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Schlumberger Limited (

SLB

)

Q3 2010 Earnings Call Transcript

October 22, 2010 9:00 am ET

Executives

Malcolm Theobald – VP, IR

Simon Ayat – CFO

Andrew Gould – Chairman & CEO

Analysts

Brad Handler – Credit Suisse

Dan Boyd – Goldman Sachs

Kurt Hallead – RBC Capital

David Anderson – J.P. Morgan

Bill Herbert – Simmons & Co.

Jim Crandell – Barclays

TheStreet Recommends

Alan Laws – BMO Capital Markets

Bill Sanchez – Howard Weil

Michael LaMotte – Guggenheim Partners

Mike Urban – Deutsche Bank

Robin Shoemaker – Citi

Geoff Kieburtz – Weeden

Doug Becker – Merrill Lynch

Ole Slorer – Morgan Stanley

Presentation

Operator

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Previous Statements by SLB
» Schlumberger Limited Q2 2010 Earnings Call Transcript
» Schlumberger Limited Q1 2010 Earnings Call Transcript
» Schlumberger Limited Q4 2009 Earnings Call Transcript

Welcome to Schlumberger Limited third quarter 2010 results 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. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Malcolm Theobald. Please go ahead.

Malcolm Theobald

Thank you, Greg. Good morning, and welcome to the Schlumberger Limited third quarter 2010 results conference call. Joining me for today’s call are Andrew Gould, Chairman and Chief Executive Officer; and Simon Ayat, Chief Financial Officer. Prior to Andrew’s overview of the results and his comments, Simon will first review the quarter’s financial results. After the prepared statements, we will welcome your questions.

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 Web site or upon request.

Now, I will turn the call over to Simon.

Simon Ayat

Thank you, Malcolm. Ladies and gentlemen, thank you for participating in this conference call. Third quarter earnings per share excluding charges and credits was $0.70 per share. This is an increase of $0.02 sequentially and $0.05 compared to the same quarter of last year.

During the quarter we recorded $0.30 of restructuring and merger related charges and a $0.98 gain on our investment in M-I SWACO. These items are more fully described in our earnings press release. As a reminder we will continue to incur merger and integration related charges during the next few quarters.

The third quarter results include one month of activity relating to the merger with Smith. This transaction was dilutive to our Q3 results by just under $0.02 per share and is estimated to be dilutive to our Q4 earnings by approximately $0.05 per share.

We issued 176 million shares in the Smith transaction, and due to the timing of the close, only one-third of these shares are included in our weighted average diluted shares outstanding for Q3. The full 176 million shares will be reflected in our Q4 EPS calculation.

During the quarter, we continued to feel the effect of the deepwater drilling moratorium in the U.S. Gulf of Mexico. We estimate that the moratorium resulted in a reduction of our Q3 earnings of approximately $0.02 to $0.03 per share. The earnings effect of the moratorium in Q4 is estimated to be approximately $0.04 to $0.05 per share.

Turning to the business segments, Oilfield Services’ third quarter revenue increased 2% sequentially, while WesternGeco revenue increased 1%. The legacy Smith businesses contributed $810 million in revenue to the quarter.

The growth in Oilfield Services revenue was largely attributable to the continued strong activity and increased pricing in U.S. land, as well as the impact of three months of Geoservices activity in Q3 as compared to one month in the prior quarter.

These increases were partially offset by a reduced IPM activity in the Mexico Central America GeoMarket and the full quarter’s effect of the deepwater drilling moratorium in the Gulf of Mexico.

Oilfield Services pretax operating income of $1.1 billion increased 3% compared to the prior quarter, while pretax operating margin increased 15 basis points to 19.9%. The increase in margin was primarily driven by the strong performance in North America. International margins were down slightly to 21.4%, primarily due to the decline in activity in Mexico/Central America.

By area, Oilfield Services sequential pretax operating margin highlights were as follows. North America pretax operating margin improved 704 basis points to 17.4%. U.S. land margin improved significantly by almost 9 percentage points as a result of higher activity and better pricing. However, this strong performance was tempered by the effect of the deepwater drilling moratorium.

Latin America margin declined 302 basis points to 14.9% due to the decreased activity in Mexico/Central America. Europe/CIS/Africa margin was essentially flat at 18.3%, while the Middle East/Asia margin declined slightly by 84 basis points to 30.3%.

Sequentially, WesternGeco pretax operating income decreased 14% to $40 million and pretax operating margins slipped 145 basis points to 8.3%. The three Smith segments contributed $84 million of pretax operating income to the quarter’s results.

Now turning to Schlumberger as a whole, the effective tax rate, excluding charges and credits, was 21%, representing an increase of over 3 percentage points compared to last quarter.

This increase was primarily driven by the fact that we generated a significantly larger portion of our earnings in North America in Q3 as well as the impact of the Smith merger. As you know, Smith is a U.S. company, and as such, has a higher effective tax rate than Schlumberger.

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