斯倫貝謝公司 (SLB) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Schlumberger full year and fourth quarter 2012 earnings conference call.

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

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

(Operator Instructions)

As a reminder, this conference is being recorded.

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

Please go ahead.

Thank you, Julie.

Good morning and welcome to the Schlumberger Limited fourth quarter and full year 2012 results conference call.

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

Our prepared comments will be provided by Simon and Paal.

Simon will first review the financial results and 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 frequently asked questions document which is available on our website or upon request.

We will welcome your questions after the prepared statements.

And 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 $1.08.

This is flat sequentially and $0.02 lower when compared to the same quarter last year.

As a reminder, all prior year amounts have been restated as the distribution segment has been reclassified to Discontinued Operations, following the sales of Wilson and CE Franklin in the second and third quarters of this year.

During the quarter we recorded $0.04 of integration charges and $0.02 of charges relating to workforce reductions in connection with an initiative to rationalize global overhead costs.

The Smith integration charges were a little larger than our historical run rate due to the fact that we incurred a number of agency terminations and facility exit costs during the quarter.

Going forward, we do not intend to highlight these integration costs separately as they are not anticipated to be significant.

Fourth quarter revenue of $11.2 billion increased 5.3% sequentially.

Of this $567 million sequential increase, approximately half of this growth came from the year-end surge in product, software and WesternGeco multi-client sales that we typically experience in Q4.

Oilfield services pre-tax income of $2.2 billion increased 1% sequentially.

Pre-tax operating margins were down 83 basis points as the positive effects of year-end product sales were not enough to overcome the impact of the higher than usual seasonal slowdowns in activity and contractual delays experienced during the quarter.

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

Fourth quarter Reservoir Characterization Group revenue of $3.2 billion increased 8.2% sequentially and margins improved 31 basis points to 29.1%.

These increases were largely driven by the traditionally strong end of year software and market brand sales offset in part by the impact of lower WesternGeco marine vessel utilization.

It is also worth mentioning that testing services, wireline and PetroTechnical services all experienced sequential margin growth as a result of more favorable revenue mix.

Drilling Group fourth quarter revenue of $4.1 billion increased 2.2% while margin declined by 128 basis points to 16.8%.

The revenue increase was largely attributable to robust drilling and measurement activity in the Middle East and Asia area and the strong performance from M-I SWACO in the Europe CIS Africa area.

The margin decline was primarily due to contractual delays in IPM and an overall less favorable revenue mix.

Fourth quarter Production Group revenue of $3.9 billion increased 6.8% sequentially as a result of strong Completion Artificial Lift Product sales across all areas combined with new Framo subsea projects.

Pre-tax margin was essentially flat at 15% as the impact of the strong completion of Artificial Lift performances were largely offset by continued pricing pressure in US land as a result of excess hydraulic horsepower capacity in the market.

From a geographical perspective, North America margin improved by 65 basis points to 19.2% while International margin declined 104 basis points to 20.5%.

Now turning to Schlumberger as a whole.

The effective tax rate excluding charges and credits was 23.8% in the fourth quarter compared to 23.6% in the previous quarter.

Net debt at the end of the quarter was $5.1 billion representing a $1.1 billion improvement as compared to the end of third quarter.

Significant liquidity events during the quarter included $1.5 billion of CapEx and an improvement in working capital of approximately $850 million.

Yesterday our Board of Directors approved a 13.6% increase in our annual dividend to $1.25 per share.

This follows last year's 10% increase and a 19% increase in 2011 and reflects our commitment to generate and return excess cash to our shareholders.

During the full year 2012 we repurchased 14.1 million shares at an average price of $68.99 for a total of $972 million.

We did not repurchase any stock during the fourth quarter as our buyback activity for the first nine months of the year more than offset the dilution caused by our stock based compensation programs during all of 2012.

CapEx is expected to be approximately $3.9 billion in 2013 as compared to the $4.7 billion we spent in 2012 which included an acceleration of part of the first quarter of 2013 CapEx.

And now, I'll turn the conference over to Paal.

Thank you, Simon.

Our fourth quarter results showed continued growth in key markets in addition to the typical year-end product, software, and multi-client sales.

However, while revenue grew sequentially by 5% to set a new record for the Company, pre-tax operating margin slipped by 83 basis points and I will elaborate on this as I review the operational results by region.

Looking at the international markets, revenue grew by 6% sequentially while margins were down 104 basis points from the three year high of last quarter.

Overall service activity and product sales were strong during the quarter; however, results were impacted by the previously stated seasonal slowdown and contractual delays, and also mobilization costs for several new projects.

International service capacity remains tight in our seismic, drilling and measurements, wireline and well testing product lines while pricing in terms of revenue per rig continued its slow but steady progression during the fourth quarter driven by strong execution, new technology sales and proactive bidding on small to medium sized contracts.

In Latin America, revenue was up 11% sequentially and margins up 30 basis points driven by strong activity throughout the region.

In Mexico, rig activity grew both offshore and on land with additional coil tubing and stimulation work focused on unconventionals as well as a full deepwater well testing program.

Activity in our IPM projects remained robust and the ramp up in our Carisso and Panuco SDM project continued according to plan.

In Brazil, we saw strong sequential growth driven by our seismic and well testing product lines while overall offshore activity continued to shift from deepwater exploration in the Santos Basin towards development and production enhancement work in the Campos Basin.

In Argentina activity also picked up during the quarter driven by drilling and stimulation activity in the Neuquen Basin and from the start up of a new IPM project in the Vaca Muerta shale.

In Venezuela we have in recent years actively managed our activity levels relative to our receivables balance.

During the fourth quarter, we saw a significant slowdown in the rates of payments and we are currently working closely with our customer to resolve the situation.

In the Middle East and Asia, revenue grew by 10% sequentially while margins were down 91 basis points driven by activity mix and start up costs for several IPM projects in the region.

During the quarter we saw the strongest growth in the Middle East where activity on both land and offshore in Saudi Arabia, Kuwait and United Arab Emirates led to record revenue levels in these countries.

In Iraq, revenue grew over 60% sequentially, also reaching an all-time high as we started off the remaining rigs relating to our recent IPM contract wins.

Operational execution continues to be strong on our well construction project in Iraq; however delays in obtaining the needed regulatory approvals impacted start up timing for several projects and consequently profitability for the quarter.

China again posted strong results with the seasonal slowdown on land being more than offset by activity growth offshore in Bohai Bay and the South China Sea.

The focus on unconventionals in China remains very strong, and based on the strategic moves we made in 2012, we are well positioned to capitalize on this growth opportunity going forward.

And in Australia, we continued to grow in the fourth quarter as rig activity ramped up further in our IPM projects in the Queensland Coalbed Methane and also due to strong offshore drilling activity in the Northwest.

In Europe, CIS, and Africa, revenue was down 1% sequentially and margins were down 203 basis points.

In the North Sea, we saw the start of the seasonal slowdown, in particular for seismic activity which had a significant impact on the sequential results.

However, we maintain a positive outlook on the North Sea for 2013 driven by both exploration and development activity in Norway and the UK.

In North Africa, further contractual delays also had an impact on fourth quarter results.

While these delays continued into January, we expect the situation to be resolved during the first quarter.

Sub Sahara Africa had a good quarter on offshore activity in both West and East Africa.

Looking at 2013, the outlook for the region remains strong driven by East Africa exploration, Angola presalt activity and Gulf of Guinea exploration and development work.

Russia and Central Asia saw flat sequential activity driven by the start of the seasonal winter slowdown both on land and offshore.

However, we see solid growth in the coming year both in western Siberia, the Caspian region, (inaudible) and the first arctic project is also expected to start up in the second quarter.

In North America, sequential revenue was up 4% and margins were up 65 basis points driven by a very strong performance in the Gulf of Mexico.

In North America land, our results were again negatively impacted by lower than expected activity in Canada and by an 8% sequential drop in the US land rig count.

In our hydraulic fracturing business, the lower pricing levels continued to penetrate our contract base and further impacted margins in the fourth quarter.

In addition, with the drop in liquids activity, we also saw clear signs of pricing weakness in our drilling, coiled tubing and cased-hole wireline product lines during the quarter.

Still, the continued weakening of North America land margins was more than offset by strong activity and excellent performance in the Gulf of Mexico where deepwater drilling activity reached pre [macondo] levels as expected.

In WesternGeco, we continued to operate one (inaudile) product lead in the Central Gulf while multi-client sales saw the normal year end increase driven by the Central Gulf resale scheduled for March of this year.

Overall, our strong operational and market share position in the Gulf of Mexico is becoming increasingly accretive to our North American margins.

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

In the Reservoir Characterization Group, WesternGeco completed the first IsoMetrix season which included three commercial projects.

IsoMetrix's results represented at the SEG Annual Conference in November of 2012 and the technology continues to attract a great deal of attention as exploration of difficult and complex reservoir prospects continues.

The first Explorer class vessel upgrade to IsoMetrix, the WesternGeco Vespucci is currently underway and two IsoMetrix vessels will be available in 2013.

In December 2011, we announced the purchase of the US Company ThruBit which offers a pump-down open hole logging suite that enables (inaudible) logging of horizontal wells.

In 2012, ThruBit saw a rapidly growing client base and a 93% increase in revenue.

Recently, the technology has been successfully applied in the Bakken to optimize the stimulation design in the horizontal sections, helping to improve productivity and to reduce costs.

In the Drilling Group, our Drilling and Measurement product line saw increased uptake of the NeoScope Sourceless formation evaluation service.

This technology offers a comprehensive suite of 12 formation evaluation measurements while eliminating the need for the traditional source and thereby reducing operational risk.

The uptake has been widespread, covering North American shale plays, Japanese methane hybrids, conventional reservoirs in the middle and Far East and remote deepwater exploration work offshore South America.

In the Production Group, well services introduced the SPARK frac fluid delivery platform in 2012 offering our vertically integrated customers access to Schlumberger's engineered fluid systems such as HiWay while utilizing their own personnel and hydraulic horsepower.

The uptake of the new offering progressed well during 2012 with over 1,100 stages sold to a growing customer base in both the US and China and we expect continued growth for this offering in 2013.

Also in the quarter, we announced the creation of OneSubsea, a joint venture with Cameron to manufacture and develop products, systems and services for the subsea oil and gas market.

This market represents a unique opportunity for growth as the new joint venture seeks to create a step change in the reservoir recovery to integration and optimization of the entire production system over the life of the ceiling.

The integration of the production system will be accomplished by combining superior reservoir knowledge and well bore capabilities with industry leading subsea technologies, altogether delivering enhanced productivity, reliability and integrity.

We anticipate closing the transaction during the first quarter of this year.

Let's now turn to the macro environment where there continued to be uncertainty; however, GDP growth outlook for 2013 remains in line with the previous quarter at the back of positive data points from China and the US and a more or less unchanged situation in the Euro zone.

Looking at the global oil market, 2013 demand is expected to grow at similar levels to 2012 excluding any major macroeconomic changes.

The supply side will see further growth in North America while the rest of OPEC production will likely continue to face challenges leading to a fairly similar coal and OPEC production in 2013.

Based on this we do not see any major change in the global spare capacity in the coming year and we expect Brent prices to remain in a broadly similar price band as seen in 2012.

In the international gas markets, LNG prices in Asia are expected to continue to benefit from high demand in Japan and China, while in Europe the impact of lower demand is expected to be offset by a decline in domestic production leaving the market balance relatively unchanged.

Looking at our industry, there have been no material changes to overall customer activity plans or sentiments during the quarter and we expect international E&P spend to grow around 10% in the coming year.

Based on a favorable activity mix and continued focus on execution, we expect to grow our international operating income in excess of this number in 2013.

In North America, we see continued market uncertainty going forward.

US land liquids activity is expected to recover somewhat in the first half of the year, but for the full year, we see US land rig count slightly down versus 2012.

US natural gas production remains strong and at this stage we do not see a significant recovery in dry gas related drilling activity in the coming year.

Based on this, the industry will still be faced with oversupply of hydraulic horsepower.

In addition, the lower rig activity in the fourth quarter has already created pricing pressure in many of the non-pressure pumping product lines in US land, which will create further pressure on North America land margins going forward.

So in summary we expect the overall market trends of 2012 to carry forward into 2013 with solid growth in international spending and strong activity in the US Gulf of Mexico, with the offsetting factor being continued challenges in North America land.

In this environment our well balanced business portfolio, wide geographical footprint and strong operational execution capabilities position us well to capitalize on these trends and to continue to show good growth in overall earnings per share.

Thank you very much.

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

Thank you, Paal.

We'll now open the call for questions.

Julie?

Thank you.

(Operator Instructions)

James West, Barclays Capital.

Good morning, Paal.

Clearly another good move higher this quarter for international volumes, but a little margin slippage as you highlighted.

It seems to me the contract delays, the start up costs, this is all pretty transitory.

Is that accurate?

And if so, take out the seasonal factors I guess for a second, when do those type of start up costs and delays, when do those abate or have they already abated at this point?

Well, I agree with you.

The impact we saw in profitability in Q4 is down to mix, some of this transitory delays and the seasonal slowdown as you're referring to, so most of these issues are more or less behind us in terms of what was unusual for Q4.

We will continue to see the normal seasonal slowdown in the North Sea, Russia and China land in Q1.

And the only other lingering issue we have is the contractual situation in North Africa, but overall, the issues that were exceptional in Q4 are more or less behind us.

Okay, good to hear, and then we obviously agree with your international E&P spending outlook for this year.

What do you see as the biggest growth areas for Schlumberger this year and are there any markets that you think could be particularly challenging as well, excluding North America land?

Well, if I look at International next year, we will see the more significant growth in ECA and MEA.

We will also see growth in Latin America.

But the overall activity levels in Brazil is more or less flat year over year so that will have an impact on Latin America growth.

But if I look at ECA, we see significant growth overall in sub Sahara Africa where we have a very strong position, and we also see quite significant growth in Russia, so I would say ECA, the main growth locomotives next year will be sub Sahara Africa and overall Russia, both land and offshore.

And then in MEA, I would say overall the Middle East, Saudi Arabia, Iraq but also Kuwait, UAE, Oman will all be very strong for us.

And in Asia, it's predominantly China and Australia which is going to be driving growth.

Okay, very helpful.

Thank you, Paal.

Thank you.

Kurt Hallead, RBC Capital Markets.

Hi good morning, Paal.

Just wanted to maybe hit you up on the North American front and I know that there's still quite a bit of uncertainty on the US land but I think the indications are that there's going to be a pick up some time here in the first quarter.

So with a pick up in activity on the horizon wouldn't it be safe to assume that margins would pretty much hit their low points in aggregate for North America land in the first quarter and if not, can you just kind of walk us through how you see things evolving?

Well I'm not ready to predict exactly why North America land margins are going to trough.

There is one new element of uncertainty this quarter which is further pricing pressure outside of hydraulic fracturing, right?

But if you look at our view on 2013 for North America, we do expect US land rig count to be up between about 100 and 150 rigs in Q1 and this is based on the feedback from our customers, so that's in line with what you're indicating.

In terms of activity for the full year, we still see US land rig counts slightly down versus 2012, while the well count will be slightly up.

Now if you look at Canada, the rig count is already over 500 so far in January but we still see the full year also being down in 2012 versus, sorry down versus 2012.

And then the other major uncertainty in North America land is pricing.

So it seems clear that we will continue to face oversupply of horsepower given the rig count outlook, so we don't really see any significant recovery in hydraulic fracturing price in the coming year.

And then you have the other uncertainty where we saw about a 5% pricing drop on average in the other product lines on land in Q4 and this is going to have an impact going forward.

But I would say at this stage the further evolution is not clear and I think it's going to be a function of how quickly the rig count climbs back up going forward, so I would say that in North America land there will continue to be margin challenges at least in the coming two quarters as far as I see it.

Now, as a follow-up, thanks for that, as a follow-up, obviously the Gulf of Mexico has kind of been a positive dynamic.

Can you give us some indications of what you might expect for maybe revenue growth in the Gulf of Mexico year-on-year and is that all going to be driven by just the oil field services product line or is it going to be some combination of a seismic and services?

Well we expect both drilling related activities as well as seismic to be strong in the Gulf of Mexico for this year.

If you look at the rig activity, we don't see any major rig additions in H1 after we had a surge of I think seven additional rigs in Q4, but I mean overall, rig activity year over year will be up more than 20%, without Q4 addition.

In terms of seismic, we are continuing to run one seismic fleet in the Central Gulf.

You'll see what happens in terms of late sales leading up to the lead sales now in March but I'm also continuing to be positive on seismic and in the Gulf of Mexico.

Okay, great.

Thanks, Paal.

Thank you.

Ole Slorer, Morgan Stanley.

Thanks a lot.

Paal, I wonder if you could just elaborate a little bit more on OneSubsea.

You talked about the importance of enhanced recovery subsea a little while ago.

You closed the deal.

Could you, now that you had some time to reflect on it, could you help us understand a little bit more how having access to OneSubsea will change the core business at Schlumberger or enhance it?

Well I think first of all, the creation of OneSubsea will allow us to make a much more significant entry into the overall subsea business.

We had some very good I would say niche technologies and Framo has seen tremendous growth in recent years but it was evident that we needed to combine that with a much broader offering and I think Cameron is going to be an excellent partner for us with that in mind.

So I think it's a bit early to say exactly what the impact on the rest of the business is going to be.

If you look at the rest of our business, a lot of that will be focused around reservoir life part of subsea around well intervention, which is not something that we're immediately going to focus on in OneSubsea.

But the fact that we are much I would say deeper entrenched in the business through this JV would allow us to move a lot closer to the customer side that focuses on these type of developments.

Overall I see it as a strong positive.

So is it enhanced recovery at the tail end of a field that you think is the opportunity for Schlumberger through having access to, I'm talking about impact on Schlumberger's core business, not related to OneSubsea, or is it getting involved early stage in helping how to design well bores, with based on the knowledge that you have from the reservoir side and how that would impact the design of a field development.

I'm still not sure if I understand exactly how it's going to enhance Schlumberger's business the most.

It's a good question.

So it's actually both.

So through the OneSubsea JV, we'll obviously be much more involved with the customer discussions around how to develop these fields, and it has to do with our characterization capabilities, and it also has to do with our well bore capabilities around ESPs and intelligent completions.

So I think both our reservoir understanding as well as the well bore capabilities that we have will be integral to how these developments would be done in the future.

And then you add a much more intelligent well bore to a more sophisticated production plant on the sea floor including both boosting and compression and potentially separation, that is how the overall development in my mind are going to be done in the future.

So we will have that early involvement where through the JV, where we will potentially see reservoir background and well background into the project teams and then beyond that, you have intervention, and I would say later fee in the activities that we will continue to be involved with as the life of the field progresses.

Okay so it sounds as if you are trying to lift Schlumberger's position versus the oil company to a higher level at an earlier stage in how fields are developed, would that be correct?

That's correct.

Second question will be on IsoMetrix.

Could you give us any kind of feedback from these initial studies on how they have helped your clients solve more complex issues?

Are there any examples of that now?

Well it's still early days but we have done three commercial surveys in this season.

I think it will take a little bit of time to process the data but the early indication from what we have seen from the data together with our customers is very positive, right?

And the ability to I would say image the reservoir much more accurately will benefit in particular the prospects that are more difficult to image.

Okay, well, I'd just like to congratulate you on helping reign in the CapEx here and drive free cash flow and if you could also convince your guys to do some more buybacks then I think that would be very good for the share price.

Thank you, Ole.

Thank you, bye.

Michael LaMotte, Guggenheim Securities.

Thanks, good morning gentlemen.

First question, Paal, Simon, I don't know which of you want to address this one but I would want to follow-up on Ole's comments on the lower CapEx, and in particular, as it relates to asset turns and the efficiency initiatives that are currently under way.

There are two aspects in particular that I'd like to ask you to address.

One is the reliability of the tools and two is just overall utilization.

Both seem to be going up quite a bit with revenue growth, forecasts up and CapEx down.

Could you speak to those?

So let me just, yes, thanks, Michael.

Let me take just the overall CapEx.

So as we said we will spend $3.9 billion in 2003 as compared to what we spent of $4.7 billion.

It is the shift of activity obviously that have impacted our decision to lower CapEx and we in 2012 had accelerated a bit into Q4 what we were going to spend in 2013, but you are absolutely right.

The efficiency plans and programs that we have will improve the tool turns and asset turns that we experienced in the past.

It is an early stage in 2003 to see a significant impact from this but it is a plan that is going to take several quarters if not years to get to an optimum situation.

But it is reflected in 2013, but the major part in 2013 is really more of an activity shift, acceleration in 2012, and to a lesser extent the performance that you refer to.

But the performance eventually well be a major factor in determining the CapEx that's spent in Schlumberger and between the different segments.

Is this good enough?

It's very good, thank you.

And maybe Paal, for the follow-up.

I'm curious if internationally, there are any signs of an emerging interest in tight oil or unconventional applications to conventional reserves or even shale oil.

Is what's happened in the Bakken and Eagle Ford starting to go global yet?

Well I think there's a general high interest of unconventionals in oil all around the world.

We find it in many countries.

Where we stand today, it's still in early stages in most places, where there is all about data gathering, I would say exploration in terms of can these resources be developed in an economic and viable way.

If I look at the two countries which are probably furthest down the road of doing something that is more material, it is China and Argentina.

And China is predominantly focused on shale gas at this stage, while I think there's more of a balance in Argentina between liquids and gas, so those are the two countries which I think will see the most activity increase in the near term.

So from a field standpoint, it's still very much a gas focus but is it fair to say that oil is perhaps emerging from a science standpoint at this point or is it still too early?

Well I think it's still too early to say how predominant that's going to be.

I think the interest is there for the shale.

There's a lot more data gathering and testing that needs to be done to see what's the balance between gas and liquids.

Okay, great.

Thanks, Paal.

Thank you.

Scott Gruber, Sanford Bernstein.

Good morning.

Congrats on swapping oil field distribution for a broader subsea offering last year.

Thank you.

While the subsea tree market continues to grow, investors have been disappointed by a drop in Cameron's market share.

Now that you had a chance to look under the hood at their business what do you think are the prospects for a share gain in trees by OneSubsea and what can Schlumberger do to help push for a greater share of awards?

Well I don't want to make any specific comments about Cameron market shares or trees.

I think we've had a very good dialogue and discussion with Cameron in terms of their view of the market versus our view of the market.

We have very coinciding views that it is very important to try to do something differently and focus a lot more on production optimization and recovery optimization.

The tree will be a key part of that but there's also a lot of other aspects around the subsea production plant as well as I also referred to earlier in terms of the well bore technologies and reservoir understanding.

So when it comes to the situation around Cameron trees and market share I think you need to talk to Cameron about that.

Got it.

And Simon, can you provide us with the growth or decline in the CapEx in '13 between North America and International?

We're not going to go into all of these details but a majority of the spend in 2013 will be related to International.

So will International be up a little bit in '13 then?

Yes, on an average yes, it is up compared to 2012, and the reduction will be in North America.

Got it.

Okay, those are all my questions, thanks.

Thank you.

Bill Herbert, Simmons & Company.

Thanks, good morning.

Paal, with regard to your outlook you'd mentioned that your expectation was for International E&P capital spending to be up 10% and your growth in operating -- International operating income to outpace the 10% growth in overall E&P capital spending.

Could you talk a little bit about your expectations for International revenue growth?

I would expect that you would also expect that to be up outpace the overall growth in the E&P capital spending as well.

Is that correct or no?

I think that's fair to say.

I'm not going to go into the details of exactly what our numbers we are targeting, but I think it's fair to say that both revenue and operating income we are aiming to grow that faster than that spend or rig count increase, right?

And just for reference, if you look at our 2012 numbers, we grew revenue 16% Internationally and operating income by 31% at the back end of an 8% growth in rig count, so I'm not saying we're going to repeat those numbers but I think there is potential and we have capabilities of doing what I'm just saying.

Is there any reason to believe that your International incremental margins are going to be markedly different from the close to 35% number that you generated in 2012?

I don't think there's anything that is dramatically different in the International market in 2013 versus 2012.

While we can do the exact same incremental margins we will obviously continue to focus on doing that but I'm not giving anything at this stage.

Okay, and then last one for me.

Can we talk a little bit about the Saudi outlook, coming out of the third quarter call, you mentioned that activity in 2013 for Saudi was going to be strong, largely based upon the pretty considerable increase in activity over 2012 and persisting over the course of 2013, but you did not expect if memory serves for activity in Saudi Arabia to grow considerably in '13 versus exit 2012.

Is that the same position that you have today?

No, I think based on our discussions with Saudi Aramco over the past quarter we have changed it slightly based on feedback, so as you said we ended the year at about 134 rigs which was pretty much in line with the plan that Saudi Aramco laid out early in 2012.

We saw very strong activity, rig lift activity in Q4 and also they're starting off a deepwater rig in the Red Sea in addition to the shallow water exploration that they have there.

In terms of the outlook, we are expecting around 160 rigs, up from the 134, so 160 rigs by year-end 2013 and that's what makes this even out from Saudi Aramco.

So the 160 versus 134 is actually considerably better than what you saw coming out of the third quarter call correct?

That's correct.

Okay, thank you, bye-bye.

Thank you.

Angie Sedita, UBS Securities.

Thanks, good morning.

Paal, I believe you see China as one of your fastest growing GeoMarkets in 2013 and it is already a fairly good sized market for you.

Can you talk about some of the opportunities there and can you also discuss the traction you've seen with the Anton Oil joint venture?

Yes, I can, so if you look at the market trends in China, for a very long time we had an offshore market position in Bohai Bay, but on land our market access has been more limited mainly due to the Chinese operators predominantly using their own Chinese service companies to do their work.

Now with the unconventional activity and the many new players entering there, this really opens up the land market, and at the same time they are also seeing higher demand for new technology, and also the IPM business model from our traditional Chinese customers as they embark on more complex land projects, right?

So at the back end of these trends we've done a number of strategic moves in 2012 as you know, the 20% stake in Anton Oil is one.

The other thing we did with Anton Oil was that we formed a JV with them focusing on IPM projects in the China land so it is still early days for that JV, but we are actively pursuing work, and it gives us another I would say entrance into the China land market.

Okay.

Very helpful and then in North America, you mentioned the 5% drop in pricing in your non pumping product lines in Q4.

Are you still seeing softness in pricing in Q1, or are you seeing any slowing of softness in Q1, or is it status quo?

Well I don't really have a lot of information yet on Q1.

So that's why I'm saying it's still uncertain.

We saw that drop in pricing in Q4 which was partly linked to the softness in rig activity so it's unclear yet whether that is going to continue down in Q1 or whether the rig uptake which we are hoping to see will stabilize.

Okay, and then as a follow on, on pressure pumping, given the softness in pricing, what would it take for you to consider unstacking equipment?

Would you need to see long term contracts or would you need to see better pricing?

Well we operate on the product of pricing and utilization so if that product is over our target or hurdle, we will reactivate fleets.

We are not planning to do any of that at this stage but we are obviously continuing to follow the situation closely.

In Q4, we capped the crew count flat versus Q3, so we didn't lay down anymore crews in Q4.

Okay, thanks guys, I'll turn it over.

Thank you.

Bill Sanchez, Howard Weil.

Thanks, good morning.

Paal, I was just curious if you could talk a little bit about, you mentioned not only in the Press Release but in your prepared comments regarding you're starting to at least be proactive on bidding on the small to medium sized contracts in terms of international pricing push here, and I'm just curious what kind of success rate are you having so far in making that push?

And which really is driving that in terms of you feel like now is the time to do that?

Is it because we've pretty much booked if you will or see in the rear view mirror the big larger tenders that were a source of price competition last year, those are behind us, that's now given you a better fair way to go ahead and push more aggressively on these small or medium sized contracts?

Yes, I think that's fair.

As you talked about throughout the conference calls in the past year, we have been pushing or testing pricing on these smaller to medium term contracts basically throughout 2012, and I would say our success rate has been reasonably good.

You win some and you lose some whenever you try to push pricing up.

But I would say that overall we're pleased with the contract wins we have for those type of contracts and that type of pricing strategy.

So you're right to say that on the large contracts which is multi-service line and also multi-year, multi-rigs, it is still quite competitive, but most of those contracts which still represents a relatively small part of our overall contract volume, most of those contracts are an hourly bid.

Not all of them are awarded but most of them are bid based on where we stand in this cycle.

Okay, fair enough and I guess just one follow-up.

I guess fair to say, Paal, given your comments around the operating income growth you see internationally, fair to think that your earnings growth 2013 versus 2012 you're still expecting that to be double digit growth this year.

Is that fair?

Yes, I would say we are overall still aiming for double digit growth in earnings per share in 2013 so this is assuming no major set backs in the global economy and also no further significant set backs in North America.

So I already highlighted the key growth drivers in international being ECA and EMEA, while the offsetting factor is going to be what's happening in North America land, but yes, overall we're still in for double digit growth in earnings per share in 2013.

Okay.

If I could slip one more in, I guess everybody is trying to do the math in terms of just looking to North America performance and clearly you know with the Gulf of Mexico contribution.

Is it fair to say, maybe Simon it's a question for you, a quarter of North America revenue this quarter is coming from the Gulf of Mexico?

Is it that high?

It's correct that the Gulf of Mexico increased, compensated for a drop inland, yes.

Right.

But in terms of just the percentage of your revenue contribution in North America from the Gulf it's about 25% this past quarter?

It was a bit lower.

Little bit lower, okay.

Thank you all for the time.

Thank you.

David Anderson, JPMorgan.

Thanks.

Paal, you'd mentioned the increase in the Saudi rig count this year.

Can you characterize about where that growth is coming from?

Is that primarily natural gas related?

Well I don't have the details of it.

There is obviously some natural gas in it but it's obviously still oil as well, so I don't have the break down for you.

I have the break down in terms of drilling and work over, the 160 is about 117 to 118 on drilling and the balance of 42 being work over.

And can you discuss some of your unconventional work over there?

Is that starting to become a bigger part of your business over there?

Are you still under the reservoir characterization stage or are you starting to kind of go at these wells and starting to look at doing horizontal wells this year, or are you expecting to?

Yes, I'll leave most of the commentary to how Saudi Aramco wants to communicate around their unconventionals to them, but we are involved with a project which is still largely in the exploration type of phase, so it's limited in terms of overall activity what we are involved with.

Okay, and if I could just do a completely unrelated follow-up, on your North America market you talked about your SPARK initiatives somewhat contributing this quarter.

Could you give us a sense as to basically how many kind of pressure pumping fleets that would represent?

In other words how many fleets are you not using and applying SPARK and also who are the ideal customers for these initiatives?

Yes, so if you look at the number of stages, it's obviously a very big number at this stage and that number is also split between China and the US, so it is not a significant part of our overall capacity or revenue that is coming through this model.

But we see it as an interesting model as we continue to develop these engineered fluid system, frac fluid systems, so overall today it is not significant, but it's a new business model that we believe could grow to be more significant over time.

And the type of customers that we have, this is typically either smaller independent players who want access to higher technology fracturing systems, or vertically integrated customers that we do this for.

Okay, I guess my last question kind of related to that is there seems to be quite a bit of a shift in operator behavior in North America over the last six months.

What would you attribute that to, we hear a lot about budgets being used up and what not, but is this simply just about field economics and their efforts to lower service costs, and if so where do you think they are in terms of their goals of cost?

Are they satisfied where service costs are now?

You just mentioned pricing on some of these other products have come down.

That sort of implies to me they are not really satisfied.

How do you think about it in terms of their economics right now?

I would say all of the customers in North America that I'm talking to are still looking for us to help them drive more costs out of the system, whether that is efficiency or technology.

Exactly what transpired in Q4 in terms of the lower activity, it could be a combination of lower commodity prices in terms of this subset reference prices below the WTI.

I also think that a number of these customers have been operating north of 100% cash flow and they felt it was prudent to scale back and then also you had quite a significant impact of the holiday season in Q4.

So I think all of these elements were contributing towards the drop in activity, so I don't think there's been a real material change to the economics, but I think that the proof of that is going to be what happens now in Q1, whether they are going to be ramping back up again.

Okay, thank you, Paal.

Thank you.

Jim Crandell, Dahlman Rose.

Thank you.

Paal, how do you see seismic vessel supply demand and pricing shaping up for the spring/summer season?

Well, if you look at our overall market outlook for seismic remains positive, the capacity in the market still remains tight.

If you look at our bookings for Q1, we're more or less fully booked and Q2 is filling up relatively fast, so most of the pricing, I'm sorry most of the bids that we have won for Q1 and Q2 are more or less at the same pricing that we bid at in Q3 and Q4 which is about 10% up from that reference price of 2011.

So there hasn't been a further increase in pricing as of yet, but we still see the opportunity to test pricing further for what remains to be booked for Q2 and also for H2 so we remain positive in terms of our outlook for the market.

I'm not really concerned about over capacity in the market at this stage.

Okay, and my follow-up question, Paal, is for the formation evaluation business in deepwater, I think your competitors were targeting a big push in that area given that this is the most exciting growth area in the global oil service market.

Do you feel now that we're sort of well into this upturn in deepwater, with still a big part of it still ahead that you've maintained your market share globally in terms of from doing work on ultra deepwater wells?

Yes, I'm very comfortable with both our technology portfolio, how we continue to execute in these type of projects and although the rate that we are winning work at, right?

So I don't think there's been any negatives around this and in fact I think we continue to perform very strongly both in terms of market share, revenue growth and profitability so I'm pleased with the progress that we're showing on the formation evaluation side on deepwater.

And is this an area, Paal, that could show above average price increases too?

Well pricing is already quite strong in these type of environments, linked to the higher rig rate and also linked to the high, I would say, high importance our customers are putting an operational integrity and reliability, so it could be that we could see more pricing power there but I would say pricing there is already quite strong.

Good.

Okay, thank you.

Thank you.

Jud Bailey, ISI Group.

Thank you.

Good morning.

Follow-up question on the Gulf of Mexico.

You highlighted the strong growth in North America offshore.

I was wondering if you could give us some sense obviously there's seismic in there in the Gulf, and if I'm wrong, but you include Canada and Alaska in there, was all of that between seismic in the Gulf of Mexico, or was there any big contribution from Eastern Canada or Alaska in that offshore revenue increase?

Well they are included when we talk about offshore in North America but both Alaska and Eastern Canada are relatively small compared to the size of our Gulf of Mexico business.

I would say the predominant driver of the sequential increase in revenue is the Gulf of Mexico.

Okay.

And then another question on Mexico, as international markets go, it looks like it's one of the more positive ones for 2013.

Could you give a little color insight as to how you see that market developing over the next couple years between some of the onshore activity and now they're getting more active offshore as well and what product lines?

Yes, overall we're seeing pretty solid growth in activity in 2013 for Mexico, both land and offshore.

There is deepwater activity going on.

There is conventional shallow water activity and then you have a range of types of activity on land all the way from the unconventionals in the north.

You have normal third party work and you have IPM and SPM type of contracts.

For 2013 in addition to the growth in activity what we're also seeing is we are facing significant tendering activity in the next couple of quarters.

And what we are also seeing now is that several smaller players from US land are starting to show up in Mexico which could make the whole tendering environment even more competitive, so we'll see how that plays out but that's one aspect that we are looking at.

And the other key for Mexico is also that Pemex continues the overall transition towards these production incentive type of contracts and we really like this model, and we compete quite well in those type of bids.

And the latest we've heard from Pemex is that the [contracts] SPM big round is expected to be around mid year 2013 so we'll obviously be preparing for that.

Great, thank you for that and if I could just have one more quick follow-up.

Paal, I just want to make sure I heard you correctly, in your comments earlier did you say you anticipated about 100 to150 rig increase in the US rig count in the first half of the year?

Based on the customer feedback that we've had, we are saying up between 100 and 150 rigs in Q1.

That's what we heard from our customers.

Okay, great.

Thank you very much.

Thank you.

Brad Handler, Jefferies & Company.

Thanks, guys.

I'm going to stick with the US as well, please.

You spoke about I think raising your stage count in the fourth quarter of '12 for hydraulic fracturing.

I wanted to confirm that, please.

And then I suspect you think that the stage that that was a nice move in market share for you, I would imagine you think that with activity being down the way it was on the rig side that stage count was probably down for the industry, so can you confirm that and maybe quantify for us and then we can talk about how we got there.

I didn't mention anything about stage count for Q4.

I would just say that we haven't disclosed anything around that.

I would say that overall in hydraulic fracturing we've had a good I would say couple of quarters in terms of securing work, so I wouldn't be surprised that our market share could be up somewhat.

But in terms of stage count sequentially I haven't mentioned anything about that.

All right, maybe I misread it or misheard, no problem.

I guess then just an unrelated follow-up.

I suppose just more broadly on IPM, maybe asking globally, how might you expect that revenue to compare in '13 to '12?

Well, I think IPM is one of our faster growing product lines.

We see a range of a type of projects that IPM is getting involved with, all the way from just straight integrated service or project management for deepwater drilling offshore, where we simply coordinate the interface without taking any project management risk to the project, but when we have a wide range of services on these remote links, for instance that coordination role is one thing that IPM takes on.

The other part is the traditional turnkey well construction which continues to also grow in time for us so we are very active with IPM and it's doing very well for us.

Got it.

That's fine, all right thanks guys, I'll turn it back.

Thank you.

Jeff Tillery, Tudor, Pickering, Holt.

Hi, good morning.

After the Q3 results, the commentary you guys had around security and political turmoil concerns in North Africa and Mid East were kind of relatively muted in terms of your concerns overall for the region, can you just talk about how that's changed in the last three months if any?

Obviously with the events of the last week here, we are relooking at the whole situation there.

It is if you talk about Algeria and Libya, we are already operating there with stringent security measures in place.

With what has happened in the last week, we are relooking at that.

We are very prudent in how we go about doing business in any part of the world to make sure that we can offer up the required security for the people that we put into the workforce there, so it's too early to say exactly what the impact of this is going to be.

But I would just say that in these regions with higher risk we already have very stringent security measures in place.

Okay, that's helpful and then just last question on an unrelated follow-up.

You mentioned around Venezuela and receivables and the payments there slowing.

Has that changed your appetite for taking on revenue at this point or is it just something that you're throwing out there as an item to be aware of?

Well it is an item to be aware of.

We have a longstanding relationship with PDVSA.

There are some challenges that they're facing in the country at this stage.

We are committed to Venezuela for the long term.

They have a massive resource base and we want to be there for the long term, so we are currently just working very closely with them to try to resolve the situation.

Okay, thank you very much.

Thank you.

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

Julie will now provide the closing comments.

Thank you.

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