TIDMSCL
Schlumberger Limited (NYSE:SLB) today reported results for the
third quarter of 2017.
(Stated in millions, except per share amounts)
Three Months Ended Change
Sept. 30, 2017 Jun. 30, 2017 Sept. 30, 2016 Sequential Year-on-year
Revenue $7,905 $7,462 $7,019 6% 13%
Pretax operating income $1,059 $950 $815 11% 30%
Pretax operating margin 13.4 % 12.7 % 11.6 % 66 bps 178 bps
Net income (loss) (GAAP basis) $545 $(74 ) $176 n/m 209%
Net income, excluding $581 $488 $353 19% 65%
charges & credits*
Diluted EPS (loss per $0.39 $(0.05 ) $0.13 n/m 200%
share) (GAAP basis)
Diluted EPS, excluding $0.42 $0.35 $0.25 20% 68%
charges and 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, "Our
third-quarter revenue increased 6% sequentially while pretax
operating income rose by 11%, resulting in EPS, excluding Cameron
integration charges, of $0.42, which was 20% higher than the second
quarter.
"Activity growth in the third quarter was again led by our North
America Land GeoMarket, where we continued to gain market share in
both hydraulic fracturing and drilling services despite the
decelerating rig count growth. We also saw strong sequential
activity growth in Russia, the North Sea, and Asia, while our
activity in the rest of the world was largely flat compared with
the second quarter.
"From a technology standpoint, revenue growth was driven by the
Production Group, which increased 15% sequentially from continued
share gains in the hydraulic fracturing market in North America
land as well as from increased unconventional resources project
activity in the Middle East. Reservoir Characterization Group
revenue increased 1% as strong Wireline activity in Russia and the
North Sea was partly offset by lower exploration-related activity
for WesternGeco. Cameron Group revenue increased 3% driven by
higher product sales for Surface Systems in North America land.
Drilling Group revenue grew 1% as we remained sold out on
PowerDrive Orbit* technology in North America land and completed
key Integrated Drilling Services (IDS) projects in Mexico and Iraq
that will not resume until early 2018.
"Geographically, North America revenue increased 18% as we
continued the high redeployment rate of our spare hydraulic
fracturing capacity. North America land revenue grew 23%
sequentially, significantly outpacing the 12% increase in rig
count, with hydraulic fracturing revenue growing 42%. Over the past
six months, we have more than doubled the number of active
fracturing fleets in North America land and have now redeployed
almost all available capacity. This generated transitory costs and
inefficiencies across field operations and in our distribution
network, which will be addressed during the fourth quarter. In the
US Gulf of Mexico, activity continued to weaken in the third
quarter, and the outlook remains bleak for this region based on
current customer plans.
"In the international markets, revenue was essentially flat with
the second quarter, with Europe/CIS/Africa growing 5% due to strong
summer activity in the Russia & Central Asia, United Kingdom
& Continental Europe, and Norway & Denmark GeoMarkets.
Middle East & Asia revenue was flat sequentially as the growth
contributed by the Saudi Arabia & Bahrain, Far East &
Australia, and South & East Asia GeoMarkets was offset by a
decline in Iraq following the completion of an IDS project. Latin
America revenue declined 8% driven by lower multiclient seismic
license sales and the completion of IDS projects in the Mexico
& Central America GeoMarket.
"Looking at the industry macro, the reduction in global oil
inventories in the third quarter is clearly showing that the oil
market is now in balance, which is reflected in the upward movement
in oil prices over the past month. This view is supported by the
following positive signs. First, the investment appetite in North
America land now seems to be moderating, driven by a growing focus
from E&P companies on financial return and the need to operate
within cash flow rather than the pursuit of production growth.
Second, comments from several of the key OPEC Gulf countries, as
well as from Russia, suggest that an extension of the existing
production cuts beyond the current nine-month agreement is a
possibility. And third, investment levels in the production base
outside North America land, OPEC Gulf, and Russia all remain at
unprecedented low levels, raising the likelihood of a medium-term
global supply challenge, and increasing the urgency for higher
investment.
"A continuation of these market trends, combined with further
steady draws in global oil inventories is now creating the required
foundation for further upward movement in oil prices and subsequent
growth in global E&P investment. And while there is still some
level of uncertainty around the exact timing of this industry
recovery, we see a number of market factors and data points now
emerging that make us increasingly positive and optimistic about
the outlook for our global business. It is also worth noting that
the geopolitical risk premium on the oil price, which was quite
significant in the past, has been replaced in many ways today by an
oversupply discount. Given the visible tightening of the supply and
demand balance and the current geopolitical tensions in many of the
world's key oil producing regions, a geopolitical risk premium may
again become a significant factor.
"Based on this operational and macro backdrop, we continue to
focus on serving our customers and implementing our quality and
efficiency plans while remaining opportunistic with respect to
making further strategic investments. We will continue to position
Schlumberger at the forefront of the industry as the global
activity upturn slowly but surely emerges. Finally, I would like to
thank the 600-plus delegates from over 200 E&P companies and
industry bodies from more than 60 countries who attended the SIS
Global Forum in Paris in September. The interest and support for
the new ways of working shown at the Forum confirmed that the
industry is beginning to leverage greater collaboration and digital
enablement to improve efficiency and lower cost per barrel."
Other Events
During the quarter, Schlumberger repurchased 1.5 million shares
of its common stock at an average price of $66.04 per share for a
total purchase price of $98 million.
On August 22, 2017, Schlumberger acquired the Petrofac interest
in Petro-SPM Integrated Services S.A. de C.V. (Petro-SPM), which
operates the Pánuco Integrated Service Contract in Mexico. As a
result, Schlumberger now owns 100% of Petro-SPM.
On October 6, 2017, Schlumberger and Borr Drilling signed an
enhanced collaboration agreement to offer integrated,
performance-based drilling contracts in the offshore jackup market
by leveraging the Schlumberger global footprint, infrastructure,
and technical expertise combined with Borr Drilling's modern jackup
fleet.
On October 18, 2017, the Company's Board of Directors approved a
quarterly cash dividend of $0.50 per share of outstanding common
stock, payable on January 12, 2018 to stockholders of record on
December 6, 2017.
On October 19, 2017, Schlumberger Production Management (SPM)
and Torxen Energy, a private Canadian E&P company, entered into
an agreement to purchase the Palliser Block asset located in
Alberta, Canada, from Cenovus Energy, an integrated Canadian oil
company, for cash consideration of approximately $1 billion (CAD
1.30 billion). The Palliser Block consists of oil and gas wells,
surface facilities, a pipeline network, and approximately 800,000
acres of oil and gas development rights. The Palliser Block borders
the acreage awarded to the SPM and Torxen joint venture established
earlier this year. Under the agreement, which is subject to
customary closing conditions, Schlumberger will be the majority
nonoperating owner, with the rights to exclusive service provision
and Torxen will be the operator.
Consolidated Revenue by Geography
(Stated in millions)
Three Months Ended Change
Sept. 30, 2017 Jun. 30, 2017 Sept. 30, 2016 Sequential Year-on-year
North 2,602 $2,202 $1,699 18% 53%
America
Latin 952 1,039 992 -8% -4%
America
Europe/CIS/Africa 1,838 1,750 1,872 5% -2%
Middle East 2,357 2,347 2,385 - -1%
& Asia
Other 156 124 71 n/m n/m
$7,905 $7,462 $7,019 6% 13%
North $2,602 $2,202 $1,699 18% 53%
America
revenue
International $5,147 $5,136 $5,249 - -2%
revenue
n/m
=
not meaningful
Third-quarter revenue of $7.9 billion increased 6% sequentially
with North America growing 18% and International remaining
essentially flat with the previous quarter.
North America
In North America, revenue grew 18% sequentially following the
nearly complete redeployment of our hydraulic fracturing capacity
on land as robust fracturing activity continued during the third
quarter. This activity increase was partially offset by operational
disruption due to Hurricane Harvey and by further activity weakness
offshore in the US Gulf of Mexico. North America land revenue
experienced 23% sequential growth, driven by 42% revenue growth in
hydraulic fracturing on increased fleet redeployment, market share
gains, and improved pricing. Hydraulic fracturing revenue growth
significantly outpaced the market stage count increase of 22%.
Directional drilling-related revenue in North America land was also
22% higher as rotary steerable systems and drillbit technologies
continued to attract high demand to drill longer laterals.
Increased product sales and services in Cameron Surface Systems
also contributed to this strong financial performance.
International Areas
Revenue in the Latin America Area decreased 8% sequentially
following completion of reservoir characterization and drilling
activities in the Mexico & Central America GeoMarket in the
previous quarter. Revenue in the North and South Latin America
GeoMarkets was essentially flat with marginal incremental activity
on SPM projects in Ecuador and Drilling and Production Group
activities in Argentina.
Europe/CIS/Africa Area revenue was 5% higher sequentially due to
increased activity for all Product Groups during the peak summer
campaigns in the Russia & Central Asia, United Kingdom &
Continental Europe, and Norway & Denmark GeoMarkets. Increased
revenue in the Russia & Central Asia GeoMarket was driven by
strong Production Group activity on land in Russia and higher
Wireline and Testing & Process activity in Sakhalin and
Astrakhan. The increased revenue in the United Kingdom &
Continental Europe GeoMarket resulted from the restart of IDS
projects in Italy and improved Wireline activity in the United
Kingdom. Strong Wireline and Production Group activity contributed
to the revenue increase in the Norway & Denmark GeoMarket.
Middle East & Asia Area revenue was essentially flat
sequentially. Production and Drilling Group activity grew mainly in
the Saudi Arabia & Bahrain, Far East & Australia, and South
& East Asia GeoMarkets. However, these increases were offset by
a decline in Iraq following the completion of an IDS project.
Activity growth in Saudi Arabia was driven by increased
unconventional resources projects that led to higher revenue for
Integrated Production Services (IPS) and IDS, while revenue growth
in the Far East & Australia GeoMarket was due to higher
drilling activity in Indonesia and Australia.
Reservoir Characterization Group
(Stated in millions)
Three Months Ended Change
Sept. 30, 2017 Jun. 30, 2017 Sept. 30, 2016 Sequential Year-on-year
Revenue $1,771 $1,759 $1,667 1% 6%
Pretax $311 $299 $329 4% -5%
operating
income
Pretax 17.6 % 17.0 % 19.7 % 56 bps -217 bps
operating
margin
Reservoir Characterization Group revenue of $1.8 billion, of
which 79% came from the international markets, increased 1%
sequentially due to seasonally higher Wireline and Testing &
Process activities in the Russia & Central Asia and Norway
& Denmark GeoMarkets. Revenue for both Wireline and Testing
& Process was strong in Sakhalin and Astrakhan. An exploration
project in Norway also contributed to the increase. Group
performance was partially offset by lower WesternGeco revenue,
largely driven by lower multiclient seismic license sales following
the strong sales in Mexico during the previous quarter.
Pretax operating margin of 18% was 56 bps higher sequentially as
the increased contribution from high-margin Wireline activities was
offset by reduced profitability in WesternGeco due to lower
multiclient seismic license sales.
One highlight of the third quarter was the hosting of the 2017
SIS Global Forum in Paris, which included delegates from over 200
E&P companies and industry bodies, representing more than 60
countries that produce 70% of the world's hydrocarbons. A key theme
of the conference was making better use of the data and technical
expertise in the oil and gas industry, by getting the right
information to the right people at the right time, and by
redefining how collaboration and digital enablement can be
leveraged even further.
At this forum, Schlumberger introduced the DELFI* cognitive
E&P environment to enable secure collaboration across E&P
teams by leveraging digital technologies-analytics and machine
learning, high-performance computing, and the Internet of Things-to
improve operational efficiency and deliver optimized production at
the lowest cost per barrel. With the launch of the DELFI
environment, an E&P Data Lake comprising more than 1,000 3D
seismic surveys, 5 million wells, 1 million well logs, and 400
million production records from around the world has been deployed
on the Google Cloud Platform.
Schlumberger also introduced the DrillPlan* digital well
construction planning solution, the first step in the DELFI
cognitive E&P environment. The DrillPlan solution is part of a
fully integrated well construction offering. Developed with a focus
on enhancing user collaboration, the DrillPlan solution provides a
new way of working for drilling teams. Operators and service
companies have access to all the data and science needed in a
single, common system, which creates a circular workflow where
plans are improved as new data are added.
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. Third-quarter performance was also strengthened by new
contract awards and technology deployments.
In Mexico, ISM helped Talos Energy LLC drill and evaluate the
Zama-1 exploration well. ISM used Drilling & Measurements
proVISION Plus* magnetic resonance-while-drilling service to
provide first assessment of reservoir quality and permeability in
real time. The PressureXpress* reservoir pressure while logging
service confirmed a hydrocarbon fluid gradient, followed by a
Wireline MDT* modular formation dynamics tester with InSitu Fluid
Analyzer* real-time downhole fluid analysis system. PVT analysis of
the reservoir fluid samples confirmed a light oil hydrocarbon
discovery.
Offshore Malaysia, ISM provided a significant contribution to
Ophir Production Sdn Bhd's successful delivery of three horizontal
development wells in a highly complex offshore reservoir system
that resulted in a 35% reduction in cost and a 20% reduction in
drilling and completion days compared with the plan. Key enabling
technologies included Drilling & Measurements GeoSphere*
reservoir mapping-while-drilling-service, EcoScope*? multifunction
logging-while-drilling service, proVISION* nuclear magnetic
resonance service as well as Geoservices Drilling Analyst services.
This combination of technologies and services also contributed to a
new drilling record of more than 1,000 m per day in a 12 1/4-in
hole.
Statoil Brazil awarded Schlumberger a contract for the execution
of an upcoming exploration campaign on the Brazilian Continental
Shelf, providing directional drilling, bits, jars, accelerators,
fishing, reamers, hole openers, logging-while-drilling, wireline,
mud logging, cementing, and testing services. The contract scope of
work encompasses pre- and post-salt ultradeep wells and started in
June 2017.
In Norway, Wireline used Saturn* 3D radial probe technology in
one exploration well for Lundin in the Barents Sea. The combination
of the MDT modular formation dynamics tester with Saturn 3D
technology and the InSitu Fluid Analyzer real-time downhole fluid
analysis system enabled an extensive assessment of the quality of
the carbonate reservoir, as well as securing vital representative
samples of formation water. In addition, the multisensor water-base
mud contamination modeling application in the Techlog* wellbore
software platform was used to better predict the water sample
quality and contamination. These technologies helped the customer
reduce the risks associated with designing the optimal water
injection testing program for the field.
Offshore China, Wireline deployed a combination of technologies
in a high-temperature, high-pressure, and ultralow permeability
well for China National Offshore Oil Company Limited (CNOOC)
Zhanjiang in the South China Sea. The technologies included Saturn
3D radial probe and the MDT Forte* rugged modular formation
dynamics tester. The customer saved approximately 10 days of
operating time, equivalent to $2 million, by avoiding the need to
carry out a well test in challenging conditions.
Offshore Malaysia, WesternGeco completed a hybrid seismic
acquisition survey for Roc Oil (Sarawak) Sdn Bhd using a newly
deployed multipurpose vessel (MPV)-a first in the industry. The
340-km2 3D seismic survey was acquired offshore Sarawak, Malaysia,
using a triple source array with simultaneous recording by a
towed-streamer spread and ocean-bottom nodes to overcome existing
platform obstructions-all from a single seismic vessel. The WG
Vespucci MPV acquired the high-quality ocean-bottom seismic data to
supplement the streamer seismic data without having to employ
multiple acquisition vessels and crews, resulting in cost reduction
and greater efficiency while achieving the survey objectives.
Offshore Korea, WesternGeco introduced IsoMetrix* marine
isometric seismic technology to conduct a high-resolution broadband
seismic survey for the Korea National Oil Corporation over the
company's largest hydrocarbon production field near Busan. The
survey was in a complex environment that included shipping traffic
and dense fishing activity, and had a narrow time frame for
completion due to weather concerns.
Drilling Group
(Stated in millions)
Three Months Ended Change
Sept. 30, 2017 Jun. 30, 2017 Sept. 30, 2016 Sequential Year-on-year
Revenue $2,120 $2,107 $2,021 1% 5%
Pretax $301 $302 $218 - 38%
operating
income
Pretax 14.2 % 14.3 % 10.8 % -14 bps 339 bps
operating
margin
Drilling Group revenue of $2.1 billion, of which 73% came from
the international markets, increased 1% sequentially. Directional
drilling-related revenue in North America land was higher as
PowerDrive Orbit rotary steerable systems and a range of advanced
drillbit technologies continued to be in high demand to drill
longer laterals. International revenue, however, declined as higher
IDS activity in Saudi Arabia and the start of an IDS project in
Italy were more than offset by the completion of key IDS projects
in Mexico and Iraq in the previous quarter that will not resume
until early 2018.
Pretax operating margin of 14% was essentially flat sequentially
as increased volume and pricing improvements from the greater
uptake of Drilling & Measurements and Bits & Drilling Tools
technologies in North America land were offset by reduced
profitability in IDS following completion of key international
projects.
Drilling Group performance in the third quarter was strengthened
by the full range of technologies, including integrated drilling
systems, downhole tools, drill bits, and drilling fluids. These
technologies enabled customers to overcome technical challenges,
increase operational reliability, and decrease costs.
In North America land, Schlumberger continued to break drilling
records. Drilling & Measurements used a combination of
technologies for Eclipse Resources to drill the longest onshore
horizontal lateral. The 19,630-ft "super lateral" in the Utica
Shale play was drilled in 121 hours, achieving a total rate of
penetration (ROP) of 162 ft/h. This well surpasses the previous
record, also held by Eclipse, by 158 ft, and was drilled 37% faster
than the first record-length well. Drilled in a single run, the
super lateral helped the customer reduce overall AFE cost by
decreasing the number of horizontal penetrations required to
develop the reservoir. The technologies included the PowerDrive
Orbit rotary steerable system and TeleScope* high-speed
telemetry-while-drilling service combined with a Smith Bits
customized polycrystalline diamond compact (PDC) bit.
In New Mexico, Bits & Drilling Tools used AxeBlade* ridged
diamond element bit technology in a well for Matador Resources in
the Wolfcamp Shale play. Historically, single bit runs to the
kickoff point are achieved less than 20% of the time in this play.
AxeBlade bit technology enables more efficient cutting and heat
dissipation while also providing better frontal impact resistance
via a thicker diamond layer. This technology helped drill the well
section in a single trip with a 35% increase in ROP compared with
the customer's 2016 average.
In North America land, Bits & Drilling Tools increased ROP
by 57% for Cimarex in the STACK Meramec play. A combination of
AxeBlade ridged diamond element bit and Drilling & Measurements
PowerDrive Orbit rotary steerable system technology drilled the
fastest mile-long lateral wellbore in the formation.
In Colombia, Bits & Drilling Tools used ONYX 360* rolling
PDC cutter technology to overcome drilling challenges for Equion
Energy in the Llanos basin. ONYX 360 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. As a result, the customer saved
nearly $3 million in operating costs.
In Russia, Bits & Drilling Tools deployed Direct XCD*
drillable alloy casing bit technology in a well for LUKOIL-Komi to
reduce well construction time in the Bayandyskoe field. In a
previous offset well, swelling shales created wellbore stability
problems requiring 20 days to complete the well due to the need for
extensive reaming. Direct XCD bit technology helped drill the well
in 4 days instead of 20.
Offshore Indonesia, Bits & Drilling Tools enabled Kangean
Energy Indonesia to save more than $1.4 million in drilling costs
in a vertical deepwater exploration well in the South Saubi
prospect. The Rhino RHE* dual-reamer rathole elimination system
saved the customer 57 hours of operating time.
In the Norwegian sector of the North Sea, M-I SWACO used a
combination of technologies for Aker BP ASA to save 41 days of
drilling time in a well in the Valhall field. The technologies
included RheGuard* high-performance invert-emulsion fluid system to
optimize hole cleaning and oil-base WARP concentrate to optimize
cement operations. The customer also set new records in the Ivar
Aasen field by drilling with RheGuard fluid system and running 9
5/8-in casing to total depth with an average speed of more than 300
m/hr.
Production Group
(Stated in millions)
Three Months Ended Change
Sept. 30, 2017 Jun. 30, 2017 Sept. 30, 2016 Sequential Year-on-year
Revenue $2,876 $2,496 $2,104 15% 37%
Pretax $283 $221 $91 28% 212%
operating
income
Pretax 9.8 % 8.9 % 4.3 % 97 bps 552 bps
operating
margin
Production Group revenue of $2.9 billion, of which 53% came from
the international markets, was 15% higher sequentially from
continued market share gains in the hydraulic fracturing market in
North America land and increased activity on unconventional
resources projects in the Middle East. In North America land,
hydraulic fracturing revenue grew 42% on increased fleet
redeployment, market share gains, and improved pricing. This growth
outpaced the market stage count increase of 22%. Over the past six
months, the Company has more than doubled the number of active
fracturing fleets in North America land and have now redeployed
almost all of its available capacity. SPM also posted a sequential
increase from higher project activity in Ecuador and in North
America land.
Pretax operating margin of 10% increased 97 bps sequentially due
to increased activity and improved pricing on land in North
America, while the redeployment of multiple fleets in the third
quarter generated transitory costs and inefficiencies across field
operations and in our distribution network. Margin expanded due to
increasing benefits from the vertical integration of the supply
chain in the hydraulic fracturing business.
Production Group results benefited from a series of new
technology deployments.
In North Dakota, Well Services used BroadBand Shield*
fracture-geometry control service for Whiting Petroleum to
stimulate wells, three of which are among the top 10 producing
wells completed in the second and third quarters of 2017 in the
Bakken Shale. The BroadBand Shield service uses multimodal diverter
particles to control fracture geometry, minimizing the risk of
fracturing into undesirable zones. The wells treated with this
technology use smaller fracture treatment designs, optimizing cost
and enabling the customer to accelerate hydrocarbon production.
In Louisiana, Well Services used BroadBand Sequence* fracturing
service for Aethon Energy and achieved top quartile production in
one well after stimulating a four-well pad in the Haynesville
Shale. The BroadBand Sequence service injected pills to promote
diversion and stimulate all perforation clusters, and pressure
analysis verified stimulation throughout the perforated interval.
As a result, Aethon Energy awarded a dedicated fracturing fleet to
Schlumberger to serve 100% of their completions in this basin.
In China, Well Services used BroadBand* unconventional reservoir
completion services for PetroChina Changqing Oilfield Company
(PCOC) in oil and gas wells in the Ordos basin. BroadBand
technology overcame the challenges associated with a traditional
geometric completion approach where a portion of the perforation
clusters and hydraulic fracture networks do not contribute to
production. BroadBand services increased production up to 142% in
three gas wells and by 300% in one oil well when compared with
conventionally treated offset wells. In addition, in two openhole
completions, the elimination of a packer and sleeve system saved
the customer approximately $150,000.
In Oklahoma, Artificial Lift Services used Lift IQ* production
life cycle management service and customized electric submersible
pump (ESP) technology for Chesapeake Energy to increase average ESP
run life by 181% in four horizontal wells. The field is
characterized by rapid production declines, solids production, and
high gas volume fractions. Using newly designed ESPs that include
downhole sensors, run life increased from 118 days to 332 days.
In Colombia, Artificial Lift Solutions used REDA Maximus*
electric submersible pump system technology for a customer to
increase production from 11,800 to 21,000 bbl/d in an abrasive well
in the Llanos basin. In addition, the Maximus ESP system extended
ESP run life from an average of 72 days to 797 days by minimizing
well intervention frequency and erosion failure due to high solids
production. The new production level exceeded the well's production
target by 33%.
Offshore Russia, Well Services introduced OpenPath Sequence*
diversion stimulation service for Lukoil-Nizhevolzhskneft in the
Korchagina field. VDA* viscoelastic diverting fluid was also used
to divert treatment fluids into zones of lower injectivity and
stimulate the carbonate formation. In addition, MSR* mud and silt
remover technology eliminated the filtercake and restored
permeability in the sandstone formations. A significant improvement
in injectivity index was achieved as a result of this matrix
stimulation treatment.
In the Norwegian sector of the North Sea, Schlumberger used
Metalmorphology* metal-to-metal sealing and anchoring technology to
save a customer five days of rig time in an unstable borehole.
Wellbore instability is common in the field, and the 3,604-m
interval included 728 m of open hole that was likely to hinder
access. The custom liner system used Metalmorphology technology to
avoid the use of a long, heavy casing string that would require
extremely high torque to rotate, making it difficult to ream with
casing. Metalmorphology technology enabled the operator to run the
lower part of the casing as a liner on drillpipe to address
borehole restrictions and reach target depth in one run.
Cameron Group
(Stated in millions)
Three Months Ended Change
Sept. 30, 2017 Jun. 30, 2017 Sept. 30, 2016 Sequential Year-on-year
Revenue $1,297 $1,265 $1,341 3% -3%
Pretax $194 $174 $215 11% -10%
operating
income
Pretax 14.9 % 13.8 % 16.0 % 116 bps -110 bps
operating
margin
Cameron Group revenue of $1.3 billion, of which 55% came from
international markets, increased 3% sequentially, driven by higher
product sales in Surface Systems in North America land, which was
in line with the growth in well count. North America land growth,
however, was partially offset by lower international activity for
Drilling Systems and OneSubsea.
Pretax operating margin of 15% increased 116 bps sequentially,
due mainly to increasing profitability on higher product sales and
improved pricing in Surface Systems and Valves & Measurement in
North America land.
Cameron Group performance included the following highlights
during the quarter.
In India, Reliance Industries Limited awarded OneSubsea an
engineering, procurement, and construction (EPC) contract for
supply of a subsea production system (SPS) package for the offshore
R Cluster Project in the Bay of Bengal. The contract includes
production trees, subsea manifolds, a control system, a tie-in
system, multiphase meters, intervention tooling, and test
equipment. The contract also includes installation and
commissioning support and life-of-field services. The contract was
formalized in July with expected hardware deliveries to begin in
mid-2018.
OneSubsea and 3D at Depth have entered into a strategic
collaboration agreement. The agreement enables the companies to
jointly promote 3D at Depth's light detection and ranging (LiDAR)
technology by leveraging OneSubsea's global resources and
facilities. LiDAR technology, also called laser scanning, is used
to collect data to create accurate 3D models that enable customers
to optimize subsea operations and increase efficiencies across the
production value chain.
Drilling Systems has been contracted to deliver the first subsea
pressure intensifier (SPI) for Seadrill. The Cameron SPI is a
space-saving and economical solution that enables customers to
increase the useable control fluid stored in subsea mounted
accumulators by increasing the working pressure from a conventional
5,000 psi to the full-rated pressure of 7,500 psi.
Drilling Systems has signed a master services contract with
Weatherford Drilling International for their fleet of Cameron
blowout preventers (BOPs) based on the fixed price repair program.
This contract offers stable pricing and a predictable budget to
repair and recertify a fleet of BOPs. By standardizing these
operations, Cameron can better plan the workload at repair
facilities and predict the need for replacement parts, both of
which improve cycle time and on-time delivery performance.
Financial Tables
Condensed Consolidated
Statement
of Income (Loss)
(Stated in millions, except
per share amounts)
Third Quarter Nine Months
Periods Ended September 30, 2017 2016 2017 2016
Revenue $7,905 $7,019 $22,261 $20,703
Interest and other income 64 54 172 153
Expenses
Cost of revenue(1) 6,797 6,291 19,343 18,216
Research & engineering 189 253 595 750
General & administrative 115 92 323 305
Impairments & other(1) - - 510 2,573
Merger & integration(1) 49 88 213 272
Interest 142 149 422 431
Income (loss) before taxes $677 $200 $1,027 $(1,691)
Taxes on income (loss)(1) 121 10 269 (259)
Net income (loss) $556 $190 $758 $(1,432)
Net income attributable to 11 14 9 50
noncontrolling interests
Net income (loss) $545 $176 $749 $(1,482)
attributable
to Schlumberger(1)
Diluted earnings (loss) per $0.39 $0.13 $0.54 $(1.10)
share of Schlumberger(1)
Average shares outstanding 1,385 1,392 1,388 1,345
Average shares outstanding 1,392 1,401 1,395 1,345
assuming dilution
Depreciation & amortization $956 $998 $2,931 $3,078
included in expenses(2)
(1) See section entitled "Charges & Credits" for details.
(2) Includes depreciation of property, plant
and equipment and amortization of
intangible assets, multiclient seismic
data costs and SPM investments.
Condensed Consolidated Balance Sheet
(Stated in millions)
Sept. 30, Dec. 31,
Assets 2017 2016
Current Assets
Cash and short-term investments $4,952 $9,257
Receivables 9,436 9,387
Other current assets 5,526 5,283
19,914 23,927
Fixed income investments, held to maturity - 238
Fixed assets 12,338 12,821
Multiclient seismic data 992 1,073
Goodwill 25,113 24,990
Intangible assets 9,540 9,855
Other assets 5,672 5,052
$73,569 $77,956
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities $9,715 $10,016
Estimated liability for taxes on income 1,310 1,188
Short-term borrowings and current 1,289 3,153
portion of long-term debt
Dividends payable 700 702
13,014 15,059
Long-term debt 15,871 16,463
Deferred taxes 1,893 1,880
Postretirement benefits 1,340 1,495
Other liabilities 1,441 1,530
33,559 36,427
Equity 40,010 41,529
$73,569 $77,956
Liquidity
(Stated in
millions)
Components of Sept. 30,2017 Jun. 30,2017 Dec. 31,2016 Sept. 30,2016
Liquidity
Cash $4,952 $6,218 $9,257 $10,756
and short-term
investments
Fixed income - 13 238 354
investments,
held
to maturity
Short-term (1,289) (2,224) (3,153) (3,739)
borrowings
and current
portion of
long-term
debt
Long-term debt (15,871) (16,600) (16,463) (17,538)
Net Debt(1) $(12,208) $(12,593) $(10,121) $(10,167)
Details of
changes in
liquidity
follow:
Nine Third Nine
Months Quarter Months
Periods Ended 2017 2017 2016
September
30,
Net income $758 $556 $(1,432)
(loss)
before
noncontrolling
interests
Impairment 679 36 2,652
and other
charges, net
of tax
before
noncontrolling
interests
$1,437 $592 $1,220
Depreciation 2,931 956 3,078
and
amortization(2)
Pension and 79 27 139
other
postretirement
benefits
expense
Stock-based 261 81 210
compensation
expense
Pension and (107) (33) (127)
other
postretirement
benefits
funding
Change in (1,473) (134) (223)
working
capital
US federal 685 685 -
tax refund
Other (401) (276) (49)
Cash flow from $3,412 $1,898 $4,248
operations(3)
Capital (1,482) (598) (1,401)
expenditures
SPM investments (492) (164) (869)
Multiclient (223) (33) (497)
seismic
data
capitalized
Free cash 1,215 1,103 1,481
flow(4)
Stock (868) (98) (662)
repurchase
program
Dividends paid (2,086) (693) (1,951)
Proceeds from 261 118 344
employee
stock plans
(1,478) 430 (788)
Business (382) (18) (3,866)
acquisitions
and investments,
net
of
cash acquired
plus
debt assumed
Other (227) (27) 34
(Increase) (2,087) 385 (4,620)
decrease
in Net Debt
Net (10,121) (12,593) (5,547)
Debt, beginning
of period
Net Debt, end $(12,208) $(12,208) $(10,167)
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 $347 million and $114
million during the nine months and third quarter
ended September 30, 2017, respectively; and
$700 million during the nine months ended
September 30, 2016. The nine months ended September
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, and not as substitute for
or superior to, cash flow from operations.
Charges & Credits
In addition to financial results determined in accordance with
US generally accepted accounting principles (GAAP), this
third-quarter 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; EPS, excluding Cameron integration-related charges;
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)
Third Quarter 2017
Pretax Tax Noncont.Interests Net DilutedEPS
Schlumberger $677 $121 $11 $545 $0.39
net income
(GAAP basis)
Merger 49 13 - 36 0.03
& integration
Schlumberger $726 $134 $11 $581 $0.42
net income,
excluding
charges & credits
Second Quarter 2017
Pretax Tax Noncont.Interests Net DilutedEPS *
Schlumberger $17 $98 $(7) $(74) $(0.05)
net loss
(GAAP basis)
Promissory note 510 - 12 498 0.36
fair value
adjustment and
other(2)
Merger 81 17 - 64 0.05
& integration
Schlumberger $608 $115 $5 $488 $0.35
net income,
excluding
charges & credits
Third Quarter 2016
Pretax Tax Noncont.Interests Net DilutedEPS *
Schlumberger $200 $10 $14 $176 $0.13
net income
(GAAP basis)
Merger
and integration:
Merger-related 46 10 - 36 0.03
employee
benefits
and professional
fees
Other merger and 42 5 - 37 0.03
integration
related costs
Amortization 149 45 - 104 0.07
of purchase
accounting
inventory fair
value
adjustment(1)
Schlumberger $437 $70 $14 $353 $0.25
net income,
excluding
charges & credits
(1) Recorded in Cost of revenue in the Condensed
Consolidated Statement of Income (Loss).
(2) Recorded in Impairments & other in the Condensed
Consolidated Statement of Income (Loss).
* Does not add due to rounding
(Stated in
millions,
except
per share
amounts)
Nine Months 2017
Pretax Tax Noncont.Interests Net DilutedEPS
Schlumberger $1,027 $269 $9 $749 $0.54
net income
(GAAP basis)
Promissory 510 - 12 498 0.36
note
fair value
adjustment and
other(2)
Merger 213 44 - 169 0.12
& integration
Schlumberger $1,750 $313 $21 $1,416 $1.02
net income,
excluding
charges &
credits
Nine Months 2016
Pretax Tax Noncont.Interests Net DilutedEPS *
Schlumberger $(1,691) $(259) $50 $(1,482) $(1.10)
net loss
(GAAP basis)
Impairment
& other:
Fixed 1,058 177 - 881 0.65
asset
impairments
Workforce 646 63 - 583 0.43
reduction
Inventory 616 49 - 567 0.42
write-downs
Multiclient 198 62 - 136 0.10
seismic
data
impairment
Other 55 - - 55 0.04
restructuring
charges
Merger
& integration:
Merger-related 138 27 - 111 0.08
employee
benefits
and
professional
fees
Other 134 24 - 110 0.08
merger
and
integration-related
costs
Amortization 299 90 - 209 0.15
of purchase
accounting
inventory fair
value
adjustment(1)
Schlumberger $1,453 $233 $50 $1,170 $0.86
net income,
excluding
charges &
credits
(1) Recorded in Cost of revenue in the Condensed
Consolidated Statement of Income (Loss).
(2) Recorded in Impairments & other in the Condensed
Consolidated Statement of Income (Loss).
* Does not add due to rounding
Product Groups
(Stated in
millions)
Three Months Ended
Sept. 30, 2017 Jun. 30, 2017 Sept. 30, 2016
Revenue IncomeBeforeTaxes Revenue IncomeBeforeTaxes Revenue IncomeBeforeTaxes
Reservoir $1,771 $311 $1,759 $299 $1,667 $329
Characterization
Drilling 2,120 301 2,107 302 2,021 218
Production 2,876 283 2,496 221 2,104 91
Cameron 1,297 194 1,265 174 1,341 215
Eliminations (159) (30) (165) (46) (114) (38)
& other
Pretax 1,059 950 815
operating
income
Corporate (234) (242) (267)
& other
Interest 30 28 24
income(1)
Interest (129) (128) (135)
expense(1)
Charges & (49) (591) (237)
credits
$7,905 $677 $7,462 $17 $7,019 $200
(Stated in
millions)
Nine Months Ended
Sept. 30, 2017 Sept. 30, 2016
Revenue IncomeBeforeTaxes Revenue IncomeBeforeTaxes
Reservoir $5,148 $891 $4,972 $930
Characterization
Drilling 6,212 832 6,548 760
Production 7,559 614 6,601 379
Cameron 3,791 530 2,865 465
Eliminations (449) (101) (283) (72)
& other
Pretax 2,766 2,462
operating
income
Corporate (715) (679)
& other
Interest 82 61
income(1)
Interest (383) (391)
expense(1)
Charges & (723) (3,144)
credits
$22,261 $1,027 $20,703 $(1,691)
(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 $2.1 billion for 2017.
2) What were the cash flow from operations and free
cash flow for the third quarter of 2017?
Cash flow from operations for the third quarter of
2017 was $1.9 billion and included $114 million
of severance payments. Free cash flow for the
third quarter of 2017 was $1.1 billion.
3) What were the cash flow from operations and free
cash flow for the first nine months of 2017?
Cash flow from operations for the first nine months of
2017 was $3.4 billion and included $347 million
of severance payments. Free cash flow for the
first nine months of 2017 was $1.2 billion.
4) What was included in "Interest and other
income" for the third quarter of 2017?
"Interest and other income" for the third quarter
of 2017 was $64 million. This amount consisted
of earnings of equity method investments of $30
million and interest income of $34 million.
5) How did interest income and interest expense
change during the third quarter of 2017?
Interest income of $34 million was flat sequentially. Interest
expense of $142 million was also 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 (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 third quarter of 2017?
The ETR for the third quarter of 2017,
calculated in accordance with
GAAP, was 17.9% as compared to 590%
for the second quarter of 2017.
The ETR for the third quarter of 2017,
excluding charges and credits,
was 18.4% as compared to 18.9% for the second quarter of 2017.
8) How many shares of common stock were
outstanding as of September 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 September 30, 2017. The following table
shows the change in the number of shares outstanding
from June 30, 2017 to September 30, 2017.
(Stated in millions)
Shares outstanding at June 30, 2017 1,385
Shares sold to optionees, less shares exchanged -
Vesting of restricted stock -
Shares issued under employee stock purchase plan 2
Stock repurchase program (2 )
Shares outstanding at September 30, 2017 1,385
9) What was the weighted average number of
shares outstanding during the third
quarter of 2017 and second 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
was 1.385 billion during the
third quarter of 2017 and 1.387 billion
during the second 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)
Third Quarter2017 Second Quarter2017
Weighted average shares 1,385 1,387
outstanding
Assumed exercise 1 1
of stock options
Unvested restricted stock 6 5
Average shares outstanding, 1,392 1,393
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 co-managing
production on behalf of Schlumberger customers under
long-term agreements. Schlumberger will invest its
own services, products, and in some cases, cash,
into the field development activities and operations.
Although in certain arrangements Schlumberger
recognizes revenue and is paid for a portion of the
services or products it provides, generally
Schlumberger will not be paid at the time of providing
its services or upon delivery of its products.
Instead, Schlumberger recognizes revenue and
is compensated based upon cash flow generated
or on a fee-per-barrel basis. This may include certain
arrangements whereby Schlumberger is only
compensated based upon incremental production it
helps deliver above a mutually agreed baseline.
11) How are Schlumberger products and services that
are invested in SPM projects accounted for?
Revenue and the related costs are recorded within the respective Schlumberger
Group for services and products that each Group provides to Schlumberger's
SPM projects. This revenue (which is based on arms-length pricing) and the
related profit is then eliminated through an intercompany adjustment
that is included within the "Eliminations &
other" line. (Note that the "Eliminations
& other" line includes other items in addition to the SPM eliminations.)
The direct cost associated with providing Schlumberger services or
products to SPM projects is then capitalized on the balance sheet.
These capitalized investments, which may be in the form
of cash as well as the previously mentioned direct
costs, are expensed in the income statement as the related
production is achieved and associated revenue
is recognized. This amortization expense is based on
the units of production method, whereby each unit
is assigned a pro-rata portion of the unamortized
costs based on total estimated production.
SPM revenue along with the amortization of the
capitalized investments and other operating
costs incurred in the period are reflected within the Production Group.
12) What was the unamortized balance of Schlumberger's
investment in SPM projects at September 30, 2017
and how did it change in terms of investment and
amortization when compared to June 30, 2017?
The unamortized balance of Schlumberger's investments
in SPM projects was approximately $2.8 billion
and $2.6 billion at September 30, 2017 and
June 30, 2017, 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 June 30, 2017 $2,573
SPM investments 164
Other additions 184
Amortization of SPM investment (117 )
Balance at September 30, 2017 $2,804
13) What was the amount of WesternGeco multiclient
sales in the third quarter of 2017?
Multiclient sales, including transfer fees, were $127 million in the
third quarter of 2017 and $182 million in the second quarter of 2017.
14) What was the WesternGeco backlog at the
end of the third quarter of 2017?
WesternGeco backlog, which is based on signed contracts
with customers, was $489 million at the end
of the third quarter of 2017. It was $566 million
at the end of the second quarter of 2017.
15) 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 Third Quarter2017 Second Quarter2017
OneSubsea $347 $181
Drilling Systems $156 $170
Backlog(at the end of period)
OneSubsea $2,328 $2,371
Drilling Systems $523 $566
About SchlumbergerSchlumberger 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, October 20, 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 November
20, 2017 by dialing +1 (800) 475-6701 within North America, or +1
(320) 365-3844 outside North America, and providing the access code
428578.
The conference call will be webcast simultaneously at
www.slb.com/irwebcast on a listen-only basis. A replay of the
webcast will also be available at the same web site until November
30, 2017.
This third-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 SPM projects, joint ventures and alliances; future
global economic conditions; and future results of operations. These
statements are subject to risks and uncertainties, including, but
not limited to, global economic conditions; changes in exploration
and production spending by Schlumberger's customers and changes in
the level of oil and natural gas exploration and development;
general economic, political and business conditions in key regions
of the world; foreign currency risk; pricing pressure; weather and
seasonal factors; operational modifications, delays or
cancellations; production declines; changes in government
regulations and regulatory requirements, including those related to
offshore oil and gas exploration, radioactive sources, explosives,
chemicals, hydraulic fracturing services and climate-related
initiatives; the inability of technology to meet new challenges in
exploration; the inability to retain key employees; and other risks
and uncertainties detailed in this third-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.
Simon Farrant - Schlumberger Limited, Vice President of Investor
RelationsJoy V. Domingo - Schlumberger Limited, Manager of Investor
RelationsOffice +1 (713) 375-3535investor-relations@slb.com
LEI - 5493000C01ZX7D35SD85Classification: Inside information
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