Good morning ladies and gentlemen and welcome to the second day of this conference.

Transcription

1 Good morning ladies and gentlemen and welcome to the second day of this conference. Yesterday we laid out the case for growth in the oilfield services industry. We showed you how a growing demand for hydrocarbons and a more challenging resource base will boost the technology intensity for future developments. We also showed you a number of the new technologies that we are introducing into the market. Lastly we set forth our future ambitions in terms of growth, margins, operational excellence, earnings per share, dividend, and stock buy-back plans. The next question then, is how will we meet these ambitions? 1

2 The short answer is through focused execution building on our set of unique strengths. These are our technology leadership, the depth of our people, the power of our global footprint, our operational integrity, the maturity of our organization, and our size advantage. So for the next thirty minutes or so I will review these strengths and our execution plans in more detail, and show you why Schlumberger represents a unique investment proposition. Let s start by looking at the first of our unique strength our technology leadership. From the birth of wireline logging more than 80 years ago, we have over time expanded our technology portfolio into a wide range of oilfield services and products, establishing leadership positions in most of the markets we have entered into. Today our portfolio is by far the broadest in the industry spanning 16 strong product lines. 2

3 The driving force behind the expansion of our offering is the core belief that workflow and technology integration can unlock significant value by eliminating the commercial misalignment that occurs when individual companies are working jointly on a project or challenge for a customer. By being able to offer the complete range of technologies in a workflow, we can eliminate this misalignment and ensure that all the focus is kept on solving the customer s challenge. This is why we have organized and expanded our technology portfolio in line with the three main workflows of our customers reservoir characterization, drilling, and production We have also established a complete range of business models to maximize market access for our offering. This includes traditional business models for customers who would like to do the workflow integration themselves, as well as bundled services and project management for the customers that would rather leave the workflow integration to us. 3

4 Looking at our technology offering in light of these workflows and business models, you can see that our coverage is largely complete. You can also see from our market ranking that we hold leadership positions in most of the categories, further emphasizing our ability to solve our customers challenges within each technical domain. Our leadership position in the reservoir characterization workflow has been the cornerstone of the company for years. In production, our portfolio is also strong in particular within well intervention services such as coiled tubing and slickline. Within the drilling workflow we have, with the Smith and Geoservices transactions, created the industry-leading drilling offering covering the entire drilling system. So let s take a closer look at the background for these two transactions. 4

5 The scope for improving drilling performance is large, as a significant part of the energy we input at surface does not reach the drill bit. This energy is instead lost through friction, mechanical shocks, and vibrations that lead to longer drilling times, failure of downhole tools, and higher financial and technical risks. In the past we have made step changes in drilling performance through individual technologies such as mud motors, logging-while-drilling measurements, rotary steerable systems, and PDC bits to name a few. In the future, while we continue to focus on creating better individual drilling technologies, we believe the next step change in drilling performance will come from taking a systems approach where we integrate, optimize and drive the performance of the entire system. Integrating the drilling workflow is complex, and will require a concerted effort all the way from research and engineering to well planning and wellsite operations. In doing so, we need to transform the overall drilling process from being partly a form of art, to becoming a fullfledged science. It is therefore critical to understand and be able to influence the building blocks that span the entire drilling process, including the bottomhole assembly, the drilling fluid, the drill string, and the surface systems. This is the motivation behind the Smith and Geoservices transactions and for the wireddrillpipe joint venture we have established with National Oilwell Varco. With respect to Smith, I will give you an update on the integration and synergies later in my presentation. 5

6 Supporting our technology offering is a massive product development machine made up of more than 15,000 people in 65 centers around the world. The global footprint of these centers mirrors that of our operations to enable close coordination between the two. This footprint also maximizes our access to talent and mitigates potential business continuity risks. We invest more than USD 1 billion a year in product development ranging from groundbreaking research that drives innovation to detailed engineering of our next-generation commercial products. And today, our product development organization manages over 700 projects and supports more than 2,500 commercial products for our 16 product lines. How good we are at product development comes down to the operational performance of the products we create, as well as the performance of the projects that create them. 6

7 Strong product performance means achieving better functionality and reliability while reducing total cost of ownership. Strong project performance on the other hand means creating the products in a shorter timeframe and at a lower project cost. In 2007, we conducted a comprehensive evaluation comparing our product and project performance against leading companies in other technology driven industries. From this work we concluded that we have huge potential for achieving better reliability and lowering the cost of ownership for our products. We also found significant potential linked to better knowledge sharing between project teams In pursuit of these benefits we have, over the past four years, completely overhauled our R&D machine tailoring methods and principles adopted from the leading industries to our business. These changes represent one part of the Excellence in Execution program, which we started in The future step change in product development performance from this program combined with our unmatched R&D investment level will ensure that we widen our technology lead going forward. The second unique strength we have as a company is the depth of our people. This is built on a set of very clear principles. First, Schlumberger has since the 1960s pioneered the concepts of global recruiting and creating a balance between the make-up of our activity and our workforce. Today we recruit from more than 300 universities in over 80 countries around the world. We receive in excess of 200,000 applications from graduates every year, and more than 80% of the offers we make are accepted, so our access to talent is more or less unlimited. 7

8 Second, our structured training programs allow young professionals to gain expertise and experience at a pace and intensity that they cannot find anywhere else. Today it takes us about nine months to transform a graduate recruit into a revenue-generating field engineer. The process starts with an induction period in a field location including 350 hours of on-the-job and on-line training mainly focused on HSE. Following this the trainee goes through a formal school covering 450 hours of classroom and practical training in one of our four major learning centers. The school is concluded by a final exam and failing this exam actually results in termination. The last part of the initial training program is done back in the field location where the trainee shadows a certified engineer until he or she is ready to do the field exam conducted on a commercial job. On passing this last hurdle, the field engineer is certified to conduct standalone operations on behalf of the company. After completing three to five years in field operations, we continue to develop our people using the principle of borderless careers. Here we expose our people to a variety of roles in a number of locations around the world giving them early responsibility and the opportunity to succeed in new and challenging environments. This development program is founded on the individual s ambition to excel, which is a driving force in the company. 8

9 Our drive towards diversity started in the 1970s, and the depth of our nationality diversity at all levels of the company is a major competitive advantage today. Over the past decade, we have been working on establishing gender diversity as a similar strength. In this period we have more than doubled the total number of women in the company and also doubled the presence of women in senior management positions from 5 to 10%. We still have a way to go but we remain focused on building gender diversity through our recruiting efforts, and through more flexible employment policies that better support women through the various phases of their careers. So going forward we will continue to maintain this unique strength by staying focused on global recruiting, technical training, borderless careers, and workforce diversity. Our third unique strength as a company is the power of our global footprint. 9

10 Schlumberger today operates in 83 countries and we have been in many of these places for more than 70 years. Our long and rich history has created deep customer relationships and extensive local knowledge. Throughout this time we have also made continuous investments in infrastructure and actively recruited and developed local talent. In 2009 alone, which was a tough year for the industry, we recruited over 4,000 engineers and technicians globally, and we opened up 9 new state-of-the-art facilities around the world. Our investments in people and infrastructure over the past 70 years allow us to deliver highly competitive commercial and technical offerings in every corner of the world. In addition to having created strongholds in most of the oil and gas basins around the world, our global footprint also has other advantages. One example is operational flexibility-- illustrated by how we were able to handle the impact of the US Gulf of Mexico drilling moratorium last year. In the span of 2 months we moved 580 of our deepwater experts from the Gulf of Mexico to new locations around the world. Most of these people never had an 10

11 international assignment before, and were all welcomed with open arms whether they went to Angola Malaysia or Brazil to the point that some of them do not even want to go home. Iraq is another example of how we leverage our global footprint. Even though we were not the first to move into Iraq due to security concerns, we have quickly taken the lead in terms of infrastructure people and equipment on the ground. We have also won more than our fair share of the contracts so far awarded, and we are doing well in terms of field operations. Today we have three rigs drilling for BP, and we have another three being mobilized for Exxon. In addition, we have won a workover rig contract for ENI, as well as several individual products and services contracts for other operators. Our start-up performance on the IPM well construction front has been very good, and is a classic example of how we are able to share best practices from one area of the world to another. In this case, the factory-drilling approach established in Mexico, then ported to Russia, is now also used in Iraq. Iraq will be a major growth area for us in 2011 and we will produce margins higher than 10% for the full year. 11

12 Our position within the worldwide unconventional gas market is another example of how we can leverage our global presence to pursue new growth opportunities. In addition to our activity in North America we are today engaged in unconventional gas projects in all parts of the world. Looking at shale gas in particular we are convinced that the brute force approach established in North America will not be practical overseas, either from a financial or an operational standpoint. To exploit the full potential of shale gas, we need to establish a workflow and corresponding technology offering built around a better evaluation of shale gas reservoirs. This will allow optimization of well placement, completion design, and fracturing treatments as a function of reservoir quality. The goal will be to only drill the best wells, and only stimulate the best intervals, while we continue to look for frac solutions that further minimize the usage of both water and proppant. 12

13 Our fourth unique strength as a company is our operational integrity. Schlumberger was one of the first in the industry to introduce a QHSE management system back in the early 1990s. Building on this operational framework, we have over the past 20 years established industry-leading performance within the areas of quality, health, safety and environment. The growing complexity and costs of oil and gas developments is an opportunity to set ourselves further apart in terms of operational integrity and this is all the more important following the Deepwater Horizon incident. Therefore in 2007 as part of the Excellence in Execution program, we started raising the bar by looking at what we could learn from other leading industries in terms of operational quality and reliability. This operational side of Excellence in Execution targets our field and wellsite operations in terms of people and process as well as product maintenance. 13

14 As part of our major drive towards better product maintenance we have over the past 4 years invested more than USD 500 million in building new and larger operations bases in all parts of the world. These new and larger bases enable standardization and more robust maintenance practices based on LEAN principles. This leads to reductions in maintenance times and numbers of operational failures, which again drive asset utilization. In North America pressure pumping for example, we have doubled our asset utilization during the past year based on these principles. Our focus on operational integrity is also closely linked to people competency and having the right operational processes. Our fifth unique strength as a company is our organizational maturity. After having operated our product lines as standalone businesses since the company was founded, we moved to a matrix organization in Transforming a set of standalone product lines into a matrix framework takes time, because it requires a step change in teamwork and trust, more clarity of roles and responsibilities, as well as common business processes and systems. The transformation is also complex in terms of balancing management power as the product lines need to give up some control of their business in order to be part of something bigger. Our organizational maturity is a direct result of the investments made in the matrix over the past decade. 14

15 In our matrix set-up, the field operations are overseen and supported by both the global product line as well as by the local GeoMarket organization. The role of the GeoMarket is to drive our business forward by creating a common customer interface, by coordinating IPM and bundled services bids, by lowering our support costs through a unified structure, and by ensuring technology and workflow integration through product line collaboration. The role of the product line is to focus on their market position in all parts of the world on their technology development and deployment and on their service quality. In terms of management control between the two sides of the matrix, we initially had to swing the power balance towards the GeoMarkets to cement the position of the new structure. Thirteen years into the matrix transformation, we have successfully created a common customer interface and grown our IPM business significantly through the GeoMarket 15

16 organization. We have also maintained or even strengthened the competitive position of all of our product lines. But even through we have made some progress on lowering the support costs and driving technology integration, we still have huge upside potential in these areas, which we are now actively pursuing. We do this by giving the product lines back full management control of their day-to-day operations thereby allowing the GeoMarket organization to focus more on the support costs and the technology integration. The organizational maturity established over the past 13 years now allows us to do this. The associated benefits are even bigger as we integrate the Smith and Geoservices organizations and their 30,000 employees. The matrix organization and principles are very much intact. We are simply using our organizational maturity to optimize how we run the business in pursuit of even better performance. 16

17 The recent restructuring of our North America operations is a good example of how we can use this maturity to tune and optimize the organization in a non-traditional market. In the past our standard GeoMarket model has delivered excellent results in the traditional high-tier markets of North America like Alaska, Eastern Canada, and the Gulf of Mexico. However, the standard model was never optimized for North America land, which is quite different from the traditional high-tier markets. So the restructuring of our North America Land business is simply performing this needed optimization. We achieved this by creating a separate focus on this business by organizing the product lines into the workflows of reservoir characterization, drilling, and production and by centralizing overall business management as well as our shared support organization. 17

18 At the beginning of last year Andrew told you that our North America performance would be fixed in 12 months. This is the type of challenge that we thrive on as a company and I would like to compliment the North America team for the efforts they have made to turn our business around. While our fourth-quarter results benefited from year end and IPM impacts, it is clear that we have made huge progress and that our ambition of being leaders in North America in both size and margins is now within reach. The sixth unique strength is our advantage of size, which today holds significant upside in terms of cost and margins particularly after the Smith and Geoservices transactions. 18

19 At this stage we are actively pursuing cost savings related to supply chain, transportation, facilities and shared support. Using transportation as an illustration, in 2010 we made over 1.2 million shipments of goods spanning air, land and sea. Less than 20% of these shipments were managed regionally or globally. To address this we are establishing a global transportation network to improve planning and on-time delivery, and to lower the unit cost of our shipments. We have similar savings potential and action plans in place for supply chain facilities and shared support as indicated on the slide. All these elements have been critical to drive our performance recovery in North America. Although the implementation will be slower and the impact likely less pronounced, we are now actively looking to capitalize on these opportunities in the rest of the world. Ladies and gentlemen, I have now reviewed the unique strengths of Schlumberger together with the focused execution plans that will ensure that we meet our stated ambitions. To further illustrate our ability to plan and execute, I would now like to give you a brief status report on the Smith integration as well as an update on the estimated synergies. 19

20 The starting point for a successful integration of this size is planning. From February to September of 2010, we had over 200 people from Smith and Schlumberger working together in 15 teams preparing the detailed integration plans. Our target was always to be ready by September 1, which ended up being the date we closed the transaction without having to divest any parts of Smith. The integration plan was focused on preserving the Smith brands, culture and identity that had made them market leaders. We also made it clear that they would remain in control of running their business while Schlumberger would, over time, take over the support functions and drive the workflow integration. The Smith merger is seen as something very positive from both the Smith and Schlumberger side and to date all the main integration milestones have been met. So how does this integration progress translate into synergies? 20

21 The Smith merger is mainly built on revenue synergies. However there are also cost synergies linked to removing Smith s corporate structure, leveraging the combined supply chain spend, and from reducing support and infrastructure costs. The revenue synergies continue to be revised upwards and fall into several main categories. While many of these revenue synergies can be realized in the near term, others will require technology development before we can bring them to market. With our active R&D investments in drilling technologies over the past five years, we are off to a head start even in these areas. As a result of our integration progress we are ready to upgrade our synergy estimates. We now forecast total income before tax synergies in 2011 of USD 300 million. This includes the margin from the USD 500 million of revenue synergies that we now see for 2011 as well as the 2011 cost synergies. This will make the merger neutral for the second half of 2011 and accretive for 2012 on an earnings per share basis. 21

22 As illustrated by the Smith integration progress, we are very strong as a company when it comes to planning and execution. Therefore building on the strengths and plans laid out in my presentation, I have great confidence in our ability to meet the challenges of the next growth phase be they in exploration, drilling, or production. Our leadership in measurements combined with our international presence will put us in the forefront of exploring and developing unconventional gas plays outside North America. Our position in IPM will provide a further leg to our growth particularly in production enhancement and field development In all our activities, and particularly in deepwater, the investment we have made in Excellence in Execution will pay big dividends, and we will continue to produce exceptional financial results. Before I conclude I would like to take this opportunity to present the team I will work closely with going forward. Stephanie Cox, vice president of personnel, and Simon Ayat, chief financial officer, today reporting to Andrew. Our two vice-presidents of operations, Satish Pai and Kjell-Erik Oestdahl, who together head up the matrix organization in form of the Areas and the Groups. Ashok Belani, vice president technology, heading up research, engineering, manufacturing and sustaining. And Doug Pferdehirt, vice president corporate development and heading up our emerging business as well as corporate communication. The people I just introduced, together with the rest of our colleagues in the room and over 100,000 more all around the world, form an unbeatable team. And this team is ultimately what makes Schlumberger a unique investment proposition. That concludes my remarks, thank you very much. 22