days.

Thanks very much.

Okay, Lea, first I'd like to thank everybody for participating in call today and Lea will provide details for the playback information.

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