Baker Hughes said it expects to record a pre-tax gain of $1.74 billion from the sale of its 30% minority stake in seismic operator WesternGeco to co-owner Schlumberger for $2.4 billion in cash. Baker Hughes intends to use the proceeds to buy back stock. Cash proceeds, net of tax, are expected to be $1.8 billion.
"We have been pleased with the results from WesternGeco over the last several quarters and with the performance of the WesternGeco management team. However, the $2.4 billion sales price provides us with an excellent point to exit our minority ownership position," said Baker Hughes CEO Chad Deaton.
"We remain excited about the growth in the global market for our products and services that we see continuing for the next several years. Baker Hughes will continue investing in people and technology to further our penetration of key global markets, and we maintain our intention to return cash in excess of our needs to our stockholders through our stock repurchase program."
Schlumberger CEO Andrew Gould said the decision to purchase the minority interest of WesternGeco reflects the company's "confidence in the seismic market and our belief that greater reservoir complexity will require more accurate reservoir characterization. A closer integration between surface seismic and other Schlumberger measurement technologies will lead to substantial progress in eliminating reservoir uncertainties."
Schlumberger reported WesternGeco revenue of $530 million, a 14% increase from the fourth quarter and a 40% increase from 1Q2005. Pretax business segment operating income of $158 million increased 44% sequentially and 149% year-on-year. "WesternGeco reported another exceptional quarter with activity reaching new record levels driven by exploration demand as well as continued Q technology uptake," Gould said. "The industry exploration cycle that has now clearly begun is likely to be longer and more sustainable than anything seen in recent years. Targeted reservoirs are likely to be smaller and will be more complex, with ultimate recovery factors being key to project economics."
Schlumberger reported first-quarter 2006 operating revenue of $4.24 billion versus $4.02 billion in the fourth quarter of 2005 and $3.16 billion in the first quarter of last year. Earnings per share before special items were $0.59, versus $0.52 in the fourth quarter and $0.32 in the first quarter of last year.
"Activity increases and strong pricing momentum, particularly in North America, drove first-quarter results despite the severe curtailment of activity in Russia early in the year," said Gould. "Internationally by geographical area, Saudi Arabia, North Africa and the North Sea strengthened significantly as new projects and additional rigs were mobilized.
"While the exceptionally high gas storage levels following the mild winter may lead to some temporary slowing in gas activity in the U.S., the struggle to increase the world's margin of spare production capacity in the face of accelerating decline rates and growing geopolitical issues will continue to provide the fundamentals for strong sustainable growth."
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