斯倫貝謝公司 (SLB) 2011 Q4 法說會逐字稿

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.

Instructions will be given at that time.

(Operator Instructions) As a reminder, this conference is being recorded.

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

Malcolm Theobald.

Please go ahead.

Thank you, Greg.

Good morning, and welcome to the Schlumberger Limited fourth quarter and full year 2011 results conference call.

Joining us on the call are Andrew Gould, Chairman, Paal Kibsgaard, Chief Executive Officer, and Simon Ayat, Chief Financial Officer.

Our prepared statements will be provided by Simon and Paal.

Simon will first review the financial results, then Paal will discuss the operational and technical highlights.

However, before we begin with the opening remarks, I'd like to remind the participants that 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.

We welcome your questions after the prepared statements.

However, I would like to remind everyone to limit your questioning to one question and one follow-up, in order to respect the other participants in the queue.

Now, I'll turn the call over to Simon.

Thank you, Malcolm.

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

Fourth quarter earnings per share from continuing operations, excluding charges and credits was $1.11 per share.

This is an increase of $0.13 sequentially, and $0.26, compared to the same quarter last year.

We recorded $0.06 of charges relating to asset write-offs in Libya, and the continuing integration of Smith.

During the quarter, we were able to physically assess the status of our assets in Libya.

This assessment resulted in us recording a pre-tax and after-tax charge of $60 million relating to certain assets that are no longer recoverable, as the result of the political unrest.

Pursuant to our integration plan, the Smith integration team, which has done an excellent job, will remain in place throughout 2012.

As a result, we will continue to incur merger and integration charges during 2012 that we will continue to highlight separately.

Oilfield Services fourth quarter revenue of $10.3 billion increased 8% sequentially.

Of this $755 million sequential increase, approximately 20% of this growth came from the traditional year-end surge in product and software sales.

And 19% came from the significant sequential increase in WesternGeco Multiclient sites.

Oilfield Services pre-tax income of $2.2 billion increased 12.3% sequentially, while pre-tax operating margins improved 82 basis points.

Notably, revenue, pre-tax income and margins all improved on a sequential basis across each of the three product groups and the four geographical areas.

Sequential revenue and pre-tax margin highlights by group -- by product group were as follows.

Fourth quarter Reservoir Characterization revenue of $2.8 billion increased 12% sequentially, and margins improved 340 basis points to 27.9%.

These increases were due to very strong WesternGeco Multiclient sales, robust end-of-year SIS software sales, and the strong exploration activity at Wireline.

Drilling Group fourth quarter revenue of $3.9 billion increased 6.3% sequentially, while margins remained essentially flat at 16.8%.

Revenue growth was led by M-I SWACO, with strong performances in North America and Latin America.

IPM had a very strong quarter, particularly in Mexico and Iraq, while D&M posted strong results in US Gulf of Mexico, and Europe-CIS-Africa area.

Fourth quarter Reservoir Production revenue of $3.6 billion increased 6.7% sequentially, while pre-tax margin improved 36 basis points to 21.3%.

These increases were primarily attributable to the strong completion and Artificial Lift product sales across all areas.

Well Services revenue continued to grow as a result of capacity additions.

The distribution segment contributed $685 million of revenue, and $26 million of pre-tax operating income.

Now, turning to Schlumberger as a whole.

The effective tax rate, excluding charges and credits, was 23.8%, as compared to 23.7% in the third quarter.

We expect the ETR for the full year 2012 to be in the mid-20s.

However, this can vary on a quarterly basis, due to the geographical mix of earnings.

Net debt at the end of the quarter was $4.85 billion, as compared to $5.16 billion at the end of Q3, representing $314 million improvement.

Significant liquidity events during the quarter included $1.25 billion of CapEx, $636 million of stock repurchases, and $242 million of pension and retiree medical contributions.

CapEx is expected to approach $4.5 billion in 2012, as compared to the $4 billion we spent in 2011.

Yesterday, our Board of Directors approved a 10% increase in our annual dividend to $1.10 per share.

This follows last year's 19% increase, and reflects our commitment to return excess cash to our shareholders.

During the full year 2011, we repurchased 36.9 million shares at an average price of $81.15, for a total of $3 billion.

Now, I turn the conference over to Paal.

Thank you, Simon.

Our overall fourth quarter results showed solid sequential growth, driven by stronger activity from most of our service product lines, and by stronger product sales for completions, Artificial Lift, SIS and WesternGeco Multiclient Seismic.

In North America, we had a strong quarter with 6% sequential revenue growth, and margins up 163 basis points.

This was led by continued growth in the US Gulf of Mexico, where market share momentum remains strong for our high-value technology offering, and where operational performance was extremely solid.

During the quarter, we moved a second wide-azimuth seismic fleet into the Gulf of Mexico, and we saw strong Multiclient sales.

In North America land, revenue grew in line with rig counts, while margins increased moderately, driven in part by internal efficiencies and active cost management.

Pricing in our Wireline and Drilling product lines continued to show an upward trend, although slowing somewhat, compared to previous quarters.

In pressure pumping, downward pricing pressure in the gas basins continued in the fourth quarter, while pricing in the liquids and liquids-rich basins remained more or less flat, excluding the impact of continued conversion to 24 hour operations.

In the international markets, revenue grew almost 9% sequentially while margins were up by 91 basis points.

Growth was driven by deepwater and exploration activity in East and West Africa, and by strong land activity in the Middle East and North Africa.

During the quarter, we secured a number of key contracts that further strengthens our international position.

This includes a shale gas contract covering stimulation and project management for a pilot well campaign in the Middle East.

We have already deployed a team of shale experts to the country, and we have started to mobilize assets and prepare the project's infrastructure.

In terms of pricing, bidding remained competitive on large tenders for standard technology, while we saw positive pricing signs in selected smaller tenders in Wireline and Drilling and Measurements.

Our pricing upside continues to be driven mainly by technology and operational performance.

In Marine seismic, we saw the predicted seasonal drop in vessel utilization during the quarter.

However, utilization for the coming quarters is already looking strong, driven by higher activity in West Africa, the North Sea and the Gulf of Mexico.

WesternGeco backlog grew to $1 billion in the quarter.

In Middle East and Asia, revenue grew by 7% sequentially, while margins were up 124 basis points, driven mainly by the land business in the Middle East.

In Saudi Arabia, the ramp-up of rigs progressed in line with plans during the quarter, and we saw strong growth in both rig-related and rig-less activity.

In Iraq, sequential growth was again solid, led by further start-up of rigs and strong activity on both ongoing IPM projects, and on individual product line contracts.

Oman also showed very good sequential growth, driven by Artificial Lift and Wireline.

In Latin America, revenue grew by 11% sequentially, while margins were up by 15 basis points.

Sequential growth was led by Mexico, where offshore activity increased, and where land activity on IPM projects was strong.

During the quarter, we signed our first production incentive contract with PEMEX, covering the Carrizo field, with operations expected to start at the end of the second quarter.

In Argentina, we have established a very strong position in the emerging shale plays.

So far, we have conducted a large part of the shale fracturing jobs in the country, and during the quarter, we secured a number of new service contracts in this market.

In Brazil, another four deepwater rigs were added during the quarter, with the total now standing at 64.

There continues to be active bidding for Petrobras, and during the quarter we were awarded the largest share of the new mud logging contract.

On land, activity remains strong, driven by IPM projects for [OGX and Petrel.

In Europe, CIS and Africa, revenue grew 8% sequentially and margins were up 125 basis points.

During the quarter, we saw strong growth in activity in Angola, Nigeria and East Africa, driven by both deepwater exploration and major development projects.

Based on the positive results from the first pre-sold exploration wells in Angola, we expect strong growth in West Africa going forward.

In Russia, we saw solid offshore activity in Sakhalin, although this was partly offset by the start of the winter slowdown in Russia land.

The integration of services from the Eurasia transaction is progressing well, and our preferred vendor agreement with Eurasia Drilling offers a strong growth platform in the active Western Siberia market.

In Libya, activity restarted early in the quarter, with initial focus on Wireline, coil tubing and Artificial Lift services.

Our infrastructure, field assets and workforce are fully operational, and we expect to see steady activity growth over the coming year.

Let me now turn to some of the technology highlights of the quarter.

In the Reservoir Characterization group, we completed the purchase of ThruBit during the quarter.

ThruBit technology offers a novel way of obtaining Wireline logs in horizontal shale wells, and is based on deploying a slim tool through the drill pipe during the final wiper trip, before starting the well completion.

Today, more than 90% of the horizontal shale wells in North America are not logged, due to the total cost of operations and the lack of a well site [answer] product that can guide operators in selecting the optimal completion intervals.

Building on the ThruBit technology, we believe we can offer a cost-effective solution as an integral part of our shale Reservoir Characterization work flow, to help open up this market.

In the Drilling Group, the integration work continued to progress very well.

Synergies with Smith in 2011 surpassed even our revised targets, and the transaction was, again, accretive on an earnings per share basis in the fourth quarter, and for the full year.

Within our operations, we continue our efforts to drive drilling performance to the next level.

One area of focus is the streamlining of our drilling engineering work flows, supported by the creation of integrated drilling engineering centers in our field locations.

In these centers, we co-locate the members from our technical drilling community, allowing them to jointly drive the planning, design, and support of our drilling operations, using real-time well site links.

So far, we have established 10 of these centers worldwide, and we have plans to double this number in the coming year.

In the Reservoir Production Group, HiWAY activity continued to expand, with operations conducted for more than 35 clients during the quarter.

The number of HiWAY fracturing stages grew by more than 50% sequentially.

The expansion was particularly strong in North America, but international deployment also continued, with operations so far conducted in nine countries.

In Well Intervention, we continued to build our new technology offering, both on land and offshore.

Active coil tubing technology, which provides real-time down-hole data during stimulation and intervention operations, gained further traction, particularly in the Middle East.

In addition, we have started deploying the new LIVE slickline platform, which offers real time telemetry for mechanical and basic production services.

The largest uptake of LIVE has so far been in the US Gulf of Mexico, where the combined capability of mechanical and production services in one compact and light unit is being leveraged for plug-back and recompletion operations.

Let's now turn to the outlook, where GDP growth for 2012 continued to be revised downwards during the fourth quarter, and where positive signs from the US and Japan were offset by continued concerns over the Euro zone.

In spite of the political efforts to resolve the issues, we expect the uncertainty surrounding the global financial markets to continue in the coming quarters, and although the chance of a global double dip recession remains a possibility, we do not believe this to be the most likely scenario.

In line with lower GDP growth, oil demand outlook was also revised downward during the fourth quarter.

However, the increasing weight of the emerging markets, the weakness in non-OPEC supply and a number of geopolitical concerns have supported oil prices, and absent a global recession, we do not expect prices to weaken significantly.

For natural gas, the continued increase in unconventional gas production, modest demand growth and mild weather at the beginning of the heating season contributed to very high storage levels and low natural gas prices in North America.

In Asia, on the other hand, the need for alternative energy sources following the Fukushima incident, along with fast-growing demand in the non-oil city countries, is maintaining high prices, and significantly increasing LNG demand.

Looking at our industry, the general feedback from our customers and the findings from the recent spending surveys indicate that E&P investment in 2012 will be up, although the predicted levels vary.

The surveys also suggest that exploration spending will continue to increase.

Against this backdrop, we are planning for growth in 2012, although we are building significant flexibility into our plans, given the uncertainties.

In North America, we expect land rig count to remain flat with Q4 2011, provided the ongoing drop in gas activity will be countered by increasing activity in the liquids and liquids-rich basins.

We anticipate a continued recovery in the deepwater Gulf of Mexico, with strong demand for high value technologies.

In international markets, we expect 2012 rig count to be up around 10% versus 2011, driven by strong offshore activity in West Africa, the North Sea and Brazil, and by land activity in the Middle East, North Africa, and Western Siberia.

Overall, we remain confident that any potential reductions in activity will be short-lived, due to limited spare oil capacity, and to growing international demand for natural gas.

Furthermore, the breadth of our technology offering, the strength of our international footprint and contract portfolio, and the balance we have established between our Reservoir Characterization, Drilling and Production services in the North America market will allow us to continue to grow.

Growth in worldwide deepwater and exploration activity will also favor Schlumberger.

Thank you very much.

I will now hand the call over to Malcolm for the Q&A session.

Thank you, Paal.

We will now open the call for questions.

But again, we would like to remind everyone to limit your questioning to one question and one follow-up.

Greg?

Thank you.

(Operator Instructions) Your first question comes from the line of Brad Handler from Credit Suisse.

Please go ahead.

I appreciate your outlook comments, as always, Paal, but given this dramatic fall-off in natural gas prices in the US, and subsequent concerns about E&P cash flows, if I could ask you to start in focusing on North American land.

You've been clear about your strategy of re-establishing yourselves here, and you've just given your outlook for a flat rig count, but does this very quickly-deteriorating outlook for gas, is it influencing recent contracting behavior in US land?

And then I'll just give you my follow-up now, which is -- is it influencing your behavior, whether it's from a contracting length standpoint or a CapEx standpoint?

Are there any changes that you're making now?

Well, if you look at pressure pumping pricing levels, as I said, we continue to see downward pressure on pricing in gas in Q4.

The liquids basins, we saw pricing basically being flat.

Some contracts being up, and some contracts being down.

Now, how this is going to evolve, I think is still uncertain at this stage.

Right?

There is obviously a chance that the continued flux of capacity from the gas basins into the liquid basins is going to have an impact on liquids pricing, as well.

We haven't really seen any downwards trend yet, but clearly over the past quarter the pricing has been flat.

So that's basically where we stand on that.

In terms of our view on North America land, like we said before, we remain committed to the markets.

We have a build plan for 2012, which is obviously flexible, but where we remain committed to the market in terms of adding capacity, provided that we can get the utilization that we are looking for.

So, in addition to how we see the North America land market for pressure pumping, we have also significant demand for horsepower international.

We won a lot of contracts in the international market requiring fracturing capacity.

So in the event that we have the opportunity or basically decide to shift capacity internationally, I think that will be welcomed by our international operations.

That's still an if?

That's the condition?

So far, there's no plan --.

It is still an if condition.

We have basically decided on a build plan for total pressure pumping, with a certain allocation to North America, and we haven't changed that at this stage.

Okay.

Just to clarify, from a contracting behavior, with your customers, are contracts getting longer?

Are you seeking to make them longer?

Are your operator customers seeking to make them shorter now?

How does that timing dynamic work?

I would say over the past quarter, we have -- or over the past couple of quarters, we have shifted more towards term contracts.

We now stand at around 80% term contracts for one year-plus.

And really the only place we play in the spot market at this stage is in the liquids plays, right?

So I think there's been a shift in the market towards term contracts, and I think we are quite well positioned in that sense.

Next question.

Hello, Greg?

Hello?

Greg, can you hear me?

Your next question comes from the line of John David Anderson from JPMorgan.

Please go ahead.

Thank you, and good morning.

So you had mentioned that your outlook for North American rig count is flat this year.

You also said in your release that basically revenue was in line with the rig count.

So it would seem to me that the upside here for you guys is really going to be in the Gulf of Mexico.

I was just wondering, if we strip out kind of the strength of kind of the seismic side, I'm curious as to where you are in your deepwater operations in the Gulf.

Are you back to kind of the pre-Macondo levels?

Are costs now fully absorbed in that market?

I'm just wondering, are your margins now in the Gulf higher than in your US land business?

Yes, the simple answer to that is yes.

This quarter I think was the first quarter where our Gulf of Mexico margins were accretive to North America.

So obviously, there's been a lot of focus in on the multi-client sales for Q4, which was quite strong.

But I think it's also important to point out the strength we have on the deepwater side for well operations, right, both Wireline and on the Drilling segment.

So we are quite optimistic in terms of the outlook for the Gulf of Mexico.

Firstly, in terms of our market share position, and in addition to how well we can leverage our high-end technology and operational performance in this type of market, right?

So we see steady growth in deepwater Drilling rig counts during 2012, roughly about a rig a month.

So we would be at pre-Macondo levels for Drilling rigs in the deepwater by the latter part of 2012.

Okay.

That's great.

As a follow-up, I was wondering, can you just give us a sense as to kind of what's different now than before?

I'm curious, we're seeing this on the rig equipment side, that operators are clearly taking a much more conservative approach there.

How has your business changed?

Are you spending more time on the rigs that you're seeing now?

Is it increasing testing?

Is it more conservative in operations?

I was just wondering if you could give us a little insight into how your operators are going about their business differently now.

I think all the operators are obviously even more thorough than they were in the past.

Right?

But we haven't seen a dramatic change in how our operations are conducted.

I think there was always a lot of focus on this.

But yes, there's probably somewhat more testing, and maybe double and triple checking of things.

But in generally, our position in the Gulf of Mexico at this stage, given the focus that we have now for, what, four years in our excellence and execution program is even stronger than what it was pre-Macondo.

So we are very well positioned, and that's why we are obviously quite optimistic in terms of the outlook for the market, and also how this is going to weigh in on our North America performance.

Okay, great.

But according to what your comments are, this is probably where you would see all your growth in North America, or where the most of your growth would come from, the deepwater side?

Well, we don't know yet.

That's going to be a large function of two things.

What's going to happen to the rig count in terms of the reductions in gas versus potential increases in liquids.

And even more so, what's going to happen to pressure pumping pricing.

Thank you, Paal.

Your next question comes from the line of Bill Sanchez from Howard Weil.

Please go ahead.

Paal, I wanted to ask you a little bit, with regard to the comment in the press release as it relates to competitive bidding on the large tenders for standard technology.

I was just curious as to what do you need to see happen here, what are you expecting to happen over the course of 2012 to change that dynamic, number one?

And I guess secondly, we've talked in the past, certainly on Schlumberger's calls, about the leverage to the exploration cycle.

Clearly people are encouraged when they continue to see deepwater adds here in the market globally.

I was wondering if you could spend a little bit of time talking about the pricing outlook on the deepwater market globally here, as well.

Okay.

So like you say, we still see competitive pricing for basic technology on large contracts, while we see some positive signs on the smaller contracts.

On the large contracts, our unique high-end technology is obviously priced higher, and we always have significant sell-up potential as the contract unfolds over the years.

If you look at the international service pricing, typically there's a lag between the moves in the rig rates, which we have been seeing over the last couple of quarters, and our service pricing, right?

So there's a potential upside on that.

But I think one reason why pricing hasn't moved so much in the international market is the market share plays that have been going on, and I think these are potentially coming to an end.

Partly, that's going to come down to the activity increase that we potentially will see.

But I think also another key factor to this is that there is a growing customer emphasis on operational performance.

I think they're fully realizing that very low service pricing typically gives very low service quality.

And I think one example of this is the rate that we continue to replace competition within our Drilling and Measurement segment.

In Q4 alone, the ratio of we replacing competition, and them replacing us was 31 to 5, and this is basically coming down to quality and technology.

Sure.

Is it still prudent to think of pricing inflection internationally as being more of a positive for your 2013 margin outlook, or is this something that we potentially start to see having an impact in the second half of this year?

I think it's still too early to say.

Like I said, we continue to test pricing on smaller bids.

For the big bids, and there is not really that many big bids coming up in the coming year, we'll obviously be a little bit more conservative to make sure we protect and potentially gain market share.

But I think it's too early to call it.

The only thing I would say is that there is a growing focus on operational performance, and that plays very well into our strengths in terms of our quality and our technology.

Okay.

Thanks, Paal.

I'll turn it back.

Your next question comes from the line of Ole Slorer from Morgan Stanley.

Please go ahead.

Paal, I just wonder whether you could help us a little bit of how to think about the first quarter?

It's always sequentially a difficult one to get our heads around -- there's product sales in the fourth quarter, there is multi-client that doesn't necessarily repeat.

You have seasonality in North Sea, Russia.

Could you give us a little bit of how you would think about the first quarter, and how it's shaping up?

It just strikes me that expectations might be just a little bit on the high side of a natural range.

Yes, I would agree with you that the current consensus is probably somewhat on the optimistic side or on the high side.

Just to comment on how we see the quarter from this point, I think the underlying activity continues to be strong, and it's driven by steady growth in the international markets, and also strong activity in North America shale liquids.

Like you say, we are going to see the normal seasonal slowdown in the North Sea and Russia, and I think also the sequential drop in product sales and in multi-client sales.

I think also there is some added uncertainty going into Q1 now, in terms of the impact of the accelerating drop in North America shale gas activity.

Right?

So generally I would say that the current consensus is somewhat on the optimistic side.

Okay.

And from then on, it becomes more of a standard pattern.

But second thing, back to this international pricing again, I mean, rig rates for ultra deepwater rigs are becoming, again, very, very scarce.

We highlighted what's going on in Angola pre-salt, and the potential demand there.

Rig rates may be pushing back to $600,000 again; historically those have been levels where oil companies really start paying attention to technology that can improve reliability, or technology that can shorten cycle time, and yet you don't really talk about pricing.

So could you help us a little bit with how you view the tightness in the rig market and the higher rates impacting either whether it's service quality for pricing or whether it's with standard technology, or whether it's new technology?

Yes, like I said in the previous question, I think there is typically a lag between the moves in the rig rates and the moves in our service pricing, so I think that's the first point.

But to your point in terms of what our customers are looking for, I think, like I said, there's a growing focus on operational performance.

Obviously, that is even more where the rig rates are high, like in deepwater.

But we also see that in more conventional offshore operations as well.

So, I think that international capacity is obviously one driver that's going to support pricing going forward, because we don't see significant over-capacity in the international market.

I think the main reason why there hasn't been more pricing movement is the market share plays that's been going on.

Right?

So with the growing focus on operational performance, I think that is going to help drive pricing going forward.

And again, that's what we are seeing on selected contracts, even in Q4.

And these market share gains, are they offshore or are they on big onshore contracts today?

I think we've seen them -- we'll see them basically in all over.

So, I think they're reducing in intensity as 2011 was unfolding.

And potentially coming to an end, right, given this growing focus from our customers on operational performance.

Thank you very much, Paal.

Your next question comes from the line of James West from Barclays.

Please go ahead.

I have a question about seismic.

Obviously a good finish to the year for the multi-client business.

And I think your original expectations for the Marine side of the business was we could see pricing power materialize around the middle of 2012.

Given the Gulf coming back, and your strong market share position there, given Angola pre-salt opening up in a big way here, is there the potential that, one, that the pricing moves could be moved forward a little bit?

And two, that the magnitude could actually be higher than perhaps you had originally expected?

Well, I mean, I would answer the question along the lines that we do see the seismic market, the Marine seismic market tightening.

So Q4 saw the expected drop in utilization, but that utilization kept growing during the quarter.

Q1 is already looking up in utilization, and Q2 and Q3 is actually looking quite strong.

So, the Angola seismic commitment around the Kwanza block awards are going to draw several new vessels into that area, but Angola alone is not going to be able to create a global under-supply, but I think it's going to contribute significantly.

So in addition to Angola, we'll see the North Sea and the Arctic looking quite strong for Q2 and Q3.

And also, there's going to be likely stronger activity in the Gulf of Mexico in this coming year.

Right?

So basically, we see the potential to drive pricing up as being a kind of a mid-year to a second half of this year event.

The amplitude, I'm not going to be able to comment on at this stage.

Okay.

How do you think about capacity additions at this point, both your capacity additions and industry capacity additions?

Well, there were -- I think 2011 capacity additions to the 3-D market, I think was in the range of six vessels.

What seems to be on the slate for this year is three.

So I don't think these capacity additions are going to have any material impact to when the pricing inflection point is going to become.

In terms of our capacity, the first thing we would do is to convert some of the source vessels we have back to acquisition vessels.

But we will only do this when we can assure that we get the utilization that we are looking for.

Okay.

Thanks, Paal.

Your next question comes from the line of Kurt Hallead from RBC Capital.

Please go ahead.

Paal, my initial question here is on the CapEx outlook that you got for, I think it's $4.4 billion or so for 2012.

Wonder if you can give us some general indication on how that might be weighted between international and North America?

And then if you can, within that context, just give us some indication on how much you may have kind of put aside for your pressure pumping investment?

Obviously, I don't expect you to give us explicit numbers, but if you'd just give us some relative size, it would be really helpful.

Okay, so for the overall number, just to kind of let you know how we are planning the year, so we're going to look at the year in two halves, basically.

So in H1, we are going to continue to invest probably around the levels of -- the average levels of 2011.

And then we have secure capacity that's going to allow us to increase capacity, with about 25% in the second half of the year.

That's going to -- that can take us up to this $4.5 billion level.

Whether we go ahead and spend all of the $4.5 billion is also going to be a function of how we see 2013, because a lot of the additions that we're going to be making in the second half of the year are going to be obviously coming into play and into real capacity in 2013.

In terms of how we are planning to add NAM versus international, this is obviously going to be fluid, all depending on how the two markets evolve.

Right?

We have capacity, and we are ready to add as much CapEx in North America in 2012 as we did in 2011, but we're going to be looking at this on a quarter-by-quarter basis.

Okay.

And then, once again, is it kind of 60% international, and 40% North America?

How would you think about the split?

I'm not going to be able to give you that number.

I'm sorry.

No worries.

All right.

A quick follow-up on, I think it was Ole's question a little bit earlier, he referenced I think some Street consensus numbers being too high.

I think you were referencing the first quarter specifically.

If that is true, how would you assess the full-year consensus number as well?

Well, I think commenting on the full year, I would refrain from at this stage.

But I think, again, we are looking at the year in two halves in that sense.

Right?

So I think it's -- I wouldn't care to comment on the overall number.

Okay.

All right.

Great.

That's it from me.

Thank you.

Your next question comes from the line of Bill Herbert from Simmons & Company.

Please go ahead.

That's a nice cajun twist.

Good morning.

Paal, with regard to, getting back to seismic, central Gulf of Mexico lease sale seems to be a highly anticipated event on the part of E&Ps that I have spoken to.

I believe that takes place this summer.

Normally, multi-client spending patterns are very back-end weighted, as we saw in this fourth quarter.

What do you expect will be the pattern of spending this year, given the fact that such a big lease sale is coming this summer?

Would we expect to see strong sales in Q1 and Q2?

How should that unfold?

Well, first of all, the central Gulf of Mexico lease sale has not been confirmed yet.

It's likely to happen around mid-year.

We still believe it's going to happen around mid-year.

It hasn't been confirmed yet.

If it goes ahead, and if it is announced, we expect there to be multi-client sales prior to that lease sale.

Right?

So exactly what levels they're going to be, it's a bit difficult to predict.

But if there's a mid-year lease sale, I think our H1 multi-client sales in North America could be stronger than what they've been in the last couple of years.

We're also in a very good position in terms of the multi-client library we have in the central Gulf, which also plays strongly into this.

Okay.

Secondly, the follow-up here, your North American land margins in the fourth quarter, what did they do sequentially?

Were they flat, up or down?

Excuse me, our North America land margins?

Yes, sir.

Our North American land margins were up.

Were up.

Thank you.

Your next question comes from the line of Scott Gruber from Bernstein.

Please go ahead.

Paal, you highlighted your forecast for about 10% international rig count growth, but clearly activity growth is going to be biased to the offshore.

So do you think customer spending could come in closer to 15% growth abroad?

It's difficult to say.

If you look at the surveys, they range a lot.

Right?

But I think with the additions of deepwater rigs happening this year, which is going to come into full fruition next year, and with continued spend in exploration, we are optimistic on our outlook for the international markets.

Okay.

And I hate to continue to focus on offshore service pricing, but it's clearly a key point of controversy.

Assuming that offshore spending, that the bias in spending is toward the offshore, some of the guidance we're looking at suggests that spending could be up closer to 20% offshore.

And I know that the industry has a fair amount of clarity on when that's going to hit, and so therefore can be prepared for it, but are the plans of your customers coming in above expectations?

If the industry hit something close to 20% spending growth offshore, is the industry going to be able to keep up from a supply standpoint, based upon your own CapEx guidance and what you're seeing in the marketplace?

Yes, I think looking at what is going to drive part of the spending in the coming year, again, is deepwater and exploration.

There's been a lot of exploration successes in the last year, which, again, makes us optimistic in terms of our view of next year.

Looking at where we see most rig count growth, I think in percentage terms, there is also a bias like you indicate, in our view towards the offshore versus the land in the international market.

Are the spending plans, though, of your customers coming in ahead of your expectations, particularly offshore?

Well, like I said, there's a range in what the spending plans for the customers are.

Right?

So I think generally, when we say that we expect a 10% rig count in international market, I think that is based on what we have seen from our customers.

And I think that is -- whether that is ahead or behind what we were expecting, I think that is what we're expecting.

Okay.

Thank you.

Your next question comes from the line of Michael LaMotte from Guggenheim.

Please go ahead.

Paal, my question has to do with the work flow around international shale activity, and in particular, referring to the comment in the press release on the Vaca Muerta shale work in Argentina.

Sort of two parts to it.

One, if we dial back six or nine months ago, where would you say that work load is today relative to the expectations then, i.e., are we seeing sort of an acceleration, or are we tracking on plan?

And then the second part of the question is, with respect to the work that you're doing around resource evaluation, how that might translate into sort of market share and the contract differences in international shale versus, say, a US shale like the Eagle Ford?

Okay.

So just generally first on the international unconventional market, I'm very comfortable with our position there.

So we won a number of contracts in all the three international areas.

And these contracts typically entail both studies, based on this shale Reservoir Characterization model, as well as the well site operations for drilling and completing and stimulating these wells.

What we see in international market is that there's typically no work done on unconventional or shale without first starting up with these studies, when it comes to the reservoir.

And obviously we are clearly leading in the ability to do that, and that puts us in a very strong position in winning these initial study bids, and then building on that into the wellsite operations.

Like I said in the script, we won a number of these contracts in all parts of the world.

And I would say that the increase in activity for us in international unconventionals over this year and going into next year is probably somewhat higher than where I thought it would be, going back two or three quarters.

So we expect to see strong growth in all the international shale plays for us in 2012.

The work is still going to be around evaluation and pilot projects in general.

But it's still going to represent very good growth for us.

And I think the two markets that it's going to take off the fastest, I would say would be Argentina and China.

That's great.

Just to clarify then, Paal, when you mentioned -- I think you said significant capacity events overseas.

You were specifically addressing Poland, China and Argentina?

When I said that we would move significant capacity overseas?

Yes.

Well, we added significant capacity in 2011, and we are prepared to continue to add into the international market, based on the activity that's coming up.

Right?

But I would say that the countries that you mentioned, Poland, Argentina and China, are probably some of the key ones, but I would say that there's a growing focus on unconventional and shale also in the Middle East.

And we are ready to add significantly more capacity there as well, as we continue to expand operations there.

Great.

Thank you.

Your next question comes from the line of Jim Crandell from Dahlman Rose.

Please go ahead.

Jim Crandell, your line is open.

We lost Mr.

Crandell.

We'll move on to Robin Shoemaker from Citi.

Please go ahead.

Thank you.

Paal, going back to your comments about large tenders with standard technology, and the market share intense competition going on there, is that confined to the three large service companies you normally compete with, or are there new entrants disrupting that kind of IPM work in terms of the pricing structure?

No, for the high-end technologies, I would say the companies that we generally compete with are Halliburton and Baker.

Okay, but on what you called the standard technologies, is that also the case?

Yes, I mean, on standard technologies, and I would say on land contracts and so forth, it's Halliburton, Baker, and then also to an extent Weatherford.

Those are the main competitors.

We don't see any other kind of new entrants into the market space that we are competing with at this stage.

Okay.

If I could ask you -- just if you could comment on this joint venture you signed with Petrofac, and what kind of projects specifically that's targeting?

Yes.

So first of all, it's not a joint venture, it's a co-operation agreement.

And the kind of contract that we are looking to work with them on are these production incentive contracts, a la, the one we signed in Mexico during the last quarter.

Right?

So these production incentive contracts are contracts -- they are service contracts, but they're contracts where we are going to be paid and compensated based on the fee per barrel over an agreed baseline for the asset that we are managing.

So the background for the agreement is that both Petrofac and ourselves, we have very complementary capabilities, and we also see this market in between the traditional service company model and the oil company model to do these incentive contracts as a very interesting growth opportunity.

Having complementary capabilities where we are very strong on the sub-surface, production engineering, well construction and project management, while Petrofac has all the surface facility design capability, and also operational fee management, these are quite complementary.

And it's going to help us basically to bid on projects of a scale that we probably wouldn't do independently.

And we can also develop these at the much faster pace.

So it is not a joint venture, it is a co-operation agreement, where we're going to be bidding jointly on these type of contracts around the world.

Okay.

Just to clarify on those kind of contracts, the fee per barrel, would you expect your margins to be comparable to the kind of margins you generally achieve in that region?

We've been doing these type of contracts for almost 10 years, and this was actually the original intent of IPM was to get into these type of contracts.

So we've been holding a portfolio of contracts for, in between 5 and 10 years.

Not many, but the ones that we've had, and where we have actually developed our skill sets, which makes us confident to go for bigger projects now, for that portfolio, the margins on these contracts are highly accretive to our average margin.

Okay.

Thank you.

Your next question comes from the line of Angie Sedita from UBS.

Please go ahead.

Thank you.

Paal, I appreciate your color and your thoughts on North America, certainly still, at least in the liquid plays, a tight market or a relatively solid market, and margins are still obviously attractive around the 30%, 35% level.

In your belief and your thoughts when you think about North America in 2012, 2013, if pricing starts to decline more on a widespread basis, and we're now in the margins at the 20% to 25% level, do you think the market will start to pull back on capacity additions?

Or is that still attractive enough margins that we still could see capacity adds at the margin, or even more so?

It's a bit difficult for me to predict what all the other ones are going to do, right, but I would say that we will continue to invest into this market, provided that we can get decent utilizations on the assets, and as long as the pricing and the margins are still attractive enough.

What that level is, I can't really give you a number on, Angie.

But we also have, like I said, significant demand for this horsepower internationally.

So we're going to have to be balancing off -- if something was to happen in the North America to the extent of what you're saying, we will look at basically balancing off how we add capacity into the global market, based on the returns that we can get.

But at the same time, I would just want to stress that we remain committed to the North America markets.

And we are looking to gain share at the back end of the rest of our work flow that we have established, and also HiWAY.

And HiWAY in a market that is going towards equilibrium, HiWAY is going to give us both pricing and cost leverage into the market.

Okay.

That's very, very helpful.

And then one more, just as a follow-up, on the margin side, obviously we're still seeing some competitive behavior for large projects, but strength in some of the areas that you can add technology.

I would assume that it's fair to assume a measured and moderate progression in margins internationally, and is there any regions that could be stronger or weaker than another?

Well, I would agree with your first statement that some measured improvement in 2012 margins internationally is reasonable to expect.

I wouldn't care to comment on exactly where that would be.

Your next question comes from the line of Jim Crandell from Dahlman Rose.

Please go ahead.

Thank you, I apologize.

I think I cut myself off last time.

But Paal, can you comment about how you see your business under the Petrofac joint venture growing, the types of projects that you're undertaking, and maybe the risks associated with that?

Well, if you look at the projects we are taking on, it's generally focused in on managing [paying] production in mature assets.

We are looking for opportunities in various parts of the world.

Obviously, there's upcoming bids in Mexico.

There's other opportunities in South America.

But also in the other areas there are opportunities.

And part of the opportunities are linked to a shortage of, I would say, operator capacity to handle this type of work where they are rather prioritized focusing in on high end new developments.

So I think this is a growing market, and something that we are looking to pursue.

But maybe Simon, do you want to comment a little bit on how we handle these things from an accounting standpoint?

Sure.

As Paal mentioned earlier, we do have several of these projects, although at the smaller scale.

And basically these projects require some investment up front, which we, basically we will capitalize, and then as we go, we amortize it against the profile of the production, or the enhanced production that we are compensated against.

Normally, we have a very, very clear plan on the production profile and the baseline and the decline of the baseline, and we anticipate very well the type of compensation where we amortize the investment against.

So as you all know, we do follow a pretty good balance sheet, and to some extent I would say on the conservative side when it comes to things like this.

So this will continue to be this way.

Okay.

And as a follow-up question, Paal, a couple of your major competitors have either strongly urged or almost required customers to take a number of their product lines, if they're going to get their frac equipment.

How does your strategy in terms of trying to package different Schlumberger product lines, along with fracturing, sort of compare with theirs?

I missed the first part of your --?

Well, the first part, I think, is that your two largest competitors in North American fracturing seem to be, if anything, requiring companies to take many of their other product lines, if they're going to give them their frac equipment.

All the way from requiring to maybe strongly suggesting.

And I'm wondering how your strategy in North American pressure pumping compares with that, in terms of trying to convince companies to take different Schlumberger product lines, along with the frac equipment on new builds?

Well, generally we are -- when we work with our customers, they ultimately decide what they want to buy from us.

When we have product lines that together can bring more value, we promote that to our customers.

And if they see the value the same as us, then typically they will buy it.

In terms of forcing them to do something, we never do that, and I think the forcing is going to go away because whenever the horsepower supply and demand reaches equilibrium.

Okay.

Thank you.

Your final question today comes from the line of Mike Urban from Deutsche Bank.

Please go ahead.

Thanks for sneaking me in.

Good morning.

Paal, I wanted to follow up on a couple of the comments you've made on HiWAY.

It sounds like you have made some pretty good progress from kind of a volume standpoint, and stages run, and also some headway internationally.

And I think you suggested this, but just wanted to confirm that you do feel like you're at least beginning to get some of the pricing, and I guess cost savings as well from that product.

In other words, are you able to get the kind of benefits that you envisioned when you rolled out the technology, just given that you are seeing a broader maturation of the pressure pumping market, and things stabilizing, and as you said, in some cases declining.

Yes.

I think we are still very upbeat in terms of the performance of HiWAY, and also the future potential that HiWAY brings.

Right?

As I mentioned, we served over 35 customers in Q4, predominantly in the US.

And while you introduce a new technology like this, it basically takes some time from the initial jobs you do for one customer, until you can broaden the application for a number of customers.

Right?

So we had 50% growth in stages sequentially between Q3 and Q4, and I think this is a testament now to the customer base that we have established, and we continue to expand the customer base.

And I think that's really what's going to help us further grow the service going forward.

In terms of the jobs that we pumped, or the stages we pumped in North America in Q4, probably only about 15% of the total stages we pumped were HiWAY, while we are really starting to expand in terms of the customer base.

Right?

So I think there's significant potential as we go forward for HiWAY.

We also continue engineering efforts to extend the operating envelope, in terms of lower temperatures and higher temperatures for HiWAY.

And then more broadly on the pumping market globally, you've talked about some of the flexibility that you hopefully have with respect to adapting the market and allocating capacity.

Is that primarily with respect to the new capacity that you're building, and how much flexibility does that give you?

Are you doing things like skid mounting -- just trying to understand how much capacity could potentially move around, relative to a pretty fluid and dynamic market?

No; I would say a significant amount of our North America existing capacity can also be moved internationally, if we want to.

We have standardized the type of equipment that we are operating, and that can be moved internationally as well.

I don't foresee that happening.

I think the main thing we're talking about now is how do we allocate additions from this point onwards?

But again, we have a standardized fleet, which is mobile to any part of the world.

Okay.

So before we close, I have one last thing to add.

This is the last call that Andrew will be attending.

So having spent 37 years with Schlumberger, he steps down as Chairman in April of this year.

So I would therefore like to take this opportunity to thank him on behalf of the entire Company for his outstanding contribution, and I wish him all the best in the future.

I am sure that as a shareholder, he will listen to our future earnings calls, but I hope that Malcolm will not let him ask any questions.

So Andrew, thank you again.

And I'll now hand the call back to Greg.

Thank you.

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