斯倫貝謝公司 (SLB) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Schlumberger earnings conference call.

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

Later there will be a question and answer session and instructions will be given at that time. [OPERATOR INSTRUCTIONS].

As a reminder, today's call is being recorded.

At this time, I'd like to turn the conference over to Schlumberger's Vice President of Communications and Investor Relations, Mr. Doug Pferdehirt.

Go ahead, sir.

Thank you, Kent.

Welcome to today's third quarter 2005 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 forward-looking statements as well as 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 which can be found at www.slb.com.

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

And now today's agenda.

Jean-Marc Perraud, Chief Financial Officer, will begin with commentary on the financial results.

Then Andrew Gould, our Chairman and Chief Executive Officer, will provide an overview of third quarter activity and outlook.

Finally, we'll take questions from the audience.

As the entire call will be limited to 60 minutes in length, please direct your questions accordingly.

And now, Jean-Marc Perraud.

Thank you, Doug.

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

Third quarter earnings from continuing operations and before charges and credit were $0.86 per share, up $0.08 sequentially and $0.34 above same quarter last year, a 65% increase.

The result of the hurricane in the Gulf Coast U.S. land and northern Mexico on Oilfield Services and WesternGeco negatively impacted the result by approximately $0.06 during the quarter.

Excluding this impact earnings per share from continuing operations would have been therefore $0.92.

Earnings from continuing operations after charges and credit were $0.89, reflecting the release of a 17.8 million contingency related to the sale of a facility in Europe recorded earlier in the year.

Oilfield Services generated 722 million in pre-tax operating income, an increase of 7% over the previous quarter and 64% over the same quarter last year.

Pre-tax margin of Oilfield Services for the third quarter was 22.1%, same level as previous quarter, the hurricane impact being approximately 100 basis points.

By area the highlights were as follows.

North America pre-tax margin was down sequentially 270 basis points to 23.1%, entirely due to the Gulf Coast GeoMarket as activity and profitability were strong in Canada and U.S. land.

Excluding the weather impact, the margin would have improved by approximately 50 basis point.

Latin America pre-tax margin was 16.1%, sequentially up 100 basis points reflecting improved performance in Latin America south and the Peru, Columbia, Ecuador GeoMarkets.

For ECA, our Europe, Africa CIS unit, the pre-tax margin jumped 270 basis points to 21.3%.

The improvement came from the North Sea, Russia and west Africa GeoMarkets.

Middle East-Asia margin improved a further 90 basis points to 29.2, mainly due to Saudi Arabia and the Brunei-Malaysia-Philippines GeoMarket with good profitability on the Bokor project.

WesternGeco pre-tax margin improved 460 basis points to 19.6% as a result of a very strong marine activity with high vessel utilizations and higher Q revenue.

Net income on 100% basis improved by 13 million to 59 million with a more favorable effective tax rate.

For Schlumberger as a whole, the effective tax rate before charges and credit was 24.2%, slightly lower than the previous quarter and in line with our previous guidance.

For the rest of the year, we expect our effective tax rate to remain in the mid-20s.

Interest and other income increased sequentially by $34 million, mainly due to the above mentioned 17.8 million release of a contingency to 5 million higher pickup in equity income in value share holding and to about 7 million of asset sales.

The return on capital employed by Schlumberger reached 26.3% in Q3 versus 24.5% in Q2.

At the end of September, our net debt dropped to $1.04 billion, a decrease of 208 million, reflecting a strong cash flow from operations.

CapEx, including 9 million of multi-client survey capitalized, reached 408 million for the quarter versus 394 for the second quarter.

For the total year, CapEx is still estimated at 1.7 billion or slightly less.

For 2006, CapEx should reach 2.1 billion including multi-client service capitalized.

We bought back during the quarter 1.7 million share for 146 million.

So far, as part of our 15 million share buy-back program we acquired 10.7 million shares for a total amount of 728 million at an average price of $68.

And now I will turn the conference over to Andrew.

Thank you, Jean-Marc.

Good morning, ladies and gentlemen.

Third quarter results showed continued strength as exploration and production activity grew rapidly worldwide.

The industry response to the current lack of an oil supply cushion and the long-term need to increase supplies of natural gas is now clearly underway, though it has not in anyway reached a peak.

Before talking in detail about the quarter, I'd like to make a few comments about the Gulf of Mexico where activity was severely disrupted with more than 25 days of lost operating time, as personnel were evacuated in advance of devastating hurricanes.

I'm pleased to report that no Schlumberger personnel were lost or injured during this period.

There were a number of employees suffered major personal losses and are still operating from bases other than their homes.

We are providing them with all the support we can.

Activity is recovering in the Gulf; and while Q4 will show substantial improvement over Q3, the damage to platforms and mobile offshore drilling units is such that we are unlikely to reach the activity levels experienced in the second quarter of 2005 before the first half of 2006.

Outside North America, sequential revenue increases were recorded across all geographic areas with Europe/CIS/Africa and Middle East-Asia displaying the strongest rates of growth.

Demand was strongest for drilling in measurements, well completions and productivity and well services technology.

At WesternGeco, seismic recorded another sharp sequential increase in activity, as overall vessel utilization reached 92% with Q vessel utilization at 100%.

Year-on-year, all four geographic areas posted growth of at least 20% and this result was due to robust overall demand, demand for new technology and a strong pricing environment.

Increases were strongest in U.S. land, Canada, Mexico, the North Sea, Russia, west and southern Africa, the Middle East Gulf and the Brunei Malaysia and Philippines GeoMarkets.

Pre-tax operating income recorded strong sequential and year-on-year growth around the world with the exception of North America where hurricane activity hit operations in the Gulf of Mexico and to a lesser extent northern Mexico and U.S. land.

Pricing remains strong in North America and continued to make good progress internationally, as contracts were renewed at increased pricing levels or were awarded through direct appointment.

Customer concern over the availability of certain services and products, coupled with recognition of elements of cost inflation, has led to acceptance of price escalation clauses being included in longer-term contracts.

In North America, the rapid recovery of activity in Canada following the spring breakup, positive trends in activity on land in the U.S., and the favorable pricing environment in both these regions contribute to the results, but these were unable to offset the steep decline in the Gulf of Mexico.

Double-digit price increases were seen for many technologies and, in particular, for well services, wireline, and drilling and measurement services.

In Latin America, increased operating efficiency in Latin America south in Peru, Columbia, Ecuador GeoMarkets were partly responsible for sequential operating income growth.

Year-on-year improvement was due to strengthening profitability and integrated project management activities.

During the quarter, PRISA barge activity in Venezuela improved significantly with utilization exceeding 90%.

We are still engaged in discussions regarding the settlement of certain outstanding receivables for the PRISA contract, and while good progress has been made, these discussions were still on going at the quarter end.

Within Europe, CIS and West Africa, the North Sea, West Africa, north Africa and the Russian GeoMarkets drove the rise in operating income.

This was due to a combination of stronger pricing and increased activity in particular for drilling measurements, well services and well completions and productivity technologies.

All seven GeoMarkets within the geographic area delivered operating margin improvements that resulted in a overall sequential increase of 270 basis points, due principally to price increases in what is now a tight supply environment.

In the Middle East and Asia area, higher activity, rising prices, and improved market share resulted in operating margins approaching 30%.

The strong sequential growth in operating income was driven by demand for drilling and measurements and wireline technologies that benefited from the rising rig count in Saudi Arabia/Bahrain/Kuwait GeoMarket where Saudi Aramco is continuing to increase activity in line with our plans to add production capacity.

Increased customer spending was also seen in the Brunei/Malaysia/Philippines GeoMarket where operators are increasing deep water exploration activity.

Technology introduction accelerated during the quarter.

The next generation Drilling & Measurements Scope logging-while-drilling technology, which offers improved drilling efficiency and enhanced evaluation, met growing acceptance as customers realized step changes in well placement accuracy in several geographical areas.

In particular, the new PeriScope deep reading electromagnetic service saw success on two deep water development pursuit -- fields in Brazil for Petrobrass, where its ability to detect formation boundaries up to 15 feet away from the tool made it particularly useful in updating well positions in realtime.

Scope technology has already been introduced in the North Sea and in Oman.

Integrated Product Management scored several successes in existing projects and in signing new contracts.

As you know, the IPM business model allows for incentive payments when milestones are reached and when performance improvements are achieved.

This was the case in two production-related projects during the quarter.

In new activities, well construction contracts were won in Russia, Indonesia and Saudi Arabia.

Total integrated product management revenues for the quarter were $291 million.

WesternGeco saw a very strong marine activity offsetting slight seasonal declines in land, data processing and multi-client sales.

Three Q-vessels and one Q-Seabed crew were active in Europe.

One new project began in Sakhalin, higher activity was experienced in west Africa, and the Western Neptune was active in Canada where it acquired 2000 square kilometers of 3-D Q data.

The seasonal declines of signs on land and in multi-client sales were largely due to weather.

While data processing was affected by lower activity in Mexico.

Operating income improved sequentially driven by the strength of marine activity, that reflected not only vessel utilization, but also much improved contractual terms and conditions relating to mobilization, demobilization, fuel costs and weather downtime provisions.

Q revenues for 2005 are now expected to exceed $400 million compared to $162 million in 2004.

The acceleration and demand for Q technology is driven by our customer's quest for higher resolution reservoir definition in new discoveries and the need for improved reservoir recovery in existing fields.

Schlumberger progressed strongly in the third quarter, partly offset by this devastating hurricane season in the Gulf of Mexico.

The supply response has reflected increased exploration, development, and production maintenance operations in most key international areas.

Initial discussions with customers would indicate that exploration and production spending environment is likely to remain strong and probably significantly strengthen in 2006.

Recent seismic logging and well testing contracts showed a renewed interest in exploration in both new and existing areas.

This shift of programs towards exploration, coupled with increased customer spending, tightening service industry resources, and fast to deployment of new technologies, creates an environment in which Schlumberger is very strongly positioned.

I will now turn the call back to Doug.

Thank you, Andrew.

Kent, we will now open the call for questions.

[OPERATOR INSTRUCTIONS].

James Stone, UBS.

Good morning, guys, can you hear me?

Yes.

First of all, nice job.

Secondly, I just want to delve into the press release, and, Andrew, your comments were peppered with pricing references.

And I'm wondering if you could maybe just sum it up and give us a sense of how much of -- and what sort of your net pricing gain is on a year-over-year basis?

And could you amplify in your comments about starting to see price escalations be accepted in your longer-term contracts?

Well, I don't feel I can give you a net-net increase in overseas pricing because terms are so different around the world.

Let me say several things, Jamie.

Firstly, double-digit price increases are common.

Secondly, we are -- we are getting as much price increase out of improved terms and conditions as we're getting out of actual increase in price lists.

And thirdly, I made that remark about putting cost escalation formulas into longer-term contracts because as you know in the past few years we have been bidding longer-term contracts and basically it's been extremely difficult to get cost escalation formulas built in.

And today, it is -- it is perfectly possible to do so and is extremely important given the fact that, as we all know, there is going to be cost inflation in this industry.

Okay.

And then can you just sort of tell us -- when did you see it turn over that you were able to start getting the cost escalations in long-term contracts?

Was it this quarter or has plans been going on all year long?

No, I would say that the -- effectively it started just before -- we started doing it and getting success just before the half year.

Back in May, if you like.

Okay.

All right.

I'll let other people ask questions.

Thanks, Jamie.

Jim Wicklund, Banc of America Securities.

Good morning, guys.

Good morning, Jim.

Andrew, listening to your comments about where business was strong and what product lines were strong, there were too many to write down.

On the converse, where were you disappointed in terms of revenues or margins?

Anywhere?

Or at least on a relative basis where.

Well, as I'm never satisfied, Jim, I'm going to find an answer for you.

Indonesia --

Okay.

-- is slow still.

Because I think that apart from the really big players, there is some hesitation to invest.

So typically in this sort of upswing I would expected Indonesia to be stronger.

Africa, Europe, I really -- no, it's -- it's great.

I still think that -- I mean, if I look forward, I still think there is more to come in Latin America.

It's improved but it's not as improved as much as I think it will.

Is that -- is that a function of -- well, what is that a function of?

Latin America was the laggard, if you would, on a relative basis.

Why and where?

Well, I think it's -- I think it's -- I think we will see more -- more increases in Venezuela, particularly from PDVSA.

And I think that -- that Mexico -- I'm not quite which way it'll go next year, but I suspect it will be fairly flattish, at least for the first half of the year.

And in terms of your management objectives for '06 with your senior management, what's the top of the list in terms of priorities for '06?

They're -- I think -- it's very carefully -- very clear there are four key priorities.

Number one, is retention of our people.

And that is not a function of they're being poached [ph], it's a function of their exhaustion, their burnout.

Number two is maintaining our safety record in what is a very fast expanding environment which is very difficult.

Number three is maintaining service quality, because that's -- you can increase pricing but you've got to deliver.

And the other one is pricing.

And if I had to give -- those are not necessarily all in -- one to four is not the priority, but priority number one at the moment is retaining and motivating the workforce.

Good quarter, guys.

Thanks.

Ken Sill, CSFB.

Thank you.

Good morning, gentlemen.

Good morning, Ken.

I wanted to kind of step back and look at where we could go from here.

Gross margins in the oilfield are roughly -- a little bit ahead of where they were I guess the last really big peak in '97.

You get a lot of push back from investors that it's over.

Your comments indicate you don't think it is.

How much better can margins get, particularly in a place like the Middle East where you're already approaching 30%.

Obviously there's room for improvement, probably a little in Latin America, North America.

But how much more margins do you think you can get?

I don't know.

I think that -- the Middle East, you're quite right.

We need to reinvest a lot in the Middle East.

We aren't going to get huge increments from now on.

I think that Europe, Africa, CIS, there will still be increments.

Latin America, yes.

And you know that North America remains by far the most -- the most elastic market of all.

So I think what you're sort of describing, correct me if I'm wrong, is that your push back is that margins can no longer increase because activity's going to stabilize, is that the theory?

Well, the theory is that margins are about as good as they can get and the activity's going to slow down because you're running out of rigs.

So what drives the growth in earnings going forward?

Is it going to decelerate here?

Well, I think that it's true that there is going to be a couple of years where there's going to be a distinct shortage of offshore rigs.

I don't think we're running out of land rigs at all.

From what I read, there seems to be a fair delivery of land rigs throughout next year.

So I don't -- I don't see -- and then there's the rigless portion of our work which doesn't count in the rig count.

I don't see any signs that the supply of oil or natural gas is reaching a point where the operators, be they NOCs or IOCs or independents are tempted to slow down.

Well, I agree with that.

And one more pragmatic question -- or practical, I guess.

You said the hurricane impact's going to go into Q4.

It was much greater than last year and kind of surprising to me.

In order of magnitude, do you think that -- that's going to be $0.03 or $0.04 in Q4 versus Q3, or how do you --?

I think it will be less than that.

Okay, thank you.

Thank you, Ken.

Ole Slorer, Morgan Stanley.

Thank you very much for that.

And I wouldn't be too worried about lack of offshore rigs.

It looks like a few of my fellow countrymen are busy supplying all you're going to need.

Yes, but they can only build them at a certain speed, Ole.

Yes, but looking at what's coming in, it looks to me as if you're going to have -- let's assume that we have 5% growth rate going forward in the land rigs, and that we'll have something similar to have compound on the 5 year view in the offshore market.

You highlighted before that you saw -- I think in Richfield you mentioned that that [inaudible] optimistic at a time of 10% top line growth with Schlumberger because of growth in rigless activity.

Now it looks as if the rig-related activity is going to let's say grow 5% compound for the industry as a whole on the five year view.

So what -- do you see an ability of your organization to be able to hire and grow the head count sufficiently and in an orderly manner to maintain market share against that kind of a backdrop?

Well, you're quite right to point out that the -- the workforce element is the only impediment to growth.

I would point out to you that we have this superb advantage in as much as -- for the last 40 years we have been hiring and training people to a worldwide standard from something in excess of 60 to 70 universities scattered around the world because if we tried to find our workforce in the OECD countries, there's absolutely no way we would get there.

We -- we feel confident that we have sufficient experience and we have a huge recruiting and training infrastructure on a worldwide basis that that is not going to limit us too much for the moment.

So if you were to update assuming that global DDP [ph] kind of stays above 3% and all those kind of basic assumptions, but based on what you see on the sort five year view -- forget the one year view, are you about to have a new stab at what you think your -- your revenue growth rate will be?

Don't forget the revenue is a function of pricing.

Look at the growth in the -- in the business world, what would you say that it could -- could be if you were to take another stab?

So, Ole --

That's assuming a 5% growth in the rig count offshore and land compound.

No, Ole, I said in Richfield that we would do double digit growth through the rest of the decade.

And you've been way above that for the previous two years.

I -- we have recently had a manager's meeting in Boston.

And double digit is anything between 10 and 100.

I will just tell you that we challenged our management group to do much better than ten.

Of a sustainable volume growth rate?

Through the rest of the decade.

From here?

Yes.

Thank you very much.

Geoff Kieburtz, Citigroup.

Thanks very much.

I've got a couple of questions here.

First, I was wondering if you could help us quantify the impact of the PetroAlliance consolidation on the Europe/CIS/Africa revenue and EBIT?

Geoff, I'm going to let Jean-Marc answer that.

Well, I'll -- probably will just answer on the revenue.

So in terms of -- if you look at the gross -- sequential growth of ECA, about half of it can be attributed to -- to PetroAlliance.

Okay.

And --

The one thing I need to draw your attention is that we own 51%.

So there is a minority interest impact.

Okay.

And did the consolidation of that -- that business positively or negatively impact your margins in that segment?

It's -- I would say about neutral.

Okay.

Going back to your comments, Andrew, on the hurricane impact, you quantify about $60 million of revenue missed as the consequence of the hurricanes in the -- in the North America market specifically, Gulf Coast and U.S. land.

I guess that means that the rest of North America grew by approximately 100 million sequentially?

Jean-Marc?

Sounds about right, Geoff, but I don't have the number in front of me.

I just added the 60 to the 40.

Yes.

Do you see any reason that that growth rate can't continue?

In North America?

Yes.

Well, certainly not over the next few quarters.

No, I don't see any reason why that shouldn't continue.

Okay.

And -- but you don't think that the 60 million that was lost in this most recent quarter will be recovered until sometime in the first half?

Sometime in the first half.

That depends entirely at the speed with which you see the mobile offshore drilling units come back.

Okay.

And in Latin America, you had a pretty strong margin improvement and you highlight that there was a IPM performance bonus and some reduction in the third party activity in Mexico.

Are these margins sustainable, or is there a positive impact that might pull back?

We pointed out the -- in the -- the IPM bonus in Ecuador because we've given so much bad news about IPM in the past that we thought we would like to point out that the things are going a lot better, but it's not significant in terms of the Latin American margin, Geoff.

As you know, the level of third party fluctuates from quarter to quarter, depending on the type of activity that IPM happens -- what phase of activity it happens to be in.

But it's not -- it's not a huge -- it's not a huge swing.

So I don't think -- it's not likely to swing to the point where it's going to have a huge negative impact on the margins in the following quarter, for example.

So these are -- these are sustainable margins?

Yes.

Yes.

Okay.

And then the last question, you highlighted retention.

You also commented on cost inflation and the reason that you've gotten these escalation clauses.

Can you give us some idea of what you expect to taking into account, is well insurance premiums likely to go up in the Gulf of Mexico?

What kind of cost inflation are you kind of gearing the Company for?

I don't think insurance in our case is particularly a relevant cost.

We don't own rigs any more, Geoff.

Yes.

I think in terms of wage inflation, it is going to be close to double digit next year.

And would that roll into an overall cost inflation of 10%?

No, no, no.

Great.

Thanks very much.

Mike Urban, Deutsche Bank.

Thanks, good morning.

Good morning.

I wanted to talk about exploration a little bit and your -- and your comments there.

I was wondering if you could be a little more specific in terms of where you're -- you're seeing increased interest in exploration and is there a difference between their response and demand for instance between the majors, NOCs, or independents?

Yes, I think there is.

I think that -- that in terms of the NOCs, the really big exploration effect that we have seen is in Saudi Arabia, where I've forgotten how many land seismic crews are running at the moment, but it's a huge quality.

We're starting to se land seismic in Libya and Algeria and a fairly -- demand for land seismic in Libya and Algeria is strong.

And in terms of marine, what really struck me is the number of seismic boats that are migrating towards the arctic, be that the Alaskan side or the Russian side, in the -- in the upcoming season.

And I think the other phenomena that we see very clearly is that current prices mean that what we call -- what we call infield exploration or delineation in of existing fields is suddenly of a lot more interest than it was a couple of years ago.

So there is infield exploration, if you like, and then quite a lot of migration towards the north and strong trends across the Middle East and north Africa.

And that's -- that's helpful.

And in the seismic business, do you see any issues with capacity either being -- having tightness in capacity in the case of land or certain geographies or potential overcapacity we're hearing about in some -- in some vessels potentially coming out into the marine fleet?

Well, Ole Slorer said that his friends are busy building rigs, and I hesitated from saying that they're far too busy building seismic boats than rigs.

They're building a lot of things.

But, yes.

I'm seriously concerned that in 2007, not 2006, but in 2007 that the seismic fleet may become too big.

That's all for me.

Thanks.

Terry Darling, Goldman Sachs.

Yes.

Andrew, wanted to follow up on your comments on the cost escalation clauses.

Can you tell us globally what percentage of your contracts across the company have that type of clause in them at this point?

No, I can't, Terry, because of a very simple reason -- I don't know.

I mean -- all I'm saying is that any contract we bid now will contain escalation provisions if it has a duration of longer than, say, one year.

Let me ask you this way -- I mean, there clearly are good reasons to be concern about raw material cost inflation out there.

You've left us with the impression -- or at least me that we don't have to worry about that as much as I thought we did.

Is that the impression you want to give us?

No.

I wanted to give the impression that we are now able -- the market is tight enough for us to be able to pass at least some of that on to our customers.

Let me come back to incremental margins and ask you to characterize the way you're thinking about incremental margins going forward, and just as a back drop there, if we go back and we adjust for the hurricane impact on just the oilfield business, not including seismic, 33% sequential incremental margins down from 44 in the second quarter.

And particularly that sequential weakness looked particularly pronounced in North America where you would have been sort of sub-30% or right around 30%.

Right.

That looks like a lower number than I would have expected in North America at this point.

You're talking excluding the Gulf Coast now?

I'm looking at North America in total and I'm just taking your reported numbers.

I'm adding 44 back to the pre-tax income line and I'm adding 60 million on the revenue line and then just comparing that versus the second quarter looked like 29.3% sequential in North America, which I would have thought would have been higher than that at this point in the cycle.

One thing, Terry, actually we all did that calculation, obviously.

One thing is that when we were computing the impact, I used the previous quarter margin.

So it may be slightly underestimated.

Maybe we would have done better in terms of margin in the gulf coast, if you want.

We also have in North America certain cost that were not in the Gulf Coast associated with the hurricane, which is essentially taking care of people and various other costs related to the whole -- the whole situation.

For example, the industry as a whole donated and Schlumberger participated in that in a fairly substantial way to the American Red Cross, for hurricane relief.

So the numbers you gave us really were sort of the business numbers not including sort of the one-time moving people around and --

That's correct.

Okay.

That's helpful.

And that's another reason why in Q4 I'm a little bit hesitant on the Gulf Coast because we are going to go on sustaining some of the costs of helping our people.

Terry, the correction on margin I was giving you is including those -- those one-time off costs.

Okay.

Let me come back to WesternGeco.

Couple questions there.

First, Andrew, can you give your best sense of what the fourth quarter holds in terms of multi-client and then can you give us any update here as to how we ought to be thinking about whether this December 1st Baker-Schlumberger decision is something that we ought to be focusing on significantly or not?

Well, firstly on Q4 for WesternGeco, the multi-client sales.

It is -- at this point in time we do have some fear that the normal Christmas shopping spree in the multi-client library may be somewhat muted by the fact that our customers are concentrating their dollars on bringing production back online.

So we don't -- I don't know the answer, Terry.

But we are a little apprehensive that multi-client may not be quite as seasonably good as it normally is.

It wouldn't be down either, sequentially.

Oh, I don't think so, no.

And the second part of your question, the standstill doesn't expire until the end of November.

And there are no current discussions at this time.

And I'm -- I've said very often in the past that I'm very happy with the 70% that we have and so we'll see -- we'll see what happens.

Okay.

Thanks very much.

Kurt Hallead, RBC Capital Markets.

Good morning.

Good morning.

Andrew, I just wanted to get a sense in your prior comments, should we -- comment about the spending and activity levels -- get a sense that things continue to -- to accelerate or have they sort of plateaued at a fairly high rate?

How should we read your commentary?

Are you talking about '06?

Yes.

Exactly.

No, I think it'll continue to accelerate.

I think that there -- as I said earlier, there is some limitation on the offshore rig fleet.

I think the land rig fleet will continue to expand quite nicely.

And the rigless work will -- will continue to expand as well.

So I don't think we're plateauing yet.

So the rate of growth and the ENP spending in '06 could be greater than the rate of spending growth for ENP spending for '05?

Yes, but then you have to take into account the operator's cost in inflation.

In fact, a lot of them have pointed out that in their ENP spending increase, they are factoring -- there is an inflation factor.

Okay.

Great, thanks for clarifying.

Michael LaMotte, J.P. Morgan.

Thanks and good morning.

If I look at the CapEx numbers in the press release, Andrew, 1.4 this year to going to 1.7 next year, capitalized 21% increase, again, going back to your comments 15 months ago in Connecticut about targeting 10 to 11% CapEx to revenue, is it -- would it be wrong to -- to assume a 21% budgeted volume increase for 2006?

I don't have a budgeted volume for 2006 yet. [Laughter].

Well, you've got to have an idea what your revenues are going to be next year.

You may not share it with us.

All I can say I think is that the proportion of CapEx going into some international operations, the proportion of CapEx going into new technology introduction may mean that that 10 to 11% increased slightly.

Okay.

But not 15%?

No.

I mean, when you look, for example, I know you were just in the Middle East.

If you look at what it takes to build up an operation from where it was to the size it's going to be in Saudi Arabia for some of our product lines, that is a lot of one-time CapEx.

Okay.

Second question would be on unconventional, in the U.S. in particular -- or I should say North America, you mentioned Suncor and Devon in the press releases.

Ultro was commenting yesterday about how their returns are in excess of 100% at commodity prices, well below what we're seeing today.

Can you just in general terms describe how you see unconventional plays?

I mean the Delaware is an emerging play in west Texas.

How it's changing, if it is changing at all.

Perhaps the cyclicality or the shorter cycle nature of the North American market.

I think generally -- I'd like to exclude heavy oil from this remark, okay?

So I'm excluding the Suncor thing, but in terms of tight gas and shale gas and coal bed methane, but particularly tight and shale, the service intensity necessary to maintain and build production is probably greater than -- it's different but greater than in conventional gas.

Is it one and a half times, two times greater, or is it --?

I don't -- I can't answer.

Okay.

It's very interesting because a lot of the technology is very different as well.

So it's still -- I think it will be fair to say its early days, but generally I'm looking at Doug as he's an expert on North America.

The service intensity is more heavy for the nonconventional gas plays.

And is it technology as well?

Or is it just sort of manpower, horsepower?

It's technology and what is interesting it's very often a lot of repetitive operations which technology can do a lot to improve -- efficiencies, yes.

Efficiency, okay.

Great.

Thank you.

Jim Crandell, Lehman Brothers.

Good morning.

Two questions.

First, Andrew, can you talk about your intermediate term outlook for the Russian market and in particular if Russian production is not going it to grow over the next few years, can there still be an area of double digit growth for Schlumberger?

Well, so generally I would say that we -- despite the fact that Russia is now a huge business for us, it's still a relatively small part of the overall service effort in Russia which still is largely furnished by domestic service companies.

The nature of our business in Russia has changed a bit.

In other words, we have moved from the highly intensive production maintenance operations that we initially had with Sidniest [ph] and Yucost [ph] to a much greater mix of customers and a much greater risk -- mix of the type of operation that we do.

I also think that there have been some one-time events in Russia this year which have meant that spending has slowed in certain companies and is likely to resume in 2006, 2007.

So I don't -- I personally still feel that our growth scenario for Russia is intact, even if some of the elements of it are different from what I was thinking 18 months ago.

Would you think that your growth, Andrew, would come more from growth in the overall spending in the market?

Or greater penetration into the -- into the number of customers that you're dealing with?

I think it's -- it's greater penetration into the number of customers we're dealing with is the principal avenue of growth.

The other avenue of growth is the changing nature of the spending in Russia.

In other words, there is more development spending and above all, there is more exploration spending.

Okay.

Second question, Andrew, looking across your product lines, are you satisfied with your market position in all, and if not, is there -- are there any which probably cannot be solved by internal growth alone?

Well, I've said publicly that we're not satisfied with our position in completions.

But I don't think that we can solve that with an acquisition.

So we're going to do that through organic growth in certain aspects of completions where we feel we have a -- a real role to play.

And beyond that I haven't really -- I don't think we -- we're always open, but I don't think we have any specific plans to change anything radically, Jim.

Okay.

One final question, Andrew, and it gets back to CapEx.

Can you comment in general terms about your strategy about getting capital and adding equipment to the North American markets?

We are probably going to add more capital equipment to the North American market next year than I originally envisioned perhaps six months ago, which will partly be replacement capital and some expansion.

The -- in the well services or pressure pumping there is always a question of fleet age.

And the -- some penetration that we have been able to do in the market with wireline and drilling and measurements will mean that we will add capital on land in the U.S. as -- because we're growing.

Okay.

Thank you.

Alan Laws, Merrill Lynch.

Good morning.

I just have a quick one to follow up on the North America there.

In North America, are you finished rolling off of your older two to three year contracts -- contracts in the pressure pumping market that you had a few years back, or are you fully spot exposed?

Yes.

No, no.

They're -- we're not fully spot exposed, but the current contracts for the longer term have been rolled over with the appropriate adjustments.

Okay.

Are -- you mentioned that you are thinking of putting more capital equipment in -- perhaps into pressure pumping.

Is it -- is there a change or -- in the pressure pumping market now where there's sort of the low end stuff and there's the more technically high end stuff, and that you're chasing a different part of the market?

No, I would say our profile in the market has not substantially changed.

It's just a question of capacity against age of the fleet.

Would you care to give us a number on how much business a month that you may turn away given that -- that the current tight capacity --

I honestly don't know the answer, Alan.

I do know that the delay for certain pressure pumping services is still measured in weeks rather than days.

All right.

Okay.

Appreciate it.

Thanks.

That's all I got.

Brad Handler, Wachovia Securities.

Thanks.

Andrew, you spoke a little about IPM in the context of Latin America.

I guess I was hoping you could expand on that more broadly.

I mean, first of all, can you give us a backlog number for IPM now, based on some of the new awards, maybe put that in contrast to six months ago or a year ago?

I can't give it to you in dollars.

What -- what we have seen in the last quarter I think is a significant upturn in the interest for well construction projects.

And the -- we assigned several contracts for well construction projects in other parts of the world than Latin America.

None of them are on the scale of Burgos in Mexico or PRISA in Venezuela, but they are -- they -- it is a trend.

It is a trend.

And it's not surprising, given the -- given the shortages of people in the market that we're asked to -- to assist oil companies in their well construction projects.

Right, makes sense.

Also in the quarter there are a couple references to performance incentive --

Yes.

-- bonuses, and, again, for Latin America it sounds like it was not a meaningful contributor.

In the aggregate, was it a meaningful contributor?

If we think about Q4, might we think about some easing of the contribution in the segment just while --

No, no.

Not yet.

It's just if you like significant -- for us it's significant progress.

But in the aggregate it's not going to start moving the whole of Schlumberger's results.

Fair enough.

I guess also in a very near term perspective, I was wondering in the other direction if you -- we're not going to see bonus incentive in the fourth quarter, perhaps there was actually some trailing off of the contribution?

No, it won't make a significant --

Either way?

Okay.

Fair enough.

One unrelated question then, if you would.

You mentioned a market share gain in the Middle East/Asia.

Could you give us a little more color on that?

What product line, perhaps?

I think wireline and drilling and measurements segments have done extremely well in Middle East/Asia in the last six months.

So it sounds like it's not a specific contract at all, but rather just a general -- It's a general comment.

Okay.

That's fine.

Thank you very much.

Thank you.

Dan Pickering, Pickering Energy.

Good morning.

Good morning.

Andrew, you indicated a number of land rigs being added.

I'm just curious your viewpoint.

If you're putting more capital in North America, does that assume that most of these additional land rigs will be working?

Is there pent up demand?

Just give me a little snapshot there.

No.

I mean, we're not going completely overboard on capital in North America to the point that we -- we're fixed on a substantial rig count increase.

I think there will be a gradual rig count increase throughout 2006.

I mean, you read the numbers as well as I have.

But a capital increase for drilling and measurements, some wireline technologies is really to do with penetration of technology into the land market.

And in well services, it's a tradeoff between the amount of horsepower we have out there and the age of the fleet.

It's not linked to rig count directly.

Okay.

And then your -- you numbers for Q, dramatic growth.

I know that you've been rolling out additional vessels as we've gone through 2005.

Can you help us with the 400 million?

Kind of how many net Q-vessels will you have had in place during 2005?

Well, we started the year with four and we added a fifth, and the fifth came online -- when, Doug?

Half year?

Yes.

Q2.

Q2.

So four-point something, Dan.

Okay.

And your sixth vessel I know you indicated was targeted for the first half of 2006.

Do we have any better timing on that at this point?

Probably second quarter.

Okay.

And any thoughts on a seventh vessel?

Well, Dalton [ph] has to sign -- has to assure me that the backlog is there before we do the conversion.

Okay.

And -- I mean, it looks like the demand is clearly strong.

Do we have any repeat customers here at this point?

Oh, yes.

We have lots of repeat customers.

Okay.

Big repeat area today is the North Sea.

I mean, this -- some customers are into their third or fourth year.

Okay.

And I would assume then that some of these customers are using the technology in the North Sea and saying I've got to have it somewhere else, and that's kind of driving work in other geographic regions?

That's certainly true for some work that was done in South America and it's going to be true for some work that we're going to do in the Middle East shortly, yes.

Okay.

Last question, Andrew.

In the Gulf of Mexico, which of your product lines were most impacted by the hurricane?

I would say probably formation evaluation, wireline, and drilling and measurements because of the very good presence we enjoy in the deep water.

And fair to say that those are -- that's among your higher margin business?

That would be fair to say, Dan.

Great.

Thank you.

Okay, Kent.

We'll take one last question, please.

Kevin Simpson, Miller Tabak.

Good morning, and thanks for fitting me in.

This may be for Jean-Marc.

I had a -- maybe you could clarify a little confusion or question on multi-client in the quarter.

In the supplementals, you say that there were 65% of the survey sold.

So I assume of the 95 million, maybe that's not a right number of the revenue on multi-client had no book value.

Right.

Is that -- I guess is that accurate, and if that's the case then it would seem like it would compute to about 60 million of earnings of EBIT --

No, no.

You can't -- you can't really do -- do it that directly, actually, because you do have some sales costs, some G&A and I'm not talking about the tax obviously.

So you really have to -- those 65% of survey indeed don't have any net book value, but they do carry some costs to realize the 95 million -- or their share of the 95 million.

So it's not pure profit or pure margin.

Not pure profit, but would the margin be much higher than you would normally be booking?

The margin would be higher, but that makes several quarters that were a high proportion and actually of the surveys with no net book value.

So it's not really -- I'm not sure of the difference on this quarter.

Okay, so this would be more of a -- you'd characterize that as a rounding error rather than a --

Yes.

Thank you very much.

Thank you.

Okay, thank you very much for participating in today's call.

And, Kent, will you provide some closing remarks.

Certainly will, sir.

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