Stock Markets’ Fear of Falling

STOCK MARKET'S FEAR Of FALLING

By : Robert J.Shiller

Re-Publish : Zulfikar

NEW HAVEN -- The sharp drop in the world’s stock markets on August 9, after BNP Paribas announced that it would freeze three of its funds, is just one more example of the markets’ recent downward instability or asymmetry. That is, the markets have been more vulnerable to sudden large drops than they have been to sudden large increases. Daily stock price changes for the 100-business-day period ending August 3 were unusually negatively skewed in Argentina, Australia, Brazil, Canada, China, France, Germany, India, Japan, Korea, Mexico, the United States and the United Kingdom.
In the US, for example, the Standard and Poor’s 500 index in July recorded six days of declines and only three days of increases amounting to more than 1%. In June, the index dropped more than 1% on four days, and gained more than 1% on two days. Going back further, there was a gigantic one-day drop on February 27, 2007, of 3.5%, and no sharp rebound.
The February 27 decline began with an 8.8% one-day drop in the Shanghai Composite, following news that the Chinese government might tax capital gains more aggressively. This news should have been relevant only to China, but the drop there fueled declines worldwide. For example, the Bovespa in Brazil fell 6.6% on February 27, and the BSE 30 in India fell 4% the next day. The subsequent recovery was slow and incremental.
In the US, the skew has been so negative only three other times since 1960: at the time of the 6.7% drop on May 28, 1962, the record-shattering 20.5% plummet on October 19, 1987, and the 6.1% decline on October 13, 1989.
Stock markets’ unusually negative skew is not inconsistent with booming price growth in recent years. The markets have broken all-time records, come close to doing so, or at least done very well since 2003 ( the case in Japan) by making up for the big drops incrementally, in a succession of smaller increases.
Nor is the negative skew inconsistent with the fact that world stock markets have been relatively quiet for most of this year. With the conspicuous exception of China and the less conspicuous exception of Australia, all have had low standard deviations of daily returns for the 100-business-day period ending August 3 when compared with the norm for the country.
The February 27 drop in US stock prices was only the 31st biggest one-day drop since 1950. But all of the other 30 drops occurred at times when stock prices were much more volatile. Thus, the February 27th drop really stands out, as do other recent one-day drops.
Indeed, one of the big puzzles of the US stock market recently has been low price volatility since around 2004, amid the most volatile earnings growth ever seen. Five-year real earnings growth on the S&P 500 set an all-time record in the period ending in the first quarter of 2007, at 192%. Before that, between the third quarter of 2000 and the first quarter of 2002, real S&P 500 earnings fell 55% – the biggest-ever decline since the index was created in 1957.
One would think that market prices should be volatile as investors try to absorb what this earnings volatility means. But we have learned time and again that stock markets are driven more by psychology than by reasoning about fundamentals.
Is psychology somehow behind the pervasive negative skew in recent months? Maybe we should ask why the skew is so negative. Should we regard it as just chance, or, when combined with record-high prices, as a symptom of some instability?
The adage in the bull market of the 1920’s was “one step down, two steps up, again and again.” The updated adage for the recent bull market is “one big step down, then three little steps up, again and again,” so far at least. No one is looking for a sudden surge, and volatility is reduced by the absence of sharp up-movements.
But big negative returns have an unfortunate psychological impact on markets. People still talk about October 28, 1929, or October 19, 1987. Big drops get their attention, and this primes some people to be attentive for them in the future, and to be ready to sell if another one comes.
In fact, willingness to support the market after a sudden drop may be declining. The “buy-on-dips stock market confidence index” that we compile at the Yale School of Management has been falling gradually since 2001, and has fallen especially far lately. The index is the share of people who answered “increase” to the question, “If the Dow dropped 3% tomorrow, I would guess that the day after tomorrow the Dow would: Increase? Decrease? Stay the Same?” In 2001, 72% of institutional investors and 74% of individual investors chose “increase.” By May 2007, only 48% of institutional investors and 59% of individual investors chose “increase.”
Perhaps the buy-on-dips confidence index has slipped lately because of negative news concerning credit markets, notably the US sub-prime mortgage market, which has increased anxiety about the fundamental soundness of the economy.
But something more may be at work. Everyone knows that markets have been booming, and everyone knows that other people know that a correction is always a possibility. So there may be an underlying sensitivity to price drops, which could fuel a succession of downward price changes, amplifying public concerns about problems in the economy and heralding a profound change in investor sentiment

The Liquidity Puzzle

THE LIQUIDITY PUZZLE

By : Robert J. Shiller

Re-publish : Zulfikar

We increasingly hear that “the world is awash with liquidity,” and that this justifies expecting asset prices to continue rising. But what does such liquidity mean, and is there really reason to expect that it will sustain further increases in stock and real estate prices?
Liquid assets are assets that resemble cash, because they can easily be converted into cash and used to buy other assets. The idea seems to be that there are a lot of liquid assets lying around, and that they are being used to get money to bid up the prices of stocks, housing, land, art, etc.
That theory sounds as general and fundamental as the theory that global warming is melting glaciers and raising sea levels around the world. Rising sea levels would explain a lot of geological and economic events. Is rising financial liquidity really a similar force? What is this theory anyway?
Traditionally, “awash with liquidity” would suggest that the world’s central banks are expanding the money supply too much, causing too much money chasing too few goods. But if that were the problem, one would cause all prices – including, say, clothing and haircuts – to rise. That is what the Federal Reserve Chairman Arthur Burns meant when he said that the United States was “awash with liquidity” in 1971, a period when the concern was general inflation.
But the recent popular use of the term “awash with liquidity” dates to 2005, a time when many central banks were tightening monetary policy. In the US, the Fed was sharply raising rates. Central banks worldwide clearly have been behaving quite responsibly with regard to general inflation since 2005. According to the IMF, world inflation, as measured by consumer price indices, has generally been declining since 2005, and has picked up only slightly in 2007.
So it is something of a puzzle why people started using the term so much in 2005. It may have had something to do with the near-total lack of response of long-term interest rates to monetary tightening. If central banks are tightening and long-term rates aren’t rising, one needs some explanation. Liquidity is just a nice-sounding word to interpret this phenomenon.
Another interpretation is that people are saving a great deal, and that all this money is chasing investment assets, bidding up prices. Current Fed Chairman Ben Bernanke raised this idea a few years ago, alleging a world “saving glut.”
But, once again, the data do not bear this out. The IMF’s world saving rate has maintained a fairly consistent downward trend since the early 1970’s, and, while it has picked up since 2002, it is still well below the peak levels attained in the previous three decades. True, savings rates in emerging markets and oil-rich countries have been increasing since 1970, and especially in the last few years, but this has been offset by declining saving rates in advanced countries.
Another interpretation is that “awash with liquidity” merely means that interest rates are low. But interest rates have been increasing around the world since 2003. Hardly anyone was saying the world was “awash with liquidity” in 2003. The use of the term has grown in parallel with rising , not falling, interest rates.
Yet another theory is that changes in our ways of handling risk have reduced risk premia. The growth of the financial markets’ sophistication has allowed risks to be sliced and diced and spread further than ever before. Indeed, the much-vaunted market for collateralized debt obligations, which divides risks into tranches and places the different risk levels in different places according to the willingness to accept them, has plausibly played a role in boosting asset prices. But this is really a theory about risk management for certain kinds of products, not “liquidity” per se .
Hyun Song Shin of Princeton University proposed a theory of excess liquidity in a paper with Tobias Adrian that he presented last month at the Bank for International Settlements in Brunnen, Switzerland. He says that it merely reflects a feedback mechanism that is always present: any initial upward shock to asset prices strengthens the balance sheets of financial institutions, so in response they borrow more and bid up prices even more.
But if that is what the term “awash with liquidity” means, then its widespread use today is simply a reflection of the high asset prices that we already have. It could even be called an approximate synonym for “bubbly.”
The term “awash with liquidity” was last in vogue just before the US stock market crash of October 19, 1987, the biggest one-day price drop in world history. The reasons for that crash are complex, but, as I discovered in my questionnaire survey a week later, it would appear that people ultimately did not trust the market’s level. As a result, they were interested in strategies – such as the portfolio insurance strategies that were popular at the time – that would allow them to exit the market fast.
The term “awash with liquidity” was also used often in 1999 and 2000, just before the major peak in the stock market. So its popular use seems not to reflect anything we can put our finger on, but instead a general feeling that markets are bubbly and a lack of confidence in their levels. Under this interpretation, the term’s popularity is a source of concern: it may indicate a market psychology that could lead to downward volatility in prices.

China’s New Economic Model

China’s New Economic Model

By : Joseph Stiglitz

Re-publish : Zulfikar

China’s success since it began its transition to a market economy has been based on adaptable strategies and policies: as each set of problems are solved, new problems arise, for which new policies and strategies must be devised. This process includes social innovation . China recognized that it could not simply transfer economic institutions that had worked in other countries; at the least, what succeeded elsewhere had to be adapted to the unique problems confronting China.
Today, China is discussing a “new economic model.” Of course, the old economic model has been a resounding success, producing almost 10% annual growth for 30 years and lifting hundreds of millions of Chinese out of poverty. The changes are apparent not only in the statistics, but even more so in the faces of the people that one sees around the country.
I recently visited a remote Dong village in the mountains of Quizho, one of China’s poorest provinces, miles away from the nearest paved road; yet it had electricity, and with electricity had come not just television, but the internet. While some rising incomes came from remittances from family members who had migrated to coastal cities, the farmers, too, were better off, with new crops and better seeds: the government was selling, on credit, high-grade seeds with a guaranteed rate of germination.
China knows that it must change if it is to have sustainable growth. At every level, there is a consciousness of environmental limits and the realization that the resource-intensive consumption patterns now accepted in the United States would be a disaster for China – and for the world. As an increasing share of China’s population moves to cities, those cities will have to be made livable, which will require careful planning, including public transportation systems and parks.
Equally interesting, China is attempting to move away from the export-led growth strategy that it and other East Asian countries have pursued. That strategy supported technology transfer, helping to close the knowledge gap and rapidly improving the quality of manufactured goods. Export-led growth meant that China could produce without worrying about developing the domestic market.
But a global backlash has already developed. Even countries seemingly committed to competitive markets don’t like being beaten at their own game, and often trump up charges of “unfair competition.” More importantly, even if markets are not fully saturated in many areas, it will be hard to maintain double-digit growth rates for exports.
So something has to change. China has been engaged in what might be called “vendor finance,” providing the money that helps finance the huge US fiscal and trade deficits, allowing Americans to buy more goods than they sell. But this is a peculiar arrangement: a relatively poor country is helping to finance America’s War on Iraq, as well as a massive tax cut for the richest people in the world’s richest country, while huge needs at home imply ample room for expansion of both consumption and investment.
In fact, to meet the challenge of restructuring China’s economy away from exports and resource-intensive goods, China must stimulate consumption. While the rest of the world struggles to raise savings, China, with a savings rate in excess of 40%, struggles to get its people to consume more.
Providing better social services (public health care, education, and nation-wide retirement programs) would reduce the need for “precautionary” savings. More access to finance for small and medium sized businesses would help, too. And “green taxes” – such as on carbon emissions – would shift consumption patterns while discouraging energy-intensive exports.
As China moves away from export-led growth, it will have to look for new sources of dynamism in its growing entrepreneurial ranks, which requires a commitment to creating an independent innovation system. China has long invested heavily in higher education and technology; now it is striving to create world-class institutions.
But if China wants a dynamic innovation system, it should resist pressure by Western governments to adopt the kind of unbalanced intellectual property laws that are being demanded. Instead, it should pursue a “balanced” intellectual property regime: because knowledge itself is the most important input in the production of knowledge, a badly designed intellectual property regime can stifle innovation – as has been the case in America in some areas.
Western technological innovation has focused too little on reducing the adverse environmental impact of growth, and too much on saving labor – something that China has in abundance. So it makes sense for China to focus its scientific prowess on new technologies that use fewer resources. But it is important to have an innovation system (including an intellectual property regime) that ensures that advances in knowledge are widely used. That may require innovative approaches, quite different from intellectual property regimes based on privatization and monopolization of knowledge, with the high prices and restricted benefits that follow.
Too many people think of economics as a zero-sum game, and that China’s success is coming at the expense of the rest of the world. Yes, China’s rapid growth poses challenges to the West. Competition will force some to work harder, to become more efficient, or to accept lower profits.
But economics is really a positive-sum game. An increasingly prosperous China has not only expanded imports from other countries, but is also providing goods that have kept prices lower in the West, despite sharply higher oil prices in recent years. This downward pressure on prices has allowed Western central banks to follow expansionary monetary policies, underpinning higher employment and growth.
We should all hope that China’s new economic model succeeds. If it does, all of us will have much to gain.

Schlumberger Second Quarter Earning Calls

Schlumberger Second Quarter Earnings Call

(Cases Study :Analysist Of Financial Strategic/Management Strategic)
Author: 123jump.com

Staff 123jump.com

Last Update: 3:20 PM EDT July 26 2007

Re-Publish & Analysist : Zulfikar

The oilfield services company reported earnings of $1.02 cents a share, exceeding analysts’ expectations of 96 cents a share. Oilfield Services pretax margins reached a new high of 30.4% led by strong performance in the Middle East and Asia, due to a continued favorable revenue mix from exploration services. In the North American market, higher activity on land and in the Gulf Coast was more than offset by a downturn in Canada.

Investors Question and Answers

Sequential Earnings Growth Quarterly Earnings by Year Quarterly Earnings Growth by Year

Source: Company filings Q1:March Q2:June Q3:September Q4:December

This summary is based on the second quarter fiscal 2007 earnings call conducted by Schlumberger Limited (SLB: chart) on July 20, 2007.

Vice President of Investor Relations: Malcolm Theobald

Chairman of the Board, Chief Executive Officer: Andrew F. Gould

Chief Financial Officer, Executive Vice President, Treasurer: Simon Ayat

Key Investors Issues

-EPS were $1.02 a share compared to 69 cents a share last year.

- Net income was $1.26 billion compared to $856.9 million a year earlier.

- Revenue was $5.64 billion compared to $4.69 billion in the same quarter a year earlier.

Second Quarter Highlights

Net income, before charges and credits, reached $1.26 billion, an increase of 7% sequentially and 40% year-on-year.

- Earnings-per-share, before charges and credits, were $1.02 versus 96 cents in the previous quarter, and 73 cents in the second quarter of 2006.

- Net income, including charges and credits, was $1.26 billion or $1.02 per-share versus 96 cents in the previous quarter, and 69 cents in the second quarter of 2006.

Oilfield Services revenue of $4.97 billion increased 5% sequentially and 21% year-on-year. Pretax business segment operating income of $1.51 billion increased 8% sequentially and 33% year-on-year.

WesternGeco revenue of $665 million decreased 6% sequentially but increased 18% year-on-year. Pretax business segment operating income of $216 million decreased 19% sequentially but increased 28% year-on-year.

During the first half of 2007, Integrated Project Management (IPM) was awarded an $3.8 billion of new and extended contracts that cover activities in GeoMarkets spanning Latin America, Russia, North Africa, Europe and Malaysia.

This figure includes revenues from project management, Schlumberger technology delivery and third-party services.In the short term, the future natural gas activity in North America remains uncertain as record imports of LNG, a slower-than-forecast decline in Canadian gas production, and the backlog of new wells stimulated and brought on line have all led to a rapid rise in gas storage levels. In this market, pricing erosion for pressure pumping stimulation services accelerated due to increasing equipment capacity. The company continues to believe that the high decline rates of existing fields and the poorer quality reservoirs now being drilled will ultimately lead to renewed activity in the Area.Global demand for oil remains robust while non-OPEC supply continues to disappoint due largely to acceleration in the decline rate of the existing production base, delays in the new and complex projects under development, and inadequate industry investment resulting from shortages of people and equipment. The company remains convinced that international activity will continue to increase as operators combat production shortfalls and continue to increase exploration budgets to renew reserves.

As part of the current 40 million-share buyback program approved in the second quarter of 2006, Schlumberger repurchased 2.2 million shares for a total amount of $172 million, at an average price of $78.23 per share.

Under this buyback program 20.9 million shares have been repurchased to date.Schlumberger completed the acquisitions of Geosystem and Tyumenpromgeofizika. Geosystem supplies land and marine electromagnetics and seismic imaging services and will become part of WesternGeco Electromagnetics. Tyumenpromgeofizika provides a wide range of geophysical and wireline logging services in Western Siberia.

As of June 30, net debt was $2.1 billion.

Liquidity events included $172 million for the stock buy-back program, CapEx, including multi-client, of $802 million. $396 million of series A convertible debentures were converted by holders into approximately 11 million shares of Schlumberger common stock. CapEx, excluding $61 million of multi-client surveys capitalized, was $741 million and is expected to reach approximately $3.1 billion for the year 2007.

Oilfield Services

- Revenue of $4.97 billion was 5% higher sequentially, and 21% higher year-on-year.

- Sequential revenue increases were highest in the US land, Brunei/Malaysia/Philippines, North Sea, Arabian and Eastern Mediterranean GeoMarkets.

- Double-digit growth rates were experienced in the East and North Russia, Indonesia, China/Japan/Korea and Qatar GeoMarkets.

- Across all areas demand was particularly strong for Drilling & Measurements, Schlumberger Information Solutions (SIS), Artificial Lift Systems, Wireline and Well Services technologies.

- Pretax operating income of $1.51 billion increased 8% sequentially, and 33% year-on-year. The sequential increase was mainly driven by higher activity and a favorable technology mix in the Brunei/Malaysia/Philippines, Venezuela/Trinidad & Tobago, US land, Eastern Mediterranean, Gulf Coast, Arabian, North Africa and China/Japan/Korea GeoMarkets, and by a favorable technology mix and higher product sales in the North Sea. These resulted in Oilfield Services pretax operating margins reaching 30.4%, a sequential increase of 90 basis points (bps).

- To adapt the existing Schlumberger GeoMarket structure to expanding activity levels worldwide, new GeoMarkets have been established in Russia, on land in the US, and Qatar, bringing the total number to 31. The GeoMarket structure brings together geographically focused teams to meet local needs and deliver customized solutions while enabling Schlumberger to deploy technology consistently on a global level.

- The Schlumberger Wireline InSitu Density service, the first in the InSitu Family of quantitative fluid properties measurements at reservoir conditions, made its commercial debut. This new service measures formation fluid density in open hole at reservoir conditions.- In a recent offshore exploration well in Norway, water samples for subsea pipeline flow assurance and field process equipment compatibility were acquired for Eni Norge using the InSitu Density service in conjunction with the Wireline MDT Modular Formation Dynamics Tester and Quicksilver Probe technologies to ensure low-contamination representative water samples measured under downhole conditions.

- SIS released the latest editions of the Petrel seismic-to-simulation software, the Eclipse reservoir simulation software, and the Ocean application development framework. These latest editions bring enhanced seismic performance and scalability for improved exploration workflows, extended simulation capability for both carbon dioxide injection and storage and for minimizing asphaltene deposition during production, and accurate modeling of pressure drop in extended-reach horizontal wells.

North America

- Revenue of $1.34 billion decreased 3% sequentially, but increased 6% year-on-year.

- Pretax operating income of $417 million decreased 3% sequentially but increased 11% year-on-year.

- Sequentially, revenue in the US land GeoMarkets grew through increased activity following the lifting of seasonal land access restrictions, and continuing service intensity for Wireline, Drilling & Measurements and Well Services technologies on horizontal wells in unconventional gas reservoirs.

- Growth was also recorded in the US Gulf Coast driven by higher demand for Drilling & Measurements, Well Services and Well Testing technologies in deep-water reservoirs, and in Alaska as a result of higher exploration-related demand for Wireline, Well Testing and Well Services technologies.

- Higher SIS product sales were recorded across the US GeoMarkets.

- Growth in the US was more than offset by the activity slowdown in Western Canada that resulted from the early onset of the spring break-up together with the lower prices for natural gas.

- Pretax operating margins for the area declined 21 bps to reach 31.2% primarily due to the activity slowdown in Canada and to pricing erosion in pressure pumping stimulation services in North America due to increases in equipment capacity. This decline was offset by higher operating leverage in the US land GeoMarkets and a favorable exploration-driven activity mix in the US Gulf Coast and Alaska GeoMarkets.

- In West Texas, Schlumberger used an integrated design approach to optimize stimulation and completion in a new shale gas play. This integrated approach included Schlumberger Wireline logging services and the new Sonic Scanner technology, in conjunction with TerraTek advanced core analysis, to yield a comprehensive characterization of the reservoir. The study led to customization of the fracturing fluid most suited to the reservoir mineralogy and to selection of the optimal perforating technique. The results indicated the absence of barriers within the formation. This was later confirmed by micro-seismic monitoring during the stimulation treatment.

- In Western Canada, the PowerDrive Xceed rotary-steerable system was run in the Chinook Ridge field where it enabled the drilling of a horizontal well with consistent build rates in a complex and technically challenging reservoir. The deployment of this advanced directional-drilling technology enabled the operator to enhance the well''s productivity.- In northwestern Louisiana, AbrasiFRAC technology, a member of the new Contact family of intervention services, was used to complete a well where six stages were successfully placed in one day in the highly laminated reservoir where normally pressured zones alternate with highly depleted zones. The well, which was completed three days faster than wells using conventional technology, is outperforming offset wells and yielding the lowest water production rate in the field.

- In the Barnett Shale of North Texas, Schlumberger recently completed three horizontal wells for Devon Energy. New production improvements were achieved through the added dimension that Sonic Scanner advanced measurements bring to the understanding of formation stress during the completion process in this complex tight gas environment. In addition, the use of MDT technology is enabling the customer to measure the in-situ stress in an effort to understand hydraulic fracture-height growth.

Latin America

- Revenue of $761 million increased 5% sequentially, and 14% year-on-year.

- Pretax operating income of $179 million increased 10% sequentially, and 40% year-on-year.

- The two remaining contracts associated with the drilling barges in Venezuela were finalized. The resulting recognition of certain previously deferred revenues and related costs had a marginal impact on the Area''s sequential revenue and pretax operating income growth.- Sequential revenue growth was driven by increased demand for Wireline and Well Testing technologies together with higher Artificial Lift Systems product sales in the Venezuela/Trinidad & Tobago GeoMarket; strong demand for Wireline, Well Services and Well Testing technologies together with SIS and Completions product sales in Latin America South.

- Continued strong exploration-driven Wireline activity and increased demand for IPM services in Peru/Colombia/Ecuador; and stronger Well Services activity in Mexico.

- Pretax operating margins increased by 118 bps to reach 23.6% as a result of the more favorable activity mix in Venezuela/Trinidad & Tobago and Peru/Colombia/Ecuador. This performance was partially offset by project start-up costs in Mexico.

- In Brazil, Petrobras awarded Schlumberger a contract for work on the Marlim field which includes the construction of a collaborative decision center together with implementation of Schlumberger production software and workflow process optimization. This project is an extension of the Carapeba pilot development.

- In Colombia, Petrobras selected Schlumberger to provide logging-while-drilling, wireline logging and directional-drilling services for the first-ever deep-water well to be drilled in the region. This award was based on the successful track record of PowerDrive rotary-steerable and Scope advanced measurements-while-drilling technologies in Brazil.

- In Venezuela, PDVSA has achieved exceptional results using a combination of Wireline PURE and PowerJet Omega perforating technologies in new well completions and old well re-perforations. Using an engineered approach to design the system best suited to the formation for maximum productivity, a team of PDVSA and Schlumberger engineers increased the productivity index in a number of wells across the country. In one specific case, a group of 10 wells was re-perforated with production increasing by more than 14,000 BOPD.

- In Argentina, Repsol YPF awarded Schlumberger a multi-year contract extension for Artificial Lift Systems services onshore. This extension was awarded based on service quality performance, rapid product delivery and advanced technology offerings provided under the existing five-year contract.

Europe/CIS/Africa

- Revenue of $1.61 billion increased 6% sequentially, and 30% year-on-year.

- Pretax operating income of $462 million increased 7% sequentially, and 46% year-on-year.

- Sequential revenue growth was driven by the higher rig count in the East Russia, Continental Europe, Libya and North Africa GeoMarkets; strong demand for exploration-related Wireline, Drilling & Measurements and Well Testing technologies together with higher Artificial Lift Systems and Completions product sales in the North Sea, and increased demand for Well Services technologies, higher Artificial Lift Systems product sales and higher IPM activity in North Russia. This growth was partially offset by seasonal weather-related effects in South Russia.- Pretax operating margins reached 28.7% driven primarily by a more favorable activity mix in the North Sea, North Africa and Russia GeoMarkets. This performance was partially dampened by the weather-related seasonal effects in South Russia.

- In Algeria, the Schlumberger Wireline PressureXpress service was run for CNPC International Algeria Exploration to determine fluid contacts and gradients in order to improve reservoir understanding. Job execution was optimized in real time using the InterACT web-based service.

- StageFRAC multistage fracturing technology, a member of the Contact family of fracturing and completion services, was deployed on three offshore oil wells for Eni Congo. The technology, resulting in increased well productivity, proved highly effective for the customer''s stimulation campaign. StageFRAC will be used by Eni Congo on additional offshore fields, reflecting the growing acceptance of this advanced technology.

- PeriScope and EcoScope, members of the Scope family of advanced-while-drilling services, were deployed for Chevron Nigeria Ltd. in an offshore field. Results showed that the horizontal well''s oil-water contact was dipping due to down-slope water injection. The use of conventional technologies would have led to the incorrect assumption that the transition from oil to water was due to faulting. The results prevented an unnecessary sidetrack and modified the field development plan.

- Elsewhere in Nigeria, a screening study of 1,700 reservoirs was conducted for Chevron Nigeria Ltd. to identify potential candidates for water-flooding to improve production and recovery. The ranking of the reservoirs, each described by more than 200 parameters, was performed using Schlumberger DECIDE! data management software, which reduced the processing time to three months, less than with previous methods.

Middle East & Asia

- Revenue of $1.21 billion increased 11% sequentially, and 32% year-on-year.

- Pretax operating income of $428 million increased 14% sequentially, and 43% year-on-year.

- The sequential growth in revenue resulted from higher activity in the Brunei/Malaysia/Philippines, Indonesia, Qatar, Australia/Papua New Guinea and China/Japan/Korea GeoMarkets, stronger exploration-driven deep-water activity in Eastern Mediterranean, and higher demand for Wireline, Completions and Artificial Lift Systems technologies in the Arabian GeoMarket. This growth was partially offset by the lower rig count in Thailand/Vietnam.

- Pretax operating margins grew sequentially by 103 bps to reach 35.3%, driven by a more favorable deep-water exploration-driven activity mix in Brunei/Malaysia/Philippines, demand for higher-margin Wireline technology in China/Japan/Korea, and higher-margin Completions and Artificial Lift Systems product sales in the Arabian GeoMarket. This growth was offset by the slowdown in Thailand/Vietnam and lower deep-water activity in India.

- Saudi Aramco awarded Schlumberger Well Testing an order for 240 PhaseWatcher Vx multiphase flow meters for the Khurais field in Saudi Arabia, confirming Schlumberger leadership in production well testing.

- Elsewhere in Saudi Arabia, the Wireline MaxTRAC open-hole tractor conveyance system has overcome the soft formation tractoring slippage experienced in this area. In one application, the MaxTRAC technology enabled the Schlumberger Wireline Flow Scanner production logging system to be deployed in deep horizontal wells providing real-time diagnosis of oil and water entries.

- Schlumberger Well Services Coiled Tubing Catenary technology was deployed for the first time in Asia for Shell Malaysia Exploration & Production to enable coiled-tubing operations from a floating barge. This new technology increases access to wells located on lightweight or congested platform jackets.

- In India, Schlumberger Wireline performed the first P4 post-perforation propellant pulse service for extensive formation fracturing. The combination of the Wireline Sonic Scanner service with an oriented perforation technique identified the preferred fracture plane making it possible to reduce fracture pressure below the maximum limit for this particular completion.

WesternGeco

- Revenue of $665 million was 6% lower sequentially, but 18% higher compared to the same period last year.

- Pretax operating income of $216 million decreased 19% sequentially, but increased 28% year-on-year.

- Sequentially, Marine increased due to higher production and pricing despite seasonal transits and scheduled dry dock inspections.

- Data Processing revenue also increased driven primarily by higher sales in North America, Europe, Africa and the Middle East while Land revenue remained flat.

- The improvement in Marine and Data Processing revenues was more than offset by the normal seasonal decline in Multiclient revenues.

- Pretax operating margins declined to 32.5% due to the lower Multiclient sales and to crew costs associated with certain Land projects.

- The seventh Q-Marine vessel, the Western Spirit, was launched near the end of the quarter. Equipped with DSC Dynamic Spread Control, the new WesternGeco automated vessel, source and streamer steering technology that enables more accurate survey positioning, the Western Spirit began 4D survey work in the North Sea for Statoil.

- Offshore India, ONGC awarded WesternGeco an integrated Q-Marine acquisition, processing and post-stack inversion contract through the 2009-2010 field seasons. This fourth long-term Q-Marine contract for ONGC underscores their commitment to the value delivered by Q-Technology.

- Offshore Angola, Sonangol Pesquisa & Producao awarded WesternGeco a contract for a Q-Marine acquisition and processing survey over 1,800 km2. This is the first Q-Marine survey to be acquired for Sonangol.- In North Africa, Q-Land activity saw further success with the award of a second 350-km2 survey for Sirte Oil Company in Libya, and a 300-km2 survey for First Calgary Petroleum in the Berkine basin in Algeria.

- Three new technologies for land operations were introduced. The Desert Explorer DX-80 vibroseis unit complements the Q-Land integrated acquisition and processing system with low distortion across a broad bandwidth. The MD Sweep design methodology enables a vibrator to produce higher energy at low frequencies, and the SHARP technique increases productivity of slip-sweep data acquisition without suffering quality degradation due to harmonic noise.

- Under a technical collaboration agreement with Petrobras, WesternGeco has started acquisition of a controlled source electromagnetics survey in the Santos basin offshore Brazil. This survey will include both 2D and 3D acquisition, processing and interpretation.

- The third phase of the E-Octopus wide-azimuth survey commenced in May and now extends to cover approximately 10,540 km2 of the Green Canyon area in the US Gulf of Mexico. This phase, which is prefunded, has deployed a total of 20 streamers from two Q-Marine vessels, with the data processed using the proprietary Q-Xpress technique to produce the world''s largest onboard prestack depth migration. MMCI Multimeasurement-Constrained Imaging workflow technology will be applied to selected areas of the survey to improve delineation of base-of-salt events for enhanced subsalt imaging. MMCI is a WesternGeco proprietary workflow that integrates marine magnetotelluric, gravity and seismic measurements. The E-Octopus project is part of the family of E-surveys that benefit from the most advanced acquisition and processing technologies in the industry.

Fiscal 2007 Outlook

- Based on the projected geographic mix of earnings within OFS and WesternGeco for the remainder of the year, the full-year ETR is expected to be lower than last year and above the second quarter levels.

- The company expects expense to be approximately $140 million, a $26 million increase over 2006.

- CapEx, is expected to reach approximately $3.1 billion.

Schlumberger Makes Itself The Go-To Oil Services Firm

Schlumberger Makes Itself The Go-To Oil Services Firm

Jul. 31, 2007 (Investor's Business Daily delivered by Newstex) --

Republish : Zulfikar

He who controls the past controls the future. Schlumberger's (NYSE:SLB) efforts to build up its business over the last 30 years have set it up for future dominance.
The oil field services giant SLB has established itself in local markets around the world. It is truly a global company.
The Houston-based firm offers project management services and searching techniques to national oil companies as well as international and domestic energy firms.
It has set up local centers for its products and services around the world. It uses local employees from the country where it operates.
The three-decade effort allowed Schlumberger to penetrate new markets as well as win some of the oil industry's most lucrative contracts.
With 70% of its business staked overseas, Schlumberger is poised to take advantage of increased demand for oil services abroad.
Analyst David Rewcastle of Argus Research expects worldwide spending on oil services to grow more than 10% this year and in 2008.
He says spending should hit well over $600 million for the next two years.
"Though this is slower than the growth in 2005 and 2006," Rewcastle said, "it continues an expansion not seen in more than a quarter century, due to a shortage of services to satisfy demand."
Schlumberger (it's pronounced SHLUM-ber-ZHAY) is the company that can fulfill the starving needs of the oil industry.
It has two business segments, Oilfield Services and WesternGeco. Combined, the units helped Schlumberger increase its second-quarter sales 21% to $5.64 billion. It was the 10th straight quarter of 20% or better sales growth.
Earnings Growth
The company earned $1.02 a share in the quarter, up 40% from last year. Analysts were expecting 95 cents.
The Oilfield Services segment had sales of $4.97 billion, up 21%. The unit provides exploration and production, well completion and geological evaluation. It also offers consulting, software and technology services.
The WesternGeco unit does reservoir imaging, monitoring and seismic surveys. Sales rose 18% to $664.6 million in the quarter.
The company continues to see strong demand for its services. National oil companies from Russia to Malaysia have paid top prices for seismic exploration services in an effort to expand capacity.
Schlumberger's seismic imaging is some of the world's best, said analyst Stephen Gengaro of Jefferies (NYSE:JEF) & Co. Its Q-Technology searches and finds new reserves. It can also tell the quality of the oil or gas.
The world is in constant demand to find new reserves. Analysts agree that seismic spending will continue to grow over the next few years.
CEO Andrew Gould told analysts in a conference call that second-quarter results were driven by the increasing pace of international activity.
The company signed contracts worth $3.8 billion over the last six months, Gould said. The contracts and a backlog of $1.2 billion will cover its business in the Middle East, Latin America, Russia, North Africa, Europe and Malaysia, he said.
"Sequential revenue growth for Oilfield Services accelerated in all areas except North America, where higher activity on land and in the Gulf Coast was not sufficient to completely offset a significant downturn in Canada," Gould said in the call.
The Canadian rig count in the second quarter fell 74% to 139 from last year, according to Baker Hughes (NYSE:BHI) BHI. The oil field services firm tracks global rig counts.
The firm said the U.S. was up nearly 8% to 1,757 rigs last quarter. But most of the demand for the company lies overseas.
"What's impressive is management's ability to minimize margin erosion in North America in light of sluggish Canadian activity," Gengaro said. "But international demand is what's driving the bus as far as growth for Schlumberger."
The global rig count rose 10% to 1,002 rigs last quarter. Baker Hughes found that rig activity is the strongest in Africa and the Middle East. Europe and Asia-Pacific had solid rig growth as well.
All of this bodes well for Schlumberger. Its geographic footprint in these regions places it right in the middle of the action.
The company has outspent rivals on research and new products, Rewcastle says. This has paid off for Schlumberger, whose clients range from national oil companies to big guns like Exxon Mobil (NYSE:XOM) XOM.
"It's a powerhouse," said Rewcastle. "Its services are useful to any party in search of oil or gas. It can find the sweet spot almost anywhere and help the client extract it."
World Domination
Schlumberger is a dominant force all over the world. But it still faces several risks.
First, a recession could force the price of oil to plummet. Then drilling activity would drastically slow down.
"Oil prices in the 60s and 70s are not crucial to the profitability of oil service firms," Rewcastle said. "Sustained prices around $35 per barrel are necessary to stimulate projects with an adequate return. I expect the current environment of high prices to continue."
But with robust outlooks for the industry expected for next few years, there is a more imminent risk for the oil services giant.
Schlumberger operates in some politically unstable countries. These nations are heavily dependent on oil exports. It could be forced to close down business due to sanctions or volatility.
In the early 1940s, Texaco paid for its own dealings with hostile regimes such as Nazi Germany and Imperial Japan. And there are similarities with Schlumberger's business in Sudan, Iran and Venezuela, Rewcastle says.
Schlumberger is the only major E&P company left in Iran and Sudan, he says.
But its operations are well-diversified throughout the world. Its business sprawls over regions where drilling demand is surging, Gengaro says.
"Part of the cost of doing business is the political risk," he said, "But there are other state oil companies with sufficient capital to keep Schlumberger busy, such as Russia. Its positioning in the world and its technological innovation will keep it dominant