Good morning ladies and gentlemen. I’d like to thank UBS for the invitation to be here today.
During the UBS Global Oil & Gas Conference last May, I outlined the Schlumberger transformation program and provided an update on its progress. While transformation continues to play a critical role in the improvement of our performance, delivering value to both our customers and ourselves, I’d like to take the time today to introduce you to another important part of our fabric, Schlumberger Global Stewardship, which is our commitment to the responsible management of resources—natural, human, and economic. This environmental, social, and governance (ESG) program is sponsored by our Chairman and CEO Paal Kibsgaard.
I will now take you through its evolution and I will touch upon the subjects of Governance and Ethics, the Environment, and the Communities where we strive to be exemplary corporate citizens.
Before we get started, some of the statements I will make today are forward looking. These statements are subject to risks and uncertainties that could cause results to differ materially from those projected in the statements. I therefore refer you to our latest 10-K and other SEC filings.
This year, Schlumberger celebrates 90 years of being the industry leader in oilfield services. A rich and strong heritage from the founding Schlumberger brothers remains a continuing theme within today’s Company culture. The roots of our corporate values can be traced back to the Schlumberger family values, which steadfastly insisted on the importance of learning and education, and later took form in the belief that one must always keep a close eye on the customer's needs and the Company's greater purpose in the world. Conrad and Marcel Schlumberger believed in driving their Company's future success by re-investing profits in the business, particularly in research and development.
Among our guiding principles today are a high regard for the use of technology as the core of the business, and a focus on service first, with profits expected to follow. The fact that the founders were members of the same family and maintained informal relationships with employees is echoed today when employees speak about being part of the “Schlumberger family” and having open access to senior management. The family values shown on this slide were present when Schlumberger was founded.
Over time the Schlumberger family values crystallized into our three current core values—people, technology, and profit.
Our people thrive on the challenge to excel in any environment and their dedication to safety and customer service worldwide is our greatest strength.
Our commitment to technology and quality is the basis of our competitive advantage.
Our determination to produce superior profits is the cornerstone for our future independence of action and growth.
Today, Schlumberger is the leading oilfield service provider, and we are also the largest, employing over 100,000 men and women who represent more than 140 nationalities. We work in over 85 countries worldwide. Essentially, anywhere that oil and gas are produced around the globe, Schlumberger is involved in one way or another.
To support our efforts in providing our customers with industry leading services and technologies in the field, we have a highly specialized global support network. This network extends from the 95 research, engineering, and manufacturing centers that design, develop, and build the technologies that are critical to our customers’ field operations success to our ability to mobilize people, equipment, and technologies to remote locations around the world.
While a long-standing focus on the science of measurement has established Schlumberger as the leading technology provider for the oil and gas industry, our customers depend on us to acquire data and maximize its use to achieve their exploration and production goals. The trust in Schlumberger to help them achieve these goals also comes with a global responsibility to minimize the environmental impact and risks associated with our operations. This forms the basis of our vision of Global Stewardship, which includes a social responsibility to the people in the communities where we live and work.
In 2015, we formalized a structure within Schlumberger to progressively work on social and environmental stewardship. But our history of Global Stewardship goes back much earlier.
On the community engagement side, this includes the launch of the Schlumberger Excellence in Education Development initiative nearly 20 years ago with an aim to improve opportunities for youth in disadvantaged schools within the communities where Schlumberger employees work.
On the environmental side, this includes the development of the hydraulic fracturing chemical disclosure process in 2010 that has become the industry’s best practice and been fully incorporated into FracFocus.
The examples of Schlumberger commitment to the community and the environment are long and storied, so there are too many to list on a single slide. In 2015, we released our first corporate Global Stewardship Report, which highlights our yearly accomplishments and describes our ESG performance. I invite you to review the annual Schlumberger Global Stewardship Report, which is now posted on our website, slb.com.
I’d like to take the opportunity to highlight in greater detail some of those accomplishments. I will break them down into three categories: Governance and Ethics, the Environment, and finally, the Community.
We share a responsibility to protect our Company’s reputation for integrity and quality against the ever-changing challenges of the global marketplace. We are confident that by choosing a highly competent team of managers to lead us, and by strictly adhering to our high standards of conduct, we will maintain our leadership in the industry.
While it may not be unique, it is worth noting that “The Blueprint – Our Identity” was drafted by our Chairman and CEO shortly after he was appointed. This document sets the tone for behavior expected within our company. It gives context to the three core values of Schlumberger. To support our more than 100,000 employees located around the globe in the making of sometimes difficult decisions on the job, we also created “The Blue Print in Action – Our Code of Conduct.” This document details legal obligations and regulatory requirements with which all Schlumberger employees must comply and for which we are all accountable. This includes anticorruption measures, intellectual property protection as well as social and environmental responsibilities. Our Code of Conduct provides a consistency of approach for our employees, but most importantly, it stresses to our people that our actions reflect on the company and that our company is the sum of our actions.
From a social responsibility perspective, in addition to providing guidance on equal opportunity, fair wages, human rights and child labor, Our Code of Conduct instills in our employees a deep sense of corporate responsibility to help improve the living conditions in the communities where we live and work. Our focus on education, particularly STEM subjects, has brought development opportunities to students in villages and larger communities worldwide.
From an environmental perspective, Our Code of Conduct reinforces our commitment to minimizing our impact on the environment via training programs, assessments on any needed changes to those programs and associated equipment as well as quality improvement programs. This is an area where continued efforts to reduce nonproductive time via our transformation program have also helped us reduce associated emissions and waste.
It is important to remember that at Schlumberger, because we hire where we work and because we promote from within, it is easy to motive employees to care about the communities where we live and work.
Yet technology also plays a role. In 1919, Paul Schlumberger committed 500,000 French francs—equivalent to nearly $1 million today—to his sons for research on the measurement of subsurface characteristics. In 2016, our annual R&D budget was $1 billion.
Many of the projects that are currently in the R&D pipeline address items such as water use, emissions, noise, and other aspects of wellsite operations. I will get to an example in a few moments.
Combining the fundamentals provided in Our Code of Conduct with our commitment to technology, our Global Stewardship program has a dual mission:
Global Stewardship within Schlumberger is fully supported by senior management and structured to create an environment conducive to efficient communication and the sharing of best practices. It also encourages the organization to be creative in our approaches and for us to be seen as thought leaders in both social and environmental stewardship.
Global Stewardship is broken into two elements, community and environment, and reports to Schlumberger executive management.
On the community side, the Global Stewardship team works closely with operations, universities, and human resources by providing tools and solutions that address the unique challenges that may arise in the communities.
On the environmental side, the Global Stewardship team works very closely with the health, safety, and environment (HSE) function, product lines, and research centers that develop, manufacture, and launch the technologies that reduce environmental impact and enable better risk management.
This structure reports to me and thus to our CEO.
To better understand how Global Stewardship plays a critical role in the community and the environment, we must first consider the stakeholder associated with oil and gas development. As opposed to the “social license to operate” term that is commonly used to describe the level of acceptance by local communities for development projects, we prefer “social contract.” A social contract implies that all those involved have equally important perspectives regarding the pros and cons of a project. If that holds true, then each stakeholder understands the needs and concerns of the other; everyone has a voice, and when performance benchmarks are agreed upon, everyone has a balanced perspective.
Let's briefly walk through this.
Consumers, those who ultimately buy the natural gas, oil or products derived from those resources, are looking for a low price. The resource owners, whether it is government-owned minerals or privately held, have a desire and right to produce those resources to fulfill the demand and generate revenue. The local communities, around which many of these projects are located, have a concern for their safety and a desire for a high quality of life.
For those that speak for the environment, there is a concern around the environmental sustainability of the projects and their impact on air quality as well as resource consumption, such as water. For the oil and gas industry, where the specific expertise for the development exists, they look for economic development, associated jobs, and workplace/community safety. Last, but not least, the government has a responsibility to regulate with a goal of providing affordable and dependable access to energy while also maintaining social and environmental protection.
This concept is at the heart of our Global Stewardship perspective. Let’s get into some details.
Schlumberger technologies aim to lower the environmental impact of our operations and provide value to our customers by reliably, efficiently, and consistently optimizing production and recovery of nonrenewable resources. Allow me to phrase that in another way. Our technologies seek to decrease the environmental impact of our operations. At the same time, these technologies provide value to our customers by optimizing production and the recovery of nonrenewable resources in a reliable, efficient, and consistent manner.
The last decade has seen the emergence of unconventional resources as a major oil and gas development theme. Unconventional resources exist around the globe, but the largest concentration of successful development has occurred in North America. We foresee that over time, other major unconventional plays will be developed internationally, but today they are still in early phases.
The success of unconventional resources is largely attributed to surface contact with the producing horizon, and this is accomplished by a combination of horizontal drilling and multistage hydraulic fracturing. Recent trends have seen a push for longer and longer laterals with more fracturing stages per well. In some of the more progressive plays, we see our customers targeting stacked producing horizons from individual stacked laterals.
Overall, it is common to see anywhere from four to an excess of 20 wells per single well pad or location.
This concentrated development means more resources are utilized in a concentrated surface location.
The challenge then comes down to how to economically develop needed oil and gas resources, while also minimizing the impact of various surface stakeholders, including the environmental impact. These stakeholders, for example, come in the form of communities in the Denver, San Antonio, and Dallas metro areas; and countless other smaller towns where the potential impact includes truck traffic, water use, emissions, and noise. They also come in the form of the habitats of various types of wildlife, such as sage grouse in the Northern Rockies.
A long time ago we recognized that new technologies were needed to address these potential impacts. With that in mind, we launched research and engineering projects that focused on minimizing the environmental impact associated with upstream development processes.
One such process is hydraulic fracturing. In the engineering efforts for the next generation of well stimulation, which is a critical component of the successful development of unconventional reservoirs, we developed an internal software that enables us to model the potential effects of new fracturing technologies on various environmental criteria.
This software proved to be critical for high-grading potential well stimulation related projects, helping us model the environmental footprint relative to items such as emissions, air quality, water use, noise, and chemical exposure, to name a few. This software, known as the Stewardship Tool, has played an important role in the development of many next-generation stimulation technologies, such as BroadBand* unconventional reservoir completion services. Additionally, it has garnered a high level of interest by our customers and other stakeholders as a potential tool for planning development scenarios and having meaningful discussions amongst stakeholders around potential impacts and how to minimize them.
During the last year, we have been independently testing the tool through customers and environmental groups.
We are currently working closely with key customers to evaluate the potential release of this tool across the industry to help elevate the level of planning and communication, and independent of whether or not Schlumberger provides the well services.
We believe that if we are doing our research and engineering processes correctly, the potential environmental performance of our technologies will be clearly demonstrated via the Stewardship Tool.
Now, let me give you an example of how we are engineering environmental performance into our technologies.
Let's look at the Eagle Ford Shale, which extends from the counties just south of Austin, down to the southwest, and into Mexico.
Although the Eagle Ford Shale is a relatively recent development, the formations above and below this deposit have had a long history of oil and gas development. In 2008, what is widely considered the first commercial Eagle Ford Shale well was drilled and completed, going after natural gas; that well had a 3,200-foot lateral with 10 fracturing stages. Today’s Eagle Ford well, typically targeting oil or liquid-rich gas, entails a lateral in excess of 6,000 feet and utilizes 25 or more fracturing stages.
To help you understand the scale of the development, let’s look at a portion of Dimmet County, Texas, near the border with Mexico. What you see in this 144-square-mile satellite image is an area roughly equivalent to half the size of the city of Austin. The little white boxes adjacent to the country roads are well pads.
From those well pads, multiple individual horizontal wells are drilled into the Eagle Ford Shale. The horizontal wells depicted here represent over 500 wells in an area, approximately half the size of the city of Austin.
Starting in 2010, we utilized a new stimulation technology called HiWAY* in the Eagle Ford. This fracturing technique creates a network of open channels, or pathways, inside the hydraulic fracturing, optimizing connectivity to the reservoir and dramatically improving well performance. Most importantly, it accomplishes this while using significantly less proppant and water.
Overall, we have stimulated more than 600 wells utilizing the HiWAY technique, and the results are impressive. Comparing the 621 wells in the study to 6,000 conventionally stimulated wells, the HiWAY technique increases production by an average of 34%. The production was increased while using 32% less water and 37% less proppant.
More production with less effort means better stewardship of nonrenewable resources.
To put this into perspective, the amount of incremental gas produced can generate enough electricity to power all the homes in the cities of Austin and Houston for one year. The amount of proppant saved could fill the Texas State Capitol rotunda 23 times. And the water saved could fill the UT Clock Tower 122 times.
And there's more. Along with the reduction in treatment size is less diesel usage and the associated reduction in carbon dioxide emissions.
Taking the wellsite reduction and adding the nearly 210,000 truck trips we eliminated reduces the emissions by 290 million pounds. That is equivalent to the emissions associated with 1,400 roundtrip flights from New York's LaGuardia Airport to Austin, Texas, and equivalent to the amount of carbon-dioxide sequestered by 70,000 mature pecan trees.
I chose the HiWAY technique as an example of how technology can reduce environmental footprint because it is a mature technology that was commercialized seven years ago. As a global technology leader, Schlumberger has the ability to address environmental impact issues via new and innovative technologies and increased operational performance.
Schlumberger technologies help our customers decrease emissions, save energy, and reduce resources throughout every phase of the oil and gas exploration and production process. Advanced technology programs within each of our Product Groups help our customers enhance oilfield efficiency, lower finding and producing costs, improve productivity, and maximize reserve recovery—all of which contribute to lowering their impact on the environment.
Shifting gears one more time, the strong Schlumberger focus on integrity and corporate responsibility enables us to take pride in our work and empowers us to enhance the well-being of the communities where we live and work.
Our commitment encompasses health and safety risks in the workplace, the field, and during travel on company business. The Schlumberger HSE Management System defines the principles by which we conduct operations worldwide, and our management team applies our rigorous HSE policies and standards throughout the company.
In addition, we have a long-standing commitment to sharing HSE best practices through HSE technical papers and other means. Schlumberger is recognized as a leader in HSE.
Since its foundation, Schlumberger has invested in the communities where we operate, and these investments are not just financial; we recruit, train, and hire locally. In many countries, we invest in the creation of local companies that can provide products and services derived directly from the countries where we are operating. In virtually every country where we work, our employees volunteer to promote education in local schools and communities. We are currently expanding our investment to providing energy to communities that have no access to electricity. To do this we are working with a number of partner companies and organizations, including Switch Energy Associates, Stanford University, and BBOX. In Rwanda, for example, BBOX has deployed 20,000 systems and jobs to over 300 Rwandans. It is through innovative collaborations such as this that we are delivering on our Global Stewardship ambitions.
Schlumberger has developed and deployed globally recognized programs, such as SEED, HSE for Youth, and Faculty for the Future. Schlumberger Excellence in Education Development (SEED) is an educational program focusing on communities where Schlumberger people live and work. Through SEED, Schlumberger engages employees, educators, retirees, and volunteers around the world to share their passion for learning and science with students. In 2016, for example, SEED provided education to 27,281 young people in 23 countries via 132 workshops.
HSE for Youth is a program unique to Schlumberger. While working in these countries we discovered that many young people are being educated in a manner such that they are not exposed to basic health and safety education. In 2016, this program educated more than 3,000 youths in 34 countries through 122 workshops.
Our Faculty for the Future program, administered by the Schlumberger Foundation which was founded in 1954, enables women from developing countries to pursue advanced graduate studies in STEM at top-tier universities around the world. In 2011, Schlumberger donated an additional $50 million to the endowment. Since its launch in 2004, the Faculty for the Future program has awarded fellowships to 635 women from 81 developing and emerging countries. In 2016, these fellows pursued doctoral and postdoctoral studies at 243 universities worldwide.
The fellowships and yearly in-person forums with fellows and alumnae represent the Schlumberger Foundation’s long-term investment in a community of highly qualified women scientists who become role models and inspire more women to study science, thus helping narrow the gender gap in STEM disciplines. Fellowships are awarded based on the applicant’s academic ability, leadership qualities, and engagement in outreach activities toward underserved communities. After completing their studies, the alumnae are expected to return to their home countries where they contribute to economic, social, and technological advancement by strengthening the teaching and research faculties of their home institutions and taking positions in the public sector where their newly acquired technical and scientific skills can help provide evidence-based support for policy-making.
Making diversity a business priority has given us access to the best people, no matter where they were born. Our people, men and women worldwide, are our main asset. Schlumberger sees diversity of its workforce as an important part of its cultural philosophy and a business imperative because it enables the company to serve customers anywhere in the world. We truly live diversity on a daily basis.
In accordance with the United Nations Sustainable Development Goal of achieving gender equality, we strive to meet the evolving needs of our workforce in terms of gender equality, work-life balance, and dual-career expectations. We believe this focus helps us maintain our competitive edge. Our gender diversity focus began in 1994, when the company set an overall target of having women comprise 15% of our workforce by 2015. After achieving this milestone ahead of schedule in 2011, we set a new target of having women comprise 25% of our workforce by 2020, and we believe we’re on track to accomplish this as well.
In closing, I would like to share a few final thoughts for you to consider when you think about our industry’s role in Global Stewardship.
Schlumberger and its 100,000 employees around the globe are committed to setting and achieving the highest standards of global citizenship for ourselves and our industry. To that end, Schlumberger has made the decision to release the Stewardship Tool software to the public domain. We are doing this because we believe this product is important enough for our industry and the communities where we work so we do not want to restrict access to it. Putting this software in the hands of concerned stakeholders around the globe will be an incredibly valuable tool for driving environmental, social, and commercial performance in the long term.
Second, Schlumberger has been filing its Global Stewardship results with the seven major ESG rating agencies for three years now. These rating services are unregulated and vary greatly in quality and the accuracy of assessment. Stockholders invest every quarter based on the results reported by these organizations. As such, it is our intention to work with the investment houses, the ESG rating agencies, and other industry organizations to compel the development of ESG assessment standards that accurately reflect and compare the ESG performance of the oil and gas operating and oilfield services sectors. From the integrity angle, PwC auditors reviewed our processes and procedures for 2016 and verified a subset of our data. Furthermore, the objectives of our executive management support ESG goals, such as efficiency, reliability, and HSE.
Finally, Schlumberger is proud of its reputation as the industry's leader in technology and research. Throughout our long history, we have repeatedly brought to market advanced technologies that provided greater efficiencies and improved production. We are committed to bringing the same spirit and determination to developing technologies and processes that will not only improve our own Global Stewardship but that of our entire industry. In the coming years, you will see this commitment manifest in cleaner, safer production technologies and techniques that will improve global production and also reduce the industry's environmental footprint.
Thank you very much. I will now be happy to take questions and comments.