- Revenue of $6.9 billion decreased 3%
sequentially
- GAAP EPS, including Cameron integration
charges of $0.05 per share, was $0.20
- EPS, excluding Cameron integration
charges, was $0.25
- Cash flow from operations was $656
million
- Quarterly cash dividend of $0.50 per
share was approved
Schlumberger Limited (NYSE:SLB) today reported results for the
first quarter of 2017.
(Stated in millions, except per share
amounts)
Three Months Ended
Change
Mar. 31, 2017 Dec. 31, 2016 Mar.
31, 2016**
Sequential Year-on-year
Revenue
$6,894 $7,107
$6,520
-3% 6% Pretax operating income
$757 $810 $901
-7% -16% Pretax operating margin
11.0% 11.4%
13.8%
-42 bps -284 bps Net income (loss) (GAAP basis)
$279 $(204) $501
n/m n/m Net income, excluding
charges and credits*
$347 $379 $501
-8% -31%
Diluted EPS (loss per share) (GAAP basis)
$0.20 $(0.15)
$0.40
n/m n/m Diluted EPS, excluding charges and
credits*
$0.25 $0.27 $0.40
-7% -38%
*These are non-GAAP financial measures.
See section below entitled "Charges & Credits" for details.
**First-quarter 2016 does not include
Cameron, as the acquisition closed on April 1, 2016.
n/m = not meaningful
Schlumberger Chairman and CEO Paal Kibsgaard commented, “In the
first quarter, the North America land market continued to
strengthen in terms of both activity and pricing, leading us to
begin accelerating deployment of idle capacity for multiple product
lines. Revenue growth was led by hydraulic fracturing and drilling
services, but was also increasingly supported by Artificial Lift,
Surface Systems and Valves & Measurement. In spite of our
capacity re-activation being heavily back-end loaded toward the end
of the quarter as we continued to adhere to our profitable growth
approach, we still generated 16% sequential revenue growth and 66%
incremental margins in our hydraulic fracturing and directional
drilling services in US land. These results were driven by
productive customer engagement around pricing recovery and
operational efficiency, together with timely resource additions and
proactive supply chain engagement.
“In the international markets, revenue declined 7% sequentially,
driven by a greater than expected seasonal decline in activity and
sales, particularly in China, Russia land, and the North Sea. In
addition, we saw lower sequential activity in key parts of the
Middle East, while production constraints imposed on our
Schlumberger Production Management (SPM) Shushufindi project in
Ecuador also had a negative impact on our first quarter results.
Still, the underlying activity and sentiment from our global
customer base were in line with expectations as seen, for instance,
by the flat sequential revenue trends in the rest of Latin America
as well as in Africa, confirming that these regions have indeed
reached the bottom of the cycle.
“Among the business segments, the first-quarter revenue declines
were led by the Cameron Group, which fell 9% sequentially driven by
lower project volumes in OneSubsea and reduced product sales in
Surface Systems. Reservoir Characterization Group revenue decreased
3% sequentially due to the seasonal reduction in revenue for our
Software Integrated Solutions (SIS) and WesternGeco product lines.
Drilling Group and Production Group revenues were each 1% lower
sequentially as continued strong growth in hydraulic fracturing and
directional drilling activity in North America land was offset by
seasonal revenue reductions in the international markets.
“As we begin the recovery from one of the deepest downturns on
record, we see four areas as critical for the industry to restore
its strength and advance its capabilities. They are—the need for
higher E&P spending to meet growing hydrocarbon demand over the
coming years; the need to protect and encourage investments in
R&E throughout the entire oil and gas value chain; the need for
new business models that foster closer technical collaboration and
commercial alignment between operators and suppliers; and the need
for broader and more integrated technology platforms that combine
hardware, software, data, and expertise.
“While our view of the fundamentals of supply and demand in the
oil markets remains constructive, the continuing underinvestment in
new supply is increasing the likelihood of a medium-term supply
deficit as reservoirs are produced but reserves are not replaced in
sufficient volume. In particular, the market continues to focus on
headline decline numbers, suggesting that production is holding up
well. However, a closer examination of the underlying data clearly
shows that the rate of depletion of proven developed reserves is
rapidly accelerating in several key non-OPEC countries.
“As the recovery builds momentum, industry cash flow and
productivity remain under pressure and limit the industry’s ability
to increase present levels of E&P investment. At the same time,
the value chain remains focused on trying to capture the limited
value that is created, rather than seeking new ways to collectively
create more value. This approach is not sustainable, either from
addressing the underlying industry challenges or from ensuring that
the future supply of hydrocarbons can meet the projected growth in
demand.
“At Schlumberger, we are therefore actively seeking to position
the company at the forefront of an industry that needs to evolve.
We are doing this by proactively managing our base business and
responding to the ongoing pressures of commoditization, tailoring
our offering and performance to the prevailing market conditions.
In parallel, we are constantly looking to expand our opportunity
set by pursuing a broad and active M&A program; engaging with
existing and new customers to establish closer collaboration and
more aligned business models; and expanding our offering from
technical support to investing alongside our customers in their
projects—all with the aim of driving more activity for our 19
product and service lines. As we continue to carefully navigate the
current industry landscape, we remain confident and optimistic
about the future of Schlumberger, knowing very well that beyond the
current market challenges lies a wealth of opportunity for the
industry players who are ready and able to think new and to act
new.”
Other Events
During the quarter, Schlumberger repurchased 4.7 million shares
of its common stock at an average price of $78.97 per share for a
total purchase price of $372 million.
On March 24, 2017, Schlumberger and Weatherford announced an
agreement to create OneStimSM, a joint venture to deliver
completions products and services for the development of
unconventional resource plays in land markets in the United States
and Canada. The joint venture will offer one of the broadest
multistage completions portfolios in the market combined with one
of the largest hydraulic fracturing fleets in the industry.
Schlumberger and Weatherford will have 70%/30% ownership of the
joint venture, respectively. The transaction is expected to close
in the second half of 2017 and is subject to regulatory approvals
and other customary closing conditions.
On March 27, 2017, Schlumberger purchased a minority interest in
Borr Drilling, a Norwegian rig contractor, for $221 million. This
transaction will enable Schlumberger, together with Borr Drilling,
to offer integrated, performance-based drilling contracts in the
offshore jack-up market.
On April 12, 2017, Schlumberger and YPF announced the signing of
a preliminary agreement for a joint venture in a shale oil pilot
project in the Bandurria Sur Block in Vaca Muerta, Neuquén.
Schlumberger will provide reservoir knowledge, integrated field
studies, drilling and completions services, and associated
infrastructure. The agreement involves a $390 million phased
investment by Schlumberger, which includes a significant
contribution in-kind of its services at market pricing. Upon
satisfaction of certain closing conditions, Schlumberger will
acquire a 49% interest in the joint venture, and the remaining 51%,
along with the operatorship of the block, will be held by YPF.
On April 20, 2017, the Company’s Board of Directors approved a
quarterly cash dividend of $0.50 per share of outstanding common
stock, payable on July 14, 2017 to stockholders of record on June
1, 2017.
Consolidated Revenue by Geography
(Stated in millions)
Three Months Ended Change Mar. 31, 2017
Dec. 31, 2016
Sequential North America
$1,871
$1,765
6% Latin America
952 952
-
Europe/CIS/Africa
1,652 1,834
-10% Middle East &
Asia
2,319 2,494
-7% Eliminations & other
100 62
n/m $6,894 $7,107
-3%
North America revenue
$1,871 $1,765
6% International
revenue
$4,922 $5,280
-7%
n/m = not meaningful
First-quarter revenue of $6.9 billion decreased 3% sequentially
with North America growing 6% and International decreasing 7%.
North America
In North America, revenue grew sequentially as unconventional
land activity accelerated during the quarter, partially offset by a
decline in offshore activity. Land revenue experienced double-digit
sequential growth driven by: stronger hydraulic fracturing activity
as stage count increased; higher pricing as capacity utilization
improved; greater uptake of directional drilling products and
services as the rig count grew; and higher Cameron revenue as
product sales and fracturing and flowback rental activity
increased. While land revenue in the US posted double-digit growth
on a 27% sequential rig count increase, revenue in Western Canada
grew stronger from a winter ramp-up in activity as sequential rig
count increased by 56%. The offshore revenue decline was a result
of lower WesternGeco multiclient license sales following the usual,
but muted, year-end sales in the previous quarter, although this
was partially offset by Wireline revenue growth from
infrastructure-led exploration activity.
International Areas
International revenue declined sequentially due to reduced
Cameron Group project volume and product sales; decreased SIS
software license sales following the usual, but muted, year-end
sales in the previous quarter; a seasonal drop in activities in the
Northern Hemisphere; and continuing pricing pressure on new tender
awards.
Revenue in the Latin America Area was flat sequentially
as Brazil revenue growth was offset by a revenue decline in the
Peru, Colombia & Ecuador GeoMarket where production constraints
imposed on the SPM Shushufindi project in Ecuador impacted results.
Argentina, Bolivia & Chile GeoMarket revenue was also lower,
driven by a drop in drilling and fracturing activity due to the
early completion of a number of projects. Revenue growth in Brazil
was driven by stronger OneSubsea activity and increased WesternGeco
multiclient license sales in anticipation of the upcoming 14th bid
round.
Europe/CIS/Africa Area revenue decreased 10%
sequentially primarily due to more severe than usual seasonal
activity reductions in Russia and Kazakhstan that impacted all
product lines, while the UK & Continental Europe GeoMarket also
experienced lower activity and reduced SIS software license sales.
Reduced OneSubsea activity due to a project completed in the Gulf
of Guinea and lower Surface Systems product sales across the Area
also contributed to the decline. Revenue from the Sub-Saharan
Africa GeoMarket was essentially flat as the strong increase in
land activity in Congo, Chad and Ethiopia was offset by the
cancellation of an offshore drilling project in Angola and project
delays in offshore Congo.
Middle East & Asia Area revenue decreased 7%
sequentially principally due to pricing pressure and lower drilling
and hydraulic fracturing activity on land in the Middle East.
Australia revenue also decreased due to reduced offshore drilling
activity while severe weather on land affected all product and
service lines. China land revenue was lower due to the seasonal
winter slowdown that mainly impacted Production, Drilling, and
Cameron Group activities.
Reservoir Characterization Group
(Stated in millions)
Three Months Ended Change Mar. 31, 2017
Dec. 31, 2016 Mar. 31, 2016
Sequential
Year-on-year Revenue
$1,618 $1,676
$1,719
-3% -6% Pretax operating income
$281
$319 $334
-12% -16% Pretax operating margin
17.3% 19.0% 19.4%
-170 bps -206 bps
Reservoir Characterization Group revenue of $1.6 billion, of
which 78% came from the international markets, decreased 3%
sequentially due to project completions from a decreasing backlog
of Testing & Process systems that were partially offset by
further progress on the early production facility projects in
Kuwait and Egypt. Wireline revenue grew from infrastructure-led
exploration activity in North America, partially offset by
seasonally reduced Wireline revenue in Russia. Following the usual
but muted year-end sales in the previous quarter, lower SIS
software license sales also impacted the Group’s results.
Pretax operating margin of 17% decreased 170 bps sequentially as
the increased contribution from high-margin Wireline exploration
activities was more than offset by reduced profitability in
WesternGeco and lower contributions from SIS software license
sales.
Reservoir Characterization Group performance was enhanced by
Integrated Services Management (ISM) operations, where specially
trained project managers provide scheduling, planning, and activity
coordination for the Schlumberger product lines involved in a
project. First-quarter performance was also boosted by new
technology deployments and contract awards.
In Peru, ISM coordinated services for Repsol Peru’s Sagari
Project. The wellsite, which is located in a remote area, is
classified as zero discharge with the requirement that all
generated drilling cuttings are either injected or transported from
the location. The ISM team worked closely with Repsol to deliver
directional drilling, logging-while-drilling, drilling and
completion fluids, bits and hole enlargement, managed pressure
drilling, wellbore cleanout tools, cementing, wireline logging and
perforating, well testing, and cuttings re-injection services. The
result for the customer from this integrated and collaborative
effort was that the first two wells were delivered six days ahead
of the planned schedule.
In the Bulgarian sector of the Black Sea, Total E&P Bulgaria
drilled its first deepwater exploration well. Schlumberger ISM
managed eight separate product lines on the rig and coordinated
over 100 personnel involved in the project. Through close
collaboration with Total E&P Bulgaria, the ISM team identified
drilling optimization opportunities that yielded significant
results during on-bottom drilling operations. Total E&P
Bulgaria expressed appreciation for the collaborative environment
that Schlumberger brought to the project.
Offshore India, Schlumberger ISM provided drilling and
completions services in the first offshore deepwater well for Oil
India Limited in the Gulf of Mannar. Technical expertise and a
total of 19 Schlumberger services were provided, including
technologies from Testing & Process, Wireline, M-I SWACO,
Drilling & Measurements, Bits & Drilling Tools,
Completions, and Well Services product lines. In addition, ISM
managed third-party providers for casing running services, air and
marine logistics, and a shore base facility.
In West Texas, WesternGeco completed acquisition of a 3D
wide-azimuth multiclient survey covering 253 square miles in the
southern part of the Permian basin, bringing total coverage in the
area to 655 square miles. The project was supported by the oil and
gas industry and will provide data to help operators improve the
efficiency of drilling and completions operations in the very
active but challenging parts of the Permian basin.
In the UAE, Sharjah National Oil Corporation contracted
WesternGeco to conduct a 483-km2 3D seismic survey over part of
their onshore concession in Sharjah. The project will use UniQ*
land seismic acquisition platform technology to manage the long
offsets required to image the complex overthrust geology in the
area. The survey is an extension of a previous survey conducted in
2011, which demonstrated the effectiveness of UniQ platform
technology. Data processing will be conducted in the Abu Dhabi
processing center using reverse time migration to image this
complex geology.
In Kazakhstan, Wireline used Quanta Geo* photorealistic
reservoir geology service to evaluate a tight carbonate formation
for Karachaganak Petroleum Operating BV—a consortium of Eni, Shell,
Chevron, Lukoil, and KazMunaiGas. Quanta Geo service technology
uses an innovative sonde with heightened sensitivity to detect
vertical and lateral features in the wellbore. The customer
obtained better quality images, which are not possible when using
oil-base mud, thus enabling structural and stratigraphic
interpretation with a higher degree of confidence.
In Brazil, the Libra Consortium—comprised of Petrobras, Royal
Dutch Shell, Total, CNOOC, and CNPC—awarded SIS a five-year
contract for exploration and production software and related
services. The consortium will explore the country’s largest
deepwater oilfield, which has an estimated volume of recoverable
oil from 8 to 12 billion barrels. The contract includes the
provision of the Petrel* E&P software platform with a focus on
geological and geophysical interpretation, geologic modeling, and
reservoir engineering.
In Taiwan, CPC Corporation awarded SIS a five-year contract for
software. The contract includes the provision of the Petrel E&P
software platform, Techlog* wellbore software platform, and
ECLIPSE* reservoir simulator. The breadth and depth of the
Schlumberger software portfolio and our ability to provide
localized services and support were instrumental in winning this
award.
Drilling Group
(Stated in millions)
Three Months Ended Change Mar. 31, 2017
Dec. 31, 2016 Mar. 31, 2016
Sequential
Year-on-year Revenue
$1,985 $2,013
$2,493
-1% -20% Pretax operating income
$229
$234 $371
-2% -38% Pretax operating margin
11.5% 11.6% 14.9%
-7 bps -334 bps
Drilling Group revenue of $2.0 billion, of which 74% came from
the international markets, decreased 1% sequentially as strong
directional drilling activity in North America land was offset by
lower drilling activity and pricing pressure in the International
Areas. The improvement in North America revenue came from an
increased uptake of products and services from Drilling &
Measurements, Bits & Drilling Tools, and M-I SWACO. Decreased
revenue in the International Areas was due to reduced sales of M-I
SWACO products in the Middle East & Asia Area, pricing pressure
and an unfavorable activity mix for Drilling & Measurements in
the Middle East, and lower Integrated Drilling Services (IDS)
activity in the UK & Continental Europe GeoMarket.
Pretax operating margin of 12% was virtually flat sequentially
despite the slight revenue decline. This was due to pricing
improvements from a greater uptake of Drilling & Measurements
and Bits & Drilling Tools technologies in the US, offsetting
the pricing pressure in the international markets.
Drilling Group performance in the first quarter was strengthened
by a combination of IDS operations, which provide project
management, engineering design, and technical optimization
capabilities. Group performance was also boosted by new technology
deployments and contract awards.
In Russia, IDS provided a combination of technologies and
services in three extended-reach wells for
Rosneft-Sakhalinmorneftegaz on Sakhalin Island in the Lebedinskoye
field. The technologies included GeoSphere* reservoir
mapping-while-drilling service to reveal subsurface bedding and
fluid contact details using deep directional electromagnetic
measurements and PowerDrive Xceed* ruggedized rotary steerable
systems to provide a superior degree of accuracy and reliability.
The customer completed operations 103 days ahead of plan. In
addition, cumulative production from the three wells in 2016 was
47% higher than initially expected.
In the UK sector of the North Sea, IDS developed a custom
solution for Statoil to overcome unique drilling challenges in a
heavy oil field. The Mariner field is characterized by reservoirs
located at shallow depths, and 60 long, closely spaced horizontal
wells are planned for development. An integrated team that included
drilling experts from multiple technology centers helped design a
custom bottomhole assembly that could deliver an aggressive build
rate of up to 40° in the 24-in section. The PowerDrive Archer* high
build rate rotary steerable system and staged hole openers were two
of the technologies used in this custom solution. In the first
quarter of 2017, the customer drilled the 24-in sections of four
wells and met every drilling, time, and cost objective for the
project.
In Norway, Statoil Petroleum AS awarded Schlumberger an IDS
contract for the Sleipner area drilling campaign in the Norwegian
North Sea. The contract features an innovative performance
incentive structure that better aligns operator and service company
interests. This includes the provision of services from Drilling
& Measurements, Well Services, and M-I SWACO for two wells and
one optional well. Operations are expected to begin in May
2017.
In Qatar, RasGas Company Limited awarded Schlumberger a
five-year contract with five optional one-year extensions to
provide a broad combination of drilling technologies for up to 70
wells in the North Field. For example, the contract includes
Drilling & Measurements MicroScope* resistivity- and
imaging-while-drilling service, Bits & Drilling Tools
FireStorm* wear-resistant high-impact PDC cutter technology,
Wireline ReSOLVE* instrumented wireline intervention service, M-I
SWACO HydraHib shale inhibitor, and Well Services CemNET advanced
loss-control fiber technology and OpenPath stimulation services.
The North Field is the world’s largest non-associated gas field,
containing approximately 10% of the world’s known reserves.
Offshore Azerbaijan, Drilling & Measurements used a
combination of technologies for State Oil Company of Azerbaijan
(SOCAR) to drill a challenging J-shaped well in Bulla Deniz field.
In addition to overcoming the challenging lithology that
historically slows the rate of penetration (ROP) to as low as 3.1
ft/h, the complex well plan included simultaneously drilling and
enlarging a 7,218-ft section of the wellbore. The combination of
technologies included PowerDrive X6* rotary steerable technology
with arcVISION* array resistivity compensated service, TeleScope*
high-speed telemetry-while-drilling service, and a Rhino* XS
hydraulically expandable reamer. The customer saved $14.4 million
by meeting the drilling objectives with zero nonproductive time in
39 days instead of the 79 days originally planned.
In West Texas, Drilling & Measurements used a combination of
technologies for Parsley Energy to increase drilling performance in
long well laterals in the Midland and Delaware basins. In drilling
80 wells over the past 12 months, PowerDrive Orbit* rotary
steerable systems and DynaForce* high-performance drilling motors
contributed to the 17% reduction in the average days required to
drill a well compared with the previous year. The customer reduced
the average total drilling cost per lateral foot by 30%.
In North America land, Bits & Drilling Tools used AxeBlade*
ridged diamond element bit technology for Cabot Oil & Gas to
improve the drilling ROP in the top hole sands prior to reaching
the Marcellus Shale formation. As a result, the customer saved
approximately $500,000 in 2016 based on a reduction of 13 hours of
drilling time per well.
Offshore Mexico, the Drilling Group used a combination of
technologies for Pemex on a challenging horizontal well in the
shallow waters of the Yaxche field. Drilling & Measurements
GeoSphere* reservoir mapping-while-drilling service detected the
top of the reservoir 18 m true vertical depth before reaching the
reservoir and landed the well as planned. In addition, PeriScope
HD* multilayer bed boundary detection service was used to help
reduce reservoir uncertainties. The customer achieved a final
production rate of 4,600 bbl/d, which was 2,100 bbl/d more than
expected.
Also offshore Mexico for Pemex, Bits & Drilling Tools
introduced Direct XCD* drillable alloy casing technology in a
shallow water exploration well. This well was the first 30-in
casing-while-drilling operation in the world. The customer reduced
drilling time by 1.3 days compared with conventional drilling
operations in the area.
Production Group
(Stated in millions)
Three Months Ended Change Mar. 31, 2017
Dec. 31, 2016 Mar. 31, 2016
Sequential
Year-on-year Revenue
$2,187 $2,203
$2,376
-1% -8% Pretax operating income
$110
$128 $206
-14% -47% Pretax operating margin
5.0% 5.8% 8.7%
-78 bps -365 bps
Production Group revenue of $2.2 billion, of which 66% came from
the international markets, was 1% lower sequentially as strong
hydraulic fracturing activity and pricing recovery in North America
land was offset by decreased revenue on SPM projects in Ecuador,
reduced drilling and hydraulic fracturing activity on land in the
Middle East, and lower Completions product sales.
Pretax operating margin of 5% decreased 78 bps sequentially. In
North America, the land pressure pumping business reported strong
sequential incremental margins of more than 60%. While increased
activity and pricing recovery on land in North America contributed
to margin expansion for the Group, this was more than offset by
margin contraction from lower SPM revenue.
Production Group results benefited from IPS, which provides
project management, engineering design, and technical optimization
capabilities. Group performance was also improved by new technology
deployments, transformation initiatives, and a contract award.
In South Texas, IPS provided a combination of technologies and
services for Lonestar Resources to improve oil production and field
economics in 18 wells in the Eagle Ford Shale play. IPS optimized
drilling, stimulation, and completion plans across long laterals to
overcome proppant embedment in softer rock that was pinching off
reservoir contact with the wellbore and to limit fracture height
growth that was extending to a nearby fault. The technologies
included ThruBit* through-the-bit logging services, Kinetix Shale*
reservoir-centric stimulation-to-production software, and Broadband
Sequence* fracturing service. As a result, the wells produced up to
86% more hydrocarbon per 1,000 ft of lateral compared with offset
wells in two other fields.
Whiting Petroleum Corporation recently completed a 13-well
campaign in North Dakota utilizing the Infinity* dissolvable
plug-and-perf system. Whiting planned to suspend production from
numerous wells in the area while fracturing operations and
post-frac cleanout activities were performed. The Infinity system
reduced cleanout times when compared with traditional plug
technologies, resulting in tangible time-savings on the 13 wells,
and reestablishing full production in the field.
In Kuwait, Well Services used OpenPath* stimulation services for
Kuwait Oil Company to restore productivity in a deep well in the
North Kuwait production area. OpenPath services combine stimulation
modeling with a near-wellbore diversion system and optimized
fracturing fluid options to maximize wellbore coverage and
reservoir contact. The customer achieved a sixfold increase in gas
production and a twofold increase in oil production, which was in
line with the expected capacity for this well.
In Iraq, Well Services used a combination of technologies for BP
Iraq N.V. to overcome challenges in a water injection well in a
carbonate reservoir in the Rumaila field. The combination of a
CoilFLATE* coiled tubing through-tubing inflatable packer with the
ACTive PTC* CT real-time pressure, temperature, and casing collar
locator tool was deployed to selectively stimulate zones with low
permeability. As a result, water injectivity increased to 4,600
bbl/d and provided the customer with an additional 3,000 bbl/d of
oil production.
In Kazakhstan, Karachaganak Petroleum Operating BV awarded
Schlumberger two three-year contracts with two one-year extensions
totaling $26 million for the provision of coiled tubing and testing
services. Operations under both contracts began in the first
quarter of 2017.
In Angola, the Schlumberger transformation program enabled
improvements in asset utilization and workforce productivity by
establishing an Operations Planning Center (OPC). The OPC opened in
the first quarter of 2016 and focused on planning and preparing
assets, products, and the workforce needed for every job. During
its first year of operations, the OPC reduced inventory by $7.5
million and increased asset utilization by 100%.
Cameron Group
(Stated in millions)
Three Months Ended Change Mar. 31, 2017
Dec. 31, 2016 Mar. 31, 2016*
Sequential
Year-on-year Revenue
$1,229 $1,346 $1,628
-9%
-25% Pretax operating income
$162 $188 $236
-14% -31% Pretax operating margin
13.2% 14.0%
14.5%
-80 bps -132 bps *First-quarter 2016 is
presented on a pro forma basis for comparative purposes.
Cameron Group revenue of $1.2 billion, of which 62% came from
international markets, fell 9% sequentially driven by declining
project volumes in OneSubsea and reduced product sales in Surface
Systems, partly offset by slight growth in Valves &
Measurement. The revenue decline for OneSubsea was due to falling
project volumes in Brazil and reduced activity in the US Gulf of
Mexico. Surface Systems sales were lower in the Europe/CIS/Africa
and Latin America Areas, which more than offset the double-digit
revenue growth in North America land on rising fracturing and
flowback rental activity. Valves & Measurement posted
double-digit growth in US land alongside a step change in bookings,
partly offset by a slowdown in engineered valves sales in
Europe/CIS/Africa.
Pretax operating margin of 13% declined 80 bps sequentially, as
continued strong project execution in OneSubsea and tight cost
control in Drilling Systems limited the impact of the lower product
volumes in Surface Systems.
Cameron Group secured contracts and achieved a number of
integration successes in the first quarter.
OneSubsea capital-efficient solutions is a portfolio of
standardized designs that supports streamlined processes,
documentation, and manufacturing to deliver integrated production
systems that reduce project cycle time and overall cost. The
adoption of prequalified quality plans, suppliers, and materials
and welding specifications has enhanced efficiency and reliability
of the product-manufacturing life cycle. Since its introduction
three years ago, capital-efficient solutions have reduced the
average lead times of subsea products by 30%. OneSubsea’s
capital-efficient solutions portfolio was chosen by customers in
75% of OneSubsea’s contract awards over the past 12 months.
In North America, BP awarded OneSubsea an engineering,
procurement and construction (EPC) contract to supply the subsea
production system for the Mad Dog 2 development in the Gulf of
Mexico. The scope of the OneSubsea capital-efficient solution
includes subsea manifolds, production trees, single and multiphase
meters, water analysis sensors, intervention tooling, test
equipment, and the control system for the producer and water
injection wells associated with the project. In addition, Subsea 7,
which collaborates with OneSubsea through the Subsea Integration
Alliance, was awarded an engineering, procurement, construction,
and installation (EPCI) contract for subsea controls, flexible
risers, pipeline systems, umbilicals, and associated subsea
architecture. Teams from both organizations will be collocated to
better support project objectives and facilitate project
management.
Noble Energy Mediterranean, Ltd. awarded OneSubsea a contract
for the supply of 10,000-psi horizontal production trees,
tree-mounted controls, off-tree controls and topside controls for
the deepwater Leviathan Field Development Project in the Eastern
Mediterranean. The subsea control system will use traditional
electro-hydraulic controls and a fiber-optic communications link to
the topside controls. The selection of this production tree is
consistent with previous awards, enabling the customer greater
operational flexibility and maintenance standardization.
During the first-year following the Cameron acquisition, a
number of integration successes have been achieved. This included
launching more than 32 integrated technology projects, the adoption
of best practices across both organizations, and collocating more
than 1,700 employees through consolidation of 157 facilities. By
combining product and service lines, such as Schlumberger Testing
and Cameron Process Systems, customers benefit from an enhanced
surface and subsurface offering. Wellsite efficiency has also been
improved by integrating Schlumberger Well Services stimulation
technologies and the Cameron product portfolio for unconventional
resources, which includes CAMShale fracturing fluid delivery and
flowback service. In addition, Schlumberger has realized $400
million in synergies and secured $600 million in new orders
resulting from the value generated by the combined company.
Financial Tables
Condensed Consolidated Statement of Income
(Stated in millions, except per share
amounts)
Three Months Periods Ended March 31,
2017 2016
Revenue
$6,894 $6,520 Interest and other income
46 45 Expenses Cost of revenue
6,076 5,460 Research
& engineering
211 240 General & administrative
98 110 Merger & integration (1)
82 - Interest
139 133 Income
before taxes
$334 $622 Taxes on income (1)
50 99 Net income
$284
$523 Net income attributable to noncontrolling interests
5 22 Net income
attributable to Schlumberger (1)
$279 $501 Diluted earnings per share of
Schlumberger (1)
$0.20
$0.40 Average shares outstanding
1,393 1,254
Average shares outstanding assuming dilution
1,402 1,259 Depreciation &
amortization included in expenses (2)
$989 $967 (1) See section
entitled “Charges & Credits” for details. (2) Includes
depreciation of property, plant and equipment and amortization of
intangible assets, multiclient seismic data costs and SPM
investments.
Condensed Consolidated Balance
Sheet (Stated in millions)
Mar. 31, Dec. 31, Assets
2017 2016 Current Assets Cash
and short-term investments
$7,353 $9,257 Receivables
8,636 9,387 Other current assets
5,894 5,283
21,883 23,927 Fixed income
investments, held to maturity
238 238 Fixed assets
12,507 12,821 Multiclient seismic data
1,089 1,073
Goodwill
25,045 24,990 Intangible assets
9,743 9,855
Other assets
5,670
5,052
$76,175
$77,956 Liabilities and Equity
Current Liabilities Accounts
payable and accrued liabilities
$9,408 $10,016 Estimated
liability for taxes on income
1,215 1,188 Short-term
borrowings and current portion of long-term debt
2,449 3,153
Dividends payable
704
702
13,776 15,059 Long-term debt
16,538 16,463
Deferred taxes
1,908 1,880 Postretirement benefits
1,457 1,495 Other liabilities
1,442 1,530
35,121 36,427 Equity
41,054 41,529
$76,175 $77,956
Liquidity
(Stated in millions) Components of Liquidity
Mar. 31,
2017
Dec. 31,
2016
Mar. 31,
2016
Cash and short-term investments
$7,353 $9,257 $14,432 Fixed income investments, held to
maturity
238 238 401 Short-term borrowings and current
portion of long-term debt
(2,449) (3,153) (4,254) Long-term
debt
(16,538) (16,463) (17,233) Net debt (1)
$(11,396) $(10,121) $(6,654) Details of changes in
liquidity follow: Periods Ended March 31,
Three
Months
2017
Three
Months
2016
Net income before noncontrolling interests
$284 $523 Merger
& integration charges, net of tax
68 -
$352 $523
Depreciation and amortization (2)
989 967 Pension and other
postretirement benefits expense
37 60 Stock-based
compensation expense
88 61 Pension and other postretirement
benefits funding
(29) (45) Change in working capital
(791) (463) Other
10 107
Cash flow from
operations (3)
$656 $1,210 Capital expenditures
(381) (549) SPM investments
(144) (597) Multiclient
seismic data capitalized
(116) (167)
Free cash flow
(4) 15 (103) Stock repurchase program
(372)
(475) Dividends paid
(696) (629) Proceeds from employee
stock plans
135 163
(918) (1,044) Business
acquisitions and investments, net of cash acquired plus debt
assumed
(273) (81) Other
(84) 18 Increase in Net Debt
(1,275) (1,107) Net Debt, beginning of period
(10,121) (5,547) Net Debt, end of period
$(11,396)
$(6,654) (1) “Net Debt” represents
gross debt less cash, short-term investments and fixed income
investments, held to maturity. Management believes that Net Debt
provides useful information regarding the level of Schlumberger’s
indebtedness by reflecting cash and investments that could be used
to repay debt. Net Debt is a non-GAAP financial measure that should
be considered in addition to, not as a substitute for or superior
to, total debt. (2) Includes depreciation of property, plant and
equipment and amortization of intangible assets, multiclient
seismic data costs and SPM investments. (3) Includes severance
payments of approximately $140 million and $260 million during the
three months ended March 31, 2017 and 2016, respectively. (4) “Free
cash flow” represents cash flow from operations less capital
expenditures, SPM investments and multiclient seismic data costs
capitalized. Management believes that free cash flow is an
important liquidity measure for the company and that it is useful
to investors and management as a measure of our ability to generate
cash. Once business needs and obligations are met, this cash can be
used to reinvest in the company for future growth or to return to
shareholders through dividend payments or share repurchases. Free
cash flow does not represent the residual cash flow available for
discretionary expenditures. Free cash flow is a non-GAAP financial
measure that should be considered in addition to, not as substitute
for, or superior to, cash flow from operations.
Charges & Credits
In addition to financial results determined in accordance with
US generally accepted accounting principles (GAAP), this
First-Quarter 2017 Earnings Release also includes non-GAAP
financial measures (as defined under the SEC’s Regulation G). Net
income, excluding charges & credits, as well as measures
derived from it (including diluted EPS, excluding charges &
credits; net income before noncontrolling interests, excluding
charges & credits; and effective tax rate, excluding charges
& credits) are non-GAAP financial measures. Management believes
that the exclusion of charges & credits from these financial
measures enables it to evaluate more effectively Schlumberger’s
operations period over period and to identify operating trends that
could otherwise be masked by the excluded items. These measures are
also used by management as performance measures in determining
certain incentive compensation. The foregoing non-GAAP financial
measures should be considered in addition to, not as a substitute
for or superior to, other measures of financial performance
prepared in accordance with GAAP. The following is a reconciliation
of these non-GAAP measures to the comparable GAAP measures.
(Stated in millions, except per share
amounts)
First Quarter 2017 Pretax Tax
Noncont.
Interest
Net Diluted
EPS
Schlumberger net income (GAAP basis) $334 $50
$5 $279 $0.20 Merger & integration 82
14 - 68 Schlumberger net income,
excluding charges & credits $416 $64
$5 $347 $0.25
Fourth Quarter
2016 Pretax Tax
Noncont.
Interest
Net Diluted
EPS
Schlumberger net loss (GAAP basis) $(213) $(19) $10 $(204) $(0.15)
Workforce reduction 234 6 - 228 Facility closure costs 165 40 - 125
Costs associated with exiting certain activities 98 23 - 75 Merger
& integration 76 14 - 62 Currency devaluation loss in Egypt 63
- - 63 Contract termination costs 39 9
- 30 Schlumberger net income, excluding charges &
credits $462 $73 $10 $379 $0.27
There were no charges or credits during the
first quarter of 2016.
Product Groups
(Stated in millions)
Three Months Ended Mar. 31, 2017 Dec.
31, 2016 Mar. 31, 2016
Revenue
Income
Before
Taxes
Revenue
Income
Before
Taxes
Revenue
Income
Before
Taxes
Reservoir Characterization
$1,618 $281 $1,676 $319
$1,719 $334 Drilling
1,985 229 2,013 234 2,493 371
Production
2,187 110 2,203 128 2,376 206 Cameron
1,229 162 1,346 188 - - Eliminations & other
(125) (25) (131) (59) (68) (10) Pretax operating
income
757 810 901 Corporate & other
(239) (245)
(172) Interest income(1)
24 23 13 Interest expense(1)
(126) (126) (120) Charges & credits
(82)
(675) -
$6,894 $334 $7,107 $(213)
$6,520 $622 (1) Excludes interest included in
the Product Groups results. Certain prior period items have been
reclassified to conform to the current period presentation.
Supplemental Information
1)
What is the capex guidance for the full
year 2017?
Capex (excluding multiclient and SPM investments) is expected to be
$2.2 billion for 2017.
2)
What was the cash flow from operations
for the first quarter of 2017?
Cash flow from operations for the first quarter of 2017 was $656
million despite the consumption of working capital that is
typically experienced in the first quarter. The use of working
capital was driven by annual payments associated with employee
compensation. Working capital also reflected $140 million of
severance payments during the first quarter of 2017.
3)
What was included in “Interest and
other income” for the first quarter of 2017?
“Interest and other income” for the first quarter of 2017 was $46
million. This amount consisted of earnings of equity method
investments of $17 million and interest income of $29 million.
4)
How did interest income and interest
expense change during the first quarter of 2017?
Interest income of $29 million was flat sequentially. Interest
expense of $139 million was also flat sequentially.
5)
What is the difference between pretax
operating income and Schlumberger’s consolidated income before
taxes?
The difference principally consists of
corporate items (including charges and credits) and interest income
and interest expense not allocated to the segments as well as
stock-based compensation expense, amortization expense associated
with certain intangible assets (including intangible asset
amortization expense resulting from the acquisition of Cameron),
certain centrally managed initiatives, and other nonoperating
items.
6)
What was the effective tax rate (ETR)
for the first quarter of 2017?
The ETR for the first quarter of 2017, calculated in accordance
with GAAP, was 14.8% as compared to 8.8% for the fourth quarter of
2016. The ETR for the first quarter of 2017, excluding charges and
credits, was 15.3% as compared to 15.8% for the fourth quarter of
2016.
7)
How many shares of common stock were
outstanding as of March 31, 2017 and how did this change from the
end of the previous quarter?
There were 1.389 billion shares of common stock outstanding as of
March 31, 2017. The following table shows the change in the number
of shares outstanding from December 31, 2016 to March 31, 2017.
(Stated in millions) Shares outstanding
at December 31, 2016 1,391 Shares sold to optionees, less
shares exchanged 1 Vesting of restricted stock 1 Shares issued
under employee stock purchase plan 1 Stock repurchase program (5)
Shares outstanding at March 31, 2017 1,389
8)
What was the weighted average number of
shares outstanding during the first quarter of 2017 and fourth
quarter of 2016 and how does this reconcile to the average number
of shares outstanding, assuming dilution used in the calculation of
diluted earnings per share, excluding charges and credits?
The weighted average number of shares
outstanding during the first quarter of 2017 was 1.393 billion and
1.392 billion during the fourth quarter of 2016.
The following is a reconciliation of the weighted average
shares outstanding to the average number of shares outstanding,
assuming dilution, used in the calculation of diluted earnings per
share, excluding charges and credits.
(Stated in millions)
First Quarter
2017
Fourth Quarter
2016
Weighted average shares outstanding 1,393 1,391 Assumed exercise of
stock options 4 5 Unvested restricted stock 5
5 Average shares outstanding, assuming dilution 1,402
1,401
9)
What was the amount of WesternGeco
multiclient sales in the first quarter of 2017?
Multiclient sales, including transfer fees, were $138 million in
the first quarter of 2017 and $143 million in the fourth quarter of
2016.
10)
What was the WesternGeco backlog at the
end of the first quarter of 2017?
WesternGeco backlog, which is based on signed contracts with
customers, was $613 million at the end of the first quarter of
2017. It was $759 million at the end of the fourth quarter of 2016.
11)
What were the orders and backlogs for
Cameron Group’s OneSubsea and Drilling Systems businesses?
OneSubsea and Drilling Systems orders and backlogs were as follows:
(Stated in millions)
Orders
First Quarter
2017
Fourth Quarter
2016
OneSubsea
$546 $523 Drilling Systems
$174
$132
Backlog (at the end of period) OneSubsea
$2,634 $2,526 Drilling Systems
$608
$607
About Schlumberger
Schlumberger is the world's leading provider of technology for
reservoir characterization, drilling, production, and processing to
the oil and gas industry. Working in more than 85 countries and
employing approximately 100,000 people who represent over 140
nationalities, Schlumberger supplies the industry's most
comprehensive range of products and services, from exploration
through production, and integrated pore-to-pipeline solutions that
optimize hydrocarbon recovery to deliver reservoir performance.
Schlumberger Limited has principal offices in Paris, Houston,
London and The Hague, and reported revenues of $27.81 billion in
2016. For more information, visit www.slb.com.
*Mark of Schlumberger or of Schlumberger companies.
Notes
Schlumberger will hold a conference call to discuss the earnings
press release and business outlook on Friday, April 21, 2017. The
call is scheduled to begin at 8:30 a.m. US Eastern Time. To access
the call, which is open to the public, please contact the
conference call operator at +1 (800) 288-8967 within North America,
or +1 (612) 333-4911 outside North America, approximately 10
minutes prior to the call’s scheduled start time. Ask for the
“Schlumberger Earnings Conference Call.” At the conclusion of the
conference call an audio replay will be available until May 21,
2017 by dialing +1 (800) 475-6701 within North America, or +1 (320)
365-3844 outside North America, and providing the access code
417634.
The conference call will be webcast simultaneously at
www.slb.com/irwebcast on a listen-only basis. A replay of the
webcast will also be available at the same web site until May 30,
2017.
This first-quarter 2017 earnings release, as well as other
statements we make, contain “forward-looking statements” within the
meaning of the federal securities laws, which include any
statements that are not historical facts, such as our forecasts or
expectations regarding business outlook; growth for Schlumberger as
a whole and for each of its segments (and for specified products or
geographic areas within each segment); oil and natural gas demand
and production growth; oil and natural gas prices; improvements in
operating procedures and technology, including our transformation
program; capital expenditures by Schlumberger and the oil and gas
industry; the business strategies of Schlumberger’s customers; the
anticipated benefits of the Cameron transaction; the success of
Schlumberger’s joint ventures and alliances; future global economic
conditions; and future results of operations. These statements are
subject to risks and uncertainties, including, but not limited to,
global economic conditions; changes in exploration and production
spending by Schlumberger’s customers and changes in the level of
oil and natural gas exploration and development; general economic,
political and business conditions in key regions of the world;
foreign currency risk; pricing pressure; weather and seasonal
factors; operational modifications, delays or cancellations;
production declines; changes in government regulations and
regulatory requirements, including those related to offshore oil
and gas exploration, radioactive sources, explosives, chemicals,
hydraulic fracturing services and climate-related initiatives; the
inability of technology to meet new challenges in exploration; the
inability to integrate the Cameron business and to realize expected
synergies; the inability to retain key employees; and other risks
and uncertainties detailed in this first-quarter 2017 earnings
release and our most recent Forms 10-K, 10-Q, and 8-K filed with or
furnished to the Securities and Exchange Commission. If one or more
of these or other risks or uncertainties materialize (or the
consequences of any such development changes), or should our
underlying assumptions prove incorrect, actual outcomes may vary
materially from those reflected in our forward-looking statements.
Schlumberger disclaims any intention or obligation to update
publicly or revise such statements, whether as a result of new
information, future events or otherwise.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170421005262/en/
Schlumberger LimitedSimon Farrant – Schlumberger Limited, Vice
President of Investor RelationsJoy V. Domingo – Schlumberger
Limited, Manager of Investor RelationsOffice +1 (713)
375-3535investor-relations@slb.com
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