斯倫貝謝公司 (SLB) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Schlumberger earnings conference call. [OPERATOR INSTRUCTIONS]

I would now like to turn the conference over to Mr. Jean-Francois Poupeau, Vice President of Communications and Investor Relations.

Please go ahead.

Welcome to today's first quarter 2006 conference call.

Before we begin today's call, I'd like to review the logistics and the 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 at www.slb.com/IR.

A detailed disclaimer and other important information are included in the FAQ document, as well as a separate FAQ document covering the WesternGeco transaction are available on our website and or upon request.

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 the first quarter activity and outlook.

Finally, we'll take questions on the -- from the audience.

And now, Jean-Marc will discuss the financials.

Thank you.

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

First quarter earnings from continuing operations before charges and credits were $0.59, up $0.07 sequentially, and $0.27 above same-quarter last year, an 84% increase.

Oilfield Services generated $949 million in pre-tax operating income, and the pre-tax margin was 25.6%, a 170 basis point improvement, sequentially.

By area the highlights were as follows: North America pre-tax margin was up 390 basis points to 30.6%, due to good pricing, traction in U.S. land and strong activity in Canada.

Latin America pre-tax margin was 16.2%, sequentially up 160 basis points, reflecting improved profitability in the Venezuela, Trinidad, Tobago, and Latin America (indiscernible) markets, and offsetting a decline in Mexico.

For ECA, our Europe, Africa, CIS unit, the pre-tax margin was down 130 basis points to 21%.

The decline was mostly due to a three-week period of extreme winter conditions in Russia and the Caspian region, partly offset by a strong North Sea performance.

Middle East Asia pre-tax (technical difficulty) improved a further 60 basis points to 31.3%, with a strong contribution from Saudi Arabia, and in spite of a temporary decline of activity in the Gulf GeoMarket.

WesternGeco pre-tax margin improved sequentially 620 basis points to 29.9%, as a result of strong marine activity, and a continuing good level of sale of multiclient service.

Return on sales reached 21.6% in Q1.

For Schlumberger as a whole, the effective tax rate before charges and credits was 25.1%, in line with our previous guidance.

For 2006 we expect our effective tax rate to remain in the mid-20s.

The earnings of the quarter included the net expense of $25.8 million relating to stock-based compensation, the sequential increase of $14.9 million, and $17 million over same quarter last year.

Part of the increase were due to the adoption of FAS 123R.

The return on capital employed by Schlumberger reached 34.1% in Q1, versus 31.9% in Q4 last year.

At the end of March, our net debt was $802 million, an increase of $217 million during the quarter, reflecting a $200 million contribution to our pension plan, $254 of stock buyback, and a seasonal deterioration of the working capital.

CapEx, including $32 million of multiclient service capitalized, reached $499 million for the quarter, and I expect it to reach $2.4 billion, or slightly more, for the year.

We bought back during the quarter, 2.2 million shares on a presplit basis, for $254 million.

We completed nine months before the deadline the 15 million shares buyback program approved by the Board in July 2004.

We spent $1.2 billion, with an average share price of $79 on an after-split basis, $39.5.

Yesterday the Board of Directors approved a new share buyback program for up to 40 million shares, on a post-split basis, or 3.4% of our shares outstanding, to be completed before April 2010.

The Board of Directors also approved yesterday the acquisition of the remaining 30% minority interest of Baker Hughes in WesternGeco for $2.4 billion in cash.

Excluding one-time in process R&E charge, the transaction is expected to be slightly diluted in 2006, about a 1% dilution, and accretive thereafter.

Closing should take place before the end of the month.

And now, I will turn the conference over to Andrew.

Andrew?

Thank you, Jean-Marc.

Good morning, everybody.

Before I discuss the quarter, let me just say how delighted I am that we've been able to purchase the minority interests in WesternGeco.

This reflects our confidence in the seismic market, both in exploration and production seismic, and our belief that greater reservoir complexity and the importance of improving recovery rates will require far more accurate reservoir characterization.

A closer integration between surface seismic and other Schlumberger measurement technologies will lead to substantial progress in eliminating reservoir uncertainties.

I will now review the first quarter.

The quarter was driven by continued activity increases and strong pricing momentum.

North America was particularly strong, while Russia and the Caspian was slower, due to this very severe winter weather during the three weeks of January.

Internationally, Saudi Arabia and North Africa and the North Sea strengthened significantly, as new projects and additional rigs were mobilized.

Demand for new technologies continue to increase, with drilling measurements and well services technologies showing double-digit sequential growth.

Looking at the quarter in more detail, results in North America were driven by US Land and Canada, which were both strong sequentially, as pricing increased and activity intensified.

Prices for drilling and measurements, well services and wireline technologies improved further over the prior quarter, but efficiency gains also contributed to performance through further 24-hour deployment of frac fleets on certain types of well stimulation operations.

New technology was also an important contributor to GeoMarket growth, with increasing employment to scope MWD LWD services, as well as rapidly accelerating sales of new fracturing technologies.

The combination of all these factors resulted in a pre-tax operating margin exceeding 30%.

In Latin America, growth was strongest in the Venezuela, Trinidad and Tobago GeoMarket, as pricing increases and improved offshore activity took effect.

However, this was not sufficient to offset lower revenues in Mexico, where IPM contracts reduced lower margin third-party managed services.

In spite of this, the overall Latin America revenue mix was more favorable this quarter, and pricing gains and new technology deployments led to the growth in pre-tax operating margins. [Pre-tax] barge activity was maintained in western Venezuela and discussions regarding the settlement of certain outstanding receivables for the PRISA contract were progressing at the end of the quarter.

In Europe, CIS in Africa, severe winter weather in Russia and the Caspian GeoMarkets occurtailed activity significantly for a three-week period in January.

This slowdown was partially offset by increased activity in the North Sea, North Africa, continental Europe, and Nigeria.

In the North Sea, our GeoMarket structure led to better operating efficiency, and this, together with accelerating demand for new technology at increased pricing, led to the improvement in both sequential revenue and pre-tax operating income.

Results in the Middle East and Asia highlighted the supply-side response to the future demand for oil and gas.

Growth was strongest in Saudi Arabia, as rig count increased, in line with the kingdom's drive to raise production, and this GeoMarket was, in fact, the fastest growing GeoMarket in Schlumberger worldwide during the quarter.

Elsewhere in the Middle East and Asia area, sustained amount for well services technologies in India, and for wireline and well testing technologies in Thailand and Vietnam also drove sequential revenue growth.

These were offset by seasonal project transitions across the area, and reduced levels of well testing from the exceptionally high levels of the previous quarter.

Among new Schlumberger technologies, the scope and scanner families of services continue their market [trener] penetration, with jobs in Saudi Arabia, the Gulf of Mexico, Brazil and the Barren Sea.

In Brazil, the combined use of the StethoScope pressure-while-drilling service and the PeriScope directional, deep imaging-while-drilling service resulted in one well achieving 93% productive reservoir contact.

The benefits of remote operation support centers were demonstrated in Brazil, and the new contract for this technology was awarded in Asia.

The value of new technology was also clearly demonstrated in the US Land deal market, which saw strong demand for well services, FiberFRAC, SINet technologies, as well as for new members of the ClearFRAC family of services.

During the quarter, we inaugurated two new centers and expanded our research and development and manufacturing capability.

In Tyumen, western Siberia, we opened the purpose-built Electrical Cubmersible Pump Engineering and Manufacturing Facility that will assemble pumps for the Russian market.

Tyumen offers the required combination of engineering talent, manufacturing expertise and work force skills to make this project a success, and the location will enhance our presence in this market.

In Dhahran, Saudi Arabia, we officially opened the Schlumberger Dharhan Center for Carbonate Research.

Located close to the campus of King Fahd University for Petroleum and Minerals and at their headquarters of Saudi Aramco, the new center is designed not only to focus on the challenges inherent in production from carbonate reservoirs, but also to develop technology applications for worldwide use.

A number of international scientists from Schlumberger will work at this center, in close cooperation with Saudi Aramco research teams and academia from King Fahd University.

WesternGeco reported another exceptional quarter, with activity reaching new record levels, driven by demand in the exploration market, as well as by Q-Technology update.

Marine revenue increased to record levels, with vessel utilization reaching 97%, and pricing improving significantly.

A 13th vessel, the MV Gilavar, which is the XG Cogama,left the Caspian Sea under charter, and was added to the fleet in January.

And this addition has already begun work on a conventional 3D contract in West Africa.

Land activity was also strong, as new crews began work in Russia and Chile, while a second Q-Land crew was mobilized in Kuwait.

Data processing and multi-client revenues remained at high levels, similar to those of the previous quarter.

As a result of the combination of these positive factors, led to record pre-tax operating margins of 29.9%.

The industry exploration cycle that has now clearly begun is likely to be longer and more sustainable than anything seen in recent years.

Targeted reservoirs are likely to be smaller and will be more complex.

And ultimate recovery factors will be key to project economics, leading for a much increased call on technology.

The exploration and production industry remains clearly focused on the need to build additional supply capacity.

While the exceptionally high gas storage doubles following the mild winter may lead to some temporary slowing in gas activity in the U.S., the struggle to increase the world's margin of spare production capacity, in the face of accelerating decline rates and growing geopolitical issues, we will continue to provide the fundamentals for strong sustainable growth.

Our expanding technology portfolio and unique global footprint make us ideally placed to benefit from this environment.

I will now hand the call back to Jean Francois.

Thank you, Andrew.

We will now open the call for questions.

Thank you. [OPERATOR INSTRUCTION ] And our first question comes from the line of Ole Slorer with Morgan Stanley.

Please go ahead.

Thank you very much.

Andrew, I wonder whether we could start with the seismic acquisition, and congratulations on getting that deal done.

But the price, do you think you can justify this price, based on the WesternGeco as a sort of stand-alone entity, based on the sort of market outlook that you see for WesternGeco?

Or do you have to rely on substantial pull-through effect from the rest of the organization to justify the price?

Well, in the evaluation of purchasing the minority, we took no account of the ultimate synergies, because they are still two or three years away.

So you can assume that we based our calculations on the evaluation of the seismic market, Ole.

Okay, great.

If we were to look into what some of those synergies or what that potential could be -- I mean, a year and a half ago you made a small entry into the CSCMI world, which clearly has enormous potential, together with seismic.

Is that your angle along with more -- ?

Well, it's not -- yes, of course, CSCM and [manultuleric] comes into it, but it's not that on its own.

There is -- you know, the vision of being able to integrate all reservoir property measurements into the seismic cube has been something that's been out there for a long time.

It was not easy for us to do it, without being able to use the seismic processing package of WesternGeco on our own, and, therefore, we've not gone as fast as perhaps we would have done had the joint venture not existed.

But now that barrier is removed.

We can start all the work that we think is really necessary.

But to your point, it is not just electronic magnetic.It's also --

What I was thinking, one more data point into the earth model, whether you have all the [indiscernible]

[indiscernible] seismic, it's petrophysics, it's inversions that you can use to populate the seismic cube with reservoir properties in a much early stage of the game.

I would add that our Petrel Seismic, the stimulation software package, plays a huge role in this.

You made a statement in your release where you said that you expect substantial progress in eliminating reservoir uncertainty.

That's a fairly -- can you quantify that statement?

No.

No, I can't, but I can say that if we do this properly, it will reduce the risk in reservoir characterization and evaluation in a substantial way before people move into development.

And don't forget, Q is a big part of this.

High resolution seismic is a big part of this.

Thank you very much, Andrew.

If I could have one follow-up call, I see you're having pretty phenomenal performance outside the North American markets, and we see other companies -- I mean, one that reported this morning seemed to have serious growing pains.

Can you talk a little bit about your follow-up from last quarter's call on where you are on the utilization in the organization, your ability to continue to grow?

Well, I think I've always said that our ability to continue to grow today is largely a function of people.

And, you know, I am quite encouraged -- I'm certainly very encouraged by the results of our recruiting.

I'm quite encouraged by the effect that some of the salary measures we have taken are having on the level of attrition.

Not satisfied yet, but quite encouraged.

And, therefore, today I don't see serious limits on our growth through the balance of 2006, in terms of resources, Ole..

Thank you very much, Andrew, good stuff.

Thank you.

We'll go to the line of Bill Herbert with Simmons.

Please go ahead.

Good morning, Andrew.

Good morning, Bill.

A quick question on WesternGeco, just to follow up.

And while we share your enthusiasm with respect to the duration and prospects for the exploratory cycle underway, talk to us about how you reconcile that growth opportunity with some of the concerns that you have expressed on and off about the looming capacity additions on the marine seismic front?

I can't say those concerns are totally removed.

Actually, I think the state of the buildings is such, and the delays that are likely, that the concern is being pushed out today, just in terms of delivery of new boats.

Right.

I also think that, when we look at the number of marine seismic programs that are having to be deferred through a lack of capacity, that is what is giving us more confidence on the length of the cycle, Bill.

Okay.

And two quick follow-up questions on GeoMarkets.

The Middle East revenues -- at least the Middle East Asia-Pacific GeoMarket's flat quarter-on-quarter.

What unfolded there?

Two things, Bill.

One was the lower well testing revenues, because we had an exceptional quarter in Q4.

Yes.

As you know, well testing is a sort of a number of very large items that may or may not repeat in each quarter.

And the other was this project transitions.

We had two or three substantial projects that either shut down temporarily, or were transferred from country to country.

Okay.

And then last question.

A certain amount of stagnation and paralysis in Mexico for the moment for reasons that we know.

Give us your call it two-year outlook for Mexico.

I'm sorry, Bill, your guess is as good as mine.

So you don't necessarily see any sort of renewed energy to increase activity, not withstanding the issues at Cantarel?

No, I think the issue today is who ends up, you know, ruling Mexico and who -- and what their decision is on future oil investment.

And I don't want to outguess a future Mexican government that's not yet elected.

Okay.

Thank you very much.

Thank you.

We'll go to the line of Michael LaMotte with JPMorgan.

Please go ahead.

Thanks, gentlemen, and good quarter.

Jean-Marc, first question for you, in terms of can you walk us through the financing of WesternGeco, what the terms are and how you come up with that 1% dilutive?

Yes, Michael, first on the financing itself, this is the cash transition, as I mentioned.

It's going to be financed about 50% with our cash and short-term investment, and about 50% with some borrowing in given countries.

And, obviously, we have the credit line available to do the financing immediately.

The second question on the delusions, actually, the dilution is an approximate number, because we'll have to do a third-party evaluation on some of the intangibles after the closing.

So -- but obviously, we know the company, we know the industry, so it's our best guess about what this valuation will result in.

So the kind of evaluation we'll have to do it on the multi-client surveys, some step-up on vessels and, obviously, value some of the technology.

Okay.

So the 1% is our best guess at this stage.

And that will be - as I mentioned earlier - there will be a one-time in process RNE charge that we have not valued yet.

Okay.

In terms of the terms on the debt, can you give us some guidance on that component?

It was no different from our current borrowing --

-- going to be very different, it's going to be medium to short term, actually.

Okay.

Very good, thanks.

Andrew, I was hoping you could expand upon the tech center in Dharhan, and, in particular, what some of the more immediate focuses are on carbonate research?

What are some of the challenges that you're looking to help Aramco solve?

Well, in the short term, I think probably one of the biggest challenges that we have been looking at in Dharhan and elsewhere is the capacity to effectively stimulate carbonate reservoirs, which is very different from plastics.

And, beyond that, the center has a focus on geophysics and carbonates, and also probably focus on the characterization of carbonate porosity, which is very different, again, from sandstone.

And the advantage, of course, is that you have the biggest live laboratory for those problems in the world right next door.

Okay.

Very good, thanks.

And finally, on China, if I can refer back to your June 2004 comments about China and how one day that market might look like Russia, I was hoping you could give us an update?

Well, actually, if I said that, I must have got it wrong that day, Michael.

I don't --

Well, I don't think it'll ever look like Russia, Michael. -

Well, it might have presented growth opportunity, I think (multiple speakers).

I don't think the growth opportunity's the same, just because the domestic service industry is so much stronger.

Now what is true is that the pressure on China to secure any form of energy supply, particularly domestic, is such that we're having considerable success with higher-level technologies, particularly in D & M, in western China.

So it's growing nicely, but it is not anywhere on the scale of Russia, or likely to be anytime soon.

Anything on the CBM front?

We -- Jean-Francois is the ex-China [indiscernible] market manager.

Are we doing anything on CBM?

Yes, we are doing some work, Michael, I'm not aware of exactly what.

All right.

Thanks, Andrew.

Thank you.

We'll go on to the line of Kurt Hallead with RBC Capital Markets.

Please go ahead.

Hey, good morning.

Good morning.

A question here relates to the fact that, Andrew, you've hit, if not exceeded, all the goals that you set out a couple years ago, both financially and operationally.

And just wondering what the encore is, as we move forward?

We have a meeting in September, so I would rather wait until then, Kurt, and do it on a conference call.

But yes, obviously we are going through a period where we are reviewing our strategy.

And particularly I would say our strategy, vis-a-vis, our operational resources for the years going forward.

But I would rather sort of declare a new state of the union in September rather than now.

All right, fair enough.

So what I also was curious about is your comment here about the -- there may be temporary slowdown in U.S. gas activity, given the high inventory levels.

Is this something that you're getting a read from your customer base on, or is it just a general assessment that in your -- (multiple speakers)

You know, if I talk to customers, I would say that it's 50/50.

Probably -- and when I had a discussion, it was probably a month ago, so I suspect it's got a bit better since then.

But if gas storage is full by the end of September, I don't think we can totally exclude it.

All right.

And then given all the --

I should point out, Kurt -- excuse me, Kurt.

I should point out that any slowdown will be temporary.

Understood, thank you.

And then last thing here, before I turn it over.

Given the backlog -- contract backlog for all the deepwater rigs and jackup rigs around the globe, and the increasing backlog of land rigs, I think it would have to be safe to assume that you guys have increased visibility, obviously, in your business, that probably extends out through at least 2008, if not a little further.

Are you getting any concrete signs, beyond the national oil companies, with respect to spending plans for 2007, 2008?

I think it would be reasonable to say that to the extent that you're starting to see some of the new builds commit -- be committed to oil companies, then we're starting to get more visibility on programs beyond their date of delivery.

As you know, for the jackups, it's 2007, 2008, but semis is 2008, 2009.

So to the extent that operators are committing to those rigs, we're getting more visibility, yes.

Okay.

Great.

Of course, the big visibility we do have is seismic, as I mentioned earlier.

When we see the number of seismic programs that are being rolled forward to beyond the current year, then that is some indicator that activity is going to continue.

Okay.

And you mentioned extensively about pricing trends in North America.

How about -- can you give us some flavor of the pricing trends internationally?

I would say that in most theaters the -- there is still very positive pricing momentum.

Great.

I appreciate your time.

Thank you.

Thank you.

We'll go to the line of Mike Urban with Deutsche Bank.

Please go ahead.

Thanks, good morning.

Morning, Mike.

Jumping back to everybody's favorite topic today, WesternGeco, actually it's one of mine, too, but in terms of some of the opportunities that are out there to monetize synergies and things like that, were you precluded from doing those things in a joint venture format or concerned that some of the things you might be doing in other parts of the oilfield business, you might kind of tip your hand a little bit and that, therefore, gives you a little more freedom on that front, or is that not the case?

Well, it certainly makes the overall international property arrangements between WesternGeco and the rest of Schlumberger a lot easier than they were in a joint venture.

Okay.

I don't want to go beyond that, Mike.

Okay, okay.

That makes sense.

In terms of the relatively near term, with such high utilization right now, are we primarily talking about pricing or are there some short-term things that you can do to drive further volume increases?

In WesternGeco, specifically?

Yes, Western.

Yes, yes.

If you remember, we will have one additional Q-Boat coming to the market at the beginning of next month that we announced last year.

And, in fact, in our press release, we announced a further Q-Boat, which will be in the second quarter of 2007.

But there are no more short-term things like we just did with the Gilavar, bringing it out of the Caspian and putting it into the international market, no.

We will continue to add land cruisers here, Michael.

It's fair to say you should be able to drive some nice pricing, given the level of utilization.

Yes.

Okay.

That's all for me.

Thank you.

Thank you.

We'll go to the line of Alan Laws of Merrill Lynch.

Please go ahead.

Good morning.

A couple of clarification questions, first.

You made some comments about the temporary slowdown in America.

Are you seeing moderation in demand or lack of intensity of demand short-term, is that what you meant?

No, not at all.

This is purely me on the basis of experience and conversations, to a certain extent, saying that, if storage is full very early, then there may be some softness for a while.

Not for long, but for a while.

I have no physical sign of it, whatsoever, today.

Okay.

How are you feeling longer term about the pressure pumping market?

Can I -- you know, this is -- one day, the pressure pumping market in North America will overbuild.

It always does, the signs are there, but it's not right now.

Okay.

The other question I had was on the -- back to the WesternGeco.

You're really saying, in short, that we're short capacity kind of worldwide now, and will the seismic market, itself, require more CapEx here in the near years to come?

Are you seeing any longer term sort of organic opportunities to add here?

Sorry, in terms of what do you mean by organic, by adding boats and that sort of thing?

Yes, adding boats like adding capacity to your --

We're going to add one more next year, we just announced in the press release, and, you know, beyond -- I think we will monitor, closely, how demand evolves.

But I would not exclude us adding further capacity.

In fact, we do -- we may have one or two options to do that, if we decide to do so.

Is your addition of the new capacity or the new boat, is that a baseline view of exploration, or is it a cautious view of the potential exploration cycle?

No, it's neither.

It's the demand for Q-Technology.

So this will be our seventh Q-Boat.

So it's -- I don't see us today bringing into the market a classic 3D or 2D boat.

This new conversion, because it is a conversion, is the demand for Q-Technology.

So it's a demand at the high end of the market?

Yes.

Which you dominate?

Well, we do pretty well, yes.

That's all I have.

Thanks a lot.

Thank you.

We'll go to the line of Ken Sill with Credit Suisse.

Please go ahead.

Good morning, gentlemen.

Good morning.

A lot of my questions have been answered.

But I wanted to go back to the topic du jour, which is seismic.

How good a leading indicator do you think seismic is, relative to cycle today?

I know ten years ago it was a great leading indicator, activity is up, but it's not -- it just doesn't seem to have the correlation.

But do you think it's still a leading indicator of how much stronger the cycle can get?

I think you have to be very careful within seismic to distinguish between what is a leading indicator for drilling and what is a pure, new exploration plays.

So, as a leading indicator for drilling, I doubt that the quality of the indicator has changed very much in the last 10 years.

Because where it is going to be a leading indicator to drilling is where people are doing seismic in and around their own acreage or known provinces, where they can come to a rapid development solution.

The big increase we're seeing today is if you like in long-term exploration plays, it's not in the short-term development plays.

So given the level of exploration spending that has been going on for the last few years compared to the previous cycle, I think that the pure exploration play type seismic has a long way to go yet.

And that is consistent with your view on this cycle lasting for -- probably being a better cycle than we've seen?

I haven't seen anything to make me change my mind on the length of the cycle so far, Ken.

In fact, rather the opposite.

And then just looking at margins, I guess one of the pushback we get from clients when you look at the numbers is margins are very good, probably better than we've ever seen.

How much of the growth going forward can really consist of margin or pricing expansions, I guess?

I think that -- I don't -- it's a very good question.

And actually I don't know the answer.

I would be - not be honest if I said I did.

What I do know is that we have had huge activity expansion and some inflation.

We're going to go on having huge activity expansion, but more inflation.

So to what extent those get attenuated over the next two or three years, I don't know at this point in time.

So there's still a fair amount of pricing improvement left to be realized?

Yes.

Finally on the housekeeping side, is there anything major in the minority interest besides WesternGeco, and were there any unusual items in the interest and other income?

No, there is nothing really unusual this quarter.

There's nothing in the joint venture apart from WesternGeco.

Okay, great, thanks.

Thank you.

We'll go to the line of Daniel Henriques with Goldman Sachs.

Please go ahead.

Hi, good morning.

My question is on WesternGeco, as well.

Can you talk a little bit about the methodology used to come up with valuation, some of the metrics and multiples you looked at?

Did you try, at all, to normalize returns for the seismic industry, using some sort of historic average, or you just used the current levels of return as a basis for your evaluation work?

Well, we did a classical evaluation approach with the help of our bankers, actually.

And we used the comparable companies, the most comparable in the industry, and kind of classical multiple PE and enterprise value on the EBITDA, adjusted for the multiclient, and we focused a lot of the valuation on this year, and next year prospect.

And the end result was the figures we agreed was fair between us and Baker.

And in your attempt to -- so no attempt to normalize.

On the -- in terms of why now, was it you calling them, them calling you?

How did it start?

And also if you could tell us how much net debt you had on WesternGeco before the transaction?

Well, let me answer the part on -- as you know, the shotgun clause -- the standstill clause expired last November, and I think since then we've -- both parties have been searching to find a solution.

And the why now is that we finally reached a position where both parties felt it was an equitable deal.

Jean-Marc, would you comment on the cash and debt in WesternGeco?

Actually, the position is not a net debt position in WesternGeco, it's a net cash -- a, fairly substantial net cash position.

And there's virtually no debt in WesternGeco.

Okay, thanks.

And final question, in terms of CapEx, last year you mentioned that companies placing CapEx orders in August were already too late.

How are you thinking about CapEx for '07 at this point, and when do you start having these discussions internally?

Well, I would say that we feel exactly the same as we did last year and the discussions are going -- have either taken place or are going on right now.

Okay, thank you.

And, in fact, if you take the seismic business, the lead times there are even longer, perhaps, than in some of the other product lines we manage.

Okay.

Thanks.

Thank you.

We'll go to the line of Jim Crandell with Lehman Brothers.

Please go ahead.

Good morning.

Morning, Jim.

In the U.S. and Canadian land businesses, do you think in general across your product lines that the rate of improvement in pricing accelerated in the quarter from recent quarters?

Yes.

And what do you think --

I mean, I think that you have to understand that probably a lot of that was negotiated in the last quarter of last year and implemented in the first quarter of this year.

But certainly, the rate of increase in this quarter, as the margin would indicate, accelerated.

Do you -- how would you estimate the shortage of equipment in some of your main product lines in the U.S. and Canadian land business?

I don't think we're short of -- we're not short of equipment, compared to anything we plan to do.

So in other words, the equipment we have in the U.S. and Canada is the equipment we plan to have there.

Yes.

Given your thoughts about the U.S. market, are you thinking any differently about CapEx, in general, just for the U.S. and land markets than you were a few months ago?

No, we're just watching the situation.

Okay.

And lastly, do you think you're approaching peak margins in the U.S.-Canadian land business?

I don't know, Jim.

It very much depends, I think, from -- you have two things, as you well know.

Particularly in pressure pumping, you have capacity expanding on one side and rig count expanding on the other side.

The capacity's not going to go away.

If the rig count slows, everyone will be approaching peak margins.

I don't know, I cannot say we're there now.

In fact, we're not there now.

Yes.

Okay, thank you.

Thank you.

We'll go to the line of James Wicklund with Banc of America Securities.

Please go ahead.

Good morning, guys.

Morning.

You are in the best position because of WesternGeco to know where -- you talk about exploration, where is most of the exploration taking place?

So when you say exploration, are you thinking in terms of [SIMULTANEOUS SPEAKERS]

And you guys would know whether it's production-related or exploration-related when you shoot it.

Where's most of it being done?

So a huge amount of it is being done in the Indian Ocean.

Okay.

In between Malaysia, Brunei and Thailand, Australia, Canada, and then we do have Russia -- the Russian and Canadian and U.the S. Arctics, which is a summer season business, Jim.

Right.

And then production seismic I would say it's-- still, because of the lead or the success that 4D is having in the North Sea, I would say that the big chunks of production seismic today for us would be the North Sea and Brazil.

And the Gulf of Mexico is the Gulf of Mexico, it's -- it's very buoyant, but the profile of the work hasn't changed very much.

Right.

How much seismic crews do you have in Russia during the summer season?

Winter season.

They shoot in winter, Jim.

That's what I mean.

Petro Alliance has about seven or eight and we currently have one.

WesternGeco has one.

Obviously that'll all go under Petro Alliance.

Right.

You mentioned lead times for some of the seismic equipment is long.

What -- since a lot of the technology is yours, what are the long lead times in seismic --

Sorry, sorry.

I was misleading.

For example, go out and try and buy a set of marine engines today, Jim.

Got you.

Okay.

You mentioned the scope in scanner technologies and we read great things about those in the technical press.

Can you give us an idea of scope or size without giving away any - I'm not sure there's such a thing as competitive information on those guys, because nobody else can do them -- but can you give us an idea of size and scope relative to the rest of the wireline business?

Well, in scanner I would say we're very, very early in the game.

Right.

And scope, because the drilling and measurements market as a whole is expanding so fast, we are actually building scopes as fast as we can.

But they're not replacing any of the existing equipment we have, they're just adding to the capacity.

So I would say scope is much further along than scanner, because they have an eight-month start on scanner.

But actually scope -- you know, we can introduce as many scope tools as we can build.

Okay.

And on just that general technology umbrella, what's the next big thing?

It's a fairly wide open question, I figure that's, you know --

I think I'd rather wait till September, Jim.

Oh, okay.

I guess there's something to look forward to, then, that's great.

Well, we'll see what we can do.

Okay, guys, congratulations.

Thank you.

We'll go to the line of James Stone with UBS.

Please go ahead.

All my questions have been answered, thanks.

Thank you, we'll move onto Geoff Kieburtz with Citigroup.

Please go ahead.

Thanks, good morning.

Andrew, I'd like to come back to the growth question in a slightly different context.

You gave confidence that you'll be able to sustain your expected growth through the end of '06.

Can you put it in terms, as you've talked before, to the end of the decade?

You recently gave a confidence of mid- to high-teens growth average to the end of decade.

What limits that?

Is that really demand limited and represents your forecast of what customers are willing to spend, or is there an element of supply capacity constraint that's limiting that?

I -- absent a fundamental change in the world economy.

In other words, a substantial drop in demand, Jim -- Geoff -- either we, if have the normal hydrocarbon usage type growth, 1.5 to 1.8% or even slightly lower than that, I think the constraint today on the whole industry growing more and on our customers spending more, is supply constraint.

The biggest single supply constraint, be it in our part of the business, the upstream part or in the downstream part, is engineering capability.

Does that mean that you are unable to sustain -- I mean, you've given a specific guidance for '06 top line of kind of matching the mid-20s of last year.

Are you saying you would not be able to sustain that through the end of the decade?

Oh, no, I'm -- you're saying I said mid- to high-teens, right?

Right.

And I stick to my mid- to high-teens.

You asked what would it take to go beyond that, and what are the constraints to go beyond that, and I think the single - there's a sort of multiple supply crunch in engineering talent, which might stop the whole industry going beyond that.

Okay.

So it's maybe, but you're not ruling out the possibility that top line growth could be sustained in the mid-20s through the end of the decade?

I'm not happy going beyond the high teens at this point in time.

Got you.

Okay.

And you did mention that you're looking at '07 CapEx now.

Yes.

Is it possible that we'll see as big an increase '07 over '06?

Let me -- we are looking at capacity to procure or build long lead-time items for '07, we're not looking at a global '07 CapEx number yet.

In other words, we're looking at the things that would stop us doing it if we do decide to do it, if we don't order them now.

Right.

Could the increase be as large as what we saw this year?

I don't think we can really answer that right now, Geoff.

Okay.

And last question: Did anything -- you've said this before, but -- earlier today, but did something change in regards to your view about the joint venture with Baker Hughes?

Well, the standstill ran out, that's all that happened.

It's just that in prior questions, you sort of indicated you were quite happy with the joint venture, and then the standstill runs out, now you're buying the --

The joint venture was a good joint venture.

Baker was an excellent partner.

They supported management, they let the Company run.

The standstill ran out, and I have never hidden from anyone that our long-term ambition was to own 100%.

After the standstill ran out, it was just a question of finding an equitable level at which both parties were prepared to do a deal.

Great.

Thanks very much.

Thank you.

We'll move onto the line of [Mark Ernest] with Calyon Securities.

Go ahead.

Good morning.

Most of my questions have been answered already, but Andrew, the improvement in operating margins the last couple of quarters, has been very impressive, up 170 basis points each quarter, and obviously that's largely due to pricing.

But could you comment on how much of that might be due to the new technologies and the improved pricing on those?

No, I mean, that is a sort of reasonably consequence element, but it only applies -- our NT5 measurement, which is the technology introduced in the last five years was 20 -- how much last year? 28?

North of 25.

North of 25%, so that price increase only applies to 25% of the revenue on a yearly basis.

And, therefore, while it's significant, it's not the overriding issue in pricing in Oilfield Services.

I would point out that in WesternGeco there's a huge amount of capacity shortage pricing.

In other words, just like drilling rigs, the ability to raise base rates because of demand.

And if you put Q-technology on top of that, it led to very healthy increases.

Then my follow-up relates to the pace of new technology introduction.

You've had a spurt of new products and they've been very successful.

Can you continue that track record going forward?

Well, I don't think we necessarily have quite such large ones as we had in 2005, but we can -- they're the rate at which we can bring you products -- they may not be all quite so visible -- but the rate at which we can bring you products is not going to slow.

Thank you very much.

Julie, we have time for one more additional question.

Thank you.

That comes from the line of Dan Pickering with Pickering Energy Partners.

Please go ahead.

Just in under the bell, here.

Andrew, I was hoping that you might be able to help quantify a little bit the impact of the cold Russian weather.

I know it's a big business area for you.

Do we take three weeks times what we think the revenue is and that's --

No, we're quite -- approximately $0.02, Dan.

Okay. $0.02.

And then if we look at the impact on the balance sheet of the WesternGeco acquisition, talk to us about how you think that influences your look at either further acquisitions or share repurchase in the next six, nine, 12 months?

Well, I don't think it affects our attitude towards any acquisitions that we might or might not do.

Apart from WesternGeco, I've sort of said we're looking at both on technologies or [raised] the medium-sized ones.

And to the extent that it is possible, we would probably do those for stock rather than for cash.

And the stock buyback program, we have four years.

We've always said that our objective is not to dilute the shareholders' or stock programs that benefit the employees on the one hand, and that we will be fairly opportunistic, on the other hand.

So it's not going to be an idle program, Dan, but don't ask me to sort of time it exactly.

Okay.

And then as we look out over the next couple of quarters here, Andrew, is there any seasonality or other issues that would make the margin performance that we saw in the first quarter, is there any reason that that would -- we would see any sequential changes in that margin performance?

I'm thinking --

Well, there's the Canadian break up -- there's the U.S.-Canadian break out, you can never judge the Seat of that.

But Qs 2 and3, as know, are always much lower in Canada than they are -- than Q1 and Q4.

Seasonality beyond that, no.

In the rest of the world it's pretty calm.

Okay.

So no reason to think that current margin levels aren't sustainable X the issue in Canada?

Well, X the traditional seasonal breakup, right.

Okay.

Great, thank you very much.

Thank you.

Julie, can you provide us a closing comment, please?

Yes.

Thank you.

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