TIDMSCL
Schlumberger Limited (NYSE: SLB) today reported results for the
second quarter of 2018.
(Stated in millions, except per share amounts)
Three Months Ended Change
Jun. 30, 2018 Mar. 31, 2018 Jun. 30, 2017 Sequential Year-on-year
Revenue $8,303 $7,829 $7,462 6% 11%
Pretax operating income $1,094 $974 $950 12% 15%
Pretax operating margin 13.2% 12.4% 12.7% 75 bps 45 bps
Net income - GAAP basis $430 $525 $(74) -18% n/m
Net income, excluding $594 $525 $488 13% 22%
charges & credits*
Diluted EPS - GAAP basis $0.31 $0.38 $(0.05) -18% n/m
Diluted EPS, excluding $0.43 $0.38 $0.35 13% 23%
charges & credits*
*These are non-GAAP financial measures. See section
below entitled "Charges & Credits" for details.
n/m = not meaningful
Schlumberger Chairman and CEO Paal Kibsgaard commented, "The
second quarter was both busy and exciting for Schlumberger as we
completed a number of major milestones in preparation for the
broad-based global activity upturn that is now emerging. We
delivered solid top-line growth both in North America and the
international markets, building on our strong contract portfolios
and our recent tender wins. We mobilized an unprecedented 29 new
rigs for our international integrated drilling business, including
our first commercial Land Rig of the Future deployment in Saudi
Arabia. We successfully rolled out our new, streamlined operations
support organization, building on five years of methodical
investment to further professionalize all aspects of our work,
which will set new standards for internal efficiency, quality,
teamwork, and collaboration. As part of this, we made the last
adjustment to our organizational setup in the second quarter to
conclude the removal of one complete layer of our management and
support structure. This will further reduce our cost base, and
improve our agility and competitiveness going forward.
"Given the considerable number of new projects we are starting
up throughout our international operations, our organization has
responded well to both mobilization and project startup challenges.
However, the associated costs together with some operational delays
impacted our second-quarter pretax operating margins. This resulted
in our sequential margin expansion being below our
expectations.
"In North America, excluding Cameron, second-quarter revenue of
$2.5 billion increased 12% sequentially as we continued our
deployment of additional hydraulic fracturing and directional
drilling capacity. Despite the impact of the spring breakup in
Canada, North America Land revenue grew 9%, driven by market share
gains and operational efficiency improvements while pricing
remained flat. In the hydraulic fracturing market, we are seeing an
accelerating customer trend of separating the procurement of
pumping services and sand supply. As our multiyear vertical
integration investment program approaches completion, it enables us
to bid competitively on integrated or stand-alone sand contracts.
North America Offshore activity began to recover during the second
quarter with new drilling projects starting up in Eastern Canada,
the US Gulf of Mexico, and the Caribbean, resulting in sequential
offshore revenue growth of 22%.
"Excluding Cameron, second-quarter revenue in the international
markets of $4.4 billion grew 6% sequentially despite flat revenue
in Russia, and only nominal growth in the Middle East, where
startup and project delays affected our results. Sequential growth
was driven by an 18% improvement in Asia and Australia, 9% in
Europe and Africa, and 3% in Latin America. These figures confirm
that a much broader-based international recovery is now emerging.
Pricing improved in the international markets during the second
quarter, and while the numbers are not yet material, a trend has
been established and customer pricing discussions are continuing
both for new and existing contracts. With a number of large-scale
project awards absorbing our remaining spare capacity in both
drilling and production services, our equipment will be fully
deployed during the fourth quarter, after which we expect a further
strengthening of the international pricing recovery.
"Growth in the second quarter was led by Production where
revenue increased sequentially by 10%, driven by OneStimSM in North
America. Revenue from both Reservoir Characterization and Drilling
increased 5% sequentially due to higher international activity
beyond the seasonal rebounds in the Northern Hemisphere. The
increase in revenue was driven by higher OneSurfaceSM activity,
additional Software Integrated Solutions (SIS) sales, and the start
of integrated drilling projects in the Middle East, India, Mexico,
and offshore North America. Cameron revenue decreased 1%
sequentially on lower OneSubseaTM project volume, although this was
partially offset by higher service activity in North America for
Surface Systems and higher product sales for Valves &
Measurement.
"The market fundamentals continue to evolve favorably for our
international business as the global balance of crude oil supply
and demand tightens further. Global GDP growth remains strong, with
any impact of headwinds from the US-China trade dispute likely to
become clearer in the next few quarters. Despite OPEC's recent
decision to increase production, the global supply base continues
to weaken from geopolitical pressure to remove Iranian production
from the market, no apparent resolution to falling production in
Venezuela, and Libyan exports continuing to be volatile. In North
America, lack of additional pipeline capacity in the Permian Basin
is becoming an increasing constraint to production growth. At the
same time, spare production capacity, which is essentially limited
to only a few OPEC countries, is now nearing its lowest level for
more than a decade while decline in the world's mature production
base continues to accelerate. These developments underline the
growing need for E&P spending to increase significantly,
particularly in the international markets, as it is becoming more
and more apparent that the new projects expected to come online
during the next few years will not be sufficient to meet the
increasing demand.
"These views underpin the strong confidence we have in our
business outlook. Although the last four years have been marked by
the deepest downturn in generations, we have capitalized on a
number of market opportunities while simultaneously transforming
our company to be even more competitive in the broad-based recovery
that is now emerging. The expansion of our portfolio has
significantly increased our total addressable market by 50% and we
have reached new levels of efficiency in all our activities. We are
primed and ready to capture the growth opportunities coming from
the positive market fundamentals, and we are excited by the
activity and pricing opportunities that the new industry landscape
presents."
Other Events
During the quarter, Schlumberger repurchased 1.5 million shares
of its common stock at an average price of $68.45 per share, for a
total purchase price of $103 million.
On July 18, 2018, the Company's Board of Directors approved a
quarterly cash dividend of $0.50 per share of outstanding common
stock, payable on October 12, 2018 to stockholders of record on
September 5, 2018.
Consolidated Revenue by Area
(Stated in millions)
Three Months Ended Change
Jun. 30, 2018 Mar. 31, 2018 Jun. 30, 2017 Sequential Year-on-year
North $3,139 $2,835 $2,202 11% 43%
America
Latin 919 870 1,039 6% -12%
America
Europe/CIS/Africa 1,778 1,704 1,750 4% 2%
Middle East 2,367 2,309 2,347 3% 1%
& Asia
Other 99 111 124 n/m n/m
$8,303 $7,829 $7,462 6% 11%
North $3,139 $2,835 $2,202 11% 43%
America
revenue
International $5,065 $4,883 $5,136 4% -1%
revenue
North $2,528 $2,265 $1,728 12% 46%
America
revenue,
excluding
Cameron
International $4,358 $4,129 $4,348 6% -
revenue,
excluding
Cameron
n/m
=
not meaningful
Second-quarter consolidated revenue of $8.3 billion increased 6%
sequentially, with North America revenue of $3.1 billion growing
11% and international revenue of $5.1 billion increasing 4%.
North America
North America Area consolidatedrevenue increased 11%
sequentially following the continued deployment of additional
hydraulic fracturing and directional drilling capacity. Despite the
impact of the spring breakup in Canada, North America Land revenue
grew 9% sequentially, outperforming both the 7% increase in US land
rig count and the 8% growth in US land market stage count. This
performance was driven by market share gains and operational
efficiency improvements as pricing remained flat. Activity in the
US land market continued to be strong as customers developed more
effective well designs, balancing lateral length and completion
volumes to maximize productivity while managing overall cost. The
customer trend of separating the procurement of pumping services
and sand supply accelerated during the quarter. However, the
vertical integration of the Schlumberger offering provides maximum
potential for revenue from both integrated pumping services and
sand supply contracts. As a result, OneStim revenue grew 17%
sequentially. North America Offshore activity began to recover,
with new drilling projects starting up in Eastern Canada, the US
Gulf of Mexico, and the Caribbean, resulting in sequential revenue
growth of 22% boosted by market share gains and multiclient sales.
Higher service revenue and product sales in Valves &
Measurement, together with increased activity for Surface Systems,
also contributed to the Area's strong financial performance.
International
Consolidated revenue in the Latin America Area increased 6%
sequentially due to strong performance in the Latin America South
GeoMarket as a result of higher Cameron activity and increased
hydraulic fracturing stage count, as well as increased coiled
tubing activity on unconventional land operations in Argentina.
Revenue in the Mexico & Central America GeoMarket also
increased following the start up of Integrated Drilling Services
(IDS) activity, while revenue in the Latin America North GeoMarket
was essentially flat sequentially.
Europe/CIS/Africa Area consolidated revenueincreased 4% as
drilling activity recovered from the winter slowdowns in the North
Sea and Europe. Revenue in Sub-Sahara Africa increased from the
start of new projects in Angola, Nigeria, Ghana, Ivory Coast, and
Cameroon; North Africa increased from higher activity and product
sales in Algeria, Libya, and Chad; and Russia was essentially flat
sequentially due to delays in the startup of the summer offshore
campaigns. Revenue growth in the North Sea resulted from higher UK
and Norway drilling activity as the rig count increased, while in
Continental Europe revenue increased mainly from higher drilling
activity in Romania.
Consolidated revenue in the Middle East & Asia Area
increased 3% sequentially, led by stronger activity in the Far East
Asia & Australia GeoMarket, mainly in Indonesia, offshore
Australia, and from a seasonal recovery in China. In the Northern
Middle East GeoMarket, progress was strong on OneSurface integrated
production system projects in Kuwait and Egypt, while the Eastern
Middle East GeoMarket benefited from the start up of IDS projects
in Iraq. In the South & East Asia GeoMarket, operations began
on drilling projects in Myanmar, Vietnam, and India. In Saudi
Arabia, sequential revenue growth was limited by delays and
logistical challenges in the startup phases of some lump-sum
turnkey (LSTK) projects. Cameron revenue was sequentially lower in
the Far East Asia & Australia and Northern Middle East
GeoMarkets, partially offsetting the effects of the strengthening
activity across the Area.
Reservoir Characterization
(Stated in millions)
Three Months Ended Change
Jun. 30, 2018 Mar. 31, 2018 Jun. 30, 2017 Sequential Year-on-year
Revenue $1,636 $1,556 $1,759 5% -7%
Pretax $350 $307 $299 14% 17%
operating
income
Pretax 21.4% 19.7% 17.0% 166 bps 439 bps
operating
margin
Reservoir Characterization revenue of $1.6 billion, of which 75%
came from the international markets, increased 5% sequentially due
to higher activity beyond the seasonal rebounds in the Northern
Hemisphere. Growth was mainly due to higher Wireline activity from
new projects offshore North America and new contracts in the Far
East Asia & Australia GeoMarket; further progress on OneSurface
integrated production system projects in Kuwait and Egypt; and
increased SIS software maintenance and license sales in Mexico,
Brazil, Russia, and Kuwait. The increase in Reservoir
Characterization revenue was partially offset by reduced
WesternGeco activity as marine seismic acquisition contracts
continued to wind down.
Reservoir Characterization pretax operating margin of 21% was
166 basis points (bps) higher sequentially due to the recovery in
higher-margin Wireline activity and stronger sales of SIS software
licenses.
Reservoir Characterization benefited from Integrated Services
Management (ISM), SIS, and WesternGeco contract awards as well as
the application of technology and domain knowledge to strengthen
operational performance.
In Alaska, ISM helped a major independent E&P company
complete a six-well exploration campaign within the originally
approved five-well budget. The ISM team optimized the delivery of
technologies and services from multiple product lines, which
confirmed the presence of oil and verified the potential of the
play. The technologies included Microscope HD* resistivity- and
high-definition imaging-while-drilling service, proVISION* nuclear
magnetic resonance service, SonicScope* multipole
sonic-while-drilling service, and Saturn* 3D radial probe.
International Frontier Resources Corporation awarded SIS a
software as a service contract (SaaS) for the DELFI* cognitive
E&P environment for the characterization of reservoirs with
complex structural and stratigraphic challenges in its operations
in the Tecolutla Project.
In Indonesia, Pertamina Hulu Mahakam awarded Schlumberger a
three-year contract for the provision of E&P software. The
software includes OLGA* dynamic multiphase flow, PIPESIM*
steady-state multiphase flow, and ECLIPSE* industry-reference
reservoir simulators; ProSource* E&P data management and
delivery system; and Petrel* E&P software and Avocet*
production operations software platforms.
In Thailand, Wireline deployed a combination of advanced
reservoir sampling technologies in the Wassana Field for KrisEnergy
Thailand to reduce rig time by more than three days compared with
conventional sampling methods. These had resulted in contaminated
samples and a clogged pump due to the reservoir's heavy oil and
unconsolidated sands. The combination of Saturn 3D radial probe,
InSitu Fluid Analyzer* real-time downhole fluid analysis system,
and MDT* modular formation dynamics tester technologies enabled the
customer to certify the reservoir's reserves and optimize future
development plans.
Egyptian General Petroleum Corporation (EGPC) and Schlumberger
have signed a minimum 15-year agreement that gives WesternGeco
permission to commercialize multiclient projects throughout the
entire Gulf of Suez, an area of approximately 12,500 km2. The
agreement, which is the second of its type, includes 2D and 3D
geophysical acquisition, processing, reprocessing, and
interpretation services.
Lundin awarded WesternGeco the data processing and imaging of a
70-km2 ocean-bottom seismic (OBS) 4D reservoir monitoring survey
over the Edvard Grieg Field in the Norwegian sector of the North
Sea. Work will be performed by the OBS processing teams in the
WesternGeco Geosolutions Center using a bespoke time-lapse workflow
to increase reservoir understanding and help direct field
development decisions.
WesternGeco received a direct award from Sound Energy for a
2,700-km 2D survey using UniQ* land seismic acquisition platform
technology over the Meridja and Tendrara Fields in Morocco. The
project includes electromagnetics, magnetotellurics, surface wave
joint inversion, and data processing methods-all conducted in the
Schlumberger Integrated EM Center of Excellence.
Drilling
(Stated in millions)
Three Months Ended Change
Jun. 30, 2018 Mar. 31, 2018 Jun. 30, 2017 Sequential Year-on-year
Revenue $2,234 $2,126 $2,107 5% 6%
Pretax $289 $293 $302 -1% -4%
operating
income
Pretax 12.9% 13.8% 14.3% -83 bps -139 bps
operating
margin
Drilling revenue of $2.2 billion, of which 72% came from the
international markets, increased 5% sequentially due to higher
activity offshore North America and stronger international activity
beyond the seasonal rebounds in the Northern Hemisphere. The start
of IDS projects in the Middle East, India, and Mexico favorably
impacted M-I SWACO, Drilling & Measurements, and Bits &
Drilling Tools. New projects in the North America Offshore
GeoMarket and new contracts in the Far East Asia & Australia
GeoMarket, the Middle East, and the Mexico & Central America
GeoMarket drove the growth in M-I SWACO. Drilling &
Measurements revenue increased from new drilling campaigns in
Australia, China, Romania, and the North Sea. Stronger Bits &
Drilling Tools revenue was due to higher product sales in Algeria
and Italy.
Drilling pretax operating margin of 13% declined 83 bps
sequentially as the mobilization of resources for new projects
across our international operations resulted in additional
costs.
Drilling performance in the second quarter was underpinned by
IDS contract awards and project mobilizations that deployed
drilling technologies to help lower the cost per barrel.
Equinor awarded Schlumberger new integrated services and well
services contracts for Equinor-operated fields on the Norwegian
Continental Shelf. Initially awarded for four years, the contracts
include options for five two-year extensions. The contract scope
includes integrated drilling services, cementing and pumping,
drilling and completions fluids, electrical logging, and
completions. The integrated delivery model will strengthen the
interaction between the service supplier, rig supplier, and
operator. In addition, a letter of intent has been signed with
Schlumberger for a future exploration rig not yet chartered by
Equinor.
Equinor also awarded Schlumberger the following new contracts
for its international operations.
-- In the UK, a letter of intent was issued for integrated drilling and
well services in the Mariner Field in the UK sector of the North
Sea.
-- In Brazil, a contract was awarded for integrated drilling services for
Phase I and Phase II development of the Peregrino Field located
in the
Campos Basin.
-- In Tanzania, a contract was awarded for an offshore exploration well.
The integrated services contract includes the provision of
multiple
product lines as well as project management services.
In Wyoming, Schlumberger used a combination of technologies in
an integrated drilling services project for Wold Energy Partners to
reduce drilling time in four wells in the Powder River Basin by a
total of more than 16 days compared with AFE. Technologies included
ONYX 360* rolling PDC cutter, PowerDrive vorteX* powered rotary
steerable system, and LiteCRETE* lightweight cement slurry.
In Iraq, ENI Iraq BV awarded Schlumberger an IDS contract,
starting in 2018, for the construction of 11 wells targeting the
Mishrif Formation in the Zubair Field. The contract includes
technologies from Schlumberger Land Rigs, Drilling &
Measurements, Bits & Drilling Tools, M-I SWACO, Completions,
Wireline, and Well Services.
In Norway, Point Resources AS awarded Schlumberger a four-year
IDS contract with an option for extension. The contract provides
services in production and exploration wells on the Norwegian
Continental Shelf and includes the majority of drilling and
completions services.
In Bangladesh, SOCAR AQS International DMCC awarded Schlumberger
a 12-month IDS contract to drill wells in three different
fields-Semutang, Begumganj, and Madarganj.
In Oman, IDS enabled HydroCarbon Finder E&P to reduce
drilling time in a well by 14 days compared with the AFE plan. The
technologies deployed included the EcoScope*? multifunction
logging-while-drilling service, PowerDrive Archer* high build rate
rotary steerable system, PeriScope* bed boundary mapping service,
and MicroScope* resistivity- and imaging-while-drilling service.
This well is the customer's first discovery in Block-15 in the
Natih-C Formation.
In Alaska, Drilling & Measurements used a combination of
technologies to help a North Slope operator to drill the longest
horizontal lateral in North America of 21,748 ft. The technologies
used in this dual-lateral well included the PowerDrive Orbit*
rotary steerable system, PeriScope HD* multilayer bed boundary
detection service, and SonicScope multipole sonic-while-drilling
service.
Production
(Stated in millions)
Three Months Ended Change
Jun. 30, 2018 Mar. 31, 2018 Jun. 30, 2017 Sequential Year-on-year
Revenue $3,257 $2,959 $2,496 10% 30%
Pretax $316 $216 $221 46% 43%
operating
income
Pretax 9.7% 7.3% 8.9% 239 bps 84 bps
operating
margin
Production revenue of $3.3 billion, of which 48% came from the
international markets, increased 10% sequentially. Despite the
impact of the spring breakup in Canada, OneStim revenue in North
America land grew 17% sequentially, outperforming both the 7%
increase in US land rig count and the 8% growth in US land market
stage count. This performance was driven by market share gains from
deployment of additional capacity and operational efficiency
improvements as pricing remained flat. The customer trend of
separating the procurement of pumping services and sand supply
accelerated during the quarter. However, the vertical integration
of the Schlumberger offering enabled participation in both
integrated and stand-alone sand contracts to maintain the full
revenue potential of both pumping services and sand supply. New
contracts outside North America in Australia, Indonesia, India, and
the seasonal recovery in China contributed to international growth,
while activity in Saudi Arabia benefited from increased stimulation
and coiled tubing work as well as from higher completions product
sales.
Production pretax operating margin of 10% increased 239 bps
sequentially due to the increased activity and operational
efficiency improvements of OneStim hydraulic fracturing operations
in the North America Land GeoMarket. Margin also improved due to
the benefits from the vertical integration of the pressure pumping
business.
Production benefited from increased OneStim operations as well
as new contract awards and the deployment of advanced stimulation
and completions technologies.
In South Texas, OneStim executed a project for Chesapeake Energy
to continuously improve operational efficiency in the Eagle Ford
Shale play. Through waste identification and elimination,
standardized procedures, and technology implementation, OneStim
increased total operating time and productivity. Results included a
50% improvement in pad-to-pad mobilization time, a 55% increase in
stages placed per day, and a 17% increase in pumping hours per day.
On average, Chesapeake saved $150,000 per pad and reduced operating
time on each pad by four days.
In South Texas, OneStim used a geoengineered approach to help
Lonestar Resources Ltd. increase oil production up to 86% compared
with offset wells in the Eagle Ford Shale play. A combination of
technologies enabled optimization of drilling, completions, and
stimulation plans across long laterals in 18 wells in two fields
while avoiding drilling challenges associated with ash beds,
faults, and nearby water-bearing zones. The geoengineered wells
produced more hydrocarbon per 1,000 ft of lateral section compared
with offset wells. On average, six oil wells produced 80% more and
four wells in a high gas-to-oil ratio area produced 86% more.
ThruBit* through-the-bit logging services improved knowledge of
rock properties while the Kinetix Shale* reservoir-centric
stimulation-to-production software was used to optimize completion
and stimulation treatments.
In Russia, Well Services deployed the BroadBand Precision*
integrated completion service for Gazprom Neft to reduce operating
time in a well by more than eight days compared with the planned
AFE. The reservoir's complex geology favored a horizontal well with
multistage stimulation. BroadBand Precision service set a new field
record by completing 30 fracturing stages within 220 hours, which
was approximately 53% faster than originally planned.
In Colombia, Ecopetrol awarded Schlumberger a six-year contract
for the provision of Artificial Lift Solutions electric submersible
pumps (ESPs) and supporting services throughout the country. This
will include REDA Maximus* ESP systems equipped with REDA
Continuum* unconventional extended-life ESP stages to accommodate a
broad range of expected production volumes.
In North Kuwait, Well Services deployed ACTive* real-time
downhole coiled tubing services and the OpenPath Reach*
extended-contact stimulation service for Kuwait Oil Company to
increase total oil production fourfold in four wells in the Sabriya
Field. VDA* viscoelastic diverting fluid was deployed to block off
a thief zone in a long horizontal water injector well and the
OpenPath Reach stimulation treatment created a network of wormholes
in the reservoir. This resulted in a 400-psi increase in the
reservoir's bottomhole pressure, improving the effectiveness of the
waterflood system while eliminating the need for a workover
rig.
In Sakhalin, Schlumberger Completions installed the Manara*
production and reservoir management system to enhance production in
the Odoptu Field for the Sakhalin-1 Project.
Cameron
(Stated in millions)
Three Months Ended Change
Jun. 30, 2018 Mar. 31, 2018 Jun. 30, 2017 Sequential Year-on-year
Revenue $1,295 $1,310 $1,265 -1% 2%
Pretax $166 $166 $174 - -5%
operating
income
Pretax 12.8% 12.7% 13.8% 17 bps -94 bps
operating
margin
Cameron revenue of $1.3 billion, of which 52% came from
international markets, declined 1% sequentially primarily due to
lower OneSubsea revenue on a declining project backlog. This
decline was partially offset by higher service activity for Surface
Systems in North America and higher product sales for Valves &
Measurement, while Drilling Systems revenue was essentially flat
sequentially. By geography, North America and Latin America revenue
grew sequentially, but this was more than offset by lower revenue
in Middle East & Asia, while Europe/CIS/Africa revenue was
flat.
Cameron pretax operating margin of 13% was essentially flat
sequentially, as increased sales in Surface Systems and Valves
& Measurement, combined with improved project execution in
OneSubsea, offset the impact of falling margin in Drilling Systems
from the declining backlog.
Cameron won new contracts during the quarter for managed
pressure drilling (MPD) systems and integrated drilling packages as
well as integrated services contracts for pressure control
equipment management and production enhancement.
Transocean awarded Schlumberger a contract for the provision of
key components for two MPD systems for use offshore in the US Gulf
of Mexico. The MPD system provides greater control of the annular
pressure profile throughout the wellbore and enables drilling of
narrow-pressure margin formations safely and more efficiently.
In Norway, Transocean added four floating rigs operating in the
Norwegian sector of the North Sea to an existing pressure control
equipment management service contract with Schlumberger for a
period of 10 years. With this agreement, Schlumberger provides a
comprehensive suite of solutions that support maintenance and
service of blowout preventer systems and other pressure control
equipment for 13 of Transocean's ultradeepwater and harsh
environment drilling rigs.
In Russia, LUKOIL awarded Schlumberger a contract for the
provision of a complete drilling package, including pressure
control and rig equipment, fluid and solids handling, and a
cementing unit for operations in the Caspian Sea. Construction of
the rig, which will occur in Astrakhan, is expected to begin in the
third quarter of 2019.
Murphy Sabah Oil Co., Ltd. awarded Schlumberger an integrated
services contract for a three-well production enhancement campaign
offshore in the Siakap North-Petai Field in Malaysia. Contract
scope includes project management and vessel services, well
stimulation, fluid and pumping services, coiled tubing services,
and a OneSubsea MARS* multiple application reinjection system as
well as a subsea modular injection system.
Financial Tables
Condensed Consolidated Statement
of Income (Loss)
(Stated in millions, except
per share amounts)
Second Quarter Six Months
Periods Ended June 30, 2018 2017 2018 2017
Revenue $8,303 $7,462 $16,131 $14,356
Interest and other income 40 62 82 108
Expenses
Cost of revenue 7,179 6,468 13,980 12,544
Research & engineering 175 196 347 406
General & administrative 114 110 225 208
Impairments & other(1) 184 510 184 510
Merger & integration(1) - 81 - 164
Interest 144 142 287 281
Income before taxes $547 $17 $1,190 $351
Tax expense(1) 106 98 219 148
Net income (loss) $441 $(81) $971 $203
Net income (loss) attributable 11 (7) 16 (2)
to noncontrolling interests
Net income (loss) attributable $430 $(74) $955 $205
to Schlumberger(1)
Diluted earnings (loss) per $0.31 $(0.05) $0.69 $0.15
share of Schlumberger(1)
Average shares outstanding 1,384 1,387 1,385 1,390
Average shares outstanding 1,392 1,387 1,393 1,397
assuming dilution
Depreciation & amortization $876 $986 $1,750 $1,975
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)
Jun. 30, Dec. 31,
Assets 2018 2017
Current Assets
Cash and short-term investments $3,049 $5,089
Receivables 8,606 8,084
Other current assets 5,245 5,324
16,900 18,497
Fixed assets 11,504 11,576
Multiclient seismic data 686 727
Goodwill 25,121 25,118
Intangible assets 9,092 9,354
Other assets 6,853 6,715
$70,156 $71,987
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities $9,367 $10,036
Estimated liability for taxes on income 1,264 1,223
Short-term borrowings and current portion
of long-term debt 3,736 3,324
Dividends payable 699 699
15,066 15,282
Long-term debt 13,865 14,875
Deferred taxes 1,541 1,650
Postretirement benefits 971 1,082
Other liabilities 1,816 1,837
33,259 34,726
Equity 36,897 37,261
$70,156 $71,987
Liquidity
(Stated in millions)
Components of Jun. 30, Mar. 31, Dec. 31, Jun. 30,
Liquidity 2018 2018 2017 2017
Cash and short-term $3,049 $4,165 $5,089 $6,218
investments
Fixed income - - - 13
investments,
held to maturity
Short-term (3,736) (4,586) (3,324) (2,224)
borrowings
and current
portion of long-term
debt
Long-term debt (13,865) (13,526) (14,875) (16,600)
Net Debt(1) $(14,552) $(13,947) $(13,110) $(12,593)
Details of
changes in
liquidity follow:
Six Second Six
Months Quarter Months
Periods Ended 2018 2018 2017
June 30,
Net income before $971 $441 $203
noncontrolling
interests
Impairment and other 164 164 643
charges, net of
tax
before noncontrolling
interests
$1,135 $605 $846
Depreciation and 1,750 876 1,975
amortization(2)
Stock-based 176 86 180
compensation
expense
Pension and other (74) (35) (74)
postretirement
benefits funding
Change in working (1,338) (502) (1,339)
capital
Other (94) (43) (74)
Cash flow from $1,555 $987 $1,514
operations(3)
Capital expenditures (974) (520) (884)
SPM investments (434) (194) (328)
Multiclient seismic (47) (21) (190)
data capitalized
Free cash flow(4) 100 252 112
Dividends paid (1,385) (693) (1,393)
Stock repurchase (200) (103) (770)
program
Proceeds from 131 4 143
employee
stock plans
(1,354) (540) (1,908)
Business (47) (34) (364)
acquisitions
and investments, net
of cash acquired
plus
debt assumed
Other (41) (31) (200)
Increase in Net Debt (1,442) (605) (2,472)
Net Debt, beginning (13,110) (13,947) (10,121)
of period
Net Debt, end $(14,552) $(14,552) $(12,593)
of period
(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 $160 million and $84 million during the six months and second quarter ended June 30, 2018, respectively; and $230 million and $90 million during the six months and second quarter ended June 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
second-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
Pretax Tax Noncont. Net Diluted
Interests EPS
Schlumberger $547 $106 $11 $430 $0.31
net income
(GAAP basis)
Workforce reductions 184 20 - 164 0.12
Schlumberger $731 $126 $11 $594 $0.43
net income,
excluding
charges & credits
Six Months 2018
Pretax Tax Noncont. Net Diluted
Interests EPS *
Schlumberger $1,190 $219 $16 $955 $0.69
net income
(GAAP basis)
Workforce reductions 184 20 - 164 0.12
Schlumberger $1,374 $239 $16 $1,119 $0.80
net income,
excluding
charges & credits
Second Quarter 2017
Pretax Tax Noncont. Net Diluted
Interests EPS *
Schlumberger net loss $17 $98 $(7) $(74) $(0.05)
(GAAP basis)
Promissory note 510 - 12 498 0.36
fair value
adjustment and other
Merger & integration 81 17 - 64 0.05
Schlumberger $608 $115 $5 $488 $0.35
net income,
excluding
charges & credits
Six Months 2017
Pretax Tax Noncont. Net Diluted
Interests EPS *
Schlumberger $351 $148 ($2) $205 $0.15
net income
(GAAP basis)
Promissory note 510 - 12 498 0.36
fair value
adjustment and other
Merger & integration 164 31 - 133 0.10
Schlumberger $1,025 $179 $10 $836 $0.60
net income,
excluding
charges & credits
* Does not add due
to rounding
There were no charges
or credits during
the first quarter
of 2018.
Segments
(Stated in millions)
Three Months Ended
Jun. 30, 2018 Mar. 31, 2018 Jun. 30, 2017
Revenue Income Revenue Income Revenue Income
Before Before Before
Taxes Taxes Taxes
Reservoir $1,636 $350 $1,556 $307 $1,759 $299
Characterization
Drilling 2,234 289 2,126 293 2,107 302
Production 3,257 316 2,959 216 2,496 221
Cameron 1,295 166 1,310 166 1,265 174
Eliminations & other (119) (27) (122) (8) (165) (46)
Pretax operating 1,094 974 950
income
Corporate & other (239) (225) (242)
Interest income(1) 11 25 28
Interest expense(1) (135) (131) (128)
Charges & credits (184) - (591)
$8,303 $547 $7,829 $643 $7,462 $17
(Stated in millions)
Six Months Ended
Jun. 30, 2018 Jun. 30, 2017
Revenue Income Revenue Income
Before Before
Taxes Taxes
Reservoir $3,192 $657 $3,377 $580
Characterization
Drilling 4,360 582 4,092 531
Production 6,216 532 4,683 331
Cameron 2,605 332 2,494 336
Eliminations & other (242) (35) (290) (71)
Pretax operating 2,068 1,707
income
Corporate & other (464) (480)
Interest income(1) 36 52
Interest expense(1) (266) (254)
Charges & credits (184) (674)
$16,131 $1,190 $14,356 $351
(1) Excludes interest included
in the Segments 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 billion, which is similar to the levels of 2017 and 2016.
2) What was the cash flow from operations for the second quarter of 2018?
Cash flow from operations for the second quarter of 2018 was $987 million and included $84 million of severance payments.
3) What was the cash flow from operations for the first half of 2018?
Cash flow from operations for the first half of 2018 was $1.6 billion and included approximately $160 million of severance payments.
4) What was included in "Interest and other income" for the second quarter of 2018?
"Interest and other income" for the second quarter of 2018 was $40 million. This amount consisted of earnings of equity method investments of $28 million and interest income of $12 million.
5) How did interest income and interest expense change during the second quarter of 2018?
Interest income of $12 million declined $16 million sequentially. Interest expense of $144 million was essentially flat 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 second quarter of 2018?
The ETR for the second quarter of 2018, calculated in accordance with GAAP, was 19.3% as compared to 17.6% for the first 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 first quarter of 2018.
8) How many shares of common stock were outstanding as of June 30, 2018 and how did this change from the end of the previous quarter?
There were 1.384 billion shares of common stock outstanding as of June 30, 2018. The following table shows the change in the number of shares outstanding from March 31, 2018 to June 30, 2018.
(Stated in millions)
Shares outstanding at March 31, 2018 1,385
Shares issued to optionees, less shares exchanged -
Vesting of restricted stock -
Shares issued under employee stock purchase plan -
Stock repurchase program (1)
Shares outstanding at June 30, 2018 1,384
9) What was the weighted average number of
shares outstanding during the second
quarter of 2018 and first 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 1.384 billion during the
second quarter of 2018 and 1.385 billion
during the first 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)
Second Quarter First Quarter
2018 2018
Weighted average shares outstanding 1,384 1,385
Assumed exercise of stock options 1 2
Unvested restricted stock 7 7
Average shares outstanding, 1,392 1,394
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 Segment for services and products that each Segment 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 Production.
12) What was the unamortized balance of Schlumberger's investment in SPM projects at June 30, 2018 and how did it change in terms of investment and amortization when compared to March 31, 2018?
The unamortized balance of Schlumberger's investments in SPM projects was approximately $4.1 billion at both June 30, 2018 and March 31, 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 March 31, 2018 $4,112
SPM investments 194
Amortization of SPM investment (135)
Translation & other (95)
Balance at June 30, 2018 $4,076
13) What was the amount of WesternGeco multiclient sales in the second quarter of 2018?
Multiclient sales, including transfer fees, were $117 million in the second quarter of 2018 and $119 million in the first quarter of 2018.
14) What was the WesternGeco backlog at the end of the second quarter of 2018?
The WesternGeco backlog, which is based on signed contracts with customers, was $317 million at the end of the second quarter of 2018. It was $358 million at the end of the first quarter of 2018.
15) What were the orders and backlog for the Cameron OneSubsea and Drilling Systems businesses?
The OneSubsea and Drilling Systems orders and backlog were as follows:
(Stated in millions)
Orders Second Quarter First Quarter
2018 2018
OneSubsea $312 $329
Drilling Systems $288 $218
Backlog(at the end of period)
OneSubsea $1,654 $2,002
Drilling Systems $482 $398
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.
Notes
Schlumberger will hold a conference call to discuss the earnings
press release and business outlook on Friday, July 20, 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 August 20,
2018 by dialing +1 (800) 475-6701 within North America, or +1 (320)
365-3844 outside North America, and providing the access code
449359. 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 August
31, 2018.
This second-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; the success of
Schlumberger's SPM projects, and 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 second-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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