斯倫貝謝公司 (SLB) 2008 Q1 法說會逐字稿

Welcome to the Schlumberger earnings conference call.

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

Later, there will be an opportunity for your questions.

Instructions will be given at that time.

(OPERATOR INSTRUCTIONS) And as a reminder, this conference is being recorded.

I would now like to turn the conference over to Vice President of Investor Relations for Schlumberger Limited, Malcolm Theobald.

Please go ahead, sir.

Thank you, Gail.

Welcome to today's first quarter 2008 results conference call for Schlumberger Limited.

Before we begin, I would like to review the logistics and format of today's call.

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 information are included in the FAQ document which is available on our Website or upon request.

And now for the call participants and format.

Joining the call from New Delhi, India, are both Andrew Gould, Chairman and Chief Executive Officer; and Simon Ayat, our Chief Financial Officer.

Prior to Andrew's overview of the first quarter and his comments on the outlook, Simon will first review the quarter's financial results.

And now I'll turn the call over to Simon.

Thank you, Malcolm.

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

First quarter income from continuing operations was $1.06 per share, down $0.05 sequentially and $0.10 above the same quarter of last year.

An additional $0.03 gain was reported in discontinued operations.

Oilfield services first quarter revenue grew 3% sequentially, reflecting growth in North America and Europe/CIS/Africa areas.

The seasonal year and the strength in artificial lift and completions equipment sales, as well as SIS software sales reverted to normal levels in Q1, while traditional service segments, such as wireline, drilling and measurement, and well services showed sequential growth.

WesternGeco reported weak multiclient sales, only partly offset by an improvement in marine activity.

Oilfield services generated $1.5 billion in pretax operating income, down $33 million from the fourth quarter of last year, but margins declined by 140 basis points to 26.8%.

By area, oilfield services highlights were as follows.

My comments are on sequential basis.

North America pretax margin improved 21 basis points to 25.6%, with strong seasonal activity in Canada and Alaska, augmented by full recovery in the Gulf Coast with the return of deep water rigs, more than offsetting land access operational restriction in the Rockies, winter weather in U.S.

north and pricing deterioration for well stimulation-related services in the U.S.

central market.

Latin America pretax margin declined by 203 basis points to 20.1%.

In Mexico, IPM project rig count continued to grow with more activity but increased levels of project start-up costs.

And a high proportion of third party managed services impacted our margins negatively.

Reduced activity and the less favorable revenue mix due to project delays in the Peru/Colombia/Ecuador and Brazil geomarkets also reduced margins.

For ECA, the Europe/CIS/Africa area, the pretax margin declined 163 basis points to 26.3% as Russia exhibited the seasonal slowdown offshore cycling and incurred the start-up costs for several new projects, while operational delays in the North Sea hampered drilling and measurement activity.

Strong activity was reported in the West Africa, Caspian and continental Europe geomarkets.

The area included the consolidation of FRAMO for the first time.

Middle East/Asia pretax margin declined by 10 basis points to 34.9%.

While the year end high level of artificial lift and completions equipment sales, particularly in the Arabian geomarket, was not repeated, exploration-driven improvements in the Australia, Thailand/Vietnam, East Mediterranean and Gulf geomarkets more than offset seasonal weather slowdown in the China/Japan/Korea geomarkets.

WesternGeco pretax income was $196 million, was a sequential drop in margin by 502 basis points to 29.1%.

The reduction in multiclient sales and margins following the record sale in the previous quarter more than offset the modest recovery in marine performance.

Now, turning to Schlumberger as a whole.

The effective tax rate was 19.1%, which was lower than last quarter.

The decrease was primarily attributable to the favorable resolution of tax examination in a number of countries.

The ETR is expected to be in the low 20s for the total year 2008.

The earnings for the quarter included $41 million of expenses relating to stock-based compensation costs; net debt of $2.2 billion at the end of the quarter.

Significant liquidity events during the quarter included $564 million for the stock buyback program and $833 million for CapEx, including multiclient.

CapEx, excluding $81 million of multiclient surveyed capitalized, was $772 million for the quarter.

During the quarter, we bought back 7 million shares for $564 million at an average price of $81.16 per share.

As we are approaching the completion of the 40 million share buyback, the Board of Directors approved a new repurchase program for $8 billion, to be completed before the end of 2011.

And now, I turn the conference over to Andrew.

Thank you, Simon, and good morning, everybody.

Seasonal factors, weather-related events, as well as lower product and software sales following the exceptional levels in the fourth quarter had a general dampening effect on sequential revenue gains with a consequent effect on margin.

Oilfield services revenue growth was strongest in the Canada, U.S.

Gulf Coast, south Russia, Australia/Papua New Guinea, west and southern South Africa and Alaska geomarkets.

Sequential revenue also grew through consolidation of FRAMO into the Europe/CIS/Africa area.

Among the technologies, demand was strongest for wireline, drilling and measurements, well services, and well testing activities.

In terms of geography, North America recorded the strongest growth, as activity increased in the Gulf of Mexico with the return of deep water rigs, together with stronger demand for wireline and drilling and measurements exploration related services.

Canada saw a robust winter drilling season with high demand for wireline services and a renewed exploration market, as well as for well services technologies.

Alaska benefited from exploration-related growth.

The combination of these factors, which largely outweighed seasonal and weather events, as well as lower product flow, translated into stronger margins, although pricing weakness continued to be seen in U.S.

central for well stimulation-related activities.

In Latin America, growth was strongest in the Venezuela/Trinidad and Tobago geomarket from higher demand for drilling and measurements, wireline and well services, as well as from higher SIS product sales.

However, this was more than offset by project transitions and delays in Peru/Colombia/Ecuador, and in Mexico and Central America.

Lower artificial lift and SIS product sales also offset overall growth.

Against the slight decline in revenue, margins lowered more significantly as the integrated project management activity in Mexico continued its rapid rampup of new projects, with an additional seven drilling rigs being deployed in the quarter, resulting in heavy initial startup costs being incurred.

The majority of these new projects are in areas where wells are much deeper and hotter and as a result, take longer to drill.

Growth in the Europe/CIS and Africa was driven by a variety of positive factors.

These included the higher artificial lift system sales and increased well services market penetration in south Russia, strong demand for well services technologies in continental Europe, increased demand for drilling and measurement technologies in west and southern Africa and the Caspian, and higher IPM and drilling and measurements activity in north Africa.

Area sequential growth also benefited from the consolidation of FRAMO revenue.

These positive factors were, however, mitigated by operational delays in the North Sea, winter weather in east Russia, and lower SIS product sales.

Sequential revenue in Middle East and Asia area declined slightly, as exploration-driven growth for wireline and well testing services in the Australia/Papua New Guinea geomarkets, together with strong demand for wireline and well testing and well services in the Gulf, East Mediterranean and Thailand/Vietnam geomarkets were offset by the impact of winter weather in the China/Japan/Korea, and lower completions in artificial lift systems product sales also contributed to this performance.

At WesternGeco, first quarter results fell sequentially as multiclient revenues declined steeply from the record levels of the fourth quarter.

The Gulf of Mexico lease sale late in the quarter, coupled with the increased cost of wide-azimuth data sets that are fast becoming the norm for new multiclient purchases, delayed new activity until customers absorb the results of the March leasing round.

In contrast, however, marine revenue increased as both vessel utilization and productivity improved, following the vessel dry docks and seasonal transits of the prior quarter.

Data processing recorded a sequential increase in revenue, while land declined as a result of project completions in North Africa and lower demand in the Middle East.

Looking ahead, in the short to medium term, we expect a number of scheduled dry dock expense in vessel transit in the second quarter as activity switches from winter to summer seasons, while the uneven pattern in multiclient activity is likely to persist throughout the year.

WesternGeco technology applications saw growth during the quarter, with a confirmation of a further set of Q-Marine time-lapse surveys in the Norwegian sector of the North Sea for StatoilHydro on the Norne and Heidrun fields.

These surveys represent the fifth successive survey at Norne and the third at Heidrun.

Both form part of the ongoing efforts to maximize recovery from both fields through the identification of unswept and partially swept areas.

Q technology has also been selected for the deployment of Q-Seabed surveys on the Oseberg Sor and Gullfaks field, where the technology's low frequency capability is considered to be of particular value.

And in the sub-salt environment of the U.S.

Gulf of Mexico, processing has begun of integrated Q-Marine gravity and magnetotelluric electromagnetic data sets that form part of the E-Octopus multiclient wide-azimuth acquisition program.

Other new technology applications included Well Services, FUTUR active set-cement, which provides long-term, zonal isolation formation through self-healing properties upon contact with any hydrocarbon-based formation fluid.

In Canada, this unique technology was used in an active geological area, where maintaining cement integrity has been problematic.

And in Italy, it's use began on a 50 well natural gas storage field to prevent leakage of storage gas where wells are subject to alternating injection and production in line with storage gas use.

Another new well services technology, unique to Schlumberger, ACTive coiled tubing, was deployed in western Canada and Malaysia.

The ACTive family of services uses fiberoptic cables in a downhole center package to monitor progress of a range of coiled tubing-enabled operations in realtime.

In addition to these technology deployments, we passed a significant milestone in recruiting and training during the quarter with the opening of the Siberian Training Center in the Russian Federation in March.

This new center includes all the facilities needed to train and develop our Russian languages employees in artificial lift, directional drilling, well cementing and stimulation, data services and information solutions, as well as integrated project management.

The current training capacity is expected to double over the next year to reach 350 students.

In closing, I would like to reiterate some comments that I made at the Howard Weil Conference in New Orleans earlier this month.

In the absence of severe global recession leading to a steep drop in demand, the thin cushion of excess oil supply and the failure to stem decline rates in many countries, coupled with a higher than expected drawdown of U.S.

natural gas storage, are all factors that lead us to conclude that growth will strengthen as the year progresses.

We remain convinced that current investment levels are insufficient to both stem decline and to explore and develop new reserves.

As a result, we anticipate that the current cycle of exploration and production spending will remain stronger for a longer period than we originally anticipated.

I am now going to hand the call back to Gail.

(OPERATOR INSTRUCTIONS) And our first question will come from Michael LaMotte with JPMorgan.

Please go ahead.

Thanks.

Good morning, Andrew.

Good morning, Michael.

First question has to do with the question or the comment that you made on the fourth quarter conference call regarding '08 being a transition year, particularly listening to some of the Geco commentary for Q2 and second half.

I'm wondering if you wanted to perhaps revisit that and -- within the context of 2008 going to be a transition year, or is it a first half transition?

Well, I think that when I made the comment in December, I was thinking it was a transition year.

I would say that what has happened in North America, coupled with, as I'm sure you've noticed, some fairly dramatic declines in oil production in a number of places around the world, leads me to believe that absent this global recession, it's more and more a year in which growth is going to strengthen significantly in the second half.

We've been -- all eyes have been on Russia and Mexico.

Yes.

Here in first quarter, second quarter timeframe.

Anywhere else?

I understand seismic activity in India is very robust right now.

Anything in the Eastern Hemisphere that we should be keeping an eye on?

Well, India -- we just tell our Board of Directors here, because firstly, it's our 75th anniversary in India.

But secondly, because as you say, there is a dramatic increase in the willingness of India to find out whether it has any chance of domestic energy security and therefore, huge investment in seismic and hopefully following that exploration drilling.

And as you know, they have one or two very large development programs that are underway.

So, I think that perhaps for us, the really interesting thing in Indian seismic is the fact that we have a -- our second largest processing center worldwide in India and we work very closely with the Indian industry on how to interpret Q to the maximum advantage.

But it's symptomatic of perhaps the willingness of developing countries to find out what chance they have in energy security.

Should we think about India as seismic for '08/'09 and then exploration drilling in 2010 perhaps?

Well, I think -- I don't know -- I don't think their rig program is fixed yet but certainly I think that as soon as they can get rigs, they will start exploration drilling.

Okay, great.

Thank you, Andrew.

And our next question will come from Bill Herbert with Simmons and Company.

Please go ahead.

Thanks, good morning, Andrew.

Hi, Bill.

With regard to seismic, I'm trying to reconcile on the one hand the very favorable demand outlook that not only hearing from you, but from others, with the fact the backlog has evolved rather slowly over the past three to six months.

We're down 20% quarter on quarter.

Walk us through with respect to the intermediate outlook with respect to contracting your vessels and what we should expect with regard to backlog build as the year unfolds.

I think that some of the significant drop in the backlog is due to the fact that we have some very long-term commitments that have not yet been renewed but I would say are currently in the state of being bid.

Okay.

So I would suspect -- just as I said to Michael now that to look for a significant increase in the backlog, you're probably looking into the second half year.

Okay, got it.

But there is no lack of bids out there.

There's no lack of tendering, believe me.

That's what I figured.

Secondly, I was struck by the fact that there was no mention of what's going on with respect to Saudi Arabia and your rumored you contract there, [Manifa.]

Well, it's not a rumor.

But what it strikes you, Bill?

Well, there was no mention of it, no detail, no, no information provided on it.

Well, you probably realize we don't make announcements of any individual contract wins that we have.

Well, just more plainly, could you enlighten us as to the parameters of that engagement?

So, Manifa, Have we started to mobilize equipment?

Yes.

Is it eventually big?

Yes.

Do we -- when will it start producing incremental revenue?

A little bit in Q2 but the rest of the year but really ramping up in '09, not '08.

And that's about, that's about what I would tell you, Bill.

That's all I have.

Thank you very much.

And our next question will come from Dan Pickering with Tudor Pickering Holt.

Please go ahead.

Andrew, for the last couple of quarters, you've talked about expectations around the revenue growth in your business.

We did not hear that commentary, at least this quarter as it relates to kind of where Wall Street is at.

Do we assume that silence means expectations are now in generally the right spot?

I'm very comfortable with Wall Street's assumptions on the full year 2008, Dan.

Fantastic.

Second question, back to the seismic business, last year, end of the year we sort of saw marine take a fairly significant downtick with some dry docking and utilization.

It didn't feel like it bounced up much here in the Q1 Andrew and now we're looking for some more dry docks in Q2.

Where I'm going with this, is there a change in the profitability of the marine business or is this just a fairly lengthy period of getting all the assets in the right place?

Actually, I would say two things, Dan.

Firstly, there is a considerable pricing difference between winter season and summer season.

And there is more and more a shift that takes place every winter and summer.

So, the actual number of transits that we do is increasing.

So, I don't think that we feel that that is going to affect the overall profitability of marine, if you take it on an annual basis.

But I've been trying to convey the message that seismic is going to be lumpy and it's lumpy in both marine and, and multiclient.

Right, okay.

Thank you.

And we'll now go to Chuck Minervino with Goldman Sachs.

Please go ahead.

Just wanted to touch on Russia a little bit.

I saw that, you saw that oil production was down in 1Q and several companies here obviously moving aggressively in Russia in the services market.

Can you just talk a little bit about how you're positioned there right now and really how you're going to grow?

Will it be predominantly organic growth or will you be looking M&A in Russia?

Well, I think our feeling is that M&A is -- Russia is now overpriced.

We've made our big moves and therefore, I suspect that going forward it's going to be organic and a lot of it will be IPM.

So I don't -- we will do some M&A, but nothing like the scale of what we did in the past four or five years.

And if you look at our business, the well services market, the fracing market is over supplied.

The big growth element these days are services around drilling.

Okay.

And just another question, with regards to the offshore business, how -- can you talk a little bit about how your margins are in the offshore business?

And then, as we go forward here with the new build rigs coming, what that can mean for margins one, two, or maybe three years down the road.

Well, I think -- our offshore margins are fine.

I really -- there's no significant shift in our offshore margins, and going forwards, the quality of our revenue will improve.

And the extent to which our quality of revenue improves really depends on the number of the new rigs that are on exploration and then the exploration success that they have.

We have huge margin variation between a successful exploration well and an unsuccessful exploration well.

Okay.

That's really helpful.

Thank you.

And we'll go to David Anderson with UBS.

Please go ahead.

Thank you.

Good morning.

You mentioned just a few minutes ago that growth is going to significantly increase in the second half of the year.

I was wondering if you could expand on that a little bit further?

Would that just primarily center around North America or were those some other regions?

Because it seems to me the impact from the offshore new builds is more of a 2009 event.

SO, I was wondering if you could kind of expand on that a bit?

Well, I think that -- so firstly, you're quite right to point out that the most significant change, compared to what I said in December because the remarks I made a few minutes ago were in function of what I said in the December call, The biggest shift is North America and that's true for revenue as well.

And overseas, I think that firstly, we are -- I am personally still astonished at the demand for IPM.

And I think that if you like the -- perhaps we -- I had underestimated the extent to which land drilling might expand but I would caution you that this is very much a second half event.

Okay.

And then just to touch back on Russia, we did notice there was some changes in the upstream tax regime.

And it doesn't look like it's going to have too much of an impact.

Are you feeling a little bit more optimistic that some more material changes could be coming about and is that kind of the next leg as to what's going to spur IPM market and is this a 2009 event for you?

Yes, I think, I think the Russian government will do what is necessary to release the money that is required to sustain or to increase production.

In function of their 2% a year objective.

And I agree that what they have announced so far is not sufficient,but I'm pretty sure that they will get it right in the end.

So it could -- you're quite right that largely it will be a 2009 event.

Okay, and then one last question on Mexico, some of that proposed energy bill.

There's some more performance-based service contracts were mentioned in that -- in the bill.

I was just wondering, how does that impact your view on that market?

And once again, getting back to IPM, does that imply there's more IPM work on the horizon, or is this really not going to go through?

Not so much that I think it will change their IPM programs but what it will allow us to do, which is going to a very nice change, is it will allow us to be incentivized on the basis of the performance of technology, which is something very difficult to achieve under the current contractual regime.

So you feel pretty optimistic that goes through?

I think it's a positive.

Well, I don't know.

I'm not speculating on the properties but if it does go through, it's probably a positive for everybody.

Great, thank you.

We'll go to Geoff Kieburtz with Citi.

Please go ahead.

Thanks.

I guess good evening's more appropriate.

The more positive outlook for North America in the prepared comments, there was several references to the continued weakening trend of North American stimulation prices.

Right.

How do you see that playing out?

Is your outlook for the North American market sufficiently more positive that you think that will turn around?

I think that we've seen the bottom, or we're seeing the bottom right now.

Now, obviously contractually, most of what we're going to do in 2008 is tied up.

There is obviously some capacity that is not tied up.

And depending on the size of the rig count increase, there might be a little bit of pricing leverage towards the end of the year.

But that's not clear yet.

What I can say fairly definitively, is we see in stimulation services, pricing is bottoming.

Do you see pricing leverage in any other product lines in --?

I think that drilling and measurements, anything to do with directional drilling in the North American market, as in most other markets, still has some pricing leverage.

And shifting to Latin America, could you maybe give us a little bit more historical context?

We heard in the fourth quarter, we're hearing again in the first quarter about startup costs on IPM projects, principally Mexico.

That's been a very big business for you for some time.

What's going on?

Are the projects shifting to different locations, or what kind of is going on?

So the answer is both.

In other words, the projects are shifting to different locations, so the two large project we've been mobilizing in the last six months are both in the Villa Hermosa Basin, which is deep and hot.

And at the same time, we've been mobilizing again, rigs to Chicontepec and we will in the second quarter be mobilizing [Burgos] 7.

So Burgos 7 and Chicontepec, if you like, is the traditional IPM activity in Mexico, the stuff in the south is the new IPM activity in Mexico.

Both volume and mix then, basically?

Yes, both volume and mix.

But the whole number of contracts, our IPM tenders has changed scale in the last year.

Okay.

And your comment about IPM more broadly, because you've mentioned it in the context of other regions as well, should we hear, or interpret those comments to mean that we're going to see more of this, where projects start up margin effects become more common?

Well, I don't think we'll have many projects that start on the scale of what we're starting in Mexico.

Okay.

So to that extent, no.

There will, I think, be a project startup effect in every quarter but probably at a decreasing level, at least for the balance of this year.

Great, thank you.

A decreasing level per quarter, Jeff.

Okay.

Thank you, Andrew.

We'll now go to Jim Crandell with Lehman Brothers.

Please go ahead.

To follow up on that question, Andrew, on the IPM business, do you see the IPM business getting more price competitive today?

And if it is going to spread, will more and more NOC's be looking for increased price concessions on IPM work in the future that's competitively bid?

Well, firstly, we don't -- I don't -- I know what you've been hearing, Jim.

We don't see IPM as being any more price competitive today than it was two or three years ago.

What is true is that every time we go to a new basin, there is a learning curve and going up that learning curve takes a little time.

But once you're up it, you actually have a huge competitive advantage.

And we just celebrated drilling our 1,000th well in the Bergos Field.

When you drill 1,000 wells, you probably have a pretty good knowledge of how to do it.

And actually the levels of return, we make out of those projects have improved over time, whatever's happened to the pricing.

Okay.

And I have a question also about sort of E&P spending, Andrew.

Our work suggests we've added upwards of $10 billion of E&P spend since our survey was published in December and maybe 40% of that is in North America.

Do you think, as you look at the U.S.

today, that we could be looking at additions somewhere in the range of 200 to 250 rigs over the course of this year?

And internationally, would you think that the recovery is stronger than what you thought previously, given budget announcements and the higher oil prices?

And that you could with some confidence now look into at least a 20% revenue growth in your international oil service businesses in '08?

So, I feel quite confident that the international spending is going to increase and we weren't that far from the number you mentioned.

So it's not in anyway impossible.

I think in terms of North America, I don't really have a good enough read to know whether it's 100 or 200 rigs yet.

I don't know.

I think it will depend a little bit on the economy and a little bit on the capacity of the industry to follow.

But it's not impossible.

Okay.

You said 200 and 250.

I don't feel confident yet of that level.

Okay.

Well, you will pretty soon.

That was just U.S.

Jim, right?

Just U.S, Andrew, right.

And one other quick question.

Andrew, how many in total seismic vessels between Eastern Echo in which you are building, you were intending to build anyway, do you have either on order or in the plans?

And can you give me a rough idea on the timing of delivery of those?

We have eight vessels on order.

We will get one more this year, which is not an Eastern Echo one.

It's a blue arrow, which will come in the third quarter.

We will start taking delivery of Eastern Echo in Q1 next year and substantially most of Eastern Echo should be in the course of '09.

Got you.

Okay.

Thank you very much.

And our next question is from Brad handler with Wachovia.

Please go ahead.

Could you please speak some more to the buying behavior related to wide- and rich- azimuth multiclient?

I'm a little confused about whether or not there is some sacrifice of sales that gets made if you sell things after a specific oil company has the lease sale, as opposed to before where you might have had more bidders.

I think that your point is a valid point but actually what it does is to add an additional risk, which is that you shot your seismic in the right place for that particular client to buy it.

As he's buying it, when he knows what lease he has.

Whereas before, he was buying much cheaper seismic but on the basis that he would be, he might be bidding any number of blocks.

So it does add an additional risk but I'm not uncomfortable with the coverage that we have in view of the last lease sale.

I think there are three things in the multiclient for 2008.

The first is there was some buying in Q4 in anticipation of the lease sale.

The second is the lease sale was extremely late in the quarter and has all the implications of wide-azimuth data.

And the third is, that we have three phases of E-Octopus to deliver during the second half of the year, which will add a considerable volume of new product to our library.

Okay.

If I could stay with this for just a couple of other follow-ups, I just want to make sure I get it.

So, assuming the risk variable, and I appreciate you telling us about that, assuming that that works itself out favorably, do you have any reason to think that your wide wide-azimuth prospects have lessened, relative to what you may have thought about a year or two ago when you first sort of ventured into the Gulf of Mexico region?

Wide-azimuth, no, I don't.

Okay.

So the pricing dynamic is --?

There may be timing differences but I don't think it's lessened the overall volume prospects.

Okay.

That's helpful.

Is it fair for us to think about 2Q as having pretty healthy snap back in multiclient based on the fact that we've gotten through this lease sale?

I would think more in terms of the second half year.

Okay.

Because as I said, we have new products to deliver and I don't think we'll deliver a lot of it in Q2 and there is another lease sale coming up in October.

Okay.

And then is prefunding levels changing at all as it relates to wide-azimuth?

They are not as healthy as they were I think perhaps two or three years ago when we were prefunding normal reprocessing projects and normal 3D but they are still pretty healthy.

Again, getting back to that risk point you made.

Okay.

One sort of side, I'm not sure if it's important at all but there was a press release by ElectroMagnetic GeoServices about a patent case in Netherlands.

Again, forgive me if this is completely trivial.

But is that at all relevant to you business?

Does it at all hamper any of your efforts with respect to EM?

The press release I felt was somewhat disingenuous.

The Dutch court did not rule, it deferred the decision to the European Patent Office.

So, no patents were validated or invalidated.

And our next question will come from Ken Sill with Credit Suisse.

Please go ahead.

Thank you.

Andrew, wanted to ask the question, something that's kind of popped up in the comments as an area of weakness with Schlumberger Information Systems.

it was weak in North America and a lot of other regions.

I'm wondering if you could give us a little bit of insight into, is this another business that's going to be seasonal, or was this just a year on year rollover?

It's traditionally -- SIS, Information Systems is a bit like seismic in as much as customers use up their budgets at year end to purchase software.

And in a year when growth rate is a bit slower than it was in the past two years, that shows up in Q1 as opposed to Q4.

So we had very, very high sales in Q4 and lower sales in Q1 but it's not new.

It's just showing up more.

And I knew it had been there.

My next question was just kind of, is this something that's -- are the margins in Information Systems solutions very different from what you're getting in your kind of core oilfield service business?

They are very good.

So if this would be a high margin business.

Yes, this is a software business.

And then, in terms of the seasonal recovery, kind of expect something gradual and building to a year end crescendo again.

Yes.

And then to kind of close the gap here, so you're very happy with where Wall Street is for the year.

Obviously, we have the pattern wrong, pretty clearly.

Yes.

What is your outlook now for 2009?

I know it's awful early but you're going to have the deep water rigs on.

North America will be growing fairly substantially.

Does tightening up North America help pricing power globally and the outlook for '09?

I think it would need quite a lot of tightening to -- basically you're talking about pressure pumping.

Segments where Schlumberger participates, you're talking about pressure pumping.

And I think that would take quite a lot of tightening to really affect overseas markets.

And I was warned by Malcolm that somebody would ask me about '09, so my gut feeling, and it's no more than a gut feeling, is that '09 will be better than '08.

In terms of growth, overall growth.

In overall growth.

I know that doesn't help you very much but really it is awfully early.

Yes and you don't want to get too excited about things but just wanted to kind of get your feel for that early in the year.

Okay.

Thank you, Andrew.

Thank you, Ken.

And we'll go to Kevin Simpson with Miller Tabak.

Please go ahead.

Thanks.

Andrew, I wonder about profit margins.

They came in a little bit below my expectations for oilfield in a couple markets.

Latin America obviously, is a function to some degree Mexico and other issues.

And then the Europe CIS.

Do you expect that -- I'm wondering if margins have peaked for the cycle, or are these just kind of short-term factors and there's still margin upside, particularly in the Eastern Hemisphere markets, where you're so strong?

I don't think you can make a judgment on the basis of Q1.

So Latin America is very definitely a function of Mexico but also the project disruption that I pointed out in Peru, Colombia and Ecuador and a little bit in the south where we had an activity stoppage.

And in Europe Africa/CIS, I would say that there's no reason to suppose that has gone down permanently.

It's largely seasonal, plus the inclusion of Framo as a consolidated item for the first time.

Before it was an equity pickup.

And Framo's margins, while very healthy, are not at the same level as OFS.

Okay.

So there's a little bit of an apples to oranges comp there?

Yes.

Okay, and then you talked about the -- in the tight global supplies.

And one of the issues that I have is that governments around the world seem to be, with collective greed, conspiring to slow things down.

Is that a significant concern of yours?

Russia being one place that's pretty obvious but other places as well, for instance, Venezuela.

Alaska.

U.S., I suppose.

You're quite correct.

It is a concern, Kevin.

It is a concern.

Our governments think they can tax $100 oil with impunity and that's not the case And it's not so much the amount of the tax, it's the fact that it produces a degree of uncertainty into our customers' investment decision and therefore they have to presume a certain degree of risk, which makes them shy.

So you're quite right to point out it's a concern.

But to some degree, in a way, it's baked into your thinking that high comfort level that '09 growth is going to be -- we'll say comfortably in excess.

'09 growth is more dependent on offshore, which as you know, is every long term.

And therefore, governments tend to behave more rationally, if you like.

They have less leverage there.

All right.

Thank you.

That's it for me.

And we'll go to Ben Dell with Bernstein.

Please go ahead.

Hi.

I know you've had a lot of questions around the seismic business but maybe I could just ask one on 2009.

We obviously have a big stream of capacity expansion, which actually accelerates into 2009.

How do you see that impacting margins in this business?

If there is an erosion in marine margins, it's going to be towards the end of 2009, it's not going to be at the beginning.

And in fact, capacity is so solidly absorbed for 2008 that any erosion in 2009 is going to be minor.

I would worry more about 2010 if I were you.

Okay.

Because 2009 there is a clear demand to date and you can match that demand to the capacity that's coming on.

Okay.

And when you look at the application of multi azimuth seismic outside the Gulf of Mexico, obviously the Gulf's got pretty unique geology in terms of its salt diapirs.

Which other basins do you see that being applied to?

Because it appears that only really Angola has the potential for subsalt and salt diapirs?

West Africa -- I mean Nigeria.

Some of the deep water in Nigeria, some of Brazil.

There's certainly applications in India where I am now but it's actually more basalt than salt, which is a slightly different problem.

There are applications in the Northern parts of the North Sea.

Again, it's largely -- it's basalt rather than salt.

But you're quite right to point out that the two large markets are the Gulf of Mexico and West Africa but I wouldn't rule out Nigeria.

I wouldn't say just Angola.

And just lastly, you mentioned your seismic vessel addition.

Did you cancel the options on the fifth and sixth, the Eastern Echo boats or not?

No, we didn't.

Okay, great.

Thank you.

We'll go to Pierre Connor with Capital One Southcoast.

Please go ahead.

That was close but good morning, gentlemen.

Most of the questions have been answered.

Maybe a little bit more on marine and the prefunding, Andrew.

Could you -- would you care to speculate a little bit?

You did mention that it was, I think down sequentially from where it had been.

But could you tell us where you might expect prefunding to end up on some of your large multiclient Gulf of Mexico?

Actually, probably I should have been more explicit, Pierre.

One of the things that is happening is we were prefunding reprocessing projects, where the actual investment on our part was much smaller than in multiclient acquisition.

And therefore, we had very, very high prefunding ratios and they were very often way over 100%.

So, our prefunding ratio as a function of the acquisition programs have dropped below 100% but I would still describe them as healthy.

And we tend not to commit unless we feel we have an adequate prefunding ratio.

So on an absolute -- I think that is helpful color because your point is on an absolute basis.

And is that what your commentary is about the library sales, that basically the budgets are such people are spending it on the prefunding of enhanced azimuth information?

Yes, but there is still an after sales market beyond the prefunding in wide-azimuth.

It's just that -- that's why I mentioned this additional risk factor, that wide-azimuth is in the right place.

Okay.

The other one, which is a little bit more color again had to do with IPM startups, and I appreciate thaw have addressed a number of the issues related to that, but to the extent we could get a feel for how much are we through the startup costs?

And maybe some -- how many rigs we have on IPM and where do you expect that to be at the end of '08?

In terms of increases, it gives us a --.

In the last year we started about 35 rigs.

We are going to start another six but they're the Bergos one in Q2.

And Bergos ones, I really don't think there will be a huge startup issue.

And so that leaves another 10 around the world for the balance of the year.

So I think it's safe to assume that the startup cost element in the quarterly results will decrease from now going forward.

Okay.

That's the color I was looking for.

The rest has been answered.

Thank you, gentlemen.

And we'll go to Kurt Hallead with RBC Capital Markets.

Please go ahead.

Just going to hit you out right with this one.

So when do you think the peak is, Andrew, 2013 or 2015?

I -- well, you're going to have to make so many assumptions on the economy and all the rest of it, that's a very, very difficult one to call.

Is this predicated on the decline rates you see in Mexico and [Canteral] and some issues in Russia --?

I don't think the cycle's going to peak without a drop in demand and a drop in demand can come two ways.

It can come violently through a global economic recession or it can come gradually, which is through the gradual substitution of hydrocarbons and other sources of energy.

And if that's the case, it's a long -- any transition to meaningful volumes of another source of energy is a decade or longer.

So take your pick which way it's going to happen.

And in that period from 1970 to 1980 according to kind of stats I've pulled together, EP spending grew like 25% a year on average over that decade.

Do you think there's a possibility that the next five years or so could replicate that 25% a year in EP spend?

I think this cycle is very different from 1970 to 1980 and it's different in two senses.

One is that in 1970 to 1980, I think that there was some physical shortage but really it was a political shortage.

And the other thing is that the developments that took place in the 1970's, which were basically added 6 million or 7 million barrels or even more a day were Alaska, Mexico and the North Sea and those discoveries were made in the 1960's, so there was no exploration to be done.

So this time I think it's much more difficult, if you like, to see where the development is going to come that is going to produce significant volumes, except for the Middle East, central Asia and Russia.

And how do we -- how should -- do you think we consider your growth rate opportunity in Brazil, follow-on with the Tupi and now some of this chatter around the [Karioka] field, where is your opportunity set down there?

Maybe you could discuss it by product line importance?

And then, how should we think about the growth rates in Brazil in general?

Well, I think that I would characterize 2008 good and 2009 as excellent.

Basically because the large addition of floaters is going to be in 2009, not 2008.

Contractually, we're mostly very pleased with what we have.

That's for Brazil, right?

Yes, Brazil.

And how about in terms of product line importance for you in Brazil?

How would you rank it?

Well, it's very important for wireline.

It's extremely important for testing.

It's important for D&M but not as important as it should be and well services and the others have a presence but -- we have a very satisfactory position.

And if I may just close out here, is there any -- is the opportunity set on land in Brazil, is there any good possibilities there, or is it mostly just going to be the offshore, as we've heard?

No, there is some opportunity on land but it's not going to be anything on the same scale as offshore.

And our final question today comes from Robin Shoemaker, with Bear Stearns.

Please go ahead.

Thank you, Andrew.

In your Q&A, you have the statement that you're 33% third party content in IPM and that that will be increasing to mid-40's.

Is this increasing content of third party services in any way related to the delays you're experiencing?

And what should we think about in terms of overall integrated project margins as third party content increases from 33% to the mid-40's?

So, I don't think it's a question of delay.

It's more a question of different work scopes.

Simon, would you like to comment on the margin evolution?

You're raising a very valid question here about the third party element of our services provided under the IPM contracts.

These don't attract the same type of margin we generate on our services.

Our services are at least the same type of margin we generate or even better.

Now, the third party, we do cover our costs associated with them but they are lower margin.

Now, what you have seen, the 33% versus the 40% through the year, I don't think it's going to affect the overall margins of the projects because the efficiency on the rest of the activity would be more than compensating the small deterioration that the 7% increase will cause.

Okay.

And then the only other question I had was, Andrew, you commented a little bit on the acquisitions market, the M&A market in Russia is somewhat overpriced.

Can you comment overall on Schlumberger's acquisition strategy?

We see recently a lot of M&A activity and also private equity getting involved in purchasing oilfield service assets and companies.

Can we read into this enhanced -- expanded share buyback program that there is perhaps a little less attractive acquisition opportunities for Schlumberger?

No.

In the calculation of the amount of cash available for buyback, we have assumed the same level of acquisitions as we generally have been practicing over the last three or four years.

Now, I don't think you will see us, as I've said on many occasions, make a major acquisition, particularly at these valuations.

However, increasingly, we will make niche acquisitions largely for parts of our service line that we don't have or for technology opportunities that we identify.

But it doesn't -- the program in itself does not signal any reduction in our acquisition strategy.

Okay.

Thank you.

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

Gail will now provide the closing comments.

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