- Revenue of $7.5 billion increased 8%
sequentially
- Pretax operating income of $950 million
increased 25% sequentially
- GAAP loss per share, including charges
of $0.40 per share, was $0.05
- EPS, excluding charges, was $0.35
- Quarterly cash dividend of $0.50 per
share was approved
Schlumberger Limited (NYSE:SLB) today reported results for the
second quarter of 2017.
(Stated in millions, except per share amounts)
Three Months Ended Change Jun. 30,
2017 Mar. 31, 2017 Jun. 30, 2016
Sequential Year-on-year Revenue
$7,462 $6,894 $7,164
8 % 4 %
Pretax operating income
$950 $757 $747
25 %
27 % Pretax operating margin
12.7 %
11.0 % 10.4 %
175 bps 231 bps Net income (loss) (GAAP
basis)
$(74 ) $279 $(2,160 )
n/m n/m
Net income, excluding charges & credits*
$488 $347 $316
41 % 54 % Diluted EPS (loss per share)
(GAAP basis)
$(0.05 ) $0.20 $(1.56 )
n/m
n/m Diluted EPS, excluding charges & credits*
$0.35 $0.25 $0.23
40 % 52 %
*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, “Our
second-quarter revenue increased 8% sequentially while pretax
operating income rose by 25%, resulting in earnings per share
growth of 40%. Beyond seasonal effects, revenue grew in all of our
Groups and Areas.
“North America revenue increased 18% following our rapid
deployment of idle hydraulic fracturing capacity as land activity
further accelerated during the second quarter, partially offset by
further weakness offshore in the US Gulf of Mexico. In US land,
revenue grew 42% sequentially, a rate almost double that of the 23%
increase in land rig count, driven primarily by hydraulic
fracturing revenue that grew 68% as completions activity
intensified and pricing continued to improve. Directional drilling
revenue in US land was also higher as longer laterals requiring
rotary steerable systems and advanced drillbit technologies
continued to drive drilling intensity. Despite the significant
costs associated with reactivating equipment, all of our US land
product lines were profitable in the second quarter, driven by
higher pricing, market share gains, improved operational
efficiency, timely resource additions, and proactive supply chain
management.
“In the international markets, revenue increased 4%
sequentially, led by Europe/CIS/Africa as activity recovered from
the winter slowdown in Russia and the North Sea. Latin America
revenue increased due to higher reservoir characterization and
drilling activities in the Mexico & Central America GeoMarket,
as well as from increased unconventional land activity in
Argentina. The Middle East & Asia Area benefited from a
seasonal rebound in China, increased activities in Southeast Asia,
and higher Integrated Drilling Services (IDS) activity in Iraq.
“Among the business segments, growth in the second quarter was
led by the Production and Drilling Groups, where revenue increased
sequentially by 14% and 6%, respectively, as hydraulic fracturing
and directional drilling activity in US land accelerated. Reservoir
Characterization Group revenue increased 9% due to higher
international activities beyond the seasonal rebounds in the Russia
& CIS and North Sea regions. Cameron Group revenue also
increased 3% sequentially driven by higher project volume and
product sales for Surface Systems and Valves & Measurement in
North America.
“While the activity outlook in North America for the second half
of the year remains robust, we are now also seeing more positive
signs in the international markets with increases in activity and
new project plans starting to emerge in several GeoMarkets. The
strengthening in the international markets has so far been
concentrated around land activity in Western Siberia and in the
OPEC Gulf countries but we are now also seeing an increasing number
of new offshore projects being prepared for tendering and final
investment decision (FID) in many of the world’s shallow water
basins.
“In this market, we continue to focus on serving our customers
and driving our business forward, building on our successful
efforts over the past three years of broadening our technology
portfolio and increasing our addressable market, further
streamlining our execution machine, and pursuing more collaborative
and commercially aligned ways of working with new and existing
customers.
“As part of this focus, we announced a new agreement yesterday
to acquire a majority equity interest in the Eurasia Drilling
Company (EDC). This extends the successful long-term relationship
that we have enjoyed with EDC through the strategic alliance that
we signed in 2011. Closing of the transaction is subject to
approval by the Federal Antimonopoly Service of Russia.
“We also remain on track to close the OneStimSM joint venture
transaction in the second half of this year, which will allow us to
further capitalize on the recovery in North America land
unconventional activity. At the same time, our increasing
investments in Schlumberger Production Management through the new
projects with OneLNG, YPF, and NNPC and FIRST E&P are not only
providing additional short-term opportunities for our various
product lines, but also a long-term activity baseline with superior
full-cycle financial returns for the company as a whole.
“Based on these, we continue to be optimistic about the future
of Schlumberger, as we maintain an attentive watch and flexible
approach to the shape and pace of the emerging oil market
recovery.”
Other Events
During the quarter, Schlumberger repurchased 5.5 million shares
of its common stock at an average price of $72.34 per share for a
total purchase price of $398 million.
On May 31, 2017, Schlumberger and Production Plus created a
joint venture to develop HEAL System™ technology and business. HEAL
System technology is designed to lower production costs by
mitigating production challenges commonly found in horizontal wells
in unconventional resource plays.
On June 29, 2017, Schlumberger, the Nigerian National Petroleum
Corporation (NNPC) and FIRST E&P signed an agreement for
development of the Anyala and Madu fields in offshore Nigeria.
Under the agreement, Schlumberger will contribute the required
services in kind and capital for the project development until
first oil.
On July 19, 2017, the Company’s Board of Directors approved a
quarterly cash dividend of $0.50 per share of outstanding common
stock, payable on October 13, 2017 to stockholders of record on
September 6, 2017.
On July 20, 2017, Schlumberger announced an agreement to acquire
a majority (51%) equity interest in EDC. Closing of the transaction
is subject to approval by the Federal Antimonopoly Service of
Russia.
Consolidated Revenue by Geography
(Stated in millions)
Three Months Ended
Change Jun. 30, 2017 Mar. 31,
2017 Jun. 30, 2016
Sequential
Year-on-year North America
$2,202 $1,871 $1,737
18 % 27 % Latin America
1,039
952 1,007
9 % 3 % Europe/CIS/Africa
1,750 1,652 1,948
6 % -10 %
Middle East & Asia
2,347 2,319 2,404
1 %
-2 % Eliminations & other
124 100 68
n/m n/m $7,462 $6,894 $7,164
8 %
4 % North America revenue
$2,202 $1,871
$1,737
18 % 27 % International revenue
$5,136 $4,922 $5,359
4 % -4 %
n/m = not meaningful
Second-quarter revenue of $7.5 billion increased 8% sequentially
with North America growing 18% and International increasing 4%.
North America
In North America, revenue grew 18% sequentially following the
fast-track deployment of idle capacity as unconventional land
activity accelerated during the quarter. US land revenue
experienced 42% sequential growth, a rate almost double that of the
23% growth in the US land rig count, driven primarily by hydraulic
fracturing revenue that grew 68% as completion activity intensified
and pricing continued to improve. Directional drilling revenue in
US land was also higher, as well design and longer laterals
requiring rotary steerable systems and drillbit technologies
continued to drive well productivity. Higher product sales in
Cameron Valves & Measurement and increased activity for Cameron
Surface Systems contributed to this strong financial performance.
US land revenue growth, however, was partially offset by the
seasonal spring break-up in Western Canada and lower offshore
revenue.
International Areas
Revenue in the Latin America Area increased 9%
sequentially on a strong performance in Mexico from the Reservoir
Characterization and Drilling Groups. Argentina revenue was also
higher on increased unconventional land activity while Brazil and
Venezuela activity remained weak. Ecuador revenue declined due to
lower production from the Schlumberger Production Management (SPM)
Shushufindi project. The effect of this, however, was largely
offset by revenue from increased exploration in Colombia.
Europe/CIS/Africa Area revenue increased 6%
sequentially as activity recovered following the winter slowdown in
the Russia & CIS and North Sea regions. Increased revenue in
the Russia & CIS region was driven by the start of offshore
exploration drilling campaigns in Sakhalin, Astrakhan, and
Kazakhstan despite Russian alignment with OPEC production cut
commitments. The increased activity in the North Sea resulted from
higher UK and Norway drilling activity as the rig count increased.
Sub-Sahara Africa GeoMarket revenue was essentially flat as rig
count stabilized with a recovery on land and early signs of
customers preparing to resume activity on key offshore
projects.
Middle East & Asia Area revenue increased 1%
sequentially primarily due to seasonal rebounds in SPM and
completions activity in China in addition to higher activity in
Vietnam and Thailand. Iraq revenue was also higher on increased IDS
deviated well project delivery in the south, while further progress
on the early production facility projects coupled with product
sales drove revenue higher in Egypt. These increases, however, were
partially offset by a decline in revenue in Kuwait following the
completion of a WesternGeco land seismic acquisition project and by
lower revenue in India due to monsoon weather affecting rig
activity.
Reservoir Characterization Group
(Stated in millions)
Three Months Ended
Change Jun. 30, 2017 Mar. 31,
2017 Jun. 30, 2016
Sequential
Year-on-year Revenue
$1,759 $1,618 $1,586
9
% 11 % Pretax operating income
$299
$281 $268
7 % 12 % Pretax operating
margin
17.0 % 17.3 % 16.9 %
-34 bps 13
bps
Reservoir Characterization Group revenue of $1.8 billion, of
which 78% came from the international markets, increased 9%
sequentially due to higher WesternGeco multiclient seismic license
sales, further progress for Testing & Process on early
production facility projects in the Middle East, and higher
drillstem test activities in the United Arab Emirates. Wireline
revenue also grew from the seasonal activity rebound in the Russia
& CIS and North Sea regions, as well as from the start-up of
offshore exploration projects in the Sub-Sahara Africa
GeoMarket.
Pretax operating margin of 17% was essentially flat sequentially
as the increased contribution from high-margin Wireline exploration
activities was offset by reduced profitability in Testing &
Process due to increased project costs.
Reservoir Characterization Group performance was enhanced by
Integrated Services Management (ISM) operations, where specially
trained project managers provide scheduling, planning, and activity
coordination for the Schlumberger product lines involved in a
project. Second-quarter performance was also boosted by new
technology deployments and contract awards.
In Vietnam, Idemitsu successfully drilled an exploration well
significantly under budget. For this project, Schlumberger was
awarded five contracts, and an ISM manager was assigned to
coordinate all Schlumberger services. The drilling and data
acquisition program was optimized to achieve the well objectives
while minimizing the overall costs of the exploration well.
Drilling & Measurements StethoScope* formation
pressure-while-drilling service and EcoScope*† multifunction
logging-while-drilling service technologies for reservoir
evaluation were successfully run in the 12¼-in and 8½-in holes,
respectively. The close collaboration between Schlumberger and the
customer led to the completion of the well with no incidents.
Sirius Petroleum, an investment company focused on oil and gas
exploration and development opportunities in Nigeria, awarded
Schlumberger a multiwell contract for ISM operations in the Ororo
field. The contract, which will begin later in 2017, includes
directional drilling services, logging, completion and production
fluids, cementing and pumping services, well intervention and
stimulation products and services, well testing services, wellsite
communications, data and software solutions as well as Cameron
wellheads and production trees.
Offshore Egypt, Testing & Process used a combination of
technologies for Belayim Petroleum Company (Petrobel) to complete a
production test of the first appraisal well on the Zohr discovery
in the Shorouk block. Working at a water depth of 1,450 m, the
production test string included SenTREE 3* subsea test tree and
Muzic* wireless telemetry technology that activated the SCAR*
inline independent reservoir fluid sampling and Quartet* downhole
reservoir testing systems. Additional technologies included a
CERTIS* high-integrity reservoir test isolation system, IRDV*
intelligent remote dual valve, and Signature* quartz gauges. The
use of Testing Manager* well testing real-time data monitoring and
collaboration software enabled real-time transient analysis and
optimization of the well test program.
In Oman, Schlumberger deployed a combination of technologies for
Petroleum Development Oman (PDO) to enhance productivity in seven
wells in the Sadad North field. The technologies included a QUANTUM
RH* retrievable hydraulic-set sealbore production packer and
Testing & Process SXAR automatic gun release systems to create
an integrated “shoot and drop” completions operation that could be
deployed in a single trip. QUANTUM RH packer technology absorbs the
high shock produced during perforation operations while enabling
easy recovery. The customer increased production by an average of
200 m3/d of oil per well and saved a total of $700,000 in
associated well costs for all seven wells.
Offshore India, Wireline deployed a combination of technologies
to increase production and reduce water cut in a well for Oil and
Natural Gas Corporation Limited (ONGC). Data collected using the
PLT* production logging tool and PressureXpress* reservoir pressure
while logging service helped design the optimal workover program.
As a result, the customer increased production to 6,100 bbl/d from
the original 892 bbl/d and decreased the water cut to 2% from the
original 7.7%.
In Kuwait, Wireline used a Saturn* 3D radial probe for Kuwait
Oil Company in one exploration well in an extremely tight
cretaceous carbonate reservoir. Saturn probe technology positions
self-sealing ports against the borehole wall to optimally draw
reservoir fluids. The customer saved 14 days of rig time,
equivalent to $672,000.
In Russia, Software Integrated Solutions (SIS) entered a
technology partnership agreement with the Gazpromneft Scientific
Technology Centre to provide Guru* in-context guidance and support
software in the Petrel* E&P software platform. The software
enables discipline experts to collaborate and make the best
possible decisions from exploration to production. The customer
benefits from a standard 3D-modeling process that provides a 90%
time saving compared with a conventional workflow.
In Norway, Aker BP ASA entered into a four-year framework
contract with two optional two-year extensions with Schlumberger
for acquisition of 4D seismic data over Alvheim, Bøyla,
Skarv/Snadd, and Ula fields in the Norwegian sector of the North
Sea. The survey will be conducted in 2017 and use IsoMetrix* marine
isometric seismic technology. Processing of the 4D and 3D data from
the Alvheim and Skarv surveys will be carried out at the
WesternGeco Stavanger Geosolutions center.
WesternGeco was awarded multiple offshore seismic survey
contracts for the provision of Q-Marine* point-receiver marine
seismic technology with the CLA* continuous line acquisition
method. Repsol Exploracion Guyana, S.A. awarded WesternGeco a
4,000-km2 survey offshore Guyana near recent major oil discoveries.
In addition, Tullow awarded WesternGeco two contracts—one for a
2,150-km2 3D survey offshore Guyana and the second for data
processing of a recently acquired dataset in Uruguay. The Uruguay
data will be processed in the WesternGeco Gatwick Geosolutions
center using prestack depth migration and a broadband processing
flow.
BP awarded WesternGeco the data processing and imaging of a
state-of-the-art, ultrahigh-density ocean-bottom survey to be
acquired over the Clair Ridge Field, West of Shetland in the UK.
The survey will become the baseline for future 4D time-lapse
studies of the area and includes advanced velocity model building
and multicomponent processing and imaging technologies.
Drilling Group
(Stated in millions)
Three Months Ended
Change Jun. 30, 2017 Mar. 31,
2017 Jun. 30, 2016
Sequential
Year-on-year Revenue
$2,107 $1,985 $2,034
6
% 4 % Pretax operating income
$302 $229
$171
32 % 77 % Pretax operating margin
14.3 % 11.5 % 8.4 %
278 bps 594 bps
Drilling Group revenue of $2.1 billion, of which 74% came from
the international markets, increased 6% sequentially, due to the
seasonal rebound in activity in the Russia & CIS and North Sea
regions and strong directional drilling activity in US land that
benefited most of the Drilling Group product lines. The demand for
directional drilling technologies in US land was also higher, as
well design and longer laterals required advanced rotary steerable
systems and innovative drillbit technologies to drive well
productivity. These increases were partially offset by the seasonal
spring-break up in Western Canada and lower offshore activity in
the US Gulf of Mexico.
Pretax operating margin of 14% increased 278 basis points (bps)
sequentially due to increased volume and pricing improvements from
the greater uptake of Drilling & Measurements and Bits &
Drilling Tools technologies in US land, although this was partially
offset by pricing pressure in the US Gulf of Mexico and in the
international markets.
Drilling Group performance in the second quarter was
strengthened by a combination of IDS operations, which provide
project management, engineering design, and technical optimization
capabilities. Group performance was also boosted by new technology
deployments and contract awards.
In Russia, LUKOIL awarded Schlumberger a three-year IDS contract
for 139 wells in Western Siberia. The scope of work includes
technologies and services from Drilling & Measurements, Bits
& Drilling Tools, M-I SWACO, Completions, and SIS.
In Oman, Petrogas Kahil awarded Schlumberger an IDS contract for
one year valued at $20 million to drill three exploration wells in
Block 55. This includes the provision of several Schlumberger
technologies, such as Bits & Drilling Tools AxeBlade* ridged
diamond element bits, Drilling & Measurements PowerV* vertical
drilling rotary steerable systems, and Surface Systems SOLIDrill*
modular compact wellhead systems. Operations for the first well
began in the second quarter of 2017.
In Bahrain, IDS was awarded a contract for two offshore
exploration wells with a six-month optional extension by the
Bahrain Petroleum Company (BAPCO). The contract includes products
and services from the Reservoir Characterization, Drilling,
Production, and Cameron Groups. A number of technologies are
included in the contract, such as the PowerDrive vorteX* powered
rotary steerable system, GeoFlex* quantitative cuttings analysis
and imaging service, FlexSTIM* modular offshore stimulation system,
and CERTIS* high-integrity reservoir test isolation system.
Operations began in the first quarter of 2017.
SCS Corporation Ltd., a subsidiary of Hyperdynamics Corporation,
awarded Schlumberger a drilling master services contract for the
Fatala-1 deepwater exploration well offshore the Republic of
Guinea. The contract includes wireline logging, measurement- and
logging-while-drilling, drilling fluids and solids control,
downhole cementing, mud logging, drillbits and reamers, as well as
contingency fishing equipment and services. Schlumberger will also
provide an IDS project manager and drilling will begin in the third
quarter of 2017.
In the US Gulf of Mexico, the Drilling Group used a combination
of technologies for Shell to optimize drilling of a challenging
salt formation in the Green Canyon Block. Drilling through salt
creates very high torque levels and fluctuations that can lead to
low rates of penetration (ROP) or tool failures. The technologies
included a Drilling & Measurements PowerDrive Orbit* rotary
steerable system and a Bits & Drilling Tools AxeBlade ridge
diamond element bit. As a result, the customer was the first to
drill more than 5,353 ft in a 24-hour period in the Gulf of Mexico
and was able to save seven days of drilling time in the 16½-in
section.
In Oklahoma, Drilling & Measurements used PeriScope HD*
multilayer bed boundary detection service for Casillas Petroleum
Corporation to minimize risk and optimize drilling performance in
the SCOOP plays. With its ability to detect multiple formation
layers and fluid boundary positions, PeriScope HD service enabled
advanced well placement by providing real-time reservoir
delineation in a formation that showed little contrast from top to
bottom. As a result, the customer was able to place 100% of the
lateral in zone, avoiding potential lost-in-hole and sidetrack
costs.
In the UK sector of the North Sea, Drilling & Measurements
deployed a combination of technologies for a major operator to
improve drilling performance in challenging well conditions. The
combination of OptiDrill* real-time drilling intelligence service
and PowerDrive Xceed* rotary steerable system optimized technology
performance by reducing the number of bit runs from five to one.
This saved the customer approximately 10 days of drilling time,
equivalent to more than $2.4 million.
In North America land, Bits & Drilling Tools used AxeBlade
ridged diamond element bit technology in four wells for a customer
to overcome drilling challenges in the Bakken Shale play. The
formation is characterized by heavily interbedded sandstone, shale,
and limestone intervals with varying compressive strengths that can
limit drilling performance. The customer saved 52 hours between
four wells. In addition, AxeBlade bit technology exceeded the
customer’s 24-hour footage record twice over the same interval.
In Colombia, Bits & Drilling Tools used ONYX 360* rolling
polycrystalline diamond compact (PDC) cutter technology to overcome
drilling challenges for Equion Energy in the Llanos basin. ONYX 360
cutter technology provided increased bit durability while drilling
through three different compressive strength formations. The ROP
was 3.5 times higher compared with offset runs in the same
formations. The customer saved nearly $3 million in operating
costs.
In China, Bits & Drilling Tools used a combination of
technologies for PetroChina to drill a 9½-in curved interbedded
sandstone and shale well section in the Halahatang field. This
challenging geology typically requires two to three conventional
drillbits to reach target depth under severe shock and vibration. A
combination of RockStorm* wear-resistant high-impact PDC cutter
technology and Stinger* conical diamond element technology drilled
to total depth in a single run. This saved the customer 10 days of
drilling operations, equivalent to $150,000.
In Norway, M-I SWACO deployed ATC* automated tank-cleaning
technology for Statoil to reduce health, safety, and environmental
risks on supply vessels. Average monthly performance, based on 25
boats and 150 tanks, reduced confined-space entry by more than 500
hours per month and reduced working at height by 225 hours per
month. In addition, ATC tank-cleaning technology decreased water
usage by 80% per month while also achieving a higher level of
cleaning compared with a manual process. Consequently, the customer
has saved approximately $500,000 per month since the technology was
adopted in April 2016.
Production Group
(Stated in millions)
Three Months Ended
Change Jun. 30, 2017 Mar. 31,
2017 Jun. 30, 2016
Sequential
Year-on-year Revenue
$2,496 $2,187 $2,121
14
% 18 % Pretax operating income
$221
$110 $82
101 % 170 % Pretax operating
margin
8.9 % 5.0 % 3.9 %
382 bps 499
bps
Production Group revenue of $2.5 billion, of which 59% came from
the international markets, was 14% higher sequentially due
primarily to strong hydraulic fracturing activity and a sustained
pricing recovery in North America land as completions activity
intensified and stage counts increased by 26%. In US land,
hydraulic fracturing revenue grew 68% through the fast-track
deployment of idle capacity as unconventional land activity
accelerated during the quarter. International revenue was also
higher on the seasonal activity rebound in China and in the Russia
& CIS region, while revenue in Argentina increased on
unconventional land activity. SPM posted a sequential increase from
the seasonal recovery in China, although this was partially offset
by the decline in revenue in Ecuador due to lower production from
the SPM Shushufindi project.
Pretax operating margin of 9% increased 382 bps sequentially due
to increased activity and pricing recovery on land in North
America. Despite the significant costs incurred in reactivating
multiple fleets in the second quarter, the hydraulic fracturing
business in North America was profitable for the first time since
the first quarter of 2015. Margin also expanded due to increasing
benefits from the vertical integration of the pressure pumping
business.
Production Group results benefited from a series of new
technology deployments and transformation initiatives.
In North America land, Well Services used BroadBand Sequence*
fracturing service to increase production in a horizontal shale
well in the heterogeneous Wolfcamp Shale formation in the Permian
basin. Nearly one year after deploying the BroadBand* service, the
well produced 42% more hydrocarbons compared with the average
production of three offset wells with the same lateral length,
stage count, and volume of proppant and fluids.
In West Texas, Schlumberger used a combination of technologies
for Manti Tarka Permian to optimize well completions in the
Wolfcamp Shale formation. The technologies included Kinetix Shale*
reservoir-centric stimulation-to-production software, Wireline
ThruBit* through-the-bit logging services, and Sonic Scanner*
acoustic scanning platform. Data from field measurements and
modeling helped to optimize the completions design, leading to a
60% increase in the hydraulic fracturing surface area. The customer
achieved a 25% improvement in oil production compared with offset
wells in the field.
In North America land, Schlumberger artificial lift technology
established a new equipment benchmark in shale oil operations. REDA
Continuum* unconventional extended-life electrical submersible pump
(ESP) technology, which is designed for unconventional reservoir
horizontal well challenges such as slug fluid flow and damaging
solids, exceeds the reliability of conventional ESPs. Continuum ESP
technology has been installed in more than 180 operations since its
introduction in September 2014 and has demonstrated run lives of 18
months, surpassing historical averages of six to nine months.
In China, Well Services deployed a combination of technologies
to increase production for PetroChina Company Limited in two
horizontal gas wells in a tight sandstone formation in the Ordos
basin. The use of Salik* local-sand-enabled flow-channel fracturing
service enabled replacement of more than half of the ceramic
proppant normally required, and helped create high conductivity
fractures in the horizontal lateral. As a result of these combined
technologies, the customer achieved a 50% increase in gas
production in each well versus plan. In addition, Salik fracturing
service helped reduce overall well costs by 20%, equivalent to
$95,000.
In North America, the transformation program enabled improved
equipment reliability and reduced maintenance costs. In particular,
the Center for Reliability and Efficiency in Denton, Texas,
supports the field by monitoring equipment fleets from its
Reliability Support Center, where prognostic health monitoring
capabilities (PHM) have been developed to predict equipment
reliability concerns. PHM has saved $10 million in operation costs
over the last 18 months.
Cameron Group
(Stated in millions)
Three Months Ended
Change Jun. 30, 2017 Mar. 31,
2017 Jun. 30, 2016
Sequential
Year-on-year Revenue
$1,265 $1,229 $1,525
3
% -17 % Pretax operating income
$174
$162 $250
8 % -30 % Pretax operating
margin
13.8 % 13.2 % 16.4 %
61 bps -260
bps
Cameron Group revenue of $1.3 billion, of which 59% came from
International markets, increased 3% sequentially, driven by Surface
Systems and Valves & Measurement activity in US land, which
grew at the same rate as the well count. The US land growth,
however, was partially offset by reduced US Gulf of Mexico activity
for Drilling Systems and OneSubsea. Internationally, revenues
declined slightly due to reduced project activity for OneSubsea and
Drilling Systems, offset in part by higher revenue in Surface
Systems and Valves & Measurement from the seasonal service
activity rebound in the Russia & CIS region.
Pretax operating margin of 14% slightly improved sequentially,
as increased project volumes and product sales in Surface Systems
and Valves & Measurement and continued strong project execution
in OneSubsea more than offset the impact of falling product backlog
in Drilling Systems.
Cameron Group performance included the following highlights
during the quarter.
Cameron Drilling Systems and M-I SWACO collaborated on product
development to deliver the industry’s first original equipment
manufacturer deepwater managed pressure drilling (MPD) system. The
integrated solution is comprised of a riser joint, surface
manifolds, a single control system and umbilical, and other
equipment. To date, Schlumberger has received orders for four of
the systems—the first was delivered in May 2017 and the other three
will be delivered later this year. This deepwater MPD system
received a 2017 Offshore Technology Conference Spotlight on New
Technology Award.
TAQA awarded OneSubsea an engineering, procurement,
construction, installation and commissioning (EPCIC) contract for
the Otter field in the UK sector of the North Sea. The contract
includes a subsea multiphase boosting system with topside and
subsea controls and associated life-of-field services. The project
will result in a 30-km subsea tieback to the TAQA-operated North
Cormorant platform and will be the longest subsea multiphase
boosting tieback in the UK sector of the North Sea. OneSubsea and
its Subsea Integration Alliance partner, Subsea 7, will deliver a
turnkey integrated project from design through supply,
installation, and commissioning.
Noble Energy Mediterranean Ltd. awarded Schlumberger a contract
for the provision of a measurement and control system for the
deepwater Leviathan Field Development Project offshore Israel. The
Valves & Measurement system will include two large, multirun
metering skids, Caldon gas and liquid ultrasonic custody transfer
meters, a bidirectional prover, and a building to house multiple
natural gas component analyzers and supervisory control
systems.
In the US Gulf of Mexico, OneSubsea and its Subsea Services
Alliance member, Helix Energy Solutions, received an expression of
interest for rental of the jointly developed 15,000 psi
Intervention Riser System, starting in the fourth quarter of 2017.
This system, in which the construction was launched mid-2015, will
be the first of its kind available on a rental basis to address the
growing intervention needs of high-pressure subsea wells.
Financial Tables
Condensed Consolidated
Statement of Income (Loss) (Stated in millions, except
per share amounts) Second Quarter Six Months Periods Ended
June 30,
2017 2016
2017
2016 Revenue
$7,462 $7,164
$14,356
$13,684 Interest and other income
62 54
108 98
Expenses Cost of revenue (1)
6,468 6,465
12,544
11,925 Research & engineering
196 257
406 497
General & administrative
110 103
208 213
Impairments & other (1)
510 2,573
510 2,573
Merger & integration (1)
81 185
164 185 Interest
142 149
281
282 Income (loss) before taxes
$17
$(2,514 )
$351 $(1,893 ) Taxes on income (loss) (1)
98 (368 )
148
(270 ) Net income (loss)
$(81 ) $(2,146 )
$203 $(1,623 ) Net income (loss) attributable to
noncontrolling interests
(7 ) 14
(2 ) 36 Net income (loss)
attributable to Schlumberger (1)
$(74 )
$(2,160 )
$205 $(1,659 )
Diluted earnings (loss) per share of Schlumberger (1)
$(0.05 ) $(1.56 )
$0.15
$(1.26 ) Average shares outstanding
1,387
1,389
1,390 1,321 Average shares outstanding assuming
dilution
1,387 1,389
1,397 1,321 Depreciation
& amortization included in expenses (2)
$986 $1,113
$1,975
$2,080
(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
2017 2016 Current Assets Cash and short-term
investments
$6,218 $9,257 Receivables
8,925 9,387
Other current assets
6,130 5,283
21,273 23,927 Fixed income investments, held to maturity
13 238 Fixed assets
12,358 12,821 Multiclient seismic
data
1,042 1,073 Goodwill
25,058 24,990 Intangible
assets
9,636 9,855 Other assets
5,482
5,052
$74,862 $77,956
Liabilities and Equity
Current Liabilities Accounts payable and accrued liabilities
$9,444 $10,016 Estimated liability for taxes on income
1,159 1,188 Short-term borrowings and current portion of
long-term debt
2,224 3,153 Dividends payable
700 702
13,527 15,059 Long-term debt
16,600 16,463 Deferred taxes
2,000 1,880
Postretirement benefits
1,385 1,495 Other liabilities
1,398 1,530
34,910 36,427 Equity
39,952 41,529
$74,862 $77,956
Liquidity
(Stated in millions) Components of Liquidity
Jun. 30, 2017
Mar. 31,2017
Dec. 31,2016
Jun. 30,2016
Cash and short-term investments
$6,218
$7,353 $9,257 $11,192 Fixed income
investments, held to maturity
13 238 238 386 Short-term
borrowings and current portion of long-term debt
(2,224
) (2,449 ) (3,153 ) (3,371 ) Long-term debt
(16,600
) (16,538 ) (16,463 ) (18,252 ) Net Debt (1)
$(12,593
) $(11,396 ) $(10,121 ) $(10,045 ) Details of changes
in liquidity follow:
Six Second Six
Months
Quarter Months Periods Ended June 30,
2017 2017 2016
Net income (loss) before noncontrolling interests
$203 $(81 ) $(1,623 ) Impairment and other
charges, net of tax before noncontrolling interests
643
574 2,476
$846 $493 $853
Depreciation and amortization (2)
1,975 986 2,080
Pension and other postretirement benefits expense
52
15 92 Stock-based compensation expense
180 92
145 Pension and other postretirement benefits funding
(74
) (45 ) (83 ) Change in working capital
(1,339 ) (548 ) (250 ) Other
(126 ) (135 ) 5
Cash flow
from operations (3)
$1,514 $858
$2,842 Capital expenditures
(884 )
(503 ) (998 ) SPM investments
(328 )
(184 ) (729 ) Multiclient seismic data capitalized
(190 ) (74 ) (333 )
Free cash
flow (4) 112 97 782
Stock repurchase program
(770 ) (398
) (506 ) Dividends paid
(1,393 ) (697
) (1,255 ) Proceeds from employee stock plans
143
8 195
(1,908 )
(990 ) (784 ) Business acquisitions and
investments, net of cash acquired plus debt assumed
(364
) (91 ) (3,790 ) Other
(200 )
(116 ) 76 Increase in Net Debt
(2,472
) (1,197 ) (4,498 ) Net Debt, beginning of
period
(10,121 ) (11,396 ) (5,547 ) Net
Debt, end of period
$(12,593 ) $(12,593
) $(10,045 ) (1) “Net Debt” represents gross debt
less cash, short-term investments and fixed income investments,
held to maturity. Management believes that Net Debt provides useful
information regarding the level of Schlumberger’s indebtedness by
reflecting cash and investments that could be used to repay debt.
Net Debt is a non-GAAP financial measure that should be considered
in addition to, not as a substitute for or superior to, total debt.
(2) Includes depreciation of property, plant and equipment and
amortization of intangible assets, multiclient seismic data costs
and SPM investments. (3) Includes severance payments of
approximately $230 million and $90 million during the six months
and second quarter ended June 30, 2017, respectively; and $545
million during the six months ended June 30, 2016. The six months
ended June 30, 2016 also includes approximately $100 million of
one-off transaction-related payments associated with the
acquisition of Cameron. (4) “Free cash flow” represents cash flow
from operations less capital expenditures, SPM investments and
multiclient seismic data costs capitalized. Management believes
that free cash flow is an important liquidity measure for the
company and that it is useful to investors and management as a
measure of our ability to generate cash. Once business needs and
obligations are met, this cash can be used to reinvest in the
company for future growth or to return to shareholders through
dividend payments or share repurchases. Free cash flow does not
represent the residual cash flow available for discretionary
expenditures. Free cash flow is a non-GAAP financial measure that
should be considered in addition to not as substitute for or
superior to, cash flow from operations.
Charges & Credits
In addition to financial results determined in accordance with
US generally accepted accounting principles (GAAP), this
Second-Quarter 2017 Earnings Release also includes non-GAAP
financial measures (as defined under the SEC’s Regulation G). Net
income, excluding charges & credits, as well as measures
derived from it (including diluted EPS, excluding charges &
credits; net income before noncontrolling interests, excluding
charges & credits; and effective tax rate, excluding charges
& credits) are non-GAAP financial measures. Management believes
that the exclusion of charges & credits from these financial
measures enables it to evaluate more effectively Schlumberger’s
operations period over period and to identify operating trends that
could otherwise be masked by the excluded items. These measures are
also used by management as performance measures in determining
certain incentive compensation. The foregoing non-GAAP financial
measures should be considered in addition to, not as a substitute
for or superior to, other measures of financial performance
prepared in accordance with GAAP. The following is a reconciliation
of these non-GAAP measures to the comparable GAAP measures.
(Stated in millions, except per share amounts)
Second Quarter 2017 Pretax Tax
Noncont.Interests
Net
DilutedEPS *
Schlumberger net loss (GAAP basis) $17 $98 $(7 ) $(74 ) $(0.05 )
Promissory note fair value adjustment and other 510 - 12 498 0.36
Merger & integration 81 17 - 64
0.05 Schlumberger net income, excluding
charges & credits $608 $115 $5 $488
$0.35
Six Months 2017 Pretax
Tax
Noncont.Interests
Net
DilutedEPS *
Schlumberger net income (GAAP basis) $351 $148 $(2 ) $205 $0.15
Promissory note fair value adjustment and other 510 - 12 498 0.36
Merger & integration 164 31 - 133
0.10 Schlumberger net income, excluding
charges & credits $1,025 $179 $10
$836 $0.60
First Quarter 2017
Pretax Tax
Noncont.Interests
Net
DilutedEPS
Schlumberger net income (GAAP basis) $334 $50 $5 $279 $0.20 Merger
& integration 82 14 - 68
0.05 Schlumberger net income, excluding charges &
credits $416 $64 $5 $347
$0.25
* Does not add due to rounding
(Stated in millions, except per share amounts)
Second Quarter 2016 Pretax Tax
Noncont.Interests
Net
DilutedEPS *
Schlumberger net loss (GAAP basis) $(2,514 ) $(368 ) $14 $(2,160 )
$(1.56 ) Impairment & other: Fixed asset impairments 1,058 177
- 881 0.63 Workforce reduction 646 63 - 583 0.42 Inventory
write-downs 616 49 - 567 0.41 Multiclient seismic data impairment
198 62 - 136 0.10 Other restructuring charges 55 - - 55 0.04
Merger & integration:
Merger-related employee benefits and professional fees 92 17 - 75
0.05 Other merger and integration-related costs 93 19 - 74 0.05
Amortization of purchase accounting inventory fair value adjustment
(1) 150 45 - 105 0.08
Schlumberger net income, excluding charges & credits
$394 $64 $14 $316 $0.23
Six Months 2016 Pretax Tax
Noncont.Interests
Net
DilutedEPS *
Schlumberger net loss (GAAP basis) $(1,893 ) $(270 ) $36 $(1,659 )
$(1.26 ) Impairment & other: Fixed asset impairments 1,058 177
- 881 0.66 Workforce reduction 646 63 - 583 0.44 Inventory
write-downs 616 49 - 567 0.43 Multiclient seismic data impairment
198 62 - 136 0.10 Other restructuring charges 55 - - 55 0.04
Merger & integration:
Merger-related employee benefits and professional fees 92 17 - 75
0.06 Other merger and integration-related costs 93 19 - 74 0.06
Amortization of purchase accounting inventory fair value adjustment
(1) 150 45 - 105 0.08
Schlumberger net income, excluding charges & credits
$1,015 $162 $36 $817
$0.62
(1) Recorded in Cost of revenue in the
Condensed Consolidation Statement of Income (Loss).
* Does not add due to rounding
Product Groups
(Stated in millions)
Three Months Ended
Jun. 30, 2017 Mar. 31, 2017 Jun.
30, 2016
Revenue
Income Before
Taxes
Revenue
IncomeBeforeTaxes
Revenue
IncomeBeforeTaxes
Reservoir Characterization
$1,759 $299 $1,618 $281
$1,586 $268 Drilling
2,107 302 1,985 229 2,034 171
Production
2,496 221 2,187 110 2,121 82 Cameron
1,265 174 1,229 162 1,525 250 Eliminations &
other
(165 ) (46 ) (125 ) (25 ) (102 )
(24 ) Pretax operating income
950 757 747 Corporate &
other
(242 ) (239 ) (241 ) Interest income(1)
28 24 24 Interest expense(1)
(128 ) (126 )
(136 ) Charges & credits
(591 ) (82
) (2,908 )
$7,462 $17 $6,894
$334 $7,164 $(2,514 ) (Stated in
millions)
Six Months Ended Jun. 30, 2017
Jun. 30, 2016
Revenue
Income Before
Taxes
Revenue
IncomeBeforeTaxes
Reservoir Characterization
$3,377 $580 $3,305 $601
Drilling
4,092 531 4,527 542 Production
4,683
331 4,497 288 Cameron
2,494 336 1,525 250
Eliminations & other
(290 ) (71 )
(170 ) (33 ) Pretax operating income
1,707 1,648 Corporate
& other
(480 ) (414 ) Interest income(1)
52 37 Interest expense(1)
(254 ) (256 )
Charges & credits
(674 ) (2,908 )
$14,356 $351 $13,684 $(1,893 )
(1) Excludes interest included in the
Product Groups results.
Certain prior period items have been
reclassified to conform to the current period presentation.
Supplemental Information
1)
What is the capex guidance for the full
year 2017?
Capex (excluding multiclient and SPM investments) is expected to be
$2.2 billion for 2017.
2)
What was the cash flow from operations
for the second quarter of 2017?
Cash flow from operations for the second quarter of 2017 was $858
million and included approximately $90 million of severance
payments.
3)
What was the cash flow from operations
for the first half of 2017?
Cash flow from operations for the first half of 2017 was $1.5
billion and included approximately $230 million of severance
payments.
4)
What was included in “Interest and
other income” for the second quarter of 2017?
“Interest and other income” for the second quarter of 2017 was $62
million. This amount consisted of earnings of equity method
investments of $28 million and interest income of $34 million.
5)
How did interest income and interest
expense change during the second quarter of 2017?
Interest income of $34 million was $5 million higher sequentially.
Interest expense of $142 million was $3 million higher
sequentially.
6)
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.
7)
What was the effective tax rate (ETR)
for the second quarter of 2017?
The ETR for the second quarter of 2017,
calculated in accordance with GAAP, was 590% as compared to 14.8%
for the first quarter of 2017. The ETR for the second quarter of
2017, excluding charges and credits, was 18.9% as compared to 15.3%
for the first quarter of 2017.
8)
How many shares of common stock were
outstanding as of June 30, 2017 and how did this change from the
end of the previous quarter?
There were 1.385 billion shares of common stock outstanding as of
June 30, 2017. The following table shows the change in the number
of shares outstanding from March 31, 2017 to June 30, 2017. (Stated
in millions)
Shares outstanding at March 31, 2017
1,389 Shares sold to optionees, less shares exchanged
- Vesting of restricted stock 1 Shares issued under employee stock
purchase plan - Stock repurchase program (5) Shares outstanding at
June 30, 2017 1,385
9)
What was the weighted average number of
shares outstanding during the second quarter of 2017 and first
quarter of 2017 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 second
quarter of 2017 was 1.387 billion and 1.393 billion during the
first quarter of 2017. 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 2017
First Quarter2017
Weighted average shares outstanding 1,387 1,393
Assumed exercise of stock options 1 4 Unvested restricted stock 5
5 Average shares outstanding, assuming dilution 1,393
1,402
10)
What was the unamortized balance of
Schlumberger’s investment in SPM projects at June 30, 2017 and how
did it change as compared to December 31, 2016?
The unamortized balance of Schlumberger’s investments in SPM
projects was approximately $2.6 billion and $2.5 billion at June
30, 2017 and December 31, 2016, respectively. 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 December 31, 2016
$2,458 SPM investments 328 Amortization of SPM investment
(213 ) Balance at June 30, 2017 $2,573
11)
What was the amount of WesternGeco
multiclient sales in the second quarter of 2017?
Multiclient sales, including transfer fees, were $182 million in
the second quarter of 2017 and $138 million in the first quarter of
2017.
12)
What was the WesternGeco backlog at the
end of the second quarter of 2017?
WesternGeco backlog, which is based on signed contracts with
customers, was $566 million at the end of the second quarter of
2017. It was $613 million at the end of the first quarter of 2017.
13)
What were the orders and backlogs for
Cameron Group’s OneSubsea and Drilling Systems businesses?
OneSubsea and Drilling Systems orders and backlogs were as follows:
(Stated in millions)
Orders
Second Quarter
2017
First Quarter
2017
OneSubsea
$181 $546 Drilling Systems
$170
$174
Backlog (at the end of period) OneSubsea
$2,371 $2,634 Drilling Systems
$566
$608
14)
What is included in Impairments &
other on Schlumberger’s Condensed Consolidated Statement of Income
(Loss) for the second quarter of 2017?
During the second quarter of 2017, Schlumberger recorded $510
million of pretax charges that are classified in Impairments &
other. The vast majority of this amount relates to a financing
agreement that Schlumberger entered into with its primary customer
in Venezuela. This agreement resulted in the exchange of $700
million of outstanding accounts receivable for an interest bearing
promissory note. Schlumberger recorded this note at its estimated
fair value on the date of exchange, which resulted in a charge.
About Schlumberger
Schlumberger is the world's leading provider of technology for
reservoir characterization, drilling, production, and processing to
the oil and gas industry. Working in more than 85 countries and
employing approximately 100,000 people who represent over 140
nationalities, Schlumberger supplies the industry's most
comprehensive range of products and services, from exploration
through production, and integrated pore-to-pipeline solutions that
optimize hydrocarbon recovery to deliver reservoir performance.
Schlumberger Limited has principal offices in Paris, Houston,
London and The Hague, and reported revenues of $27.81 billion in
2016. For more information, visit www.slb.com.
*Mark of Schlumberger or of Schlumberger companies.
†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 21, 2017. The
call is scheduled to begin at 8:30 a.m. US Eastern Time. To access
the call, which is open to the public, please contact the
conference call operator at +1 (800) 288-8967 within North America,
or +1 (612) 333-4911 outside North America, approximately 10
minutes prior to the call’s scheduled start time. Ask for the
“Schlumberger Earnings Conference Call.” At the conclusion of the
conference call an audio replay will be available until August 21,
2017 by dialing +1 (800) 475-6701 within North America, or +1 (320)
365-3844 outside North America, and providing the access code
423510.
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, 2017.
This second-quarter 2017 earnings release, as well as other
statements we make, contain “forward-looking statements” within the
meaning of the federal securities laws, which include any
statements that are not historical facts, such as our forecasts or
expectations regarding business outlook; growth for Schlumberger as
a whole and for each of its segments (and for specified products or
geographic areas within each segment); oil and natural gas demand
and production growth; oil and natural gas prices; improvements in
operating procedures and technology, including our transformation
program; capital expenditures by Schlumberger and the oil and gas
industry; the business strategies of Schlumberger’s customers; the
anticipated benefits of the Cameron transaction; the success of
Schlumberger’s joint ventures and alliances; future global economic
conditions; and future results of operations. These statements are
subject to risks and uncertainties, including, but not limited to,
global economic conditions; changes in exploration and production
spending by Schlumberger’s customers and changes in the level of
oil and natural gas exploration and development; general economic,
political and business conditions in key regions of the world;
foreign currency risk; pricing pressure; weather and seasonal
factors; operational modifications, delays or cancellations;
production declines; changes in government regulations and
regulatory requirements, including those related to offshore oil
and gas exploration, radioactive sources, explosives, chemicals,
hydraulic fracturing services and climate-related initiatives; the
inability of technology to meet new challenges in exploration; the
inability to integrate the Cameron business and to realize expected
synergies; the inability to retain key employees; and other risks
and uncertainties detailed in this second-quarter 2017 earnings
release and our most recent Forms 10-K, 10-Q, and 8-K filed with or
furnished to the Securities and Exchange Commission. If one or more
of these or other risks or uncertainties materialize (or the
consequences of any such development changes), or should our
underlying assumptions prove incorrect, actual outcomes may vary
materially from those reflected in our forward-looking statements.
Schlumberger disclaims any intention or obligation to update
publicly or revise such statements, whether as a result of new
information, future events or otherwise.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170721005260/en/
Schlumberger LimitedSimon Farrant - Schlumberger Limited, Vice
President of Investor RelationsJoy V. Domingo - Schlumberger
Limited, Manager of Investor RelationsOffice +1 (713)
375-3535investor-relations@slb.com
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