Schlumberger 1Q Earnings Increase 40% in 2011
Schlumberger reported first-quarter 2011 revenue of $8.72 billion versus $9.07 billion in the fourth quarter of 2010 and $5.60 billion in the first quarter of 2010.
Net income attributable to Schlumberger, excluding charges, was $972 million—a decrease of 16% sequentially but an increase of 30% year-on-year. Diluted earnings-per-share, excluding charges, was $0.71 versus $0.85 in the previous quarter, and $0.62 in the first quarter of 2010.
Schlumberger recorded charges of $0.02 per share in the first quarter of 2011, $0.09 in the fourth quarter of 2010, and $0.06 in the first quarter of 2010.
Oilfield Services revenue of $8.12 billion decreased 4% sequentially but increased 45% year-on-year. Pretax segment operating income of $1.46 billion was down 14% sequentially but increased 40% year-on-year.
Distribution revenue of $601 million increased 4% sequentially. Pretax segment operating income of $22 million improved 7% sequentially.
Schlumberger Chairman and CEO Andrew Gould commented, "First-quarter results compounded the normal sequential drop in product, software and multiclient sales with exceptional weather conditions in the US and Australia and multiple activity disruptions from political unrest.
"Reservoir Characterization saw this decline in sales of multiclient seismic and software. Wireline was adversely affected by weather in Australia and political unrest in North Africa and the Middle East but the underlying trends were positive and absent exceptional items, Wireline growth was encouraging—particularly for higher technology services.
"The recent completion of various licensing rounds around the world will ensure sustained marine seismic activity for the rest of the year. The anticipated increases in exploration budgets and the advent of additional development activity, especially in the Middle East and North America, will rapidly improve business conditions for Wireline and Testing Services. The continued success of new Petrel releases, particularly for exploration, will ensure further strong performance from SIS.
"Despite the seasonal drop in Russia and at M-I SWACO, Drilling Group revenue increased through excellent performance at IPM Well Construction, particularly in Iraq. In addition, growth in revenue synergies with Smith and Geoservices products and services was very strong. For Drilling & Measurements, service pricing remains extremely competitive internationally but excellent service quality and advanced technology allows this effect to be offset to some degree. Activity increases later in the year should lead to considerable tightening of capacity in this market with consequent effects on price.
"Reservoir Production continued to make strong gains in North America in both activity and pricing, which more than compensated for the absence of the gain share project that was recognized in the fourth quarter. The first quarter also saw continued strong sales of new technology with HiWAY stimulation and ACTive coiled-tubing services being in particular demand. There was also significant success in international unconventional gas activity.
"The absence of oil production from Libya, combined with continued recovery in demand, has reduced the world's spare capacity significantly. The call on both fuel oil and natural gas will increase as Japan recovers. The exploration and production industry has begun to respond and, absent a further leg to the recession, will have to substantially increase investment to maintain a comfortable supply cushion in an era of political uncertainty. We anticipate that high oil prices will continue to support additional drilling in the liquid-rich plays in North America. The upturn in deepwater activity more generally is becoming increasingly visible, and the rate of permitting in the US Gulf of Mexico is accelerating. Middle East activity is increasing substantially, led by Saudi Arabia and Iraq.
"These activities will progressively mobilize over the next six months and the projected increases will reach levels where resources will become constrained. Schlumberger is ready for this scenario with new technology, equipment and people. Our Excellence in Execution initiative, which started in 2007, is already paying dividends, and will continue to do so."
- During the quarter, Schlumberger repurchased 9.7 million shares of its common stock at an average price of $87.18 for a total purchase price of $844 million under the stock repurchase program approved by the Schlumberger Board of Directors on April 17, 2008.
- During the quarter, Schlumberger repurchased the remaining outstanding long-term fixed rate debt assumed in the merger with Smith International, Inc. for $1.3 billion.
- On April 5, 2011, Schlumberger completed the divestiture of its Global Connectivity Services business for $397.5 million in cash.
First-quarter revenue of $8.12 billion decreased 4% sequentially but increased 45% year-on-year. The impacts of extraordinary geopolitical events in North Africa and the Middle East as well as severe weather in the US and Australia during the quarter affected all three Product Groups and accounted for approximately half of the sequential decrease in total Oilfield Services revenue.
Excluding the impact of these geopolitical and weather events, sequential revenue performance varied by Group. Reservoir Characterization revenue decreased primarily on lower WesternGeco multiclient and Schlumberger Information Solutions (SIS) software sales following their fourth-quarter 2010 seasonal highs as well as on lower Testing Services activity, but these effects were partially offset by higher Wireline activity, particularly in North America. Drilling revenue increased on higher IPM Well Construction activity in the Middle East & Asia, Latin America and Europe/CIS/Africa Areas, which was partially offset by a decrease in M-I SWACO revenue following the high product sales of the fourth quarter, and by lower Drilling & Measurements revenue through a less favorable activity mix and lower pricing in Europe/CIS/Africa. Reservoir Production revenue increased sequentially on higher pricing and activity in North America, although this was partially offset by the absence of the Integrated Project Management (IPM) gain share payout in North America and the absence of the Artificial Lift and Completions Systems equipment sales seen in the fourth quarter.
On a geographical basis, Europe/CIS/Africa revenue decreased sequentially primarily due to disruptions resulting from the political unrest in North Africa, a less favorable revenue mix coupled with lower software sales in the North Sea GeoMarket, and seasonally lower activity in Russia. Middle East & Asia revenue was lower as increasing IPM activity in Iraq and shale gas activity in India were insufficient to offset the impact of geopolitical events in the Middle East, seasonally lower software and equipment sales, and weather-related slowdowns in Australia. In North America, higher pricing for Well Services technologies, stronger winter season activity in Canada, and increased demand for M-I SWACO services fully offset lower WesternGeco multiclient sales, the non-recurrence of the IPM gain share payout, and the impact of weather-related slowdowns on land in the US. In Latin America, increased WesternGeco and M-I SWACO activity in the Brazil GeoMarket balanced lower offshore activity and reduced software sales in the Mexico/Central America GeoMarket.
First-quarter pretax operating income of $1.46 billion decreased 14% sequentially but increased 40% year-on-year. Pretax operating margin decreased 206 basis points (bps) sequentially to 17.9% primarily due to the reduced software and equipment sales as well as the lower WesternGeco multiclient sales; the non-recurrence of the IPM gain share payout; the impact of the geopolitical events in North Africa and the Middle East; and the weather-related slowdowns in the US and Australia.
The quarter's technical highlights were led by rapid growth in the deployment of Well Services HiWAY flow-channel hydraulic fracturing technology. Total job count is now approaching 1,000 with 528 stages completed in the first quarter of 2011 compared to 102 in the fourth quarter of 2010. The first horizontal openhole well in the Bakken shale with 19 stages has been successfully completed while the first job has been conducted in the Middle East. A significant number of opportunities for future jobs are now under evaluation and new fields for HiWAY technology deployment are under discussion in the US, Canada, Argentina, India, Oman, Saudi Arabia, Egypt, Algeria, Congo and Angola.
Integration between Groups and Technologies was evidenced by a number of other technical highlights during the quarter.
A number of contract awards that illustrate the Schlumberger geographical footprint were recorded.
BP Iraq N.V. awarded Schlumberger a two-year contract for bundled services to complete the drilling of 46 re-entry wells and 25 new wells that will require a total of 4 rigs. The contract covers technologies from Wireline, Drilling & Measurements, Geoservices, M-I SWACO and Well Services.
In Ghana, Hess Ghana Exploration Limited awarded Schlumberger a contract for wireline logging services on their upcoming exploration campaign. The award was based on Schlumberger presence and infrastructure in the region, together with the availability of technology for deployment on deepwater frontier projects in the Gulf of Guinea.
WesternGeco also secured significant contract awards during the quarter. In the North Sea, BP awarded two contracts for 4D monitor programs, one each in Norway and the UK using Q-Marine Solid streamer technology. Offshore South Africa PetroSA awarded WesternGeco two Q-Marine surveys covering a total of approximately 3,000 km2. The first of these will use the DISCover deep interpolated streamer coverage acquisition technique that delivers broadband seismic data. BP Indonesia awarded WesternGeco a three-year contract for the processing of seismic data from offshore Indonesia and other areas in South East Asia. The processing will be carried out in the WesternGeco GeoSolutions center in Jakarta using advanced imaging workflows.
Reservoir Characterization Group
First-quarter revenue of $2.19 billion was 12% lower sequentially and decreased 2% year-on-year. Pretax operating income of $460 million was 32% lower sequentially and decreased 19% year-on-year.
Sequentially, Group revenue was severely impacted by disruptions from the geopolitical events in North Africa and the Middle East. WesternGeco revenue decreased following the fourth-quarter surge in multiclient sales in the US Gulf of Mexico and through lower Land activity as a consequence of the geopolitical events while Marine revenue increased due to a more favorable revenue mix. SIS revenue fell sharply from seasonally lower software sales across all geographic Areas. Testing revenue decreased on reduced equipment sales and activity, especially in Latin America; on completion of projects in the Australia/Papua New Guinea and East Asia GeoMarkets; on the winter seasonal slowdown in Russia; and on the geopolitical events. Wireline revenue was flat sequentially as strong winter activity in Canada was offset by the impact of the geopolitical events and weather slowdowns in Australia.
Pretax operating margin decreased 606 bps sequentially to 21% primarily due to the seasonally lower multiclient and software sales, the impact of the geopolitical events, the poor weather conditions in Australia, and the lower Testing activity in Latin America and Asia.
Reservoir Characterization Group activities saw a number of new or significant technology deployments in the quarter.
First-quarter revenue of $3.20 billion was 1% lower sequentially but 120% higher year-on-year. Pretax operating income of $467 million was flat sequentially but increased 71% year-on-year.
Sequentially, the decrease in Group revenue was primarily due to disruptions resulting from geopolitical events in North Africa and the Middle East. Excluding the impact of these disruptions, Group revenue increased sequentially but varied by Technology. IPM Well Construction revenue increased on strong activity growth in Iraq, Mexico and Russia. Drilling & Measurements revenue declined from lower activity and pricing in Europe and Africa and the completion of offshore exploration projects in Australia/Papua New Guinea—although these effects were mitigated by the return of some deepwater work in the US Gulf of Mexico and by an increase in activity in Latin America and Russia. Following strong product sales in the fourth quarter of 2010 and despite continued strong activity in North America, M-I SWACO revenue decreased as a result of the weather-related slowdowns in Australia as well as a result of delayed projects in the Europe/CIS/Africa Area.
Sequentially, pretax operating margin was essentially flat at 14.6% as the contribution from the increased IPM Well Construction activity was offset by the impact of activity declines for M-I SWACO and reduced pricing for Drilling & Measurements services.
Drilling Group Technologies helped customers improve performance in a number of key areas.
Reservoir Production Group
First-quarter revenue of $2.72 billion decreased 2% sequentially but increased 44% year-on-year. Pretax operating income of $528 million was 9% lower sequentially but more than tripled year-on-year.
Sequentially, the decrease in Group revenue was largely due to the impact of geopolitical events in North Africa and the Middle East as well as to the severe weather in the US and Australia. Excluding these impacts, Group revenue increased as higher pricing and strong demand for Well Services technologies in North America more than offset the non-recurring prior quarter's IPM gain share payout in North America and the seasonally lower Artificial Lift and Completions Systems equipment sales.
First-quarter pretax operating margin decreased 145 bps to 19.4%, primarily due to the non-repetition of the IPM gain share payout, the lower Artificial Lift and Completion Systems equipment sales, and the impact of geopolitical events and weather.
Reservoir Production Group highlights included technology deployments in a number of key areas.
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