Schlumberger 2011 Annual Report - page 33

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 the strong recovery of 2010, when worldwide oil demand grew 2.7 million barrels per day to 88.3 million barrels
per day corresponding to the largest year-on-year increase in 30 years, oil demand grew only by a modest 0.7 million
barrels per day in 2011. This resulted from the combination of economic concerns in the OECD countries and lower
growth in the emerging economies. On the supply side, the unrest in North Africa and the Middle East, and more
specifically the shutdown of Libyan production from early in the first quarter through the end of the third quarter,
significantly tightened worldwide production capacity thereby limiting OPEC spare capacity to its lowest level since
2008. Non-OPEC production remained essentially flat year-on-year, as the steady increase in North American liquids
production was offset by the declining output of mature basins. Tight supply maintained sufficient pressure on oil
prices to offset sluggish demand growth, and yearly average prices set new records.
Natural gas markets behaved differently between the three major geographic areas of consumption. In North
America, a continuous increase in unconventional gas production, modest demand growth, and mild weather at the
beginning of the winter season contributed to maintain storage at or above five-year highs and keep natural gas prices
low. In Asia, the need for alternative energy sources following the Fukushima incident, along with the fast growing
demand in non-OECD economies maintained gas prices high and led to a significant increase in the demand for
liquified natural gas. In Europe, despite decreasing demand, prices continued to be supported by the influence of Asian
demand on common suppliers’ prices and by declining production in the North Sea.
In this environment, Schlumberger Oilfield Services revenue reached a historical high in 2011 of $37 billion—an
increase of 39% over 2010. While this reflected a full year of revenue from the acquisitions of Smith International in
August 2010 and Geoservices in April the same year, overall business conditions worldwide also improved during the
year. In North America, which grew by 82% compared to 2010, this was seen through increased activity, stronger pricing
and improved asset utilization as the market continued to shift to the liquids-rich plays that demanded higher service
intensity in drilling and completing horizontal wells. A gradual return to activity in the deepwater US Gulf of Mexico,
which accelerated as the year progressed also contributed to North American results. International growth of 24% was
marked by strengthening activity in deepwater areas and active exploration basins as well as by signs of pricing
traction for certain Technologies. In the Latin America Area, where revenue grew by 29%, drilling and production
activity increased. Europe, CIS and Africa grew by 22% in revenue terms with strength in the North Sea and Russia but
suffered the most in terms of the geopolitical unrest that affected North Africa and the Middle East with Libya shut
down from late-February until operations recommenced in October. Revenue in the Middle East & Asia Area increased
by 21% driven by improving activity in Iraq and Saudi Arabia although these improvements were slowed by geopolitical
All three Product Groups saw improved activity. The most substantial gain (73%) was recorded by the Drilling Group
due largely to the full year’s revenue from the acquisitions of Smith International and Geoservices. However, this was
underpinned by growth across almost all Drilling Group Technologies driven by overall activity and pricing gains during
the year for Drilling & Measurements services. The ramp-up in Integrated Project Management (IPM) well
construction projects in Iraq also contributed to the growth. Reservoir Production services and products grew by 41%
led by Well Services in North America through higher pricing, capacity additions and improved asset utilization and
efficiency as the market transitioned to liquid-rich plays. Reservoir Characterization grew by 7%, led by Wireline on
activity mix and WesternGeco on higher multiclient seismic sales.
Market penetration of new technologies in a number of areas also contributed to the year’s performance. In
Reservoir Characterization services, the growing wave of exploration projects increased demand for the Wireline
Scanner Family* measurements that provide more complete understanding of difficult and complex formations. In
many cases, complementary technologies deployed included InSitu Fluid Analyzer* and Quicksilver Probe* formation
fluid testing and sampling services while other advanced Wireline technologies were used in the evaluation of
unconventional reservoirs. WesternGeco benefited from this trend with new contracts for Coil Shooting* and Dual Coil
Shooting* full-azimuth seismic acquisition surveys, a type of survey unique to Schlumberger.
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