Schlumberger Limited (SLB)
Q2 2012 Earnings Call
July 20, 2012 9:00 am ET
Executives
Malcolm Theobald - Vice President of Investor Relations
Simon Ayat - Chief Financial Officer and Executive Vice President
Paal Kibsgaard - Chief Executive Officer and Director
Analysts
Kurt Hallead - RBC Capital Markets, LLC, Research Division
James C. West - Barclays Capital, Research Division
Ole H. Slorer - Morgan Stanley, Research Division
William A. Herbert - Simmons & Company International, Research Division
James D. Crandell - Dahlman Rose & Company, LLC, Research Division
William Sanchez - Howard Weil Incorporated, Research Division
Michael K. LaMotte - Guggenheim Securities, LLC, Research Division
John David Anderson - JP Morgan Chase & Co, Research Division
Nigel Browne - Macquarie Research
Douglas L. Becker - BofA Merrill Lynch, Research Division
Robin E. Shoemaker - Citigroup Inc, Research Division
Michael W. Urban - Deutsche Bank AG, Research Division
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Schlumberger Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'll now turn the conference over to your host, Mr. Malcolm Theobald, Vice President, Investor Relations. Please go ahead, sir.
Malcolm Theobald
Thank you, Kathy. Good morning, and welcome to the Schlumberger Limited Second Quarter 2012 Results Conference Call. Joining us on the call from Paris today are Paal Kibsgaard, Chief Executive Officer, and Simon Ayat, Chief Financial Officer. Our prepared comments will be provided by Simon and Paal. Simon will first review the financial results, and Paal will discuss the operational and technical highlights.
However, 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 statements. However, I would like to remind everyone to limit your questioning to one question and one follow-up in order to respect the other participants in the queue.
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. Second quarter earnings per share from continuing operations, excluding charges and credits, was $1.05. This is an increase of $0.09 sequentially and $0.19 compared to the same quarter last year.
All prior period amounts have been restated as the Distribution segment has been reclassified to discontinued operations following the sale of Wilson and the sale of our investment in CE Franklin.
Oilfield Services second quarter revenue of $10.4 billion increased 5.3% sequentially. Pretax income of $2.1 billion increased 8% sequentially, while pretax operating margins improved by 50 basis points.
Sequential revenue and pretax margin highlights by product group were as follows: Second quarter Reservoir Characterization Group revenue of $2.8 billion, increased 7.4% sequentially, and margins grew 223 basis points to 28.2%. These improvements were driven by a seasonal rebound in SIS, combined with strong performances in Testing Services and Wireline. In fact, every technology in the group experienced sequential revenue growth and margin expansion.
Drilling Group second quarter revenue of $4 billion increased 5.7%, while margin improved 107 basis points to 18.4%. These increases were largely attributable to the Drilling & Measurements and M-I SWACO on robust international activity.
Second quarter production group revenue of $3.7 billion increased 5.6% sequentially, while pretax margin fell 117 basis points to 16.4%. The revenue growth was led by Artificial Lift, Completions and Schlumberger production management.
The margin decline was largely attributable to our North America hydraulic fracturing business as a result of the spring break-up in Canada and continued cost inflation and pricing pressure in U.S. land.
Now turning to Schlumberger as a whole. The effective tax rate, excluding charges and credits, was 24% in the second quarter compared to 23.6% in the previous quarter.
We continue to expect the effective tax rate for a full year of 2012 to be in the mid-20s. However, this can vary on a quarterly basis due to the geographic mix of business.
Net debt at the end of the quarter was $6.7 billion as compared to $5.8 billion at the end of Q1. This reflected an increase in working capital requirements to support the current and anticipated business growth.
Other significant liquidity events during the quarter included $1.1 billion of CapEx, $681 million of acquisitions, $906 million of proceeds from the sale of the Wilson business and $499 million of stock repurchases.
During the quarter, we repurchased 7.52 million shares at an average price of $66.30. CapEx is still expected to be approximately $4.5 billion in 2012 as compared to the $4 billion we spent in 2011.
And now, I turn the conference over to Paal.
Paal Kibsgaard
Thank you, Simon. Second quarter results continue to strengthen, driven by a solid growth in activity and by consistent focus on the quality and efficiency of our execution.
In the international markets, overall revenue grew by 9% sequentially, while margins were up by 161 basis points. Activity showed strong sequential growth, both offshore and in key land markets, while service capacity tightened further, in particular, in the area for the seismic, wireline and drilling services.
We continue to test pricing on smaller contracts during the second quarter with good success, and for some customers, we also secured work at pricing premiums due to the quality and consistency of our performance.
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