directional drilling goals. In this particular case the integrated nature of the bottomhole assembly demonstrated how
technology optimization can impact performance in the high-cost deepwater drilling environment. A third such
operation offshore Indonesia further displayed the value of integrated bottomhole assemblies.
WesternGeco revenue of $1.99 billion in 2010 was 6% lower than 2009 primarily as a result of lower Marine activity and
weaker pricing. While Land activity was also weaker, strong Multiclient sales, particularly in the fourth quarter, were
able to offset some of these effects. New seismic technology scored some significant successes with penetration of
marine single-vessel, full-azimuth coil shooting surveys into a number of the major offshore basins around the world. Coil
shooting, unique to Schlumberger, brings better illumination of complex pre-salt, sub-salt and sub-basalt formations in a
variety of environments.
The integration of Geoservices and Smith International proceeded smoothly during the year. The complementary
nature of many of the product and service lines concerned helped the process while a network of integration teams and
Area coordinators rapidly identified revenue and cost-synergy opportunities that contributed to results in 2010 and that
augur well for 2011. Total Schlumberger 2010 results reflect four months activity from the acquired Smith businesses,
which contributed revenue of $3.30 billion.
In a related move, Schlumberger signed a letter of intent with Eurasia to swap certain assets in Russia to build critical
mass in drilling services. Under the terms of this agreement, Eurasia will acquire a number of Schlumberger-owned
drilling rigs, while Schlumberger will acquire a range of Eurasia service assets including directional drilling,
measurement-while-drilling, well cementing and drilling fluids. Further, both companies agreed to enter a strategic
alliance upon completion of the transaction whereby Schlumberger will become the preferred supplier of drilling
services to Eurasia Drilling for up to 200 rigs for a 5-year period. This agreement not only increases the market for our
services across the rig fleet of the largest Russian drilling company, it also encourages the development of fit-for-purpose
bottom-hole assembly technology development as drilling intensity increases in Russia in order to sustain hydrocarbon
production.
Two years ago we began a program called “Excellence in Execution”. This was designed to create a step change in our
service quality and efficiency and, in deepwater, was aimed at enabling clients to reduce the risk and cost of their
deepwater operations. The program, in addition to equipment and procedural improvements, provides for competency
certification of all personnel involved in deepwater operations. We have been encouraged by the initial results of this
multiyear initiative, as well as by our customers’ acceptance of it. While additional control and oversight will
undoubtedly add cost, this will be offset in the long run by improvements in operating procedures and technology.
We therefore welcome current efforts to better understand and control the risks associated with deepwater operations.
For 2011, economic projections for world real GDP growth are converging towards a median estimate of 4.2%, slightly
lower than the 2010 level, and still with a significant level of uncertainty. A large gap exists between GDP growth rates of
Organization for Economic Cooperation and Development (OECD) and non-OECD countries – particularly in China and
in other developing Asian economies. However there is remarkable agreement on various oil demand forecasts for 2011,
which all lie within 1.4 million barrels per day of each other.
As we look forward to 2011 it is therefore important to remember that the primary driver of our business has always
been, and will remain, the demand for oil and gas. Oil prices have moved into a range that will encourage increased
investment, particularly in exploration, which remains the swing factor in operators’ budgets. While we do not anticipate
any substantial recovery in deepwater US Gulf of Mexico, we do expect a marked increase in deepwater activity in the
rest of the world. These factors, coupled with increases in development activity and production enhancement in many
other areas, promise stronger growth rates as the year unfolds.
For natural gas, activity in the United States is likely to remain strong – at least through the first half of the year – due
to the commitments necessary to retain leases, the backlog of wells to be completed, and the contribution of natural gas
liquids to overall project economics. Increased service capacity, however, will negatively affect pricing at some stage
during the year.
Overseas, the governing factor on gas activity, particularly in the Middle East, will be the ability of many nations to use
gas as a substitute for oil to meet increased local energy demand, thus freeing up more liquids for export. Elsewhere the
long lead time necessary to execute large gas projects for LNG exports will ensure that a certain level of activity is
maintained.
Unconventional gas resources will continue to attract considerable interest outside North America. The leading
activity will continue to be in conventional gas in tight, or low permeability, reservoirs, and in coal-bed methane
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Part II, Item 7