Schlumberger Limited Q1 2010 Earnings Call Transcript

Schlumberger Limited Q1 2010 Earnings Call Transcript
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Schlumberger Limited (SLB)

Q1 2010 Earnings Call

April 23, 2010 9:00 am ET

Executives

Malcolm Theobald – VP IR

Simon Ayat – EVP & CFO

Andrew Gould - CEO

Analysts

Dan Pickering - Tudor, Pickering, Holt

Mike Urban – Deutsche Bank

Kurt Hallead - RBC Capital Markets

Ole Slorer - Morgan Stanley

Bill Herbert - Simmons & Company

David Anderson – JPMorgan

Angie Sedita – UBS

Alan Laws - BMO Capital Markets

Geoff Kieburtz - Weeden & Co.

Robin Shoemaker – Citi

William Sanchez – Howard Weil

Pierre Conner - Capital One Southcoast

Daniel Boyd - Goldman Sachs

Brad Handler - Credit Suisse

Wagar Syed – Macquarie Capital

Kevin Simpson – Miller Tabak

Presentation

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Welcome to the Schlumberger Limited earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host, Mr. Malcolm Theobald; please go ahead, sir.

Malcolm Theobald

Good morning and welcome to the Schlumberger Limited first 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 on the outlook, 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 website or upon request. And now, I'll turn the call over to Simon.

Simon Ayat

Thank you Malcolm, ladies and gentlemen thank you for participating in this conference call. Excluding charges first quarter income was $0.62 per share. This is down $0.05 sequentially and down $0.16 compared to the same quarter of last year.

During the quarter we recorded $75 million or $0.06 of charges, $40 million related to the reduction of future tax deductions relating to our retiree medical plan as a result of the passage during the quarter of the Patient Protection and Affordable Care Act in the US.

We also recorded $35 million of merger related transaction costs pertaining to the Smith and Geoservices transactions. We anticipate that we will continue to incur merger and integration related costs. These amounts will be most significant in the quarter when the Smith transaction closes, and the quarters immediately following the merger.

We will continue to separately identify these charges for you. Turning to the business segments, oilfield services first quarter revenue decreased 1% sequentially while WesternGeco revenue decreased 14%. The sequential decline in both revenue and earnings per share can be primarily attributed to severe winter weather that hampered activity particularly in Russia, combined with the absence of the surge in multi client SIS software and other product sales that we experienced in Q4.

These declines were partially offset by an improved performance in North America. Oilfield services pre-tax operating income of $969 million decreased 4% compared to the prior quarter. Oilfield services margins slipped by 46 basis points sequentially to 19% as improvement in North America were offset by a decline in Europe/CIS/Africa. Although all international margins in OFS were 22.3%.

By area oilfield services sequential pre-tax operating margin highlights were as follows. North America improved by 594 basis points to 8% primarily due to an increase in activity across the area supplemented by some pricing improvements for well stimulation services. Latin America increased by 174 basis points to 17.5% mostly as a result of the more favorable revenue mix in Mexico/Central America and the effect of the currency devaluation in Venezuela.

Europe/CIS/Africa margin was 18.1%, 353 basis points lower principally due to lower activity in Russia and the North Sea and lower testing services, equipment and SIS software sales. Finally, Middle East/Asia margin declined slightly by 156 basis points to 31% primarily due to less favorable revenue mix in the Arabian, Gulf, Qatar and Indonesia GeoMarkets and the absence of the year end artificial lift product and SIS software sales in Q4.

At WesternGeco pre-tax was $67 million reflected the decrease in pre-tax margin of 659 basis points to 14.3%. This decrease was largely attributable to the absence of the strong year-end multi client sales that we experienced last quarter. Now turning to Schlumberger as a whole the effective tax rate excluding charges was 18.9%.

This was higher than last quarter primarily due to less favorable geographic earning mix in oilfield services. As you are aware the ETR is very sensitive to the geographic earnings mix and as such we do experience some volatility on a quarterly basis.

Net debt was $75 million at the end of the quarter as compared to $126 million at the end of Q4. We ended the quarter with $4.9 billion of cash and investment on hand and short-term debt of only $934 million.

Significant liquidity events during the quarter included $337 million of stock repurchases and $444 million of CapEx. During the quarter we repurchased 5.3 million shares at an average price of $63.72. Subsequent to the announcement of the merger with Smith in February we repurchased the maximum number of shares we could under the SEC’s Safe Harbor provisions. During the second quarter we are projecting a significant increase in our net debt as a result of the closing of the Geoservices transaction combined with the ramp up in CapEx.

These increases would be offset in part by the expected conversion to equity of our $299 million of convertible debentures during Q2. Oilfield services CapEx is now expected to reach approximately $2.8 billion in 2010 while WesternGeco CapEx is still expected to approach $300 million.

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