TIDMSCL
Schlumberger Limited (NYSE: SLB) today reported results for the
third quarter of 2018.
(Stated in millions, except per share amounts)
Three Months Ended Change
Sept. 30, 2018 Jun. 30, 2018 Sept. 30, 2017 Sequential Year-on-year
Revenue $8,504 $8,303 $7,905 2% 8%
Pretax operating income $1,152 $1,094 $1,059 5% 9%
Pretax operating margin 13.5% 13.2% 13.4% 36 bps 15 bps
Net income - GAAP basis $644 $430 $545 50% 18%
Net income, excluding $644 $594 $581 8% 11%
charges & credits*
Diluted EPS - GAAP basis $0.46 $0.31 $0.39 48% 18%
Diluted EPS, excluding $0.46 $0.43 $0.42 7% 10%
charges & credits*
North America revenue $3,189 $3,139 $2,602 2% 23%
International revenue $5,215 $5,065 $5,147 3% 1%
North America revenue, $2,572 $2,546 $2,086 1% 23%
excluding Cameron
International revenue, $4,559 $4,387 $4,430 4% 3%
excluding Cameron
*These are non-GAAP financial measures. See section
below entitled "Charges & Credits" for details.
Schlumberger Chairman and CEO Paal Kibsgaard commented, "Our
third-quarter revenue of $8.5 billion grew 2% sequentially, driven
by the International Areas where the broad-based activity recovery
continued and where sequential revenue growth outpaced that of
North America for the first time since the second quarter of 2014.
In North America, sequential growth remained positive but slowed
from the rates of previous quarters as takeaway constraints in the
Permian impacted hydraulic fracturing activity.
"In North America, third-quarter revenue of $2.6 billion,
excluding Cameron, increased 1% sequentially driven by Artificial
Lift and Drilling as we continued to gain market share on the back
of our leading technology portfolio. Service revenue from our
OneStimSM hydraulic fracturing business was increasingly impacted
by softening activity and pricing over the course of the quarter.
This was offset, however, by robust performance from our vertically
integrated sand business, which in addition to serving OneStim now
also competes in the third-party market. Offshore North America,
drilling activity was impacted by scheduled platform maintenance
and planned workover operations, the combination of which led to a
less favorable activity mix for Schlumberger.
"In the International Areas, third-quarter revenue of $4.6
billion, excluding Cameron, grew 4% sequentially as we continued to
see solid growth in all operating regions. Sequential performance,
excluding Cameron, was driven by 7% growth in Latin America and 3%
growth in the Middle East & Asia due to higher activity for
both national oil companies and independents throughout both Areas.
This resulted from the continued ramp-up of our lump-sum turnkey
(LSTK) projects in Saudi Arabia and strong Integrated Drilling
Services (IDS) activity in Iraq, India, and Mexico. However, this
performance was partly offset by lower hydraulic fracturing
activity as we completed and demobilized a major contract in the
Middle East. In Europe, CIS, and Africa, our sequential growth was
a solid 4% as strong activity in Russia and Sub-Saharan Africa more
than offset the impact of labor disputes and scheduled summer
maintenance in the North Sea.
"Turning to our technologies, our performance was led by
Drilling with 9% sequential growth as we successfully mobilized an
additional 19 drilling rigs for our integrated drilling projects
where activity was strong, particularly in Russia, Mexico, Saudi
Arabia, Iraq, and India. This supported solid sequential growth for
our IDS, Drilling & Measurements, and M-I SWACO product lines.
Reservoir Characterization grew 2% sequentially, driven by strong
activity for our Wireline and Testing Services product lines in the
international markets. Revenue from Production was largely
unchanged from the previous quarter due to the softening hydraulic
fracturing activity in North America land. Cameron revenue was flat
sequentially as increased sales in Surface Systems and Drilling
Systems were offset by lower revenue from our OneSubseaTM and
Valves & Measurement product lines.
"Looking at pricing and contracts, we continued to see
improvements in terms and conditions and basic rates for selected
contracts in the international markets. However, this has yet to
make a significant impact on our results. Still, we expect to fully
deploy our remaining excess international equipment capacity by the
end of the year. As a result, we anticipate pricing discussions to
accelerate in the coming quarters as the certainty of products and
services supply will become more important for our customers.
"From a macro perspective, the oil market continued to tighten
in the third quarter as seen by a further draw in global oil
inventories and a significant increase in oil prices despite
continued strong production from the US and increasing output from
key OPEC countries. Global spare capacity is now less than 2%. The
tightening supply and demand balance is driven by accelerating
decline rates in the international production base and is further
exacerbated by the ongoing reduction in Venezuelan and Iranian
exports. Geopolitical events and their impact on supply are also
becoming an increasing oil market consideration as the challenging
security situation in several key countries could affect activity
and production going forward. And while the current Permian
takeaway constraints in North America should be addressed within
the next 12 to 18 months, a series of reservoir- and
production-related challenges is emerging in the US shale basins
that could dampen the most optimistic production growth
projections.
"With the outlook for global economic growth and oil demand
remaining solid, we continue to see a need for a multiyear increase
in international E&P investment, which is very good news for
Schlumberger. Through the work we have done over the past four
years to expand our external offering and modernize our internal
execution platform, we are very well positioned to outgrow the
market in the coming upcycle and to generate superior operating
margins and cash returns for the benefit of our shareholders."
Other Events
During the quarter, Schlumberger repurchased 1.5 million shares
of its common stock at an average price of $64.98 per share, for a
total purchase price of $100 million.
On August 22, 2018, Schlumberger and Shearwater GeoServices
Holding AS announced that they have entered into a definitive
agreement for Shearwater to acquire the marine seismic acquisition
assets and operations of WesternGeco, the geophysical services
product line of Schlumberger. The transaction is subject to
regulatory approvals and other customary closing conditions. The
transaction is expected to close in the fourth quarter of 2018.
On October 18, 2018, Schlumberger's Board of Directors approved
a quarterly cash dividend of $0.50 per share of outstanding common
stock, payable on January 11, 2019 to stockholders of record on
December 5, 2018.
Consolidated Revenue by Area
(Stated in millions)
Three Months Ended Change
Sept. 30, 2018 Jun. 30, 2018 Sept. 30, 2017 Sequential Year-on-year
North America $3,189 $3,139 $2,602 2% 23%
Latin America 978 919 952 6% 3%
Europe/CIS/Africa 1,820 1,784 1,843 2% -1%
Middle East & Asia 2,417 2,362 2,352 2% 3%
Other 100 99 156 n/m n/m
$8,504 $8,303 $7,905 2% 8%
North America revenue $3,189 $3,139 $2,602 2% 23%
International revenue $5,215 $5,065 $5,147 3% 1%
North America revenue, $2,572 $2,546 $2,086 1% 23%
excluding Cameron
International revenue, $4,559 $4,387 $4,430 4% 3%
excluding Cameron
n/m = not meaningful
Certain prior period items have been reclassified
to conform to the current period presentation.
Third-quarter consolidated revenue of $8.5 billion increased 2%
sequentially, with North America revenue of $3.2 billion growing 2%
and international revenue of $5.2 billion increasing 3%.
North America
North America Area consolidated revenue of $3.2 billion
increased 2% sequentially due to robust growth of Drilling products
and services on land, which grew 5% sequentially outperforming the
3% increase in US land rig count. Growth was driven by the
continued demand for rotary steerable systems in horizontal wells.
Higher product sales of artificial lift systems also contributed to
the Area's performance. Revenue from OneStim hydraulic fracturing,
however, was increasingly impacted by softening activity and
pricing over the course of the quarter. This impact was fully
offset by robust performance from our vertically integrated sand
business, which in addition to serving OneStim, now also competes
in the third-party market. The dynamics of the pressure pumping
market changed this quarter and activity will likely continue to
decline until the Permian takeaway capacity is resolved.
Accordingly, OneStim did not deploy additional hydraulic fracturing
fleet capacity during the quarter. North America Offshore revenue
decreased 1% as drilling activity was impacted by scheduled
platform maintenance and planned workover operations, the
combination of which led to a less favorable activity mix. Cameron
revenue was higher sequentially as increased sales in Surface
Systems were partially offset by lower revenue in OneSubsea and
Valves & Measurement.
International
Consolidated revenue in the Latin America Area of $1.0 billion
increased 6% sequentially primarily due to a strong performance in
the Mexico & Central America GeoMarket as revenue climbed from
higher multiclient seismic license sales and increased IDS activity
following contract mobilizations in the previous quarter. Revenue
in the Latin America North GeoMarket was up sequentially from
higher activity in Colombia and higher production from Schlumberger
Production Management (SPM) projects in Ecuador.
Europe/CIS/Africa Area consolidated revenue of $1.8
billionincreased 2% sequentially driven primarily by strong revenue
growth in Russia due to peak summer drilling campaigns that
benefited the Wireline, Drilling & Measurements, and Testing
Services product lines. Revenue in the Sub-Sahara Africa GeoMarket
increased following the start of projects in Ghana and Mozambique,
higher drilling activity in Central & West Africa, and higher
product and equipment sales in Nigeria, Angola, and Namibia.
Revenue in the UK & Continental Europe and Norway & Denmark
GeoMarkets declined sequentially due to the impact of labor
disputes and scheduled summer maintenance in the North Sea as well
as lower Cameron activity.
Consolidated revenue in the Middle East & Asia Area of $2.4
billion increased 2% sequentially, primarily from the continued
ramp-up of LSTK projects in Saudi Arabia and strong IDS activity in
Iraq and India. The growth in Saudi Arabia was partly offset by
lower hydraulic fracturing following demobilization of a major
contract. The South & East Asia GeoMarket posted sequential
revenue growth from IDS offshore work in India, new Integrated
Services Management (ISM) projects in Malaysia, and higher Cameron
activity. Revenue in the Far East Asia & Australia GeoMarket
was flat sequentially as increased drilling in Indonesia and a
return to offshore exploration in Australia was offset by lower
Cameron activity. Revenue in the Northern Middle East GeoMarket
declined due to lower OneSurfaceSM revenue in Kuwait.
Reservoir Characterization
(Stated in
millions)
Three Months Change
Ended
Sept. 30, Jun. 30, 2018 Sept. 30, 2017 Sequential Year-on-year
2018
Revenue $1,673 $1,636 $1,771 2% -6%
Pretax $373 $350 $311 6% 20%
operating
income
Pretax 22.3% 21.4% 17.6% 88 bps 470 bps
operating
margin
Reservoir Characterization revenue of $1.7 billion, of which 79%
came from the international markets, increased 2% sequentially due
to peak summer activity in Russia that benefited the Wireline and
Testing Services product lines. ISM revenue increased due to
integrated services projects in Malaysia, India, Qatar, Ecuador,
and Colombia. The increase in Reservoir Characterization revenue
was partially offset by reduced OneSurface revenue in Kuwait
following the end of the first phase of an integrated production
system project. Software Integrated Solutions (SIS) software sales
and WesternGeco revenue were flat sequentially. WesternGeco marine
seismic acquisition activity continued to wind down, but the effect
of this was offset by higher multiclient seismic license sales in
Mexico.
Reservoir Characterization pretax operating margin of 22% was 88
basis points (bps) higher sequentially due to the recovery in
higher-margin Wireline and Testing Services activity from the peak
summer campaigns in Russia and higher multiclient seismic license
sales in Mexico.
In the third quarter, Reservoir Characterization performance was
strengthened by contract awards for ISM projects, seismic
processing and interpretation, and virtual data room services. In
addition, the application of technology and domain knowledge
improved operational efficiency.
In Mozambique, Sasol awarded Schlumberger an ISM contract for
its phase two development covering infill, development,
remediation, workover, and exploration wells. This includes
technologies from several product lines, such as the PowerDrive
Archer* high build rate rotary steerable system, POLYSWELL*
copolymer, Invizion* well integrity services, and Isolation
Scanner* cement evaluation service.
Turkish Petroleum awarded Schlumberger an ISM contract valued at
$15 million to drill the deepwater well Alanya-1 in the Eastern
Mediterranean Sea. ISM will coordinate multiple product lines as
well as provide project management services on Turkish Petroleum's
ultradeepwater drillship, Fatih.
In Malaysia, Wireline deployed the Saturn* 3D radial probe in a
low-permeability reservoir for Repsol Oil & Gas Malaysia Ltd.
to remove the ambiguity on reservoir fluid type between retrograde
gas and volatile oil by fluid sampling. The 9-in Saturn probe along
with the InSitu Fluid Analyzer* real-time downhole fluid analysis
system conclusively identified the single-phase flowing fluid at a
much lower pressure drop. Operations were done with a time limit of
two hours per station where the customer had concerns of long
stationary time, with the Saturn probe achieving first indication
of reservoir fluid within 10 minutes of pumping out.
In Argentina, the Ministry of Energy & Mining awarded
Schlumberger a virtual data room services contract for its
Argentina Offshore Round 1. The contract scope features the
preparation of a database for three offshore basins, including 2D
and 3D seismic data and interpretation, well profiles, well logs,
and geological studies carried out during exploration and
production. The data room will provide national and international
companies access to public information to support investment in the
country's first offshore licensing round.
Schlumberger and TGS announced a new multiclient nodal seismic
project in the US Gulf of Mexico supported by industry prefunding.
The project, named "Amendment", will comprise acquisition of a
2,350-km2 multiclient seismic survey in the Mississippi Canyon and
Atwater Valley protraction areas. This prolific area includes open
acreage, existing producing assets, and new discoveries. Data
acquisition using Fairfield Geotechnologies 4C nodal acquisition
technology is expected to commence in the fourth quarter of
2018.
Eni SpA has adopted the WesternGeco Omega* geophysical data
processing platform as its preferred time processing platform,
citing access to more than 400 processing modules within the Omega
suite as contributing to its superior results in tailoring the
processing sequence throughout the E&P cycle.
Kuwait Oil Company awarded WesternGeco the prestack depth
imaging of 2,600 km2 in the Greater Burgan Field over which
WesternGeco previously acquired the data using the UniQ* land
seismic acquisition platform. The seismic data will support
mid-term production and development activities for the customer and
underpin long-term reservoir management and development activities
across multiple reservoirs.
Turkish Petroleum Corporation (Türkiye Petrolleri A.O.) awarded
WesternGeco a multiyear contract to provide software and depth
imaging consultancy services using the Omega geophysical data
processing platform, along with infield geophysics services onboard
its seismic vessel operating in the Black, Marmara, and
Mediterranean Seas. This key development provides synergy between
the field and processing center for Turkish Petroleum's seismic
operations.
Drilling
(Stated in
millions)
Three Months Change
Ended
Sept. 30, Jun. 30, 2018 Sept. 30, 2017 Sequential Year-on-year
2018
Revenue $2,429 $2,234 $2,120 9% 15%
Pretax $339 $289 $301 17% 13%
operating
income
Pretax 14.0% 12.9% 14.2% 103 bps -22 bps
operating
margin
Drilling revenue of $2.4 billion, of which 72% came from the
international markets, increased 9% sequentially driven by growth
in IDS, M-I SWACO, and Drilling & Measurements. This
performance was the result of strong international drilling
activity as an additional 19 drilling rigs were mobilized for the
IDS projects and where strong activity delivered sequential
double-digit growth in Saudi Arabia, Russia, Iraq, India, and
Mexico. Strong drilling revenue was also reported in North America
land, driven mostly by the continued robust growth of our
directional drilling business in the unconventional reservoir
market. Higher Drilling & Measurements revenue also increased
due to the peak summer drilling campaigns in Russia.
Drilling pretax operating margin of 14% increased 103 bps
sequentially as profitability improved in several IDS projects that
began in the previous quarter. The effect of this was partly offset
by the increased cost of mobilizing additional resources as IDS
activity scaled up across our international operations.
Drilling performance benefitted from IDS contract awards as well
as the deployment of drilling technologies that help lower cost per
barrel. This includes the latest addition to our 3D cutting element
family, the HyperBlade* hyperbolic diamond element bit, which
improves rate of penetration (ROP) in soft and plastic formations
typically encountered in unconventional reservoirs.
In Saudi Arabia, IDS helped a major oil producer expedite
drilling and completions operations by delivering a horizontal gas
well 13 days ahead of plan. IDS managed drilling risks and deployed
multiple technologies, including the AxeBlade* ridged diamond
element bit and PowerDrive vorteX* powered rotary steerable
system.
In Iraq, ExxonMobil Iraq Limited awarded Schlumberger a 42-month
IDS contract for 30 wells in the West Qurna Field. The contract
includes the provision of drilling rigs and multiple technologies
and services, and the first well was spud in July.
In Kuwait, IDS introduced Direct XCD* drillable alloy casing bit
technology for Kuwait Oil Company to overcome technical drilling
challenges and reduce drilling time in the Sabriyah and Raudhatain
Fields. Other technologies included the PowerDrive* rotary
steerable systems, LiteCRETE* lightweight cement slurry, and
Isolation Scanner cement evaluation service.
In Norway, MOL Norge AS awarded Schlumberger a performance-based
IDS contract for one exploration well in the Oppdal/Driva project.
Operations are expected to begin in the fourth quarter of 2018.
In Russia, Lukoil awarded Schlumberger a contract to drill three
extended-reach wells with 8-km step-outs from the shore of the
Baltic Sea. The technologies to be deployed include the GeoSphere*
reservoir mapping-while-drilling service, PowerDrive Xceed*
ruggedized rotary steerable system, and LiteCRETE HP* advanced
high-pressure lightweight cement.
Offshore India, IDS used a combination of technologies in an
exploration well to help an operator discover new resources in the
Krishna Godavari Basin. Turnkey project execution included use of
the EcoScope*? multifunction logging-while-drilling service, Saturn
3D radial probe, StingBlade* conical diamond element bit, and
VERTI-G* cuttings dryer.
In the Marcellus Formation in Pennsylvania, Bits & Drilling
Tools used a combination of technologies for an E&P customer to
achieve a new average ROP record of 415.1 ft/hr, representing a 62%
improvement compared with offset runs using conventional PDC bits.
The technologies included the HyperBlade bit and PowerDrive Orbit*
rotary steerable system, which drilled 6,891 ft in 16.6 hours.
In Ohio, Drilling & Measurements used a PowerDrive Orbit
system for Eclipse Resources to drill 18 super laterals in the
Utica Shale Play. The average lateral length was 18,715 ft and the
average ROP was 171 ft/h. The customer achieved a new drilling
record for the longest lateral of 20,632 ft and the longest total
horizontal well depth of 30,493 ft. The technologies included the
PowerDrive Orbit system combined with customized Smith PDC
bits.
Production
(Stated in
millions)
Three Months Change
Ended
Sept. 30, Jun. 30, 2018 Sept. 30, 2017 Sequential Year-on-year
2018
Revenue $3,252 $3,257 $2,876 - 13%
Pretax $320 $316 $283 1% 13%
operating
income
Pretax 9.8% 9.7% 9.8% 14 bps -
operating
margin
Production revenue of $3.3 billion, of which 47% came from the
international markets, was flat sequentially. Service revenue from
the OneStim hydraulic fracturing business was increasingly impacted
by softening activity and pricing over the course of the quarter.
However, this was fully offset by robust performance from our
vertically integrated sand business which, in addition to serving
OneStim, now also competes in the third-party market. Revenue from
Artificial Lift Solutions increased sequentially due to strong
product sales and service activity in North America and Latin
America. This was offset, however, by lower international hydraulic
fracturing activity as a major contract in the Middle East was
completed and demobilized.
Production pretax operating margin of 10% was essentially flat
sequentially as revenue remained unchanged from the previous
quarter.
Production performance was underpinned by contract awards and
the deployment of stimulation and completions technologies that
helped reduce operating costs and improve well productivity.
Eni México awarded Schlumberger a five-year contract with two
optional six-month extensions for the provision of completions
technologies in 31 offshore wells. The technologies include the
QUANTUM* gravel-pack packer and FORTRESS* premium isolation valve.
Operations are expected to begin in the first quarter of 2019.
Offshore Angola, Sand Management Services deployed a combination
of technologies for Total E&P Angola to save more than $100
million and gain an estimated 1 million BOE of incremental
production in the Kaombo deepwater development. Combining the
OptiPac* openhole Alternate Path? gravel-pack service with OSMP*
OptiPac service mechanical packers enabled the customer to achieve
target production with six wells instead of the planned eight. This
combination of technologies enabled effective zonal isolation of
complex stacked reservoirs in one field, while in another field the
water shutoff capability of the technology enabled accelerated
production.
In West Texas, OneStim used ShalePrime* rock-fluid diagnostic
service for Manti Tarka Permian to increase oil production by 70%
and reduce stimulation cost by 25% in a well in the Wolfcamp
Formation. The workflow, based on the Kinetix Shale*
reservoir-centric stimulation-to-production software, was applied
to an existing horizontal well to engineer an optimal perforation,
completion, and stimulation design. In addition, the ShalePrime
service was used to improve fracture cleanup and maximize
production.
In Kuwait, Well Services used the OpenPath Sequence* diversion
stimulation service in five high-pressure, high-temperature wells
for Kuwait Oil Company to increase oil and gas production in the
North Kuwait Field. Although this deep gas reservoir was producing
from long perforation clusters, production was lower than expected.
Post-treatment, gas production improved by 200% to 400% and oil
production by 100%. This technology helped reduce operating costs
by eliminating the need for a workover rig.
In Norway, Well Services used a combination of technologies for
Aker BP to save $615,000 by overcoming lost circulation in an
injector well in the Ivar Aasen Field. A combination of the Losseal
Microfracture* lost circulation control treatment and CemNET*
advanced loss-control fiber technology avoided the need for an
extra run and for remedial work.
Cameron
(Stated in
millions)
Three Months Change
Ended
Sept. 30, Jun. 30, 2018 Sept. 30, 2017 Sequential Year-on-year
2018
Revenue $1,298 $1,295 $1,297 - -
Pretax $148 $166 $194 -11% -23%
operating
income
Pretax 11.4% 12.8% 14.9% -140 bps -349 bps
operating
margin
Cameron revenue of $1.3 billion, of which 51% came from the
international markets, was flat sequentially as increased sales in
Surface Systems and Drilling Systems were offset by lower revenue
from the OneSubsea and Valves & Measurement product lines.
Surface Systems sales increased in North America, while increased
Drilling Systems revenue was due to higher service activity in
Europe and increased pressure control equipment sales in the Middle
East. OneSubsea revenue continued to decline, while reduced Valves
& Measurement revenue was due to lower project volumes in
Europe and North America.
Cameron pretax operating margin of 11% declined 140 bps
sequentially from the impact of lower OneSubsea margins.
Fieldwood Energy awarded a contract to the Subsea Integration
Alliance-a global partnership between Subsea 7 and OneSubsea-for
the deepwater Katmai Field development in the US Gulf of Mexico
Green Canyon 40 Block. This supplier-led integrated subsea
development solution combines subsea production systems and subsea
umbilicals, risers, and flowlines systems (SURF) expertise. The
OneSubsea contract scope includes provision of three trees with
options for additional trees together with connectors, valves,
topside controls, flying leads, and umbilical termination
assemblies.
Cameron received an order from Seadrill Limited for pressure
control equipment upgrades on the Sevan Louisiana rig in the Gulf
of Mexico. These upgrades, which will be delivered in the fourth
quarter of 2018, will ensure that the rig meets regulatory
requirements.
Financial Tables
Condensed Consolidated
Statement of Income
(Stated in millions, except
per share amounts)
Third Quarter Nine Months
Periods Ended September 30, 2018 2017 2018 2017
Revenue $8,504 $7,905 $24,636 $22,261
Interest and other income 36 64 118 172
Expenses
Cost of revenue 7,324 6,797 21,306 19,343
Research & engineering 177 189 524 595
General & administrative 105 115 330 323
Impairments & other(1) - - 184 510
Merger & integration(1) - 49 - 213
Interest 147 142 434 422
Income before taxes $787 $677 $1,976 $1,027
Tax expense(1) 129 121 348 269
Net income $658 $556 $1,628 $758
Net income attributable to 14 11 29 9
noncontrolling interests
Net income attributable $644 $545 $1,599 $749
to Schlumberger(1)
Diluted earnings per share $0.46 $0.39 $1.15 $0.54
of Schlumberger(1)
Average shares outstanding 1,385 1,385 1,385 1,388
Average shares outstanding 1,392 1,392 1,393 1,395
assuming dilution
Depreciation & amortization $887 $956 $2,637 $2,931
included in expenses(2)
(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)
Sept. 30, Dec. 31,
Assets 2018 2017
Current Assets
Cash and short-term investments $2,854 $5,089
Receivables 8,409 8,084
Other current assets 5,220 5,324
16,483 18,497
Fixed assets 11,739 11,576
Multiclient seismic data 639 727
Goodwill 25,134 25,118
Intangible assets 8,930 9,354
Other assets 7,121 6,715
$70,046 $71,987
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities $9,419 $10,036
Estimated liability for taxes on income 1,265 1,223
Short-term borrowings and current 3,215 3,324
portion of long-term debt
Dividends payable 701 699
14,600 15,282
Long-term debt 14,159 14,875
Deferred taxes 1,529 1,650
Postretirement benefits 957 1,082
Other liabilities 1,853 1,837
33,098 34,726
Equity 36,948 37,261
$70,046 $71,987
Liquidity
(Stated in millions)
Sept. 30, Jun. 30, Dec. 31, Sept. 30,
Components of Liquidity 2018 2018 2017 2017
Cash and short-term $2,854 $3,049 $5,089 $4,952
investments
Short-term borrowings (3,215) (3,736) (3,324) (1,289)
and current
portion of long-term debt
Long-term debt (14,159) (13,865) (14,875) (15,871)
Net Debt(1) $(14,520) $(14,552) $(13,110) $(12,208)
Details of changes in
liquidity follow:
Nine Third Nine
Months Quarter Months
Periods Ended September 2018 2018 2017
30,
Net income before $1,628 $658 $758
noncontrolling
interests
Impairment and other 164 - 679
charges, net of tax
before noncontrolling
interests
$1,792 $658 $1,437
Depreciation and 2,637 887 2,931
amortization(2)
Stock-based compensation 259 83 261
expense
Change in working capital (1,147) 191 (1,473)
US federal tax refund - - 685
Other (159) 8 (429)
Cash flow from $3,382 $1,827 $3,412
operations(3)
Capital expenditures (1,539) (565) (1,482)
SPM investments (719) (285) (492)
Multiclient seismic (63) (16) (223)
data capitalized
Free cash flow(4) 1,061 961 1,215
Dividends paid (2,077) (692) (2,086)
Stock repurchase program (300) (100) (868)
Proceeds from employee 256 125 261
stock plans
(1,060) 294 (1,478)
Business acquisitions (290) (243) (382)
and investments, net
of cash acquired plus
debt assumed
Other (60) (19) (227)
(Increase) decrease (1,410) 32 (2,087)
in Net Debt
Net Debt, beginning (13,110) (14,552) (10,121)
of period
Net Debt, end of period $(14,520) $(14,520) $(12,208)
(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 $265 million and $105 million during
the nine months and third quarter ended September 30, 2018,
respectively; and $347 million and $114 million during the nine
months and third quarter ended September 30, 2017, 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
Schlumberger's 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
third-quarter 2018 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; Schlumberger net income, 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)
Second Quarter 2018
Noncont. Diluted
Pretax Tax Interests Net EPS
Schlumberger net income $547 $106 $11 $430 $0.31
(GAAP basis)
Workforce reductions 184 20 - 164 0.12
Schlumberger net income, $731 $126 $11 $594 $0.43
excluding
charges & credits
Third Quarter 2017
Noncont. Diluted
Pretax Tax Interests Net EPS
Schlumberger net income $677 $121 $11 $545 $0.39
(GAAP basis)
Merger & integration 49 13 - 36 0.03
Schlumberger net income, $726 $134 $11 $581 $0.42
excluding
charges & credits
Nine Months 2018
Noncont. Diluted
Pretax Tax Interests Net EPS
Schlumberger net income $1,976 $348 $29 $1,599 $1.15
(GAAP basis)
Workforce reductions 184 20 - 164 0.12
Schlumberger net income, $2,160 $368 $29 $1,763 $1.27
excluding
charges & credits
Nine Months 2017
Noncont. Diluted
Pretax Tax Interests Net EPS
Schlumberger net income $1,027 $269 $9 $749 $0.54
(GAAP basis)
Promissory note fair value 510 - 12 498 0.36
adjustment and other
Merger & integration 213 44 - 169 0.12
Schlumberger net income, $1,750 $313 $21 $1,416 $1.02
excluding
charges & credits
There were no charges or
credits during the
first and third quarters
of 2018.
Segments
(Stated in
millions)
Three Months Ended
Sept. 30, 2018 Jun. 30, 2018 Sept. 30, 2017
Income Income Income
Before Before Before
Revenue Taxes Revenue Taxes Revenue Taxes
Reservoir $1,673 $373 $1,636 $350 $1,771 $311
Characterization
Drilling 2,429 339 2,234 289 2,120 301
Production 3,252 320 3,257 316 2,876 283
Cameron 1,298 148 1,295 166 1,297 194
Eliminations (148) (28) (119) (27) (159) (30)
& other
Pretax 1,152 1,094 1,059
operating
income
Corporate (234) (239) (234)
& other
Interest 8 11 30
income(1)
Interest (139) (135) (129)
expense(1)
Charges & - (184) (49)
credits
$8,504 $787 $8,303 $547 $7,905 $677
(Stated in (Stated in millions)
millions)
Nine Months Ended
Sept. 30, 2018 Sept. 30, 2017
Income Income
Before Before
Revenue Taxes Revenue Taxes
Reservoir $4,865 $1,030 $5,148 $891
Characterization
Drilling 6,789 921 6,212 832
Production 9,468 851 7,559 614
Cameron 3,902 481 3,791 530
Eliminations (388) (63) (449) (101)
& other
Pretax 3,220 2,766
operating
income
Corporate (699) (715)
& other
Interest 44 82
income(1)
Interest (405) (383)
expense(1)
Charges & (184) (723)
credits
$24,636 $1,976 $22,261 $1,027
(1) Excludes interest included in the Product Groups results.
Supplemental
Information
1) What is the capex guidance for the full year 2018?
Capex (excluding multiclient and SPM investments) for the full year 2018 is expected to be approximately $2.0 billion, which is similar to the levels of 2017 and 2016.
2) What was the cash flow from operations for the third quarter of 2018?
Cash flow from operations for the third quarter of 2018 was $1.8 billion and included $105 million of severance payments.
3) What was the cash flow from operations for the first nine months of 2018?
Cash flow from operations for the first nine months of 2018 was $3.4 billion and included approximately $265 million of severance payments.
4) What was included in "Interest and other income" for the third quarter of 2018?
"Interest and other income" for the third quarter of 2018 was $36 million. This amount consisted of earnings of equity method investments of $26 million and interest income of $10 million.
5) How did interest income and interest expense change during the third quarter of 2018?
Interest income of $10 million declined $2 million sequentially. Interest expense of $147 million increased $3 million sequentially.
6) What is the difference between pretax operating income and Schlumberger's consolidated income before taxes?
The difference principally consists of corporate items, 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, certain centrally managed initiatives, and other nonoperating items.
7) What was the effective tax rate (ETR) for the third quarter of 2018?
The ETR for the third quarter of 2018, calculated in accordance with GAAP, was 16.4% as compared to 19.3% for the second quarter of 2018. Excluding charges and credits, the ETR for the second quarter of 2018 was 17.2%. There were no charges and credits in the third quarter of 2018.
8) How many shares of common stock were outstanding as of September 30, 2018 and how did this change from the end of the previous quarter?
There were 1.385 billion shares of common stock outstanding as of September 30, 2018. The following table shows the change in the number of shares outstanding from June 30, 2018 to September 30, 2018.
(Stated in millions)
Shares outstanding at June 30, 2018 1,384
Shares issued to optionees, less shares exchanged -
Vesting of restricted stock -
Shares issued under employee stock purchase plan 3
Stock repurchase program (2)
Shares outstanding at September 30, 2018 1,385
9) What was the weighted average number of
shares outstanding during the third
quarter of 2018 and second quarter of 2018,
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
was 1.385 billion during the
third quarter of 2018 and 1.384 billion
during the second quarter of 2018.
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)
Third Quarter Second Quarter
2018 2018
Weighted average shares outstanding 1,385 1,384
Assumed exercise of stock options - 1
Unvested restricted stock 7 7
Average shares outstanding, 1,392 1,392
assuming dilution
10) What are Schlumberger Production Management (SPM) projects and
how does Schlumberger recognize revenue from these projects?
SPM projects are focused on developing and comanaging production
on behalf of Schlumberger customers under
long-term agreements. Schlumberger will invest its
own services, products, and in some cases, cash,
into the field development activities and operations.
Although in certain arrangements Schlumberger
recognizes revenue and is paid for a portion of the
services or products it provides, generally
Schlumberger will not be paid at the time of providing
its services or upon delivery of its products.
Instead, Schlumberger recognizes revenue and is compensated based upon cash flow generated
or on a fee-per-barrel basis. This may include certain arrangements whereby Schlumberger is only
compensated based upon incremental production it helps deliver above a mutually agreed baseline.
11) How are Schlumberger products and services that are invested in SPM projects accounted for?
Revenue and the related costs are recorded within the respective Schlumberger
Group for services and products that each Group provides to Schlumberger's
SPM projects. This revenue (which is based on arms-length pricing) and the
related profit is then eliminated through an intercompany adjustment
that is included within the "Eliminations & other" line (Note that the "Eliminations
& other" line includes other items in addition to the SPM eliminations).
The direct cost associated with providing Schlumberger services or
products to SPM projects is then capitalized on the balance sheet.
These capitalized investments, which may be in the form
of cash as well as the previously mentioned direct
costs, are expensed in the income statement as the related
production is achieved and associated revenue
is recognized. This amortization expense is based on
the units of production method, whereby each unit
is assigned a pro-rata portion of the unamortized costs based on total estimated production.
SPM revenue along with the amortization of the capitalized investments and other operating
costs incurred in the period are reflected within the Production Group.
12) What was the unamortized balance of Schlumberger's
investment in SPM projects at September 30, 2018
and how did it change in terms of investment and amortization when compared to June 30, 2018?
The unamortized balance of Schlumberger's investments in SPM projects was approximately $4.2
billion at September 30, 2018 and $4.1 billion at June 30, 2018. These amounts are included
within Other Assets in Schlumberger's Condensed Consolidated Balance Sheet. The change
in the unamortized balance of Schlumberger's investment in SPM projects was as follows:
(Stated in millions)
Balance at June 30, 2018 $4,076
SPM investments 285
Amortization of SPM investment (141)
Translation & other 28
Balance at September 30, 2018 $4,248
13) What was the amount of WesternGeco multiclient
sales in the third quarter of 2018?
Multiclient sales, including transfer fees, were $139 million in the
third quarter of 2018 and $117 million in the second quarter of 2018.
14) What was the WesternGeco backlog at the
end of the third quarter of 2018?
The WesternGeco backlog, which is based on signed contracts
with customers, was $322 million at the
end of the third quarter of 2018. It was $317 million
at the end of the second quarter of 2018.
15) What were the orders and backlog for the Cameron Group's
OneSubsea and Drilling Systems businesses?
The OneSubsea and Drilling Systems orders
and backlog were as follows:
(Stated in millions)
Third Quarter Second Quarter
Orders 2018 2018
OneSubsea $425 $312
Drilling Systems $193 $288
Backlog(at the end of period)
OneSubsea $1,654 $1,654
Drilling Systems $523 $482
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 $30.44 billion in
2017. For more information, visit www.slb.com.
*Mark of Schlumberger or Schlumberger companies.
?Japan Oil, Gas and Metals National Corporation (JOGMEC),
formerly Japan National Oil Corporation (JNOC), and Schlumberger
collaborated on a research project to develop logging while
drilling (LWD) technology that reduces the need for traditional
chemical sources. Designed around the pulsed neutron generator
(PNG), EcoScope service uses technology that resulted from this
collaboration. The PNG and the comprehensive suite of measurements
in a single collar are key components of the EcoScope service that
deliver game-changing LWD technology.
?Mark of ExxonMobil Corporation.; technology licensed
exclusively to Schlumberger.
Notes
Schlumberger will hold a conference call to discuss the earnings
press release and business outlook on Friday, October 19, 2018. 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 November
19, 2018 by dialing +1 (800) 475-6701 within North America, or +1
(320) 365-3844 outside North America, and providing the access code
453092. 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 November
30, 2018.
This third-quarter 2018 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
effects of U.S. tax reform; our effective tax rate; Schlumberger's
SPM projects, 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; and
other risks and uncertainties detailed in this third-quarter 2018
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.
Schlumberger LimitedSimon Farrant - Vice President of Investor
Relations, Schlumberger LimitedJoy V. Domingo - Manager of Investor
Relations, Schlumberger LimitedOffice +1 (713)
375-3535investor-relations@slb.com
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