Schlumberger 2010 Annual Report - page 35

Part II, Item 7
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis contains forward-looking statements, including, without limitation, statements
relating to our plans, strategies, objectives, expectations, intentions and resources. Such forward-looking statements
should be read in conjunction with our disclosures under “Item 1A. Risk Factors” of this Report.
Executive Overview
After two consecutive years of falling oil demand in 2008 and 2009 induced by the global economic recession, a strong
recovery occurred in 2010. Consumption averaged 87.7 million barrels per day, including an all-time peak of over
89 million barrels per day in December, and made the year-on-year increase the second largest in three decades. Oil
prices remained in the range of $65-$85 per barrel for much of 2010, but recorded a spike above $90 at the end of the
year. The major demand forecasts released during 2010 have continued to increase as a result of the improving economic
outlook – particularly in the developing economies. On the supply side, the adherence to production quota by the OPEC
countries helped keep the market balanced, although such adherence diminished slightly as the year progressed.
Strength in non-OPEC production, improvement in new project developments following the investment cuts in 2009, and
lower production costs helped provide additional assurance to the markets.
Natural gas markets behaved differently. Decreasing gas demand during the recession, increasing unconventional gas
production in North America, and the commissioning of a number of new large liquefied natural gas export facilities
around the world led to an over-supplied market with consequent pressure on spot prices. Within the United States – the
world’s largest natural gas market – natural gas storage levels have remained significantly above the five-year range
since March 2010 despite lower volumes of Canadian gas imports and some power generation fuel switching from coal to
gas. With natural gas price forecasts from the Energy Information Agency for 2011 slipping by nearly a third compared to
initial projections made at the beginning of the year, an increasing portion of the drilling and completion activity in shale
reservoirs has shifted to liquid and condensate-rich plays in North America.
Within this market, Schlumberger Oilfield Services full-year revenue in 2010 of $22.08 billion grew 8% versus 2009,
driven by recovery in the North America natural gas market through increasing demand and stronger pricing for
pressure pumping services. The North America Area also benefited from greater activity in liquids-rich plays in a number
of basins. Offshore, the tragic Macondo accident in the US Gulf of Mexico led to a shutdown in deepwater operations that
severely impacted US offshore activity and led to slowdowns in other parts of the world, although these were being
absorbed as the fourth quarter developed. The Middle East and Asia Area revenue climbed 7% from a number of factors
including increasing wireline logging and expanded IPM work. Latin America revenue grew by 2%, with rapid growth in
Brazil overcoming weaker activity in Mexico as poor weather, increasing security concerns and reduced client budgets
impacted operations. Europe/CIS/Africa revenue decreased 4% versus 2009. Among the Technologies, growth was
primarily seen in Well Services activities, both in volume and in price although the acquisition of Geoservices also
contributed to the increase.
In addition to growing activity, results were underpinned through continuing market penetration of new-technology
services such as Scope* advanced logging-while-drilling measurements, Scanner* wireline technologies, and ACTive*
coiled-tubing services. Scanner services were boosted by the commercial introduction of the latest family member, the
Dielectric Scanner* tool, which was unveiled during the year. As a unique industry service capable of measuring
saturation in a variety of reservoir applications, the service completed a two-year pilot project in Saudi Arabia targeted
at reservoir monitoring, where 35 logs were recorded in various fields, both on land and offshore, to assess water flooding
sweep efficiency as an aid to field development planning.
In reservoir production, ACTive real-time coiled tubing services saw growth, particularly with ACTive conveyance of
Wireline Flow Scanner* production logging technology, and with fiber-optic continuous measurements of temperature
and pressure along the well bore. Growing deployment of integrated technologies such as these confirms exciting growth
possibilities across the Schlumberger technology portfolio particularly in horizontal and extended-reach wells.
It was however drilling services that displayed early evidence of the opportunities provided by the acquisitions of
Geoservices and Smith International that were announced during the first quarter. These successes included the
completion of a remote three-well exploration project offshore Greenland that used Schlumberger technologies
combined with Smith and M-I SWACO products and services as well as Geoservices mud logging. In Brazil, a similar
combination of services helped one well record substantial increases in rates of penetration, while meeting all
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