10-QPeriod: Q3 FY2006

SLB LIMITED/NV Quarterly Report for Q3 Ended Sep 30, 2006

Filed October 25, 2006For Securities:SLB

Summary

SLB LIMITED/NV (SLB) reported strong financial performance for the nine months ended September 30, 2006, with operating revenue growing to $13.88 billion, a significant increase from $10.29 billion in the prior year period. Net income also saw a substantial rise to $2.58 billion, up from $1.55 billion in the same period of 2005. This growth was driven by robust performance across both its Oilfield Services and WesternGeco segments, fueled by increased customer spending on exploration and production activities, higher rig counts, and the successful integration of acquisitions. The company significantly expanded its operations through the acquisition of the remaining 30% minority interest in WesternGeco for $2.4 billion. This strategic move has consolidated full ownership and is expected to contribute to future growth. Despite increased investments and financing costs related to acquisitions, SLB demonstrated strong operational efficiency and margin expansion across its segments. The company also continued its share repurchase program, indicating a commitment to returning value to shareholders.

Key Highlights

  • 1Operating revenue increased by 35% to $13.88 billion for the nine months ended September 30, 2006, compared to $10.29 billion in the prior year.
  • 2Net income rose significantly to $2.58 billion from $1.55 billion in the comparable period.
  • 3The company completed the acquisition of the remaining 30% minority interest in WesternGeco for $2.4 billion, bringing full ownership.
  • 4Oilfield Services revenue grew 34% year-over-year, driven by strong activity in North America and Europe/CIS/West Africa.
  • 5WesternGeco revenue increased by 46% year-over-year, primarily due to higher marine fleet utilization and multiclient sales.
  • 6Diluted earnings per share from continuing operations improved to $2.09 for the nine months, up from $1.27 in the prior year.
  • 7The company repurchased 16.13 million shares in the first nine months of 2006 under its share buy-back program.

Frequently Asked Questions

The substantial growth was driven by increased customer spending in the oil and gas industry, leading to higher activity levels for both the Oilfield Services and WesternGeco segments. Key factors include rising rig counts, strong demand for various technologies, and the successful integration of acquired businesses, notably the full acquisition of WesternGeco.

The acquisition of the remaining 30% minority interest in WesternGeco for $2.4 billion consolidated full ownership. While this transaction involved significant cash outlay and increased debt, it is expected to enhance future growth and synergy realization for the company. The Consolidated Balance Sheet shows a significant increase in Goodwill and Intangible Assets related to this acquisition.

Both Oilfield Services and WesternGeco segments showed improved profitability. Oilfield Services pretax segment income grew 68% year-over-year, with notable margin expansion in North America and Europe/CIS/West Africa. WesternGeco also saw a substantial increase in pretax segment income (181% year-over-year), driven by higher fleet utilization and pricing in marine operations and increased multiclient sales.

Stock-based compensation expense increased significantly in the first nine months of 2006 to $84 million, up from $29 million in the prior year. This increase is attributed to the adoption of SFAS 123R and higher stock prices impacting the fair value of awards. While this expense impacts net income, the company's overall earnings growth has been strong enough to absorb this increase.