Schlumberger Limited CEO Discusses Q4 2010 Earnings Call Transcript

Schlumberger Limited (SLB)

Q4 2010 Earnings Call

January 21, 2011 9:00 am ET

Executives

Simon Ayat - Chief Financial Officer and Executive Vice President

Malcolm Theobald - Vice President of Investor Relations

Andrew Gould - Chairman and Chief Executive Officer

Analysts

Alan Laws - BMO Capital Markets U.S.

David Anderson - Palo Alto Investors

William Herbert - Simmons

Kurt Hallead - RBC Capital Markets, LLC

Kevin Simpson - Miller Tabak

Geoff Kieburtz - Weeden & Co. Research

William Sanchez - Howard Weil Incorporated

Brad Handler - Crédit Suisse AG

John Olaisen - Carnegie Investment Bank AB

Douglas Becker - BofA Merrill Lynch

Michael LaMotte - Guggenheim Securities, LLC

Angie Sedita - UBS Investment Bank

Daniel Boyd - Goldman Sachs Group Inc.

Michael Urban - Deutsche Bank AG

Ole Slorer - Morgan Stanley

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Schlumberger Limited earnings conference call. [Operator Instructions] I would now like to turn the conference over to Mr. Malcolm Theobald, Vice President of investor Relations. Please go ahead, sir.

Malcolm Theobald

Thank you, Julie. Good morning, and welcome to the Schlumberger Limited Fourth Quarter and Full Year 2010 Results Conference Call. Joining me for today's call are Andrew Gould, Chairman and Chief Executive Officer; and Simon Ayat, Chief Financial Officer.

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. We will welcome your questions after the prepared statement. And 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. Fourth quarter earnings per share, excluding charges and credits was $0.85 per share. This is an increase of $0.15 sequentially and $0.18 compared to the same quarter of last year.

During the quarter, we recorded $0.09 of charges relating to the repurchase of certain bonds and other merger-related items. We anticipate we would continue to incur merger-related charges throughout 2011, as we continue the integration of Smith.

The Q4 results include a full quarter of activity from the acquired Smith companies as compared to only one month in the Q3. We have continued to make significant progress on our integration during the quarter, and while the transaction was dilutive to the quarter's result by approximately $0.05, we continue to believe it will be breakeven by the end of the fourth quarter of this year.

Turning to the business segments, Oilfield Services fourth quarter revenue increased 9% sequentially while WesternGeco revenue increased 17%. The legacy Smith businesses contributed $2.5 billion in revenue for the quarter. Approximately 25% of the growth in Oilfield Services was attributable to the traditional year end surge in product and software sales. The remaining increase was largely due to the continued strong Well Services performance in U.S. Land, as well as the revenue generated from the early payout of an IPM [Integratd Project Management] gain share project in North America.

Oilfield Services pretax operating income of $1.3 billion increased 21% compared to the prior quarter. While pretax operating margin increased 224 basis points to 22.1%. This increase was largely driven by the strong performance in North America where margin improved by 6.6 percentage points.

Now margins grew 658 basis points to 24% led by U.S. Land. The early payout of the IPM gain share project, which contributed approximately $0.02 to the fourth quarter earnings per share accounted for just over 2 percentage points of the North America margin improvement. International margins improved sequentially by 49 basis points to 21.9%. This improvement was primarily driven by a more favorable revenue mix in the Peru, Colombia, Ecuador and North Sea GeoMarkets. In the Middle East, pretax operating margin decreased as effects of year-end product and software sales were not sufficient to offset the impact of the weather-related delays in Australia, start-up costs in Iraq and an overall less favorable revenue mix.

Sequentially, WesternGeco pretax operating income increased by $73 million to $113 million and pretax operating margin increased by almost 12 percentage points to 20.2% on account of robust monthly client sales. The legacy Smith segment, particularly Smith Oilfield Services performed very well, contributing $275 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 23.1%, representing an increase of just over 2 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 the Q4, as well as the continued impact of the Smith merger. We expect the ETR for the full year of 2011 to be in the mid-20s. This reflects the planned mix of activity between North America and the rest of the world, as well as the full-year impact of the Smith merger. However, I continue to remind you that we can experience volatility on a quarterly basis due to the geographic mix of business.

We ended the quarter with $5.5 billion of cash and investments on hand and short-term debt of $1.7 billion. Net debt was $2.6 billion at the end of the quarter as compared to $3.5 billion at the end of Q3. This improvement reflects very strong cash collections in the fourth quarter.

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