Schlumberger Sees Solid Progress for 3Q 2011 Earnings
Schlumberger reported third-quarter 2011 revenue of $10.23 billion versus $9.62 billion in the second quarter of 2011, and $6.85 billion in the third quarter of 2010.
Income from continuing operations attributable to Schlumberger, excluding charges and credits, was $1.32 billion—an increase of 12% sequentially and 51% year-on-year. Diluted earnings-per-share from continuing operations, excluding charges and credits, was $0.98 versus $0.87 in the previous quarter, and $0.70 in the third quarter of 2010.
Schlumberger recorded charges of $0.02 per share in the third quarter of 2011 and $0.05 per share in the second quarter of 2011. During the third quarter of 2010, Schlumberger recorded a gain of $0.98 per share on its investment in M-I SWACO as a result of the merger with Smith International, Inc., which was offset in part by restructuring and merger-related charges of $0.30 per share in that quarter.
Oilfield Services revenue of $9.55 billion increased 6% sequentially and 44% year-on-year. Pretax segment operating income of $1.93 billion was up 10% sequentially and 59% year-on-year.
Distribution revenue of $698 million increased 10% sequentially. Pretax segment operating income of $31 million improved 28% sequentially.
Schlumberger CEO Paal Kibsgaard commented, "Schlumberger third-quarter results continued to show solid progress with revenue increasing sequentially across all Schlumberger Product Groups.
"In North America, performance was driven by strong growth on land in Canada, and in liquids-rich shale basins in the US, while offshore posted solid growth in the deepwater areas of the Gulf of Mexico. Further pricing momentum was seen in wireline- and drilling-related product lines both on land and offshore.
"Internationally, deepwater and exploration activity continued to strengthen with early signs of pricing traction for Wireline and Drilling & Measurements technologies although overall sequential international growth could not replicate that of the second quarter, as we had indicated. All Areas showed sequential growth, with the exception of the Middle East and Asia, which suffered from WesternGeco marine vessels transiting between contracts, and seismic land crews mobilizing for new acquisition surveys. Excluding WesternGeco, MEA also posted sequential growth.
"A number of international regions showed particular strength. These included Iraq, where strong operational performance and new IPM contract awards helped drive results; Saudi Arabia, where rigless activity was particularly strong; Mexico, with higher IPM project work as well as increased offshore activity; Brazil, both on land and offshore; Russia, with seasonal expansion and the integration of services from Eurasia; and Angola as both pre-salt exploration activity and development activity grew.
"Integration with Smith continues to progress with cost and revenue synergies set to exceed even our revised targets for the year. The combination of Schlumberger and Smith drilling technologies are driving drilling performance for our customers and the transaction continued to be accretive on an earnings per share basis in the quarter.
"The current financial turmoil has already resulted in a lower outlook for oil demand growth in 2012, although demand growth is still expected to exceed that of 2011. Recent production data, as well as forward projections indicate that there is a tight cushion of excess oil supply that will continue to support activity.
"Therefore, while the financial turmoil introduces some uncertainty over near-term activity, we remain confident that any reductions will be short-lived, and that the outlook for the service industry remains very positive. We further believe that our customers’ needs to renew reserves, as evidenced by the recent string of exploration successes particularly in deepwater offshore areas, favors our broad international footprint. In addition, the balance between our reservoir characterization, drilling and production technologies—both in North America and overseas—will enable us to weather any activity fluctuations."
- During the quarter, Schlumberger repurchased 9.9 million shares of its common stock at an average price of $81.86 for a total purchase price of $811.4 million.
- During the quarter, Schlumberger issued $1.1 billion of 1.950% five-year notes, $1.6 billion of 3.300% ten-year notes and $300 million of three-year floating rate notes.
- During the quarter, Schlumberger completed the purchase, from Frank Mohn AS, of the remaining equity interests in Framo Engineering AS, a privately owned Norwegian company specializing in the manufacture and sales of products and services related to multiphase pumps and subsea pump-systems, multiphase metering systems, and swivel and marine systems to the oil and gas industry.
Third-quarter revenue of $9.55 billion increased 6% sequentially and 44% year-on-year. Sequentially, revenue increased in all Groups and across all geographical Areas with the exception of the Middle East & Asia Area.
Sequentially, Reservoir Characterization revenue increased on higher Wireline and Testing Services activities on exploration projects primarily in Brazil, East Asia, Russia and the North Sea as well as from increased deepwater work in the US Gulf of Mexico. WesternGeco activity decreased, however, from lower marine vessel utilization due to higher transit and docking times while moving between contracts. WesternGeco also declined from reduced land seismic activity while mobilizing crews and equipment in preparation for a large contract survey in the Middle East. Drilling revenue increased on higher M-I SWACO activity in North American unconventional plays. Both Drilling & Measurements and M-I SWACO saw strong deepwater activity in the US Gulf of Mexico and in Brazil while Pathfinder revenue grew from a more favorable higher-margin technology mix on land in the US. The majority of Drilling Technologies increased sequentially following the spring break-up in Canada. Reservoir Production revenue increased, driven by the rebound of Well Services activities in North America following the spring break-up. Well Services was higher on land in the US due to stronger activity in liquid-rich plays, capacity additions, and continuing improvement in asset utilization. Internationally, Well Services grew on stronger activity in the Latin America and Europe/CIS/Africa Areas, while Artificial Lift grew robustly in the quarter, particularly in Canada and in Iraq.
On a geographical basis, North America Area revenue increased sequentially following the seasonal rig count recovery in Canada, higher activity on land in the US, and increased deepwater work in the US Gulf of Mexico. All Product Groups registered significant rebounds from the spring break-up in Canada. Reservoir Production, particularly Well Services, posted the highest increase as the rebound was augmented by higher rig count and land activity in the US. Reservoir Characterization and Drilling activities increased from a better mix of key services in the unconventional plays in US land and higher deepwater work in the US Gulf of Mexico. WesternGeco grew on higher Multiclient and Data Processing sales. In the Latin America Area, strong revenue growth was posted in the Mexico GeoMarket due to higher Integrated Project Management (IPM) well construction project activities on land and on higher Drilling & Measurements work offshore. Argentina grew from strong unconventional gas activities that benefited Well Services. Meanwhile, Brazil experienced strong deepwater and exploration activity that led to expanded Wireline, Testing Services, Drilling & Measurements and M-I SWACO services in the GeoMarket although this was offset by the decline in WesternGeco proprietary marine surveys and multiclient sales. In the Europe/CIS/Africa Area, results were driven by higher revenue in the Continental Europe GeoMarket on a combination of strong drilling activity and fracturing work on unconventional plays in Poland. Russia/Central Asia saw strong land and offshore exploration activity benefiting Wireline, Testing Services, Drilling & Measurements and M-I SWACO Technologies—in addition to the full-quarter effect of the activity increase generated from the strategic alliance formed with the Eurasia Drilling Company Limited. The North Sea GeoMarket grew on higher exploration activity in the UK, Greenland and Denmark. In the Middle East & Asia Area, revenue declined sequentially due to decreased WesternGeco activity. The effect of this was partially mitigated by strong Wireline and Testing Services revenues in the East Asia and China GeoMarkets. Excluding WesternGeco, the Middle East & Asia Area increased sequentially driven by strong drilling and production activity in the Saudi Arabia, Bahrain; Iraq; and East Asia GeoMarkets.
Third-quarter pretax operating income of $1.93 billion increased 10% sequentially and 59% year-on-year. Pretax operating margin increased 77 basis points (bps) sequentially to 20.2% primarily due to increasing higher-margin exploration activities that benefited Wireline, Testing Services, Drilling & Measurements and M-I SWACO. The rebound from the spring break-up in Canada also contributed significantly to margin improvements for Well Services and for all Drilling Group Technologies. These improvements, however, were partially offset by the lower WesternGeco activity during the quarter.
A number of technology highlights, both in North America and international areas, underscored the changes in the activity mix as deepwater and exploration activity continued to strengthen.
In the Pechora Sea in the Russian Arctic, Gazprom-Bureniye, LLC awarded Schlumberger a tender for the integrated services to drill the first three wells on Prirazlomnoye oilfield. The contract will include the full scope of Schlumberger well construction services. Operations will be conducted from a stationary platform 60 km from the coast and 1,000 km from Murmansk. The general contractor for the drilling operations on the Priraslomnoye oilfield is Gazprom-Bureniye, LLC, while the license holder and field operator is Gazprom Neft Shelf, LLC.
In French Guiana, Tullow Oil chose to deploy advanced Wireline InSitu Fluid Analyzer technology to assess a hydrocarbon discovery and a new play in an offshore exploration well. By providing accurate fluid measurements of hydrocarbon composition, gas-oil ratio, live fluid density and viscosity, carbon dioxide concentration, fluorescence and color, the sample acquisition could be optimized. The fluid properties were used in real time to remove uncertainty on fluid distributions from evaluation of pressure gradients and petrophysical results. To meet Tullow Oil’s targets, available tools were rapidly located and shipped making the operation a logistical and commercial success. Fluid property characteristics were delivered within 30 minutes of starting to pump out formation fluid. After the samples had been retrieved and further analyzed, the customer noted close tolerance to preliminary pressure-volume-temperature (PVT) results.
Combined Drilling & Measurements technologies formed the most complex bottomhole assembly ever run while drilling a single run in a deepwater exploration well offshore Angola. PowerDrive rotary steerable, EcoScope multifunction logging-while-drilling, TeleScope high-speed telemetry, and StethoScope formation-pressure-while-drilling services together with proVISION reservoir steering, sonicVISION sonic-while-drilling and seismicVISION seismic-while-drilling technologies all transmitted data in real time to remotely monitor the drilling process, optimize pore pressure, perform formation evaluation, select pressure tests and acquire checkshot times. Net-to-gross and continuous permeability values were estimated for perforation interval selection and completion design optimization.
In Iraq, Wireline MSCT mechanical sidewall coring technology has been deployed on two exploration wells. Core recovery in the tight and fractured carbonate reservoirs was 100% for each job and the cores will yield the petrophysical properties needed to evaluate these difficult reservoirs accurately. The information will be integrated with other log data for better reservoir characterization and to subsequently design optimal testing and completion programs.
Also in Iraq, Techlog petrophysical analysis software has been introduced on a project on the Siba field to provide an independent evaluation on three wells as a first step to evaluate future exploration wells and build the reservoir simulation model. The workscope includes recommendations for further data acquisition and technical work, which will help reduce uncertainties in future field development plans. The project was conducted jointly by Data & Consulting Services and Schlumberger Information Solutions.
Elsewhere in Iraq, Schlumberger has been awarded a new contract by PETRONAS Carigali. The PETRONAS contract covers well testing services for the Garraf field appraisal and development program that includes two exploration and nine development wells.
High-temperature wireline production logging services were run in Thailand to identify fluid type and individual zone contributions in a PTTEP exploration well where static bottomhole temperatures were expected to reach 277 degC. The evaluation of potential production was considered critical to guiding further exploration activity in the area. Two runs were successfully completed in separate zones of interest using a combination of production logging sensors including digital fluid entry tool technology. Onsite evaluation of the recorded data was consistent with surface measurements and the success of the operation was underpinned by careful risk mitigation during operational preparation that included simulation to ensure that the downhole equipment would have sufficient temperature holding time.
In the Caspian, Well Services expertise and technology helped LUKOIL develop an economical solution for the stimulation of offshore fields where existing platform infrastructure did not provide sufficient deck space. Using a supply vessel provided by LUKOIL, Schlumberger supplied FlexSTIM modular offshore stimulation equipment and engineering to ensure sea fastening, stability and safety. Equipment montage, test and certification were performed in Astrakhan to meet a tight three-week schedule. One exploration well has already been stimulated with FlexSTIM technology in a timely, safe and efficient manner. Early production data are encouraging and FlexSTIM technology has become an accepted solution for Caspian Sea field development.
In Brazil, the Schlumberger Brazil Research and Geoengineering Center (BRGC) has successfully performed its first fluid analysis on reservoir fluid samples acquired by Testing Services for PVT measurement and fluid characterization on an Anadarko field. This is an important milestone for BRGC, which was inaugurated in November 2010, as it begins support for clients engaged in pre-salt exploration and development.
Exploration technology highlights also included operations in shale gas areas, particularly outside North America.
In West Bengal, India, ONGC created an exploration landmark when gas flowed out from the Barren Measure shale at a depth of around 1700 m in its first R&D well. Schlumberger collaborated with ONGC to provide services and technology. As part of the project, Data & Consulting Services defined four exploratory well locations in two sub-basins in the Damodar Valley and provided technical expertise during operations while IPM managed drilling and field operations. All four wells have been drilled, and the first well was hydraulically fractured following a comprehensive data acquisition and coring program to quantify reservoir and completion quality with TerraTek core analysis. Based on detailed evaluation of the formation properties, which were significantly different to commercial US shale plays, it was concluded that the original fracture design could be reduced in scale and use 80% less proppant. The first well to be completed tested gas at surface during flowback operations. Close cooperation between Schlumberger Technologies transformed this project from a TerraTek-based core evaluation to a full Schlumberger integrated execution and evaluation project. This successful R&D pilot testing of the first-ever shale gas on surface opened up new opportunities to meet India’s energy needs.
In Poland, integrated Drilling Group technologies have been deployed for Lane Energy to drill the Warblino-LE-1H horizontal well to enable detailed core and log analysis of the lower gas-bearing shales. PathFinder measurement-while-drilling, mud motor and resistivity tools were used to drill the 17 1/2-in and 12 1/4-in upper hole sections as well as the 8 1/2-in curve section, while Drilling & Measurements PowerDrive X6, EcoScope, TeleScope and SonicVision advanced rotary steerable and logging-while-drilling technologies were utilized to drill and position the 8 1/2-in lateral section. Successful delivery of the well enabled Schlumberger to demonstrate both technology platforms in the region—backed by successful transfer of relevant shale drilling expertise from North America to Europe and operational integration of Pathfinder and Drilling & Measurements services.
In Poland, Well Services technology was also used to successfully complete hydraulic fracturing operations in a horizontal shale gas well for Lane Energy. The well was completed with 13 stages using operational best practices acquired through unconventional gas operations worldwide.
Reservoir Characterization Group
Third-quarter revenue of $2.49 billion was 1% higher sequentially and increased 9% year-on-year. Pretax operating income of $610 million was 1% higher sequentially and increased 16% year-on-year. Pretax operating margins remained unchanged sequentially at a strong 24.5%.
Wireline and Testing Services posted significant sequential increases with revenue and margins up on stronger offshore exploration activities in Brazil, East Asia, Russia and the North Sea as well as from increased deepwater work in the US Gulf of Mexico. WesternGeco activity decreased, however, from lower marine vessel utilization due to higher transit and docking times while moving between contracts. WesternGeco also declined from reduced land seismic activity while mobilizing crews and equipment in preparation for a large contract survey in the Middle East.
Sequentially, pretax operating margins remained unchanged at 24.5% as significant margin improvements in Wireline and Testing Services from strong exploration activities were largely offset by the margin declines in WesternGeco.
Reservoir Characterization Group activities saw a number of new or significant technology deployments in the quarter.
In the Wolfbone formation in West Texas, Wireline Dielectric Scanner technology was deployed for operator J. Cleo Thompson to identify productive intervals in complex lithology, low porosity zones. Data & Consulting Services helped evaluate the data using ELAN multimineral log analysis software to guide the operator's decision to eliminate a lower zone in future development wells that would yield cost savings of approximately 15% per well. The oil-bearing Wolfbone reservoir, where optimal economics are crucial, can produce significant amounts of water.
Third-quarter revenue of $3.68 billion was 6% higher sequentially and 79% higher year-on-year. Pretax operating income of $613 million was 14% higher sequentially and increased 99% year-on-year.
Among Drilling Group Technologies, M-I SWACO recorded the largest sequential revenue increase through continued growth in unconventional shale plays on land in the US with higher asset utilization, as well as from the seasonal rig count recovery in Canada and Russia, and the increased deepwater activity in the US Gulf of Mexico and Brazil. Drilling & Measurements revenue increased sequentially on the strong summer drilling campaign in Russia and stronger deepwater activities in the US Gulf of Mexico and Brazil and increased shelf activity in Mexico. Pathfinder reported increased revenue from a more favorable technology mix on land in the US. In addition, Pathfinder, Geoservices and Bits & Advanced Technologies registered activity rebounds following the spring break-up in Canada.
Sequentially, pretax operating margins grew 111 bps to 16.7% driven by the rebound in activity in Canada, an improved technology mix, and further integration and expansion of Smith and Schlumberger drilling technologies. Bits & Advanced Technologies contributed to this improvement with increased sales and rentals of higher-margin drill bits while Pathfinder improved on higher-technology integration with Drilling & Measurements. M-I SWACO margins improved through increased exploration activities in the US Gulf of Mexico, Russia and Brazil, as well as through the seasonal rig count recovery in Canada. Better pricing on IPM land projects in Mexico and improved efficiencies on a well construction project in Algeria further contributed to this result.
During the quarter, a number of highlights confirmed further opportunities generated by the combination of Smith and Schlumberger drilling technologies.
Reservoir Production Group
Third-quarter revenue of $3.37 billion increased 10% sequentially and 47% year-on-year. Pretax operating income of $707 million was 16% higher sequentially and increased 87% year-on-year.
Among Reservoir Production Group Technologies, Well Services sequential revenue growth in North America was driven by the rebound from the spring break-up in Canada, stronger activity in liquids-rich unconventional plays, capacity additions and continuing improvements in asset utilization. Internationally, Well Services posted high double-digit growth in Latin America from higher stimulation and coiled-tubing activities in Argentina, Mexico, Venezuela and Brazil. Europe/CIS/Africa increased significantly from shale fracturing services in Poland, increased deepwater cementing work in the Black Sea, and strong land activities in Russia. In addition, strong stimulation vessel activity was seen in the Nigeria and the Gulf of Guinea Africa GeoMarket. Artificial Lift revenue grew sequentially across all Areas led by the North America and the Middle East & Asia Areas.
Sequentially, third-quarter pretax operating margins increased 96 bps to 21.0% as Well Services activity in Canada rebounded following the end of the spring break-up. In addition, Well Services exacted better cost efficiency and asset utilization on land in the US and in Russia and recorded increased higher-margin stimulation activities in the Europe/CIS/Africa Area.
Reservoir Production Group highlights included technology deployments in a number of key areas.