斯倫貝謝公司 (SLB) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Schlumberger earnings conference call.

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

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

(OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded.

I would like to turn the conference over to our host, Vice President of Investor Relations, Mr.

Malcolm Theobald.

Please go ahead.

Thank you, Julie.

Welcome to today's third-quarter 2007 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 detailed disclaimer and other important information are included in the FAQ document, which is available on our website or upon request.

For today's agenda, Simon Ayat, 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 third-quarter activity and outlook.

Finally, we'll take questions from the audience.

And now Simon Ayat will discuss the financials.

Thank you, Malcolm.

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

Third-quarter net income was $1.09 per share, up $0.07 sequentially and $0.28 above the same quarter of last year.

Oilfield Services generated $1.5 billion in pretax operating income, flat with the second quarter but declined in margin terms by 108 basis points to 29.4%.

By area, the highlights were as follows: North America pretax margin declined 427 basis points sequentially to 26.9%, due to weather-related disruption in the Gulf of Mexico, the continued erosion of pressure pumping stimulation pricing on land in the U.S., and a reduction of exploration activity in Alaska, partly compensated by a rebound in Canada after the second quarter spring break-up.

Latin America pretax margin increased ten basis sequentially to 23.7%, reflecting the improved margins in the Mexico and Central America and Peru/Ecuador GeoMarkets.

Improvement in the Mexico and Central America GeoMarket was a result of the continued ramp up of new IPM projects that more than offset the project's start-up cost.

For ECA, the Europe/CIS/Africa area, the pretax margin improved 50 basis points sequentially.

The 29.2%, with Russia experiencing a seasonal high offshore cycling and on land in Eastern Siberia and a strong performance in the North Africa GeoMarket.

This was partly offset by project delays in the Caspian and Nigeria and Libya, where margins came under pressure.

Middle East Asia pretax margin increased 38 basis points sequentially to 35.7% on improvement in the China, Japan, Korea, Australia, New Zealand, Papua New Guinea and Indonesia GeoMarkets with exploration activity, while margins in the Middle East GeoMarkets remained steady.

WesternGeco pretax income was $306 million, was a sequential margin improvement of 611 basis points to 38.6%.

Marine margins improved with the introduction of the seventh Q vessel, higher utilization following the seasonal transit and dry docks in the previous quarter, and better prices.

Data processing also improved as a result of increased activity associated with the Marine operations.

This was partly offset with slower multiclient sales, mainly in North America.

Now turning to Schlumberger as a whole, the effective tax rate was 20.8%, 1.5 percentage points lower than last quarter, mainly due to the lower proportion of pretax earnings in North America for both OFS and WesternGeco.

Fourth-quarter EPR is expected to be slightly higher than the current quarter level and will continue to be impacted by the geographic mix of earnings.

The earnings for the quarter included $32 million of expenses related to stock-based compensation as compared to $34 million in the previous quarter.

We expect this expense for the full-year 2007 to be approximately $135 million, a $21 million increase over 2006.

As of September 30th, net debt was $1.7 billion.

Significant liquidity events during the quarter including $293 million for a stock buyback program, CapEx, including multiclient of $790 million, and funding of the U.S.

pension by an additional $150 million.

CapEx excluding $72 million of multiclient surveys capitalized was $718 million for the quarter and is expected to reach approximately $3 billion for the year, 2007.

During the quarter, we bought back 3.1 million shares for $293 million at an average price of $93.62.

This brings the total share buyback under the 40 million shares repurchased announced in April 2006 to 24.1 million shares for $1.6 billion at an average price of $66.93 per share.

And now I turn the conference over to Andrew.

Thank you, Simon.

Good morning, everybody.

Growth in the third quarter was driven by international activity across a number of GeoMarkets in Latin America and in Russia, as well as by activity in China, Japan, Korea, Indonesia and the Gulf in the middle Eastern Asia area.

In North America activity increased in Canada but this was offset by weaker pricing for pressure pumping on land in the U.S.

and by a sharp revenue drop in the Gulf of Mexico due to the departure of several rigs to overseas locations and the loss of approximately 15 operating days due to weather.

Among our technology growth was strongest at WesternGeco as the segment recovered from dry docks and vessel transits in the second quarter.

Marine acquisition revenue for the quarter reached an all-time record as pricing firmed and advanced Q-Technology acquisition techniques continued to be deployed.

In other technologies, growth was led by robust IPM activity and by demand for Wireline and Drilling & Measurement services, particularly in overseas markets.

Looking at the areas in more detail, within North America, sequential revenue in the Canada GeoMarket rebounded on a higher rig count led by demand for well services and Wireline technologies following the seasonal spring breakup.

However, this was more than offset by slowdowns in the U.S.

Gulf Coast as operators adopted precautionary measures during the hurricane season with the approach of various weather systems and by capacity driven pricing erosion in pressure pumping stimulation services in all three U.S.

land GeoMarkets.

Low exploration activity and seasonal maintenance in Alaska also contributed to this reduction.

In Latin America, sequential revenue growth was primarily driven by a continuing ramp-up in Integrated Project Management activity, although a higher rig count, together with stronger demand of Drilling & Measurements, artificial lift systems and Schlumberger's Information Solutions technologies in the Peru/Columbia/Ecuador GeoMarket also contributed to growth.

In Europe, CIS and Africa sequential growth was driven by a strong performance in Russia.

This resulted from a number of positive factors that included seasonally high activity on land and offshore in east Russia, increased demand for IPM services and Artificial Lift products in South Russia, higher demand for Drilling & Measurements technologies in North Russia, as well as the impact of the consolidation of Tyumenpromgeofizika.

Elsewhere in the area, increased demand for new technology, Drilling & Measurement services in north Africa, higher Artificial Lift product sales in continental Europe, and higher Wireline activity in west and southern Africa also drove results.

Overall sequential growth, however, was tempered by product slowdowns in Nigeria and the Caspian.

Within the Middle East and Asia, sequential growth resulted from higher activity in the China/Japan/Korea, Indonesia, Australia/Papua New Guinea, India, Brunei/Malaysia/Philippines and Gulf GeoMarket.

This was partially offset by lower activity in Qatar and the Thailand/Vietnam GeoMarket.

Advanced technology uptake continues as demand for new Wireline technologies was driven by the need for more accurate formation evaluation.

New Wireline Scanner deployments included high-pressure, high-temperature deployments in the U.S.

Gulf of Mexico used for thin-bed and laminated-sand analysis in U.S.

and Africa, and for evaluation of additional natural gas production in Mexico.

Worldwide Scanner jobs have now exceeded 1,500, with more than 300 tools active throughout the GeoMarkets organization.

Drilling & Measurement Scope services also continued their worldwide expansion with PeriScope imaging-while-drilling jobs in China and TeleScope high-speed telemetry in combination with StethoScope formation pressure-while-drilling technology on operations in Qatar, Brunei and the U.S.

Gulf of Mexico.

The shift toward more complex operations was highlighted during the quarter by a number of technical successes.

Deeper (inaudible), with consequent higher pressures and higher temperatures, were logged with advanced high-technology services, while new contracts were signed for deep water projects in several regions.

IPM strengthened as the new Mexican projects ramped up, current projects passed important milestones and geographic expansion increased in growing markets in newer regions.

Among more active projects, IPM operations increased in GeoMarkets in the Europe, CIS and Africa while the contribution made by the world construction business in Latin America generally continued to grow.

Turning now to WesternGeco, marine acquisition revenues increased through higher vessel utilizations following the seasonal transits and scheduled dry dock inspections seen in the prior quarter.

In addition, the seventh Q vessel, the Western Spirit, which was launched in Q2, was fully active.

Strong demand for marine seismic also led to improved pricing for both conventional and Q-Marine surveys.

Among the other WesternGeco product lines, data processing increased, driven primarily by higher sales in Europe, North America and Asia, while land activity remained flat and multiclient declined.

In the immediate future while there will be some recovery from the low activity levels in the Gulf of Mexico, natural gas activity in both Canada and the U.S.

is likely to stabilize as production remains relatively strong and gas storage approaches winter at comfortable levels.

As a result, pressure pumping pricing deterioration will continue.

This situation, however, does not change our view that North American natural gas supply will require sustained activity to combat production decline and advanced technology to increase production rates from poorer quality reservoirs.

Overseas, growth will continue at varying rates between regions due to the effects of winter weather and project delays in certain countries.

Global demand for oil remains strong, while non-OPEC production continues to disappoint.

Production decline rates in mature area and continuing project delays will inhibit non-OPEC supply increases, while personnel and equipment shortages will restrict the industry's ability to respond.

Within this context we see continuing demand for oil fuel services -- products and services that help our customers sustain their current production while adding reserves through new exploration.

I will now had the call back to Malcolm.

Thank you, Andrew.

We will now open the call for questions.

Thank you.

(OPERATOR INSTRUCTIONS) With that being said we'll go to the line of Jim Crandell.

Please go ahead.

Good morning.

Morning, Jim.

Andrew, I'd like to start with a question of your favorite business, U.S.

land stimulation.

How much do you think your prices on average are down to date, how much further do you think they go, and what annual rate do you think the U.S.

stimulation capacity is growing at currently?

Well I think so -- to take that question in three parts.

So so far I think pricing deterioration is still single digit compared to last year.

I think it will accelerate slightly in Q4.

Where the bottom is I really don't know because what we have is a situation very different from 2001 in that the bottom is going to be created by additional capacity and not by a drop in the recount.

I use the word "stabilize" quite consciously in that we think at the current level of storage with the current production profile, recount is likely to remain flat or go up or down a little bit or basically not change very much.

So what will change the pricing profile is the additional capacity.

And we -- I'm not quite sure where we stand in the additional horsepower that was coming on, but when we looked at that time a few months ago, it was certainly an increment in the high double -- in the high teens, if not more.

Okay.

And my follow-up question to that, Andrew, is could you elaborate on your statement of project delays in certain countries?

You mentioned Nigeria and Caspian in your comments.

Are there any more areas and what is the magnitude and timing of these delays as you see it now?

Well, I -- I think that in the case of Caspian, it's unknown.

And I think in the case of other countries, it's really just a question of logistical difficulties becoming more and more complex and, therefore, perhaps the rate of growth that people have been expecting from certain countries, while the growth will be there is not going to be quite as fast as they managed.

Okay.

And in particular, the -- the two areas that I mentioned, Nigeria and Caspian, or would other areas fall under that, as well?

No, I think there are other areas as well, but those are the two where logistical -- well, in the case of Nigeria, logistical difficulties make it difficult to see the rate of growth accelerating at this point in time.

Okay.

Thank you.

Thank you.

We will go on to the line of Michael LaMotte.

Please go ahead.

Thank you.

Good morning.

Morning, Michael.

I'd like to follow up on the comment that Libya came under pressure.

Can you talk what specifically happened in the quarter and the maybe provide outlook on north Africa in general?

Well, I think that Libya is suffering from what the previous [Fred German] called irrational exuberance.

In other words, I think, for example, if you take the number of Wireline trucks in Libya it probably has been multiplied by four in the last year.

And for the logistical difficulties that I was just mentioning with Jim, the rig count is not followed, so you have huge overcapacity -- limited to that country at the moment -- but which is -- means that everyone's margins are under pressure.

How does that all shake out as we go into '08?

Well, I think it depends at the rate at which the Libyan activity increases, but Libya is a country in where logistics are difficult, so I don't think the rig count is going to increase as fast as perhaps people have projected, and I think it will take longer in '08 to sort it out.

Okay.

Andrew, as you look into '08, are there -- what would you say are the greatest challenges that Schlumberger and the industry face.

You mentioned logistics a few times now.

I think that -- I think the constraints on logistics and not -- it's really an end of '08 problem, but the idea that the industry is going to ramp up 146 offshore rigs in a period of 18 months without a considerable loss in drilling efficiency is quite difficult for me to imagine.

So I actually think '08 is a year when we will continue to have very strong growth in traditional land markets, but offshore growth is going to be limited by the number of new rigs coming on in -- onto market in the first three quarters.

Okay.

But logistical incurring difficulties for all sort of things are getting more difficult, in my opinion, at the moment rather than less difficult.

Okay, that's helpful.

Thank you.

Thank you.

We'll go to the line of Bill Herbert.

Please go ahead.

Thanks.

Two quick questions here.

One, multiclient sales, down quarter on quarter, and I think down year over year as well.

What's going in multiclient and the Gulf of Mexico?

Do we think we're amply supplied for the time being or is this just a temporary period of stagnation?

No, I think we feel, Bill, that a lot of operators didn't want to make decisions before the October lease sale.

Right.

And we don't -- we don't think this is a permanent phenomena.

We don't think that the market is over-supplied with the sort of multiclient we're providing, so basically we took it as just being a pause.

Okay.

Great.

Secondly, with respect to the contraction in North American margins, about 430 BIPS, what percentage of that was driven by the Gulf of Mexico?

A very high percentage.

A very high percentage.

And you view --

Of course, you understand that these standdowns, you can't reduce cost in any way because they're for two or three days each time.

I understand that.

And so with regard to -- that's mostly, I would imagine, a transitory affair and you should recover some, if not most of that, into the fourth quarter?

In the Gulf, yes.

Yes.

Okay.

Thank you.

Thank you.

Our next question comes from Kurt Hallead.

Please go ahead.

Good morning.

Morning, Kurt.

Good morning.

Morning.

The question I have for you is you comment here about personnel and equipment shortages impacting the industry's ability to respond.

I'm assuming you are talking about the oil industry's ability to respond to production.

I'm curious about the equipment shortages.

Is that a situation where the service industry may be short on equipment and therefore may have the ability to really start to push pricing --?

I don't think you should take my comment as relating purely to what Schlumberger does.

I think you should take it as relating to the whole chain; in other words, the capacity to build platforms, surface equipment, flow lines, everything else that you need to complete a project.

And actually is -- I just mentioned to the previous question, the story of when we get more offshore rigs.

So I don't think you should take that comment as being limited purely to what Schlumberger does.

It's across the whole spectrum of what the industry needs to do a development project.

Okay.

In the context that question, is this kind of like a funnel effect where you get a lot of projects and oil companies trying to get a lot of things done and they're limited by that equipment and does that give the oil service industry in aggregate the ability to get better pricing?

Overall across time, yes.

I think that the oil companies will be cautious not to allow an excessive inflation to be built in by all biddings of all resources at the same time.

So if you like, it supports my -- what I've told the -- told you before that we think the growth period will go on for longer but it may be spread out -- it may get spread out.

Okay.

And you referenced a couple of issues that we should be obviously cognizant of in terms of project delays and some of these rig issues and so on.

Does this alter your growth rate viewpoint where you had high teen revenues better than that earnings growth rate by the end of the decade?

If you exclude North America, no.

What I -- actually what I wanted to get across, as well, is that Russia is now so large for us that the seasonal effect of winter weather in Russia will have an effect on Q4, particularly as Q3 is the highest quarter because that's when Sakhalin is in full swing.

So I wanted to get across that we have another weather effect that perhaps people haven't looked at before.

But you especially seem to be confident in the international growth rates being at or above that high teens rate and North America's really the question mark.

North America is the question.

Great.

Thank you, Andrew

Thank you.

We'll go on to the line of Ole Slorer.

Please go ahead.

Thank you very much.

You mentioned pressure pumping deterioration and the margins in North America were down quite a bit sequentially in the quarter.

Could you give us some idea of where contract pricing for the industry now for more commoditized-type services are relative to the pricing that was realized in the third quarter?

So I -- if I can just perhaps point out, Ole, as I said in reply to the previous question that the biggest effect on margins in Q3 in North America was the lack of operating days in the Gulf of Mexico due to precautionary evacuations, not from land.

There was a deterioration on land but it was not the major part of it.

And in terms of the pricing of services, other than pressure pumping we have not so far seen a noticeable effect.

But my question was where are pricing right now on pressure pumping relative to the pricing that was realized in the third quarter?

Well, we're only 17 days in the fourth quarter and I don't know is the answer to that.

I was asking for the fourth quarter, but where they stand now.

I said in answer to a previous question that we felt that it would continue to deteriorate and perhaps be at a slightly higher rate in the fourth quarter than the third.

Okay.

So you mentioned production declines in the mature areas.

Could you be a little more specific in terms of at what level you think non-OPEC production declines [how you highlighted as a year ago] and there was a very bearish oil market sentiment that you said, no, OPEC was way too optimistic and all that (inaudible) has now played out.

Could you help us a little bit with how to think about what decline curves are?

We're hearing anything from 8% to 15%.

What do you --?

Well, I've never given a public answer to this question and I'm not going to.

I use a figure that was used one of my major customers a few years ago which was 8%.

Whether that's accelerating or not overall I think is an open question.

What I do think is that a lot of the forecasting agencies are still using decline rates that are inferior to that, which is what leads to the confusion.

Final question.

Seismic capacity, there's a lot on the construction (inaudible) Norwegian companies.

When do you think that standardized 3D seismic contract pricing will peak?

Are we one or two or three or four years away from that?

Well, it's certainly not in 2008, and after that I really don't know, Ole.

It depends.

Every one of these boats so far has been three to six months late.

And as you know, we have [azimuth ] shooting at that gra -- growing at the same time, which uses more boats and exploration spends.

So, it's certainly not in 2008 but at what point beyond that I don't know at this stage.

And electromagnetic, are you commercial now?

Can you give us one final bit of update and that'll be it from me.

Well, we're certain commercial magnetotellurics, and yes, we are commercial on CSCM, as well.

Okay, thank you.

Thank you.

Our next question from Geoff Kieburtz.

Please go ahead.

Morning.

Good morning, Geoff.

WesternGeco margins were very robust.

Are they sustainable?

Well they -- if you exclude the seasonal effects of vessel transits in marine, they are sustainable and in multiclient, yes, I think they're sustainable, so the answer overall is, yes.

There may be quarterly fluctuations, Geoff, but overall yes.

All right.

So if we look at a what might be an '07 average margin for WesternGeco, you think that that's sustainable on kind of a couple years out at least until maybe the effect of the --?

Yes, I think so.

Okay.

And just to clarify, your -- your prior comment on the multiyear growth rate in the high teens, you've modified that to exclude North America now?

Well, I don't -- it's -- I said through the end of the decade.

Right.

What I'm saying is that we won't get a high teen growth rate in North America in 2008.

Everywhere else we probably will not be that far from it, but in North America we're not going to get it.

Now what happens through the end of the decade I can't speculate yet, Geoff, on North America specifically.

The rest of the world I'm perfectly confident.

Okay.

It just -- if I am not mistaken, your previous comment about high-teens growth through the end of the decade --

Did cover everything, yes.

Did cover everything.

Are you kind of backing away from that a little bit?

I'm saying I have an uncertainty on North America, but not on the rest.

Okay.

And on North America we saw, obviously, a pretty big decline.

I understand the Gulf of Mexico impact.

Overall do you think that the North American EBIT contribution in '08 will be above, below or in line with the '07 contribution?

I I don't think I am ready to answer that,Geoff, but obviously if -- if there is a big pricing impact on land, then it will have an effect.

So a decline is a possibility?

It is not excluded, no.

Okay.

Thanks very much.

Thank you.

Our next question comes from Ken Sill.

Please go ahead.

Good morning.

Wanted to follow up on that last one and make sure I'm hearing what you're saying, which is, you -- you said in your earlier comments that you see North America's going to need more activity over time to maintain production.

Yes.

But you don't know what's going to happen in '08?

No.

But you still think --

Well, I have indicated that our feeling is that in '08 on land, given the current position of gas, a stable -- a slightly fluctuating up or down recount is probably our most likely scenario, and that in those circumstances, the additional circumstance in pressure pumping will undoubtedly have a pricing effect, mitigated by the need of more technology to produce better from poorer-quality reservoirs.

But long term you still see growth in revenues in North America over an extended --?

On land?

Yes, or just North America --

Yes.

And then to follow up on a previous question somebody had asked, how much do you think pressure pum -- yes, pressure pumping demand is growing EX the rig count in North America.

That's a difficult question to answer because there are two types of pressure pumping.

There is the sort of basic, which is probably not growing any more.

And then there is the stage stimulation horizontal wells that is probably still growing quite fast.

So, I mean the indicator should be the number of horizontal wells that are being drilled for gas as opposed to straight vertical wells -- or horizontal wells with stage completions.

And is that something the commodity guys can do or --?

Not necessarily, no.

Okay.

And then on the Gulf of Mexico --

Yes.

-- how much of the decline is related to what appears to be, a long-term decline in shallow water activity in rigs moving versus deep water, and how much do you expect to see rebounding here in Q4?

Well, I don't think the shelf has a huge effect either way for us.

And we should at least recover the operating days we lost, which was 15 roughly, in the deep water.

So that was really a deep water issue from the rig --?

From us, yes.

Okay, and then just one final question.

Your long-term contracts have generally been two to three years, so is there another year of margin improvement related to old contracts rolling to higher prices coming in '08, or will it be more --?

Well, I would remind you it's one -- it's only one-third of the contracts that were rolled, so I'm not prepared to speculate on that at this point of time.

We're not far enough in our planning cycle for me to say, but generally I don't see any reason that there would be any material deterioration in overseas margins.

Okay, thank you, Andrew

Thank you.

And the next question comes from Alan Laws.

Please go ahead.

Good morning.

Let's see what I got left here.

Oh, Latin America.

When you -- when you look at the growth in Latin America and I guess the rig reduction in the Gulf of Mexico in the U.S., is the Latin American market heading toward becoming a more important region overall globally for you?

You're the biggest in that area.

Well, we are the biggest, but I certainly think there is an awful lot of growth potential left in Latin America, yes.

When you talk -- in the improvements are there, is it mostly on straight demand or is it mix of services?

Are they joining the technology revolution, if you will?

Well, like everybody else, what they have to do is getting more complex, so, yes, they are more and more interested in technology.

From the technology adoption standpoint, is the -- the vehicle to do that, is that mostly through IPM for you or -?-

No I would say Latin America is equally some very sophisticated customers and IPM.

Okay.

If then you looked out further, could you see this region moving toward the same margin as the other International regions over time?

Well, it will always have the effect of the huge body of IPM contracts and the third-party pass-through revenue that we have to recognize, which is a lower margin than our own services.

Okay.

The last thing is more of a longer-term growth question, but you [rank] pretty comfortable with the longer-term growth and when you look out beyond '08, are you -- or I guess how much of your business is really going to be dependent -- or the growth in the business is going to be dependent on delivery of the new rigs?

Well, obviously the size of the increase in the offshore rig count is a very important factor in our growth beyond '08, particularly as it migrates to deeper water and more and more complex reservoirs.

But when you look at your growth rate out that far, and if there was an opportunity for these to slide to the right, so to speak, does that affect your growth outlook?

Or does it make you feel less comfortable with your growth outlook?

No, because I've been -- we have always considered that there would be an element of slippage in the delivery of offshore rigs and therefore we've taken that into account in our thinking.

I sometimes worried that the Street hasn't.

Sure.

No, that's right.

So it's the thing you were taking about earlier about taking longer but the demand is still there just takes longer to materialize.

Okay, that's good.

Thank you.

Appreciate it

Thank you.

We'll go to the line of Mike Urban.

Please go ahead.

Thanks, good morning.

Good morning.

How much impact have you seen from stimulation equipment moving out of North America and into the Russian market?

The real impact of that was when Canada went down, and the Canadian companies moved fairly aggressively into Russia.

I would say that was a half one phenomena of this year and since then things are pretty much stabilized though we still -- I was in Russia last weekend.

We still see flat fleets arriving in ones or twos but they're nothing that the market can't cope with.

There's not the influx that there was in the first half of this year.

Okay, so demand is -- again, outstripping the supply?

I would say it is very balanced at the moment.

Pretty balanced, okay.

And that, I guess, is my segue into the Canadian market, obviously recovered a bit seasonally.

Would you expect much more than what we've seen right now, again given the gas fundamentals in North America and also the potential impact of tax and royalty changes in Alberta?

I think it's a very difficult call to make, and I don't think until we start to see a significant production decline we're likely to see much -- a significant change in spending levels.

So, this -- I would imagine that this Q1 will be better than the last Q1, but it's not going to be like 2006.

So you may go positive on a year-over-year basis simply because it doesn't -- it's not getting any worse rather than getting better?

Yes.

Okay.

It's getting better.

Okay --

I really don't know what the effect of this royalty thing is going to be.

Okay, great.

That's all for me.

Thank you.

Thank you.

We'll go to the line of Brad Handler.

Please go ahead.

Thanks, good morning.

Morning.

Could you please just update us in terms of IPM orders and backlog?

You gave us some statistics last quarter, I was just hoping you could give it for 3Q.

It hasn't substantially changed in the end of the last quarter in terms of solid backlog.

In terms of inquiries and ongoing negotiations, I would say it has increased, and it's shifted considerably away from Latin America.

It's far more in Europe, CIS and Africa at the moment than in Latin America.

But there's not a significant shift in the overall backlog this quarter.

So it's -- I guess it was at $4.8 billion as of 2Q and it's more or less there, you're saying?

There was some offset relative to the revenue.

Yes.

Okay, that's helpful.

Unrelated follow up, I guess.

Maybe you could share your thoughts on the Mexican market.

We've heard a lot about some very large tenders which are potentially up and coming and yet, maybe in '07 there's still budget constraints and maybe you think that drifts into '08.

So again, sort of an open-ended -- your thoughts on that please on that?

Well, I think there are still a considerable number of large tenders that will come out in 2007.

I haven't personally heard of any budget constraints, but I can't claim to be up to date to the minute.

Are there --?

There certainly are one or two or three very large tenders that are still likely to happen.

In '07, you think?

In '07, yes.

Okay, interesting.

Can you share your comments related to that in terms of interest?

Obviously Chicontepec is a key area but are there some others on land which are also a focus for you?

I really don't want to go into that.

I understand.

But, yes we are still increased -- we are still interested in expanding in Mexico.

Understand, that's fine.

Thanks very much

Thank you.

We'll go to the line of Kevin Sampson.

Please go ahead.

Thanks.

Two quick questions, Andrew, maybe more quarterly oriented than you might want to get.

But the first would be that normally your Europe/Africa region sequentially goes higher in the fourth quarter, but your suggestion that Russia's big enough now that seasonal influence may -- will be -- you mentioned fourth-quarter specifically, so just wondering if we should expect 4Q comps for that region to be -- not to go up as they normally have done in 4Q?

Well, as you know, that region really has two markets that are highly dependent on -- on seasonality.

One is the east Russia -- east and central Russia, where there will undoubtedly be a winter effect because people just shut down.

The other is the North Sea, which is extremely weather dependent, and the North Sea I really can't call, because I think people will go on drilling if the weather allows them too.

So overall, I think that the weight of Russia -- and the North Sea by the way -- in the total of Europe/Africa is likely to perhaps moderate effect you are talking about in the past, Kevin, that increased in Q4 over Q3.

Suer.

I just wanted to go into one quick follow up on multiclient.

I would have thought, with the strength of the lease sale, that we would've seen -- you would've seen stronger multiclient sales for third quarter, as people got prepared for it.

So I was just wondering how that -- how that all played out and it seems -- sounds like you sound pretty comfortable that you're going to get actually a fourth-quarter rebound there.

Yes, well don't forget that the lease sales concern different parts of the Gulf, and we think that the upcoming lease sale in October is probably more prospective for a lot of multiclient than the one that was in Q3.

So, yes, we're pretty confident.

Okay, thanks.

That's it for me

Thank you.

We'll move on to the line of Pierre Conner.

Please go ahead.

Good morning, Andrew.

Morning, Pierre.

Actually the question's a direct follow on to that on the multiclient side.

Wondered what your perspective of future multiclient sales would be, given the context of available multiclient-wide azimuth and E-Octopus data.

Do you feel there is -- could be a move toward some of this other data that would impact current library sales?

Sorry, what other data are you talking about, Pierre?

I'm not quite sure what you mean.

You mean is the E-Octopus in sales in decline?

No, from the standpoint of available multiclient-wide azimuth data, will customers tend to move to that and -- or wait for wide azimuth data and therefore not be accessing the current library of non-wide azimuth data?

I don't think -- I'm not sure that enough wide azimuth multiclients out there to really affect libraries yet.

It may come but not yet.

Okay.

That's fair.

Related to E-Octopus, can you remind us of how much impact is there in the current quarter in WesternGeco from the earlier phases, one through three?

I guess the fourth and fifth phases don't get kicked off until first quarter.

No, I'm very comfortable in saying I don't know, Pierre, I'm afraid.

Okay, all right.

Switching gears on the follow up then [back] to pressure pumping.

You mentioned about a single digit still decline in pricing and I'm wondering if you could dissect that a little more, Andrew, relative to more sophisticated technology and more commodity types.

I think -- not really.

I think it's more in certain geographical regions than others, which is a reflection of how you see the U.S.

land recount move in different areas.

I don't think that whether you -- if pressure pumping is being used in conjunction with stage completions that we've seen any pricing decline at all.

But that's still a fairly small portion of the overall market.

Okay.

All right.

And then the last one, maybe more just a mechanical.

In the past -- and maybe for Simon.

You have given us a specific impact due to delays from -- from storm standbys, and wondered if you've done that calculation on an EPS?

I know you told us the majority of the North American margin compression was due to that, but have you run through that specifically?

No, it's 15 days so you can assume it's more than $0.01.

Yes.

Okay, that's fine.

The -- I'm assuming also as per what you described in the supplemental is that most of the tax delta was due to the geo -- essentially all of the tax delta was due to geographic mix change?

Yes.

Thank you.

Okay, I appreciate it.

I'll turn it back.

Thank you.

The next question's from Rob MacKenzie.

Please go ahead.

Good morning, guys.

Andrew, my question is for you.

You mentioned a couple -- the first two StageFRAC jobs outside of the U.S.

and this market, one in the Mexico, Central America market and one in Saudi Arabia.

Right.

Can you give us a feel of how much potential there is for expansion of StageFRAC in these and other markets and what the timing is of that?

There's a huge potential.

We've done jobs in West Africa as well.

It's really a question of -- of the time -- the normal cycle of time it takes to spread a technology overseas which, as you know, is quite long.

So -- but there is a huge potential overseas.

Okay.

And separately, also in the FRAC, did you a job with Flex Stem in the North Sea.

Is this something that you are seeking to potentially replace FRAC vessels with reduce cost structure, or is this more of (inaudible) product?

And if you could help us get a feel of how many more you might be building, the ultimate size, same thing with the question on timing as well?

Well, I know we are looking to applying that idea in other theatres.

I would say it's more a solution to deal with the marginal demand.

In other words, where you cannot afford a whole vessel -- or the market cannot support the whole vessel, and where the marine operating conditions allow you to use that sort of package you can deal with the marginal demand much easier than -- than a full-fledged Stem vessel.

And so how would you characterize the opportunities for that around the world?

I would rather not in public.

Okay, fair enough.

If you don't mind.

Fair enough, Thank you.

Thank you.

We'll go to the line of Dan Pickering.

Please go ahead.

Good morning, guys.

Dan.

Andrew I'd like to come back to the international markets for a second.

You talked about Libya where capacity additions have changed the market dynamic a little bit.

As we look --

No, not a little bit, Dan, completely.

Okay, completely.

I guess I'm trying to extrapolate across the international markets.

Do you see general overcapacity in any of your product lines?

No.

This is a very particular case where the opening of Libya led everyone to believe there would be, I think, an immediate bonanza, so people shipped in equipment at a rate far faster than the increase in rig count was taking place.

Okay.

So just to be clear, we shouldn't be thinking there are too many LWD tools in the market, there are too many Wirelines --?

Oh, no, no.

And in fact, I would exclude LWD from this argument even on Libya.

Okay, all right.

Then back to North America a little bit.

You've talked a lot about pumping.

I was confused by one of your answers.

It sounded like you said the pricing impact in pumping had not yet had a margin impact.

Was that correct?

No.

What I said was that in the drop in our margins in Q3 in North America, the effect of the hurricane stoppages -- or the precautionary stoppages in the Gulf was by far the largest part of our margin decline.

Okay.

And as it relates to the pumping business, can you talk to us -- I guess strategically help us understand, are you -- are you a market share defender in North America?

Are you taking capacity out?

How -- how do you fight your way through a market with too much capacity?

I think you should assume that everybody is a market share defender at the moment.

Okay.

Thank you very much

Thanks you.

We'll go to the line of Michael LaMotte.

Please go ahead.

Thank you.

Just a couple of quick follow ups.

First on the buy back Andrew.

I have to say given the stocks swoon that the stocks had in August I was a little surprised that you all didn't buy back more.

Is there any thought or comment there?

No.

We just -- these levels are on a very regular program, Michael.

Okay.

So more programmatic than opportunistic, I guess, --

Yes.

-- when you think about it?

Okay.

Maybe we missed a tactical opportunity, but we didn't see a run up.

And then secondly, on currency, currency issues have come up in the past and we've talked about the business being dollar neutral and revenues and costs being very much dollar linked.

The question I have, I guess, is more to cost of living adjustments for [expats] that are being paid in dollars.

Is there any risk we could see some real inflation in wages next year for those kinds of adjustments?

I think you have to take into account there are two types of expats.

So there are expats who rotate.

An example would be WesternGeco crews or testing crews who actually live in a country where they pay their bills in Euros or pounds or whatever it happens to be, and we have -- and always based our salaries in dollars.

And for those people over the last two years, we have already been making cost-of-living adjustments to take account of the devaluation of the dollar.

And then you have our permanently assigned expatriate personnel who live in the countries where they work and who are paid in dollars and remunerated on a base salary and on a cost-of-living coefficient all in dollars, and that population, if there continues to be a serious decline in the dollar, we will have to address it, yes.

And, yes, that will cause a little cost inflation.

Okay.

Can you give a sense in terms of the mix of employee base on --?

Not off the top of my head, Michael, no, but the vast majority are in dollars.

Okay.

Thanks

Thank you.

We'll go to the line of Geoff Kieburtz.

Please go ahead.

Thanks.

Just a couple of follow ups.

Again you mentioned, Andrew, that you would always -- factored in some delays in terms of rig deliveries in your (inaudible) outlook.

Right.

Can you give us some idea of average delay versus the stated delivery dates that you've been using?

Actually I don't think the stated -- that's not the one I worry about.

I think the operating efficiency of a rig in its first year with a new crew, new out shipyard, is vastly inferior to an existing offshore rig that has a well-honed crew and has been drilling wells for years.

So it's not so much the delay from the shipyard as the actual drilling efficiency in the first year or two of operations.

Would you be using like a 50% factor or like an 80% factor?

I don't think we have an exact -- I mean, I don't think we're that scientific about it, but we would -- it would be a pretty substantial factor, Geoff, yes.

Okay.

And the second one was, in your comments about Europe/CIS/Africa and the greater weather or seasonal dependent -- well, the greater size of the weather and seasonal dependent markets.

How would -- all other things being equal, will -- will the potential declines in the fourth quarter cause margins to vary significantly?

I mean, there's a mix effect kind of implied in your comment.

Significantly, no.

Varied, yes.

We are not -- not the sort of thing you've seen with the Gulf of Mexico stoppages if that's what you're -- Geoff.

Okay, so it would be negative but not at a very large --

No.

If you take Sakhalin, it's a seasonal shutdown -- we can adjust cost accordingly.

Okay, so you can anticipate, right?

It's when you get a stoppage without the capacity -- where a stoppage is unforeseen and brief that you cannot adjust cost that you get the accelerated market effect.

I guess what I was asking perhaps was whether those more seasonal markets typically carry higher margins than the average for the region or lower markets?

Yes, That would probably be a fair statement.

Okay, thanks.

Thank you.

And our last question for today comes from Jim Crandell.

Please go ahead.

Andrew, our data's showing that non-North American CapEx on ENP this year will be up close to 25% in '07.

Assuming that you believe this, do you believe that '08 growth over '07 can be as strong as '07 versus '06?

The announce CapEx numbers from --

No, (inaudible) based on our survey and then adjustments to our survey since it's come out is showing get growth of about -- or close to 25% in '07 and I'm asking you if -- whether you believe that or not, I guess.

Do you think that '08 versus '07 will match that, exceed it, fall short of that, in terms of a global growth rate outside of North America?

I actually suspect that it will at least match.

Now what is the inflation content in that 25% in '07, I don't know what you meas -- how you measure that.

What it will be in '08, I don't know either, but I would not be at all surprised if the raw numbers match or exceed.

What do you see is the regions that could grow faster than 25%?

I think Latin America and parts of the Far East and Russia.

Okay.

One follow-up question.

You have your three major competitors internationally who're all in various stages of building up their IPM or bundled services capability.

They've all ramped up CapEx.

They've all ramped up infrastructure spending.

They have a lot of new tools and services entering into the market.

In markets that you've dominated technically or because you just have very strong shares historically, has all this created -- what kind of issues does this create for Schlumberger and do you still believe that, technically speaking you're as far ahead of the competition as you've ever been and doesn't really create any significant challenges?

Well, obviously having more capacity on the ground creates more challenges.

Just because people have put equipment there doesn't mean that they can operate efficiently, so I don't feel -- I don't -- there's obviously more threat than there used to be.

Do we feel massively under threat?

Not at all.

Okay.

Good.

That's all I had.

Thank you very much.

Thank you, and we'll turn it back to Mr.

Theobald.

Please go ahead.

Okay.

Well, on behalf the Schlumberger management team I would like to thank you for participating in today's call.

Julie will provide the closing comments.

Thank you.

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