TIDMSCL
Schlumberger Limited (NYSE:SLB) today reported results for the
third quarter of 2016.
(Stated in millions, except per share amounts)
Three Months Ended Change
Sept. 30, 2016 Jun. 30, 2016 Sept. 30, 2015 Sequential Year-on-year
Revenue $7,019 $7,164 $8,472 -2% -17%
Pretax operating income $815 $747 $1,521 9% -46%
Pretax operating margin 11.6% 10.4% 18.0% 119 bps -634 bps
Net income (loss) (GAAP basis) $176 $(2,160) $989 n/m -82%
Net income, excluding $353 $316 $989 12% -64%
charges and credits*
Diluted EPS (loss per $0.13 $(1.56) $0.78 n/m -83%
share) (GAAP basis)
Diluted EPS, excluding $0.25 $0.23 $0.78 9% -68%
charges and credits*
*These are non-GAAP financial measures. See section
entitled "Charges & Credits" for details.
n/m = not meaningful
Schlumberger Chairman and CEO Paal Kibsgaard commented, "After
calling the bottom of the cycle in the second quarter of this year,
our business stabilized in the third quarter following a drop of
more than 50% in pro forma revenue during the previous seven
quarters. Over the same period, we have removed $6 billion from our
quarterly cost base.
"Our third-quarter revenue decreased 2% sequentially, driven
largely by the expected reduction in activity at Cameron as the
order backlog of products declined. In spite of the challenging
business environment, Cameron delivered strong financial results
that were partly supported by excellent progress in the integration
process.
"Excluding Cameron, revenue increased 1% sequentially driven by
higher activity in the North America and Middle East Areas as well
as in the Australia and Russia GeoMarkets. In North America, a
modest increase in activity on land was partially tempered by lower
offshore rig count in the US Gulf of Mexico. At the same time,
increased activity during the peak summer drilling campaigns in
Russia and new projects in the Middle East and Australia GeoMarkets
were offset by continued weakness in Latin America, the North Sea,
Sub-Saharan Africa and Southeast Asia.
"The solid nature of these results is apparent through
incremental and decremental margin performance. The 12% sequential
drop in Cameron Group revenue translated to a decremental margin of
only 19% as a result of strong execution, accelerated integration,
and effective cost control; while the 1% sequential increase in
revenue for the remainder of the company leveraged strong execution
and transformation effects to generate incremental margins north of
65%, excluding the effects of last quarter's impairment
charges.
"Among the business segments, the third-quarter revenue of the
Reservoir Characterization Group increased 5% due to increased
WesternGeco marine surveys in the North Sea, additional land
seismic surveys in Saudi Arabia and Kuwait, solid progress on the
early production facilities in Kuwait, and the seasonal increase of
Wireline and Testing activity in Russia and Kazakhstan. Production
Group revenue declined slightly by 1% as lower fracturing and
completions activity in Latin America, the North Sea, and the
Middle East was offset by increased fracturing activity on land in
North America. Drilling Group revenue was also down by 1% due to
the prolonged decline in deepwater activity in Sub-Saharan Africa,
Brazil, and the Asia-Pacific region, which was only partially
offset by the strong recovery in directional drilling activity in
US land. Cameron Group revenue was sequentially lower by 12%
primarily due to reduced product sales from a declining order
backlog.
"Pretax operating margins improved 119 basis points (bps) to
11.6% in the third quarter as a result of steady progress of our
transformation program, further streamlining of our global support
structure, and early efforts in high-grading our contract
portfolio. Margins were also partly boosted by the capacity
reductions and asset impairments we made in the second quarter.
"Among the Groups, Reservoir Characterization pretax operating
margin improved 292 bps sequentially to 19.1% while the Drilling
Group margin increased 241 bps to 10.8% and the Production Group
margin grew 41 bps to 4.7%. Sequentially, Cameron Group operating
margin decreased 34 bps to 16.0% on the declining order backlog,
although this was partially mitigated by strong project execution
and cost controls leading to a decremental margin of only 19%.
Diluted earnings per share of $0.25, excluding Cameron merger and
integration charges, improved 9% sequentially.
"Free cash flow generation of $699 million in the third quarter
was solid as inventory and capex investments remained tightly
managed. However, working capital was negatively affected by lower
than expected collections as we are now seeing widespread delays in
payments from customers in all geographies. This is a clear sign of
the persistent financial distress across the industry.
"In the global oil market, the supply and demand of crude is now
more or less balanced as evidenced by flattening petroleum
inventory levels and the start of consistent draws toward the end
of the quarter-particularly in North America. At the same time, oil
demand for 2017 was again revised upward in October and if combined
with OPEC's announced intention to cut production, this suggests
further inventory draws in the coming quarters that should lead to
upward movement in prices.
"In terms of 2017 E&P investment, visibility remains limited
as our customers are still in the planning process. We maintain
that a broad-based V-shaped recovery is unlikely given the fragile
financial state of the industry, although we do see activity upside
in 2017 in North America land, the Middle East and Russia markets.
We are therefore ensuring that we are optimally positioned to
capture a large share of this upside that we can subsequently turn
it into positive earnings contributions.
"With the unparalleled cost and cash discipline we have
established, we are confident in our capability to deliver
incremental margins north of 65% and a free cash conversion rate
above 75%. Going forward, this will give us significant flexibility
to both re-invest in our business and steadily return cash to our
shareholders. This capability, together with our unmatched scale
and our unique ability to drive change throughout our company,
clearly sets us apart from other industry players."
Other Events
During the quarter, Schlumberger repurchased 2 million shares of
its common stock at an average price of $77.02 per share for a
total purchase price of $156 million.
On July 25, 2016, Schlumberger and Golar LNG Limited announced
the creation of OneLNG?, a joint venture to rapidly develop
low-cost gas reserves to LNG. The combination of Schlumberger
reservoir knowledge, wellbore technologies, and production
management capabilities, with Golar's low cost FLNG (Floating LNG)
solution, is expected to offer gas resource owners faster and lower
cost development thereby increasing the net present value of the
resources.
On October 19, 2016, the Company's Board of Directors approved a
quarterly cash dividend of $0.50 per share of outstanding common
stock, payable on January 13, 2017 to stockholders of record on
December 7, 2016.
Consolidated Revenue by Geography
(Stated in millions)
Three Months Ended Change
Sept. 30, 2016 Jun. 30, 2016 Sequential
North America $ 1,699 $ 1,737 -2 %
Latin America 992 1,007 -1 %
Europe/CIS/Africa 1,872 1,948 -4 %
Middle East & Asia 2,385 2,404 -1 %
Eliminations & other 71 68 -
$ 7,019 $ 7,164 -2 %
North America revenue $ 1,699 $ 1,737 -2 %
International revenue $ 5,249 $ 5,359 -2 %
Third-quarter revenue of $7.0 billion decreased 2% sequentially
with North America declining 2% and international down 2%.
Excluding Cameron Group results, third-quarter revenue increased 1%
sequentially led by growth in the North America and Middle East
& Asia Areas.
North America
In North America, overall revenue declined 2% sequentially.
Excluding Cameron Group results, land revenue grew 14% sequentially
through higher drilling and fracturing activity as the average US
land rig count increased sequentially and fracturing stage count
increased 17%. Pricing improvements were limited and much of the
increase in land drilling activity in the US was driven by small
North American independents. This increased volume of work was
partially offset by unfavorable job and technology mixes. The land
revenue increase was further offset by decreased Cameron Group
sales such that overall land revenue increased by 5%. Offshore
revenue decreased 13% sequentially due to a 9% average rig count
decline in the US Gulf of Mexico, reduced WesternGeco multiclient
seismic license fees, and lower Cameron Group Drilling sales on
declining backlog orders.
International Areas
International revenue declined 2% sequentially due to continued
pricing pressure across most GeoMarkets and reduced Cameron Group
Drilling sales. In spite of this, robust activity improvements were
seen in the Russia and Central Asia GeoMarkets on seasonal summer
drilling strength as well as from new projects in the Middle East
and Australia.
Revenue in the Latin America Area declined 1% sequentially as
drilling and production activity in Brazil and Argentina declined
on lower rig count while activity in Colombia and Venezuela
remained subdued. The effect of this decline was partially offset
by increased revenue in the Mexico & Central America GeoMarket
on higher WesternGeco multiclient seismic license sales and Cameron
Group sales.
Europe/CIS/Africa Area revenue decreased 4% sequentially, mainly
in the Central & West Africa, Angola, and UK GeoMarkets where
rig count decreased and projects were either completed or delayed.
In Nigeria, a deteriorating security situation affected drilling
and production activity while North Africa activity was muted.
Revenue in the Russia and Central Asia GeoMarkets was strong as
drilling peaked during the summer season and the Russian ruble
strengthened.
Middle East & Asia Area revenue declined 1% sequentially.
This was mainly due to lower activity in Indonesia, the UAE, and
the South East Asia GeoMarkets as a result of continued customer
budget cuts and project completions. In addition, Cameron Group
Drilling sales in the Area also declined. However, the effect of
these declines was mitigated by higher revenue in Saudi Arabia,
Iraq and Kuwait on new projects, increased drilling activity, and
additional land seismic surveys. Australia & Papua New Guinea
GeoMarket revenue also increased as drilling activity began to
recover following seven consecutive quarters of decline.
Reservoir Characterization Group
(Stated in millions, except margin percentages)
Three Months Ended Change
Sept. 30, 2016 Jun. 30, 2016 Sept. 30, 2015 Sequential Year-on-year
Revenue $ 1,689 $ 1,609 $ 2,380 5 % -29 %
Pretax operating $ 322 $ 260 $ 616 24 % -48 %
income
Pretax operating 19.1 % 16.1 % 25.9 % 292 bps -684 bps
margin
Reservoir Characterization Group revenue was $1.7 billion, with
76% coming from international operations. Revenue was 5% higher
sequentially due to increased WesternGeco marine surveys in the
North Sea, additional land seismic activity in Saudi Arabia and
Kuwait, solid progress on the early production facilities in
Kuwait, increased Wireline and Testing activity in Russia and
Kazakhstan during the summer season, and increased process systems
deliveries in Brazil and Iraq.
Pretax operating margin of 19% increased 292 bps sequentially
and generated an incremental margin of 78%. This improvement was
due to the benefits of cost initiatives across the Group, the
impact of asset impairments recorded last quarter and increased
high-margin Wireline and Testing Services activity. Results were
also driven by improved profitability on increased WesternGeco
marine and land seismic surveys.
Reservoir Characterization Group performance was enhanced by a
number of Integrated Services Management (ISM) projects,
transformation efficiencies using standard work instructions (SWI),
technology deployments, and new contract awards during the
quarter.
Offshore Uruguay, ISM coordinated directional drilling, bits,
logging-while-drilling, wireline, mudlogging, cementing, and
cuttings treatment services on a deepwater exploration well for
Total. The well was drilled in a record water depth of 3,404 m. The
ISM team collaborated with Total representatives and local
government officials to resolve import, licensing, and logistical
challenges in this new operating region, which enabled the well to
be completed on schedule. The contract provided commercial
alignment between the two companies due to their shared objectives.
During the 84 days of operations, the customer benefitted from zero
lost-time injuries or accidents and less than one hour of
nonproductive time.
In the Norwegian sector of the North Sea, Schlumberger enabled
Det norske oljeselskap ASA (Det norske) in achieving all
predrilling milestones via an integrated development plan in the
Ivar Aasen field. This ongoing development integrates drilling,
reservoir characterization, and completions disciplines by
establishing an in-house team to conduct early and extended project
engagement with the customer. Colocating Schlumberger personnel
with Det norske staff offshore, and in the primary office location
onshore, facilitated support from many Schlumberger disciplines,
including project management, drilling and measurements, bits,
drilling tools, fluids and environmental services, wireline
logging, well services, geomechanics, and completions. The customer
benefitted from delivery of twice as many wells as planned within
the given timeframe and remained on schedule to begin production as
planned, which is expected to be before the end of 2016.
In Norway, Statoil awarded WesternGeco a contract for a 4D
monitoring survey over 60 km2 of the Gulfaks field. In addition,
Lundin Norway awarded WesternGeco a contract for a 4D monitoring
survey over 40 km2 of the Edvard Grieg field. Each survey in the
North Sea will use Q-Seabed* multicomponent seabed seismic system
technology and be conducted by two WesternGeco vessels specially
rigged for complex seabed operations.
Petronas, through its wholly-owned subsidiary Petronas (E&P)
Overseas Ventures Sdn. Bhd., has signed an agreement to license a
significant part of the WesternGeco wide-azimuth (WAZ) deepwater
multiclient seismic survey in the Campeche Bay. The three-year
project is the first WAZ multiclient broadband survey in the
Mexican waters of the Gulf of Mexico and follows the government's
opening of licensing rounds to non-government companies for the
first time. WesternGeco has acquired more than 80,000 km2 of data
in the last year, which are available for oil and gas companies
participating in exploration in Mexico.
Schlumberger has entered into agreements with BP and Rosneft to
collaborate on an innovative research and development project to
develop cableless land seismic acquisition technology that could
significantly change the design and acquisition of land seismic
surveys. Rosneft will join as an equal partner in BP's ongoing
project with WesternGeco to develop the technology, which is
anticipated to improve subsurface imaging as well as the efficiency
of exploration, appraisal, and field development. Development of
the acquisition system is expected to take two years. BP and
Rosneft will then have preferential access to the technology for a
period of time, after which Schlumberger will have exclusive
marketing rights.
In Kazakhstan, Wireline used MDT* modular formation dynamics
tester technology in three wells for Embamunaigas, a subsidiary of
KazMunaiGas. MDT service enabled the acquisition of high-quality
fluid samples and real-time reservoir pressure measurements in one
trip. Equipped with an IFA* in-situ fluid analyzer, the MDT
toolstring delivered downhole fluid analysis data in real time. In
addition, use of CMR-Plus* combinable magnetic resonance technology
determined reservoir permeability, water cut, and hydrocarbon pore
volume at speeds three to five times faster than a conventional
magnetic resonance tool. Subsequent testing proved oil flow and the
collected data will enable the customer to de-risk similar layers
in adjacent wells.
In Russia and Central Asia, the Schlumberger transformation
program enabled increases in reliability through the use of SWI for
Testing Services operations. By focusing on three distinct
organizational areas of maintenance, resource planning, and service
delivery, the adoption of SWI enabled a service delivery record of
zero nonproductive time for 80,000 operating hours during the first
half of 2016.
Drilling Group
(Stated in millions, except margin percentages)
Three Months Ended Change
Sept. 30, 2016 Jun. 30, 2016 Sept. 30, 2015 Sequential Year-on-year
Revenue $ 2,021 $ 2,034 $ 3,219 -1 % -37 %
Pretax operating $ 218 $ 171 $ 594 28 % -63 %
income
Pretax operating 10.8 % 8.4 % 18.4 % 241 bps -764 bps
margin
Drilling Group revenue of $2.0 billion, of which 79% came from
the international markets, decreased by 1% sequentially. This was
due to the continued deepwater activity decline that impacted
Drilling & Measurements results in Sub-Saharan Africa, Brazil,
and the Asia-Pacific region, partially offset by the drilling
activity recovery on land in the US.
Pretax operating margin of 11% expanded 241 bps sequentially
despite the slight revenue decline. This was due to the benefits of
our transformation, the impact of asset impairments recorded last
quarter, and the reduced losses in Venezuela after further resizing
GeoMarket resources to levels commensurate with the reduced
activity.
A combination of Integrated Drilling Services (IDS) contract
awards, transformation efficiencies from remote operations, and new
technology deployments contributed to Drilling Group performance in
the third quarter.
In Norway, Wintershall Norge AS awarded Schlumberger a four-year
IDS contract with an option for two two-year extensions on the
Brage platform on the Norwegian Continental Shelf. The largely
performance-based contract combines all services into one contract
and represents the intent of the two companies to work as one team.
In addition, there are strong incentives to optimize drilling
efficiency and extend the late-life production of the Brage field
until 2030 and beyond. The plan includes a five-well infill
drilling campaign starting in 2017.
Hokchi Energy S.A. de C.V., a subsidiary of Pan American Energy
LLC, together with E&P Hidrocarburos y Servicios S.A. de C.V.,
awarded Schlumberger an IDS contract for the supply of drilling,
drillstem testing, and abandonment services for an evaluation plan
in the Hokchi field in Mexico. The integrated contract includes
project coordination, directional drilling, and measurement- and
logging-while-drilling services.
In the UK sector of the North Sea, Schlumberger provided
GeoSphere* reservoir mapping-while-drilling service for Premier Oil
to drill six wells in the Catcher field. GeoSphere technology,
which reveals subsurface bedding and fluid contact details more
than 100 ft from the wellbore, enabled the precise planning of well
trajectories while drilling to avoid the need for sidetracks.
Before development, it was predicted that one-in-three wells in the
Catcher field would require a sidetrack due to difficult drilling
conditions. However, none of the six wells drilled to date using
GeoSphere technology required sidetracking, and all six wells came
in at or ahead of expectations.
Offshore Mexico, Bits & Drilling Tools used Direct XCD*
drillable alloy casing bit technology for Pemex to overcome
challenging borehole conditions in the casing-while-drilling of 15
shallow-water exploration wells. Direct XCD technology uses
standard casing that is rotated at the surface to drill and case to
total depth in a single run. Schlumberger provided
casing-while-drilling engineering analysis combined with a plan to
avoid failures that resulted in all casing secured at, or deeper
than the planned total depths. Direct XCD technology helped reduce
nonproductive time by 10 days compared with a conventional
approach. Overall, the customer saved $1.3 million.
In Ohio, Drilling & Measurements used a combination of
technologies to drill a well for Eclipse Resources in the Utica
Shale field. The technologies included the PowerDrive vorteX*
powered rotary steerable system that optimized directional drilling
and the TelePacer* modular MWD platform that provided a
configurable set of integrated measurements. These were paired with
a Smith Bits customized polycrystalline diamond compact bit with
thermally stable diamond inserts to extend bit life. The well had a
total measured depth of 27,048 ft and was drilled in less than 18
days with a completed lateral extension of approximately 18,500 ft.
This well is the longest onshore horizontal lateral ever drilled in
the US and Eclipse Resources has dubbed it a "super lateral".
Drilled in one bit run, this super lateral helped the customer
reduce costs by decreasing the number of horizontal penetrations
required to develop the reservoir.
In Russia, Bits & Drilling Tools deployed a 17000 series
drilling-type underreamer (DTU) for Sakhalin Energy Investment
Company Ltd. to underream a well in the Lunskoye field offshore
Sakhalin Island. Used to underream while drilling, the DTU has
three retractable cutting arms that are opened and held in position
by continuous hydraulic pressure. As a result, the customer
improved operational efficiency and saved approximately 45 hours of
rig time by completing the operation in a single run.
In the UK sector of the North Sea, Bits & Drilling Tools
used the ProMILL* trip-saving milling and underreaming system to
complete a plug-and-abandon operation for Shell on the offshore
Brent Bravo platform. ProMILL technology, which combines an
underreamer and section mill into a single-trip solution to achieve
rock-to-rock zonal isolation, saved two runs and was significantly
faster than conventional systems.
In China, Drilling & Measurements used PowerDrive Xceed*
ruggedized rotary steerable system technology for Shell to achieve
the required dogleg severity in a well in the interbedded Daanzhai
formation. This operation was in response to the drilling of two
previous wells that collapsed due to wellbore instability issues.
Schlumberger engineering, subsurface, geomechanics, and drilling
teams collaborated to deliver a prejob well engineering plan that
incorporated drilling data from offset wells. In addition, the
drilling phase was supported by experienced engineers in the China
Land Operations Center in Chengdu who monitored operations,
performed essential tasks, and responded to challenges in real
time. The customer benefitted by a reduction in drilling time of
52% and based on cost per meter, the well ranks among the best in
class for the field.
Production Group
(Stated in millions, except margin percentages)
Three Months Ended Change
Sept. 30, 2016 Jun. 30, 2016 Sept. 30, 2015 Sequential Year-on-year
Revenue $ 2,083 $ 2,099 $ 2,915 -1 % -29 %
Pretax operating $ 98 $ 90 $ 327 9 % -70 %
income
Pretax operating 4.7 % 4.3 % 11.2 % 41 bps -652 bps
margin
Production Group revenue of $2.1 billion was essentially flat
sequentially as lower fracturing and completions activity in Latin
America, the North Sea, and the Middle East was offset by increased
fracturing activity on land in North America. While the increase in
the price of WTI has led to greater operator confidence and a
continuing increase in the land rig count in North America, this
has yet to have a meaningful effect on service pricing and
operating margins. The growth in revenue from US land was driven by
a 17% increase in fracturing stage count, although an unfavorable
job and technology mix combined with the limited pricing
improvement partially offset increased activity.
Pretax operating margin of 5% increased 41 bps sequentially.
This was due to the benefits of cost management initiatives, the
impact of asset impairments recorded last quarter, and improved
asset utilization from an increasing volume of work on land in
North America. Schlumberger Production Management project activity
continued to contribute accretive margins to the Group.
Production Group results benefitted from a number of Integrated
Production Services (IPS) contract awards, transformation
initiatives using SWI, and new technology deployments during the
quarter.
In Oman, Petroleum Development Oman awarded Schlumberger a
three-year contract with optional seven-year and five-year
extensions for the provision of integrated progressive cavity pump
equipment and services covering the Marmul, Rahab, Thulilat, and
Qaharier Qatab areas. Equipment delivery and services began in the
second quarter of 2016 while an additional scope of work related to
the Sadad-Nafoorah fields in the Bahja area is covered by a
separate lease agreement that began in August 2016.
In Brunei, Schlumberger was awarded the upper and lower
completion workscopes by Brunei Shell Petroleum. The five-year
contract starts in the first quarter of 2017 and will service a
minimum of three rigs.
In South Texas, Schlumberger partnered with Lonestar to
establish the GeoEngineered Performance Alliance to hydraulically
fracture three wells in the Eagle Ford Shale play on the Ranger
Beall Ranch lease. Early production results from the first 150 days
showed a 63% improvement in cumulative oil production per lateral
foot of reservoir contact for the same time period when compared
with offset wells completed in July 2015.
Also in South Texas, Sundance Energy Australia Limited and
Schlumberger entered into an alliance to re-fracture at least five
Eagle Ford wells in McMullen County, starting in the third quarter
of 2016. According to the agreement, production increases from the
refracturing treatments that exceed the production forecast of the
wells provide the basis for Schlumberger remunerations. The
re-fracturing campaign, led by IPS, is deploying BroadBand*
unconventional reservoir completion services and is expected to
generate a production increase of five-to-six times the current
production rate for each well and a 40% to 50% improvement in the
estimated ultimate recoverable reserves.
Laredo Petroleum has entered into a long-term partnership with
Schlumberger to develop strategies to improve the effectiveness of
well completions in the Permian basin. The partnership leverages an
integrated approach using technologies such as the Petrel* E&P
software platform with Mangrove* engineered stimulation design to
build a foundation model that enables the customer to improve its
understanding of key production drivers in the area. The 3D
petrophysical and geomechanical earth modeling supports landing
zone and hydraulic fracture completion optimization in multiple pay
zones to improve development strategies.
In West Texas, Well Services used BroadBand Sequence* fracturing
service to increase production in a horizontal well in the Wolfcamp
Shale formation. Conventional fracturing methods are challenged by
the formation's deep, highly pressured shales made up of laminated
layers as well as by the heterogeneity of the reservoir. BroadBand
Sequence technology sequentially isolated, fractured, and
stimulated every cluster in each zone of the wellbore to ensure
they would contribute to the well's full potential. As a result,
the production of this well has increased 42% compared with offset
wells of the same lateral length, number of stages, and volumes of
proppant and fluids used.
Offshore UAE, Well Services used HiWAY* flow-channel fracturing
technique and UltraMARINE* seawater-based fracturing fluid
technology to stimulate low-permeability, high-stress source rock
for Dubai Petroleum. Eight proppant fracturing jobs were
successfully placed with over half a million pounds pumped. The
eight jobs represent the world's first offshore multistage,
source-rock, proppant fracturing treatments and were completed in
40 hours.
In Western Canada, the Schlumberger transformation program
enabled increases in reliability and service delivery through the
use of SWI. By focusing on the use of SWI to ensure procedural
adherence for multistage stimulation and liner hanger operations,
Completions reduced nonproductive time to zero for the first half
of 2016.
Cameron Group
(Stated in millions, except margin percentages)
Three Months Ended Change
Sept. 30, 2016 Jun. 30, 2016 Sept. 30, 2015* Sequential Year-on-year
Revenue $ 1,341 $ 1,525 $ 2,222 -12 % -40 %
Pretax operating $ 215 $ 250 $ 390 -14 % -45 %
income
Pretax operating 16.0 % 16.4 % 17.6 % -34 bps -151 bps
margin
*Third-quarter 2015 is presented on a pro
forma basis for comparative purposes.
Cameron Group revenue of $1.3 billion, of which 67% came from
international markets, decreased 12% sequentially. Among the
Group's businesses, Drilling reported the largest decline driven by
the decreasing backlog coupled with a slowdown in offshore service
activity; OneSubsea was impacted by project scheduling revisions
and customer delays; and Surface also saw a slowdown in project
shipments. Valves & Measurement, however, was marginally higher
on increased shipments for international projects.
Pretax operating margin of 16% declined 34 bps sequentially due
to the drop in high-margin Drilling project volume. Despite the
significant drop in revenue, sequential decremental margin was only
19%, boosted by strong project execution in OneSubsea, improved
manufacturing efficiency, and overall strong cost control across
the Group.
New contract awards for Subsea alliances, Surface revenue
synergies, and a global frame agreement during the quarter will
provide future growth for the Cameron Group.
Subsea Services Alliance, a collaboration between Helix Energy
Solutions Group, Inc. and Schlumberger, announced the development
launch of the first riserless open-water abandonment module (ROAM)
system. The 18¾-in large bore system will enhance well abandonment
capacity from a well intervention vessel by allowing tubing to be
pulled in open water in a safe and environmentally contained
manner. The ROAM system will be engineered and built at the
OneSubsea manufacturing facility in Aberdeen, Scotland. This
system, which will complement existing intervention riser systems
and subsea intervention lubricators, is expected to be commercially
available in the third quarter of 2017.
OneSubsea signed two five-year global frame agreements with BP
to provide engineering, procurement and construction of subsea
production systems (SPS), and aftermarket services. The agreements,
specifically formulated to accommodate supplier-led solutions,
provide a framework for worldwide supply of SPS technology and
aftermarket services, including service personnel and rental
equipment.
Chevron Thailand Exploration and Production awarded Schlumberger
a contract for services for six or more rigs commencing in the
third quarter of 2016 and continuing through 2018. The award
encompasses Cameron Group Surface wellheads, trees and systems; as
well as Wireline openhole and cased-hole logging services; and M-I
SWACO drilling fluids products, services, and supply of barite.
This contract was awarded based on an integrated proposal designed
for the high-temperature reservoirs in the Gulf of Thailand.
Financial Tables
Condensed
Consolidated
Statement of Income
(Stated in millions, except per share amounts)
Third Quarter Nine Months
Periods Ended 2016 2015 2016 2015
September
30,
Revenue $ 7,019 $ 8,472 $ 20,703 $ 27,731
Interest and 54 60 153 155
other income
Expenses
Cost of revenue 6,142 6,798 17,917 22,028
Research 253 273 750 819
& engineering
General 92 122 305 362
& administrative
Impairments - - 2,573 439
& other(1)
Merger 237 - 571 -
& integration(1)
Interest 149 86 431 254
Income (loss) $ 200 $ 1,253 $ (1,691 ) $ 3,984
before taxes
Taxes on income 10 250 (259 ) 859
(loss)(1)
Net income (loss) $ 190 $ 1,003 $ (1,432 ) $ 3,125
Net 14 14 50 37
income attributable
to
noncontrolling
interests
Net income (loss) $ 176 $ 989 $ (1,482 ) $ 3,088
attributable
to Schlumberger(1)
Diluted earnings $ 0.13 $ 0.78 $ (1.10 ) $ 2.42
(loss) per
share
of Schlumberger(1)
Average shares 1,392 1,265 1,345 1,270
outstanding
Average shares 1,401 1,272 1,345 1,278
outstanding
assuming dilution
Depreciation & $ 998 $ 1,026 $ 3,078 $ 3,115
amortization
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 2016 2015
Current Assets
Cash and short-term investments $ 10,756 $ 13,034
Receivables 9,565 8,780
Other current assets 6,104 5,098
26,425 26,912
Fixed income investments, held to maturity 354 418
Fixed assets 13,004 13,415
Multiclient seismic data 1,042 1,026
Goodwill 24,957 15,605
Intangible assets 9,837 4,569
Other assets 4,975 6,060
$ 80,594 $ 68,005
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities $ 9,439 $ 7,727
Estimated liability for taxes on income 1,092 1,203
Short-term borrowings and current portion
of long-term debt 3,739 4,557
Dividends payable 702 634
14,972 14,121
Long-term debt 17,538 14,442
Deferred taxes 2,622 1,075
Postretirement benefits 1,293 1,434
Other liabilities 1,595 1,028
38,020 32,100
Equity 42,574 35,905
$ 80,594 $ 68,005
Net Debt
"Net Debt" represents gross debt less cash, short-term
investments and fixed income investments, held to maturity.
Management believes that Net Debt provides useful supplemental
information regarding the level of Schlumberger's indebtedness by
reflecting cash and investments that could be used to repay
debt.
"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 the ability of our
business 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 our shareholders through dividend payments
or share repurchases. Free cash flow does not represent the
residual cash flow available for discretionary expenditures.
Net Debt and free cash flow are non-GAAP financial measures that
should be considered in addition to, not as substitute for, or
superior to, total debt or cash flow from operations.
Details of changes in Net Debt follow:
(Stated in
millions)
Periods NineMonths2016 ThirdQuarter2016 NineMonths2015
Ended
September
30,
Net income $ (1,432 ) $ 190 $ 3,125
(loss)
before
noncontrolling
interests
Impairment 2,652 177 383
and other
charges,
net
of tax
Net income 1,220 367 3,508
before
noncontrolling
interest,
excluding
charges
& credits
Depreciation 3,078 998 3,115
and
amortization(1)
Pension 139 47 326
and
other
postretirement
benefits
expense
Stock-based 210 65 250
compensation
expense
Pension (127 ) (44 ) (292 )
and
other
postretirement
benefits
funding
Change in (223 ) 27 (509 )
working
capital
Other (49 ) (54 ) 229
Cash flow 4,248 1,406 6,627
from
operations(2)
Capital (1,401 ) (403 ) (1,783 )
expenditures
SPM (869 ) (140 ) (350 )
investments
Multiclient (497 ) (164 ) (336 )
seismic
data
capitalized
Free cash 1,481 699 4,158
flow
Stock (662 ) (156 ) (1,784 )
repurchase
program
Dividends (1,951 ) (696 ) (1,786 )
paid
Proceeds 344 149 423
from
employee
stock
plans
(788 ) (4 ) 1,011
Business (3,866 ) (76 ) (324 )
acquisitions
and
investments,
net
of
cash
acquired
plus
debt
assumed
Discontinued - - (233 )
operations
-
settlement
with
US
Department
of Justice
Other 34 (42 ) (271 )
(Increase) (4,620 ) (122 ) 183
decrease
in Net
Debt
Net (5,547 ) (10,045 ) (5,387 )
Debt,
beginning
of period
Net Debt, $ (10,167 ) $ (10,167 ) $ (5,204 )
end
of period
Components Sept. 30,2016 Jun. 30,2016 Dec. 31,2015 Sept. 30,2015
of
Net Debt
Cash $ 10,756 $ 11,192 $ 13,034 $ 6,605
and
short-term
investments
Fixed 354 386 418 439
income
investments,
held
to
maturity
Short-term (3,739 ) (3,371 ) (4,557 ) (4,761 )
borrowings
and
current
portion of
long-term
debt
Long-term (17,538 ) (18,252 ) (14,442 ) (7,487 )
debt
$ (10,167 ) $ (10,045 ) $ (5,547 ) $ (5,204 )
(1) Includes depreciation of property, plant
and equipment and amortization of
intangible assets, multiclient seismic
data costs and SPM investments.
(2) Includes severance payments of approximately $700 million
and $605 million during the nine months
ended September 30, 2016 and 2015, respectively,
and $170 million during the third quarter
of 2016. Also includes approximately $100 million of
one-off transaction-related payments associated
with the acquisition of Cameron during the
nine months ended September 30, 2016.
Charges & Credits
In addition to financial results determined in accordance with
US generally accepted accounting principles (GAAP), this
third-quarter 2016 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 earnings per share, excluding
charges & credits; net income before noncontrolling interests,
excluding charges & credits; and effective tax, 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)
Third Quarter 2016
Pretax Tax Noncont.Interest Net Diluted
EPS
Schlumberger $ 437 $ 70 $ 14 $ 353 $ 0.25
net income,
excluding
charges &
credits
Amortization (149 ) (45 ) - (104 )
of purchase
accounting
inventory fair
value
adjustment
Merger-related (46 ) (10 ) - (36 )
employee
benefits
and
professional
fees
Other (42 ) (5 ) - (37 )
merger
and
integration-related
Schlumberger $ 200 $ 10 $ 14 $ 176 $ 0.13
net income
(GAAP basis)
Second Quarter 2016
Pretax Tax Noncont.Interest Net Diluted
EPS
Schlumberger $ 394 $ 64 $ 14 $ 316 $ 0.23
net income,
excluding
charges &
credits
Fixed (1,058 ) (177 ) - (881 )
asset
impairments
Workforce (646 ) (63 ) - (583 )
reduction
Inventory (616 ) (49 ) - (567 )
write-downs
Multiclient (198 ) (62 ) - (136 )
seismic
data
impairment
Other (55 ) - - (55 )
restructuring
charges
Amortization (150 ) (45 ) - (105 )
of purchase
accounting
inventory fair
value
adjustment
Merger-related (92 ) (17 ) - (75 )
employee
benefits
and
professional
fees
Other (93 ) (19 ) - (74 )
merger
and
integration-related
Schlumberger $ (2,514 ) $ (368 ) $ 14 $ (2,160 ) $ (1.56 )
net loss
(GAAP basis)
(Stated in millions, except per share amounts)
Nine Months 2016
Pretax Tax Noncont.Interest Net Diluted
EPS
Schlumberger $ 1,453 $ 233 $ 50 $ 1,170 $ 0.86
net income,
excluding
charges &
credits
Fixed (1,058 ) (177 ) - (881 )
asset
impairments
Workforce (646 ) (63 ) - (583 )
reduction
Inventory (616 ) (49 ) - (567 )
write-downs
Multiclient (198 ) (62 ) - (136 )
seismic
data
impairment
Other (55 ) - - (55 )
restructuring
charges
Amortization (299 ) (90 ) - (209 )
of purchase
accounting
inventory fair
value
adjustment
Merger-related (138 ) (27 ) (111 )
employee
benefits
and
professional
fees
Other (134 ) (24 ) - (110 )
merger
and
integration-related
Schlumberger $ (1,691 ) $ (259 ) $ 50 $ (1,482 ) $ (1.10 )
net loss
(GAAP basis)
Nine Months 2015
Pretax Tax Noncont.Interest Net Diluted
EPS
Schlumberger $ 4,423 $ 915 $ 37 $ 3,471 $ 2.72
net income,
excluding
charges &
credits
Workforce (390 ) (56 ) - (334 )
reduction
Currency (49 ) - - (49 )
devaluation
loss
in Venezuela
Schlumberger $ 3,984 $ 859 $ 37 $ 3,088 $ 2.42
net income
(GAAP basis)
There were
no charges
or credits
during the
first
quarter
of 2016
or the
second and
third quarters
of 2015.
Product
Groups
(Stated in
millions)
Three Months Ended
Sept. 30, 2016 Jun. 30, 2016 Sept. 30, 2015
Revenue Income Before Taxes Revenue IncomeBeforeTaxes Revenue IncomeBeforeTaxes
Reservoir $ 1,689 $ 322 $ 1,609 $ 260 $ 2,380 $ 616
Characterization
Drilling 2,021 218 2,034 171 3,219 594
Production 2,083 98 2,099 90 2,915 327
Cameron 1,341 215 1,525 250 - -
Eliminations (115 ) (38 ) (103 ) (24 ) (42 ) (16 )
& other
Pretax 815 747 1,521
operating
income
Corporate (267 ) (241 ) (198 )
& other
Interest 24 24 8
income(1)
Interest (135 ) (136 ) (78 )
expense(1)
Charges & (237 ) (2,908 ) -
credits
$ 7,019 $ 200 $ 7,164 $ (2,514 ) $ 8,472 $ 1,253
Effective July 1, 2016, certain business
units were transferred among
the Product Groups. Financial data for the three months ended
June 30, 2016 have been reclassified to
conform to this new presentation.
The effects of these transfers were not material.
(Stated in millions)
Nine Months Ended
Sept. 30, 2016 Sept. 30, 2015
Revenue Income Before Taxes Revenue IncomeBeforeTaxes
Reservoir $ 5,044 $ 913 $ 7,545 $ 1,944
Characterization
Drilling 6,548 760 10,610 2,044
Production 6,529 396 9,679 1,268
Cameron 2,865 465 - -
Eliminations & other (283 ) (72 ) (103 ) (34 )
Pretax operating 2,462 5,222
income
Corporate & other (679 ) (587 )
Interest income(1) 61 22
Interest expense(1) (391 ) (234 )
Charges & credits (3,144 ) (439 )
$ 20,703 $ (1,691 ) $ 27,731 $ 3,984
(1) Excludes interest included in
the Product Groups results.
Supplemental
Information
1) What is the definition of incremental or decremental operating margin?
Incremental or decremental operating margin is equal to the ratio of the change in pretax operating income over the change in revenue.
2) What was the cash flow from operations for the third quarter of 2016?
Cash flow from operations was $1.4 billion for the third quarter of 2016 and included approximately $170 million of severance payments during the quarter.
3) What was the cash flow from operations for the first nine months of 2016?
Cash flow from operations was $4.2 billion for the first nine months of 2016 and included approximately $700 million of severance payments and $100 million of one-off transaction-related payments associated with the acquisition of Cameron.
4) What was the free cash flow as a percentage of net income before noncontrolling interests and charges and credits, for the third quarter of 2016?
Free cash flow, which was $699 million and included approximately $170 million of severance payments, as a percentage of net income before noncontrolling interests and charges and credits was 190% for the third quarter of 2016.
5) What was the free cash flow as a percentage of net income before noncontrolling interests and charges and credits, for the first nine months of 2016?
Free cash flow, which was $1.5 billion and included approximately $700 million of severance payments, $100 million of one-off transaction-related payments, as a percentage of net income before noncontrolling interests and charges and credits was 121% for the first nine months of 2016.
6) What is the capex guidance for the full year 2016?
Capex (excluding multiclient and SPM investments) is expected to be $2.0 billion for 2016, including three quarters of capex for the acquired Cameron businesses.
7) What was included in "Interest and other income" for the third quarter of 2016?
"Interest and other income" for the third quarter of 2016 were $54 million. This amount consisted of earnings of equity method investments of $23 million and interest income of $31 million.
8) How did interest income and interest expense change during the third quarter of 2016?
Interest income of $31 million increased $1 million sequentially. Interest expense of $149 million was flat sequentially.
9) 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.
10) What was the effective tax rate (ETR) for the third quarter of 2016?
The ETR for the third quarter of 2016 calculated in accordance with GAAP was 5.1% as compared to 14.6% for the second quarter of 2016.
The ETR for the third quarter of 2016, excluding charges and credits, was 16.0% as compared to 16.2% for the second quarter of 2016.
11) How many shares of common stock were outstanding as of September 30, 2016 and how did this change from the end of the previous quarter?
There were 1.391 billion shares of common stock outstanding as of September 30, 2016. The following table shows the change in the number of shares outstanding from June 30, 2016 to September 30, 2016.
(Stated in millions)
Shares outstanding at June 30, 2016 1,391
Shares sold to optionees, less shares exchanged -
Vesting of restricted stock -
Shares issued under employee stock purchase plan 2
Stock repurchase program (2 )
Shares outstanding at September 30, 2016 1,391
12) What was the weighted average number of
shares outstanding during the third
quarter of 2016 and second 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 third quarter of 2016
and second quarter of 2016 was 1.392 billion
and 1.389 billion, respectively.
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 Quarter2016 Second Quarter2016
Weighted average 1,392 1,389
shares
outstanding
Assumed exercise 4 3
of stock options
Unvested restricted 5 5
stock
Average shares 1,401 1,397
outstanding,
assuming dilution
13) What were multiclient sales in the third quarter of 2016?
Multiclient sales, including transfer fees, were $144 million in the
third quarter of 2016 and $145 million in the second quarter of 2016.
14) What was the WesternGeco backlog at the
end of the third quarter of 2016?
WesternGeco backlog, which is based on signed contracts
with customers, was $845 million at the end
of the third quarter of 2016. It was $865 million
at the end of the second quarter of 2016.
15) What were the orders and backlog for Cameron's
Subsea and Drilling businesses?
Subsea and Drilling orders and backlog were as follows:
(Stated in millions)
Orders Third Quarter2016 Second Quarter2016
Subsea $ 434 $ 315
Drilling $ 179 $ 166
Backlog(at the
end of period)
Subsea $ 2,527 $ 2,642
Drilling $ 865 $ 1,050
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 $35.47 billion in
2015. For more information, visit www.slb.com.
*Mark of Schlumberger or of Schlumberger companies.
Notes
Schlumberger will hold a conference call to discuss the above
announcement and business outlook on Friday, October 21, 2016. The
call is scheduled to begin at 7:00 a.m. (US Central Time), 8:00
a.m. (Eastern Time) and 1:00 p.m. (London 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 of 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 21, 2016 by
dialing +1 (800) 475-6701 within North America, or +1 (320)
365-3844 outside of North America, and providing the access code
399092.
The conference call will be webcast simultaneously at
www.slb.com/irwebcast on a listen-only basis. Please log in 15
minutes ahead of time to test your browser and register for the
call. A replay of the webcast will also be available at the same
web site until December 30, 2016.
This third-quarter 2016 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 Groups and 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;
demand for our integrated services and new technologies; our future
cash flows; the success of our transformation efforts; 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 third-quarter
2016 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 - 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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