TIDMSCL
Schlumberger Limited (NYSE: SLB) today reported results for the
third quarter of 2019.
(Stated in millions, except per share amounts)
Three Months Ended Change
Sept. 30, 2019 Jun. 30, 2019 Sept. 30, 2018 Sequential Year-on-year
Revenue $8,541 $8,269 $8,504 3% 0%
Income (loss) before taxes - GAAP basis $(11,971) $593 $787 n/m n/m
Pretax segment operating income* $1,096 $968 $1,152 13% -5%
Pretax segment operating margin* 12.8% 11.7% 13.5% 113 bps -71 bps
Net income (loss) - GAAP basis $(11,383) $492 $644 n/m n/m
Net income, excluding charges & credits* $596 $492 $644 21% -7%
Diluted EPS (loss per share) - GAAP basis $(8.22) $0.35 $0.46 n/m n/m
Diluted EPS, excluding charges & credits* $0.43 $0.35 $0.46 23% -7%
North America revenue $2,850 $2,801 $3,189 2% -11%
International revenue $5,629 $5,463 $5,215 3% 8%
North America revenue, excluding Cameron $2,261 $2,201 $2,545 3% -11%
International revenue, excluding Cameron $4,857 $4,708 $4,502 3% 8%
*These are non-GAAP financial measures. See sections titled
"Charges & Credits" and "Segments" for details.
n/m = not meaningful
Schlumberger CEO Olivier Le Peuch commented, "We ended the third
quarter with revenue of $8.5 billion, a 3% sequential increase
while pretax segment operating income of $1.1 billion rose 13%. I
am pleased with the results and proud of the team's performance.
Sustained international activity drove overall growth despite mixed
results in North America. The North America business saw strong
offshore sales with minimal growth on land due to slowing activity
and further pricing weakness. Third-quarter EPS of $0.43, excluding
charges, was 23% higher than the second quarter.
"Sequential international growth was led by the
Europe/CIS/Africa area, where revenue increased 9% sequentially
driven by peak summer activity in the Northern Hemisphere as well
as the start of new projects in Africa. International revenue was
also driven by double-digit growth in Asia. Latin America revenue
declined 9% sequentially on lower activity in Argentina and Mexico.
Excluding Cameron, third-quarter international revenue increased 8%
year-over-year, remaining in line with our expectations of high
single-digit international growth. As we enter the fourth quarter,
international activity will be affected by the usual winter
slowdown, particularly in the Northern Hemisphere.
"In North America, offshore revenue grew sequentially due to
higher WesternGeco® multiclient seismic license sales. Land revenue
was slightly higher, as a modest increase in OneStim® activity was
offset by softer pricing while land drilling revenue was
essentially flat despite the lower rig count. As we exited the
quarter, OneStim activity decelerated as frac programs were either
deferred or cancelled due to customer budget and cash flow
constraints.
"By business segment, third-quarter sequential growth was led by
a 6% increase in revenue in Reservoir Characterization due to peak
summer campaigns, particularly in the Northern Hemisphere. Cameron
revenue increased 3% sequentially from higher OneSubsea®, Surface
Systems, and Drilling Systems sales-primarily in the international
markets. Drilling and Production revenue each increased 2%
sequentially on international growth and decelerating activity in
North America land.
"This quarter's results reflected a macro environment of slowing
production growth rate in North America land as operators
maintained capital discipline, reducing drilling and frac activity.
Our year-to-date high single-digit international revenue growth
continues to be underpinned by international investment levels.
Market uncertainty, however, is weighing on future oil demand
outlook in a climate where trade concerns are seen as challenging
global economic growth.
"The third quarter results reflect a $12.7 billion pretax charge
driven by market conditions. This charge is almost entirely noncash
and primarily relates to goodwill, intangible assets, and fixed
assets.
"Last month, we presented four key elements of our new strategy:
leading and driving digital transformation; developing
fit-for-basin solutions; capturing value from the performance
impact for our customers; and fostering capital stewardship. The
latter involves more stringent capex allocation and a strategic
review of our portfolio-particularly in North America-through the
lens of fit-for-basin attributes, customer performance, and return
on investment.
"We are already off to a good start on digital. We presented our
vision of the future E&P industry to 800 customers and partners
at the highly successful SIS Global Forum 2019. We are committed to
an open digital environment that unlocks customer performance. One
enabling element is the DELFI* cognitive E&P environment that
now features a suite of cloud-native applications that spans the
E&P domains from exploration to production, including
ExplorePlan*, DrillPlan*, DrillOps*, FDPlan*, and ProdOps*
solutions.
"As we move forward, our vision is to define and drive high
performance. Simply put, we want to be the performance partner of
choice for the benefit of our customers and our industry.
Underpinned by the elements of our strategy, Schlumberger is
favorably positioned to achieve superior margin expansion,
increased return on capital, and growth in free cash flow."
Other Events
In connection with the preparation of its third quarter
financial statements, Schlumberger recorded a $12.7 billion pretax
charge primarily relating to the impairment of goodwill, intangible
assets, and fixed assets. Please refer to sections titled "Charges
& Credits" and "Supplementary Information" (items 13 and 14)
for details.
During the quarter, Schlumberger repurchased 2.2 million shares
of its common stock at an average price of $36.64 per share, for a
total purchase price of $79 million.
During September, Schlumberger issued EUR 500 million of 0.00%
Notes due 2024, EUR 500 million of 0.25% Notes due 2027, and EUR
500 million of 0.50% Notes due 2031. These notes were subsequently
swapped into US dollars with a weighted-average interest rate of
2.52%.
During September, Schlumberger repurchased $783 million of its
outstanding 3.000% Notes due 2020 and $321 million of its
outstanding 3.625% Notes 2022.
On October 2, 2019, Schlumberger and Rockwell Automation
announced the closing of their previously announced joint venture,
Sensia-the oil and gas industry's first digitally enabled,
integrated automation solutions provider. Rockwell Automation owns
53% of the joint venture and Schlumberger owns 47%. At closing,
Rockwell Automation made a $250 million cash payment to
Schlumberger.
On October 17, 2019, Schlumberger's Board of Directors approved
a quarterly cash dividend of $0.50 per share of outstanding common
stock, payable on January 10, 2020 to stockholders of record on
December 4, 2019.
Consolidated Revenue by Area
(Stated in millions)
Three Months Ended Change
Sept. 30, 2019 Jun. 30, 2019 Sept. 30, 2018 Sequential Year-on-year
North America $2,850 $2,801 $3,189 2% -11%
Latin America 1,014 1,115 978 -9% 4%
Europe/CIS/Africa 2,062 1,896 1,820 9% 13%
Middle East & Asia 2,553 2,452 2,417 4% 6%
Other 62 5 100 n/m n/m
$8,541 $8,269 $8,504 3% 0%
North America revenue $2,850 $2,801 $3,189 2% -11%
International revenue $5,629 $5,463 $5,215 3% 8%
North America revenue, $2,261 $2,201 $2,545 3% -11%
excluding Cameron
International revenue, $4,857 $4,708 $4,502 3% 8%
excluding Cameron
n/m = not meaningful
Certain prior period amounts have been reclassified
to conform to the current period presentation.
Third-quarter revenue of $8.5 billion increased 3% sequentially.
North America revenue of $2.8 billion increased 2%, while
international revenue of $5.6 billion increased 3%.
North America
North America area consolidated revenue of $2.8 billion was 2%
higher sequentially. This was driven by WesternGeco multiclient
seismic license sales and increased drilling and stimulation
offshore activity that benefited the Drilling & Measurements,
Completions, and Well Services product lines. Land revenue was
slightly higher as a modest increase in OneStim activity was
partially offset by softer pricing. Land drilling revenue was
essentially flat as our fit-for-basin technology-access approach to
drilling equipment sales and leases helped offset the decline in
drilling activity due to lower rig count. As we exited the quarter,
OneStim activity decelerated as frac programs were either deferred
or cancelled due to customer budget and cash flow constraints,
adding uncertainty to the fourth quarter.
International
Consolidated revenue in the Latin America area of $1.0 billion
decreased 9% sequentially. This was due primarily to lower revenue
in the Latin America South GeoMarket on lower Cameron Drilling
Systems sales and reduced Well Services and Schlumberger Production
Management (SPM) project activity in Argentina. Revenue in the
Mexico & Central America GeoMarket also declined due to reduced
Integrated Drilling Services (IDS) activity onshore and lower IOC
exploration activity offshore. In the Latin America North
GeoMarket, revenue was driven by higher SPM activity and increased
production, mainly in Ecuador. However, recent production shut-ins
in Ecuador due to ongoing civil unrest may potentially impact our
revenue in the fourth quarter.
Europe/CIS/Africa area consolidated revenue of $2.0 billion
increased 9% sequentially. This was driven by the peak summer
activity campaigns in the Russia & Central Asia GeoMarket and
the North Sea, and the start of new projects in the Sub-Sahara
Africa and North Africa GeoMarkets. Growth in Russia primarily
benefited Wireline, Drilling & Measurements, and Well Services.
Growth in the North Sea was mainly from higher Well Services
stimulation work and stronger Wireline exploration activity in
Norway. Revenue increased in the Sub-Sahara Africa GeoMarket as rig
count grew, well intervention activity increased, and new
integrated drilling projects started. Cameron revenue was also
higher in the area due to increased OneSubsea and Surface Systems
equipment sales, mainly in the UK & Continental Europe and
Sub-Sahara Africa GeoMarkets.
Consolidated revenue in the Middle East & Asia area of $2.6
billion increased 4% sequentially. This was led by double-digit
growth in Asia, particularly in China, Australia, and India. Growth
in China was primarily driven by increased drilling and exploration
activity in addition to equipment sales; Australia benefited from
higher offshore drilling activity and Software Integrated Solutions
(SIS) sales on an enterprise-wide DELFI environment deployment; and
India increased from higher Integrated Services Management (ISM)
activity. In the Middle East, revenue in the Saudi Arabia &
Bahrain GeoMarket increased on higher frac activity and Cameron
equipment sales, partially offset by lower drilling activity. In
the Eastern Middle East GeoMarket, revenue was lower due to reduced
IDS activity in Iraq.
Reservoir Characterization
(Stated in millions)
Three Months Ended Change
Sept. 30, 2019 Jun. 30, 2019 Sept. 30, 2018 Sequential Year-on-year
Revenue $1,651 $1,558 $1,587 6% 4%
Pretax operating $360 $317 $361 14% 0%
income
Pretax operating 21.8% 20.3% 22.7% 149 bps -90 bps
margin
Certain prior period amounts have been reclassified to conform to the current period presentation.
Reservoir Characterization revenue of $1.7 billion, 82% of which
came from the international markets, increased 6% sequentially due
to peak summer activity campaigns. Growth was led by Wireline
activity in Russia, offshore China and Australia, and increased ISM
project activity in India. The increase in Reservoir
Characterization revenue was also driven by higher WesternGeco
multiclient seismic license sales in North America, both on land
and offshore.
Reservoir Characterization pretax operating margin of 22% was
149 basis points (bps) higher sequentially due to the peak summer
campaign for Wireline and stronger WesternGeco multiclient seismic
license sales.
Drilling
(Stated in millions)
Three Months Ended Change
Sept. 30, 2019 Jun. 30, 2019 Sept. 30, 2018 Sequential Year-on-year
Revenue $2,470 $2,421 $2,429 2% 2%
Pretax operating $305 $300 $339 2% -10%
income
Pretax operating 12.4% 12.4% 14.0% -5 bps -161 bps
margin
Drilling revenue of $2.5 billion, 75% of which came from the
international markets, increased 2% sequentially. Stronger
international activity was led by robust performance in Russia from
the peak summer drilling campaign, and higher drilling activity in
China and Australia also contributed to the sequential growth. This
growth, however, was partially offset by reduced drilling in Saudi
Arabia. While shale drilling activity in North America land was
impacted by lower US land rig count, our fit-for-basin
technology-access approach to drilling equipment sales and leases
has offset the revenue decline. Drilling & Measurements drove
international growth across all GeoMarkets led by Russia &
Central Asia. IDS revenue was lower sequentially due to reduced
onshore activity in Mexico, Saudi Arabia, and Iraq.
Drilling pretax operating margin of 12% was essentially flat
sequentially as margin improvements for Drilling & Measurements
were offset by lower margins from M-I SWACO and IDS projects in the
Middle East region.
Production
(Stated in millions)
Three Months Ended Change
Sept. 30, 2019 Jun. 30, 2019 Sept. 30, 2018 Sequential Year-on-year
Revenue $3,153 $3,077 $3,249 2% -3%
Pretax operating $288 $235 $320 22% -10%
income
Pretax operating 9.1% 7.6% 9.9% 148 bps -72 bps
margin
Production revenue of $3.2 billion, of which 55% came from the
international markets, increased 2% sequentially. This was driven
primarily by higher international activity for Completions in the
Far East Asia & Australia, Russia & Central Asia, and
Sub-Sahara Africa GeoMarkets. Well Services and Completions revenue
was also higher in Saudi Arabia and Russia but was partially offset
by reduced activity in Argentina. Artificial Lift Solutions were
higher in North America land, North Africa, Ecuador, and Europe. In
North America land, OneStim revenue was essentially flat as
activity grew slightly, offset by softer pricing. As we exited the
quarter, OneStim activity decelerated as frac programs were either
deferred or cancelled due to customer budget and cash flow
constraints, adding uncertainty to the fourth quarter.
Production pretax operating margin of 9% expanded 148 bps
sequentially, largely due to improved international margins from
higher activity. Additionally, the reduction in depreciation and
amortization expense as a result of the third-quarter 2019
impairment charges accounted for just under half of the sequential
margin improvement.
Cameron
(Stated in millions)
Three Months Ended Change
Sept. 30, 2019 Jun. 30, 2019 Sept. 30, 2018 Sequential Year-on-year
Revenue $1,363 $1,328 $1,386 3% -2%
Pretax operating $173 $165 $160 5% 8%
income
Pretax operating 12.7% 12.4% 11.5% 29 bps 117 bps
margin
Certain prior period amounts have been reclassified to conform to the current period presentation.
Cameron revenue of $1.4 billion, of which 57% came from
international markets, increased 3% sequentially. This was driven
by higher international revenue for Surface Systems, OneSubsea, and
Drilling Systems. Valves & Process Systems revenue declined due
to reduced activity in North America. By geography, international
revenue grew 2% sequentially, primarily on strong growth in the
Europe/CIS/Africa and Middle East & Asia areas while North
America revenue declined by 2%.
Cameron pretax operating margin of 13% was essentially flat
sequentially. Improved profitability in OneSubsea was partially
offset by reduced margins in the other Cameron product lines.
Quarterly Highlights
During the third quarter, we achieved several important
milestones in the deployment of our digital strategy. We launched a
number of new technologies and key developments within the DELFI
cognitive E&P environment at the SIS Global Forum 2019.
Since the launch of the DELFI environment, about 100 customers
have adopted the environment as we continue to introduce new
applications. We have also expanded our collaboration with industry
and technology partners to enhance DELFI's capabilities.
This quarter, we signed an agreement with Chevron and Microsoft®
to accelerate the deployment of DELFI environment solutions in the
Azure® cloud to enable broader adoption. Furthermore, we added
industry-leading analytics and virtualization technologies from
TIBCO Software Inc. and commercialized four new E&P
applications.
The four new cloud-native applications-ExplorePlan, DrillOps,
FDPlan, and ProdOps solutions-optimize workflows and enable
collaboration, speeding delivery of actionable insights. With these
applications, the DELFI environment now offers solutions across
E&P domains. WesternGeco continues to integrate digital
workflows and processes into its asset-light model through the
GAIA* digital subsurface platform. We expect the GAIA platform to
be the industry's marketplace for diverse subsurface data,
including multiclient seismic and third-party datasets. The most
recent addition includes the IHS Markit global E&P
datasets.
We recently commercialized a digital formation testing platform
and a number of fit-for-basin technologies, all favorably impacting
our customers' performance:
-- The Ora* intelligent wireline formation testing platform is the first Schlumberger tool built on a cloud-native platform, combining software and hardware to deliver dynamic reservoir characterization in all conditions. The Ora platform provides actionable insights for real-time decision making. In Mexico, the Ora platform was the first-ever wireline formation tester able to collect high-quality gas condensate samples in a challenging carbonate formation with permeability below 0.03 mD at 360 degF and 20,000-psi pressure. This technology helped Pemex announce the tripling of estimated reserves for Mexico's most important land discovery in the last 25 years.
-- The NeoSteer* at-bit steerable system permits drilling higher dogleg severity curve sections and straighter laterals without the need to change the bottomhole assembly (BHA) between sections. This steerable bit delivers improved performance using gamma ray sensors to supply high-quality data to the latest trajectory-control algorithms and data analytics. This improves drilling accuracy and saves significant time and cost by eliminating tripping to change out the BHA. In the DJ Basin, SRC Energy used the NeoSteer CL* curve and lateral at-bit steerable system to drill a 12-well pad targeting vertical, curved, and lateral sections. SRC Energy was able to increase the rate of penetration (ROP) by 20%, saving as much as 21 hours in a single well while targeting various zones in the unconventional Niobrara Shale Formation.
-- The introduction of Aegis* armor cladding alloy for drill bits increases bit erosion resistance by 400% and strength by 40% when compared with conventional matrix polycrystalline diamond compact (PDC) bits. Aegis cladding enables fit-for-basin bit designs that improve the ROP. In Oklahoma's Anadarko Basin, two steel-bodied bits with Aegis cladding were deployed in eight wells for a prominent midcontinent operator. Aegis cladding enabled a bit design using taller blades and optimal nozzle placement, resulting in an ROP increase of 36% compared with direct offset runs of matrix PDC bits. The customer reduced drilling time by 27% or approximately 179 hours across the eight runs.
-- Muzic Aeon* premium-performance wireless telemetry provides real-time access to downhole reservoir test data under high-temperature conditions up to 392 degF. In the Gulf Cooperation Council (GCC) region, a fit-for-basin approach was deployed for a customer to evaluate new resources in deeper reservoirs with high formation temperatures. Muzic Aeon telemetry was deployed as part of a comprehensive drillstem test system in a 17,000-ft well with expected temperatures up to 365 degF. The Muzic Aeon telemetry system overcame the temperature limitations associated with conventional wireless telemetry systems and delivered reliable downhole data at surface with minimal delay. This technology-fit solution enhanced customer performance by enabling rig personnel, well test engineers, and subsurface teams to monitor operations and make timely decisions in line with a predefined management-of-change process.
In North America, the demand for Schlumberger's proprietary
infill well technology solutions continues to increase. In 2019,
the number of jobs employing our fit-for-basin technologies,
including BroadBand Shield* fracture-geometry control service and
WellWatcher Stim* stimulation monitoring service to mitigate
detrimental frac hits, has increased six-fold compared with 2018.
These technologies are being successfully implemented across
multiple basins in North America.
-- In North Dakota, OneStim used BroadBand* unconventional reservoir completion services for Whiting Petroleum Corporation to increase oil production in two new infill wells. A multidisciplinary collaboration led to an optimized completion strategy that combined BroadBand Sequence* fracturing service and BroadBand Shield service to eliminate undesired fracture height growth to maximize oil production from the targeted intervals. Consequently, the wells are outperforming nearby offset wells by 37% and 48% in the Bakken and Three Forks Formations, respectively, while using similar proppant intensities.
-- In the Permian Basin, OneStim deployed WellWatcher Stim and BroadBand Shield services for Callon Petroleum to avoid parent-child well interference. The use of chemical tags to identify potential points of communication throughout the entirety of the well stimulation process confirmed that Broadband Shield service provided effective well-to-well transfer prevention.
The combination of fit-for-basin technologies and performance
models is enabling our customers' performance through improved
efficiency and workflow optimization.
-- In the Permian Basin, Occidental and Schlumberger have worked together to establish a differentiated unconventional asset development program. Occidental built the Aventine facility, an integrated operations and logistics center in New Mexico, which is a key part of its strategies for leadership, innovation, and outperformance in the basin. As the exclusive provider for specific services, including fracturing and pumpdown perforating, Schlumberger built and operates a new base within Aventine. Both companies are achieving record hydraulic fracturing efficiencies through collaborative optimization of workflows and new fit-for-basin technologies such as MonoFlex* dual-connection fracturing fluid delivery technology, Fractal* multistage stimulation perforating system, and others. As a result, OneStim fleets have broken both companies' Permian records for stages per month four different times this year, with one fleet achieving 267 stages. Also, a fracturing fleet completed a two-well pad with an average 20.2 hours of pumping time per day, and a single-day maximum of 21.8 hours. This is well above typical industry pumping times of 12 to 15 hours per day on comparable operations.
Financial Tables
Condensed Consolidated Statement of Income (Loss)
(Stated in millions, except per share amounts)
Third Quarter Nine Months
Periods Ended September 30, 2019 2018 2019 2018
Revenue $8,541 $8,504 $24,689 $24,636
Interest and other income 21 36 61 118
Expenses
Cost of revenue 7,385 7,324 21,594 21,306
Research & engineering 176 177 527 524
General & administrative 120 105 345 330
Impairments & other(1) 12,692 - 12,692 184
Interest 160 147 462 434
Income (loss) before taxes $(11,971) $787 $(10,870) $1,976
Tax (benefit) expense(1) (598) 129 (420) 348
Net income (loss)(1) $(11,373) $658 $(10,450) $1,628
Net income attributable to 10 14 20 29
noncontrolling interests
Net income (loss) attributable $(11,383) $644 $(10,470) $1,599
to Schlumberger(1)
Diluted earnings (loss) per $(8.22) $0.46 $(7.56) $1.15
share of Schlumberger(1)
Average shares outstanding 1,385 1,385 1,385 1,385
Average shares outstanding assuming dilution 1,385 1,392 1,385 1,393
Depreciation & amortization $900 $887 $2,741 $2,637
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 2019 2018
Current Assets
Cash and short-term investments $2,292 $2,777
Receivables 8,332 7,881
Other current assets 5,527 5,073
16,151 15,731
Fixed assets 9,605 11,679
Multiclient seismic data 593 601
Goodwill 16,112 24,931
Intangible assets 7,282 8,727
Other assets 8,247 8,838
$57,990 $70,507
Liabilities and Equity
Current Liabilities
Accounts payable and $10,364 $10,223
accrued liabilities
Estimated liability for 1,078 1,155
taxes on income
Short-term borrowings
and current portion
of long-term debt 340 1,407
Dividends payable 701 701
12,483 13,486
Long-term debt 16,333 14,644
Deferred taxes 591 1,441
Postretirement benefits 1,101 1,153
Other liabilities 3,155 3,197
33,663 33,921
Equity 24,327 36,586
$57,990 $70,507
Liquidity
(Stated in millions)
Components of Sept. 30,2019 Jun. 30, Dec. 31, Sept. 30,
Liquidity 2019 2018 2018
Cash and short-term $2,292 $2,348 $2,777 $2,854
investments
Short-term (340) (98) (1,407) (3,215)
borrowings
and current
portion of
long-term
debt
Long-term debt (16,333) (16,978) (14,644) (14,159)
Net Debt(1) $(14,381) $(14,728) $(13,274) $(14,520)
Details of
changes in
liquidity follow:
Nine Third Nine
Months Quarter Months
Periods Ended 2019 2019 2018
September
30,
Net income (loss) $(10,450) $(11,373) $1,628
before
noncontrolling
interests
Impairment 11,979 11,979 164
and other
charges, net of tax
$1,529 $606 $1,792
Depreciation and 2,741 900 2,637
amortization(2)
Stock-based 329 135 259
compensation
expense
Change in working (1,340) 120 (1,147)
capital
Other (80) (16) (159)
Cash flow from $3,179 $1,745 $3,382
operations (3)
Capital (1,230) (413) (1,539)
expenditures
SPM investments (526) (194) (719)
Multiclient seismic (181) (72) (63)
data capitalized
Free cash flow (4) 1,242 1,066 1,061
Dividends paid (2,077) (692) (2,077)
Stock repurchase (278) (79) (300)
program
Proceeds from 219 113 256
employee
stock plans
Business (21) (4) (290)
acquisitions
and investments,
net of cash
acquired
plus debt assumed
Other (192) (57) (60)
(Increase) decrease (1,107) 347 (1,410)
in Net Debt
Net Debt, beginning (13,274) (14,728) (13,110)
of period
Net Debt, end $(14,381) $(14,381) $(14,520)
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 $104 million and $33 million
during the nine months and third quarter ended
September 30, 2019, respectively; and $265 million
during the nine months ended September 30, 2018.
(4) "Free cash flow" represents cash flow from operations
less capital expenditures, SPM investments and
multiclient seismic data costs capitalized. Management
believes that free cash flow is an important
liquidity measure for the company and that it is useful
to investors and management as a measure of
Schlumberger's ability to generate cash. Once business
needs and obligations are met, this cash
can be used to reinvest in the company for future growth
or to return to shareholders through dividend
payments or share repurchases. Free cash flow does
not represent the residual cash flow available
for discretionary expenditures. Free cash flow
is a non-GAAP financial measure that should be
considered in addition to, not as substitute for
or superior to, cash flow from operations.
Charges & Credits
In addition to financial results determined in accordance with
US generally accepted accounting principles (GAAP), this
third-quarter 2019 earnings release also includes non-GAAP
financial measures (as defined under the SEC's Regulation G). Net
income (loss), excluding charges & credits, as well as measures
derived from it (including diluted EPS, excluding charges &
credits; Schlumberger net income (loss), 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 2019
Pretax Tax Noncont. Net Diluted
Interests EPS
Schlumberger net income (loss) (GAAP basis) $(11,971) $(598) $10 $(11,383) $(8.22)
Goodwill 8,828 43 - 8,785 6.34
North America pressure pumping 1,575 344 - 1,231 0.89
Intangible assets 1,085 248 - 837 0.60
Other North America-related 310 53 - 257 0.19
Schlumberger Production Management 294 - - 294 0.21
Equity-method investments 231 12 - 219 0.16
Argentina 127 - - 127 0.09
Other 242 13 - 229 0.17
Schlumberger net income, excluding $721 $115 $10 $596 $0.43
charges & credits
Second Quarter 2018
Pretax Tax Noncont. Net Diluted
Interests EPS
Schlumberger net income (GAAP basis) $547 $106 $11 $430 $0.31
Workforce reductions 184 20 - 164 0.12
Schlumberger net income, excluding $731 $126 $11 $594 $0.43
charges & credits
(Stated in millions, except per share amounts)
Nine Months 2019
Pretax Tax Noncont. Net Diluted
Interests EPS *
Schlumberger net income (loss) (GAAP basis) $(10,870) $(420) $20 $(10,470) $(7.56)
Goodwill 8,828 43 - 8,785 6.34
North America pressure pumping 1,575 344 - 1,231 0.89
Intangible assets 1,085 248 - 837 0.60
Other North America-related 310 53 - 257 0.19
Schlumberger Production Management 294 - - 294 0.21
Equity-method investments 231 12 - 219 0.16
Argentina 127 - - 127 0.09
Other 242 13 - 229 0.17
Schlumberger net income, excluding $1,822 $293 $20 $1,509 $1.08
charges & credits
Nine Months 2018
Pretax Tax Noncont. Net Diluted
Interests EPS
Schlumberger net income (GAAP basis) $1,976 $348 $29 $1,599 $1.15
Workforce reductions 184 20 - 164 0.12
Schlumberger net income, excluding $2,160 $368 $29 $1,763 $1.27
charges & credits
* Does not add due to rounding.
There were no charges or credits recorded during the first six
months of 2019.
Segments
(Stated in millions)
Three Months Ended
Sept. 30, 2019 Jun. 30, 2019 Sept. 30, 2018
Revenue Income(Loss)BeforeTaxes Revenue Income Revenue Income
Before Before
Taxes Taxes
Reservoir $1,651 $360 $1,558 $317 $1,587 $361
Characterization
Drilling 2,470 305 2,421 300 2,429 339
Production 3,153 288 3,077 235 3,249 320
Cameron 1,363 173 1,328 165 1,386 160
Eliminations & other (96) (30) (115) (49) (147) (28)
Pretax segment 1,096 968 1,152
operating
income
Corporate & other (231) (238) (234)
Interest income(1) 7 9 8
Interest expense(1) (151) (146) (139)
Charges & credits(2) (12,692) - -
$8,541 $(11,971) $8,269 $593 $8,504 $787
(Stated in millions)
Nine Months Ended
Sept. 30, 2019 Sept. 30, 2018
Revenue Income(Loss)BeforeTaxes Revenue Income
Before
Taxes
Reservoir $4,669 $959 $4,602 $987
Characterization
Drilling 7,279 913 6,789 921
Production 9,120 740 9,458 853
Cameron 3,949 486 4,175 522
Eliminations & other (328) (126) (388) (63)
Pretax segment 2,972 3,220
operating
income
Corporate & other (742) (699)
Interest income(1) 25 44
Interest expense(1) (433) (405)
Charges & credits(2) (12,692) (184)
$24,689 $(10,870) $24,636 $1,976
(1) Excludes interest included in the segment results.
(2) See section entitled "Charges & Credits" for details.
Certain prior period amounts have been reclassified to conform
to the current period presentation.
Supplemental Information
(1) What is the capex guidance for the full year 2019?
Capex (excluding multiclient and SPM investments) for
the full year 2019 is expected to be approximately
between $1.6 to $1.7 billion, compared to
$2.2 billion that was spent in 2018.
(2) What were cash flow from operations and free
cash flow for the third quarter of 2019?
Cash flow from operations for the third
quarter of 2019 was $1.7 billion.
Free cash flow for the third quarter of 2019 was $1.1 billion.
(3) What was included in "Interest and other
income" for the third quarter of 2019?
"Interest and other income" for the third quarter
of 2019 was $21 million. This amount consisted
of earnings of equity method investments of $13
million and interest income of $8 million.
(4) How did interest income and interest expense
change during the third quarter of 2019?
Interest income of $8 million for the third quarter
of 2019 decreased $3 million sequentially.
Interest expense of $160 million increased $4 million sequentially.
(5) What is the difference between Schlumberger's consolidated income
(loss) before taxes and pretax segment operating income?
The difference principally consists of corporate
items, charges and credits, and interest
income and interest expense not allocated
to the segments as well as stock-based
compensation expense, amortization expense
associated with certain intangible
assets, certain centrally managed initiatives,
and other nonoperating items.
(6) What was the effective tax rate (ETR) for the third quarter of 2019?
The ETR for the third quarter of 2019,
calculated in accordance with GAAP,
was 5% as compared to 16.7% for the second quarter of 2019. Excluding
charges and credits, the ETR for the third quarter of 2019 was 16.0%.
There were no charges and credits in the second quarter of 2019.
(7) How many shares of common stock were outstanding as of September 30,
2019 and how did this change from the end of the previous quarter?
There were 1.384 billion shares of common stock outstanding
as of September 30, 2019. The following table
shows the change in the number of shares outstanding
from June 30, 2019 to September 30, 2019.
(Stated in millions)
Shares outstanding at June 30, 2019 1,383
Shares issued under employee 3
stock purchase plan
Vesting of restricted stock -
Stock repurchase program (2)
Shares outstanding at September 30, 2019 1,384
(8) What was the weighted average number of
shares outstanding during the third
quarter of 2019 and second quarter of
2019? 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 2019 and 1.384 billion
during the second quarter of 2019.
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 Quarter2019 Second Quarter
2019
Weighted average shares 1,385 1,384
outstanding
Assumed exercise - -
of stock options
Unvested restricted stock 11 11
Average shares outstanding, 1,396 1,395
assuming dilution
(9) What was the unamortized balance of Schlumberger's
investment in SPM projects at September 30, 2019
and how did it change in terms of investment and
amortization when compared to June 30, 2019?
The unamortized balance of Schlumberger's investments
in SPM projects was approximately $3.9
billion at September 30, 2019 and $4.2 billion
at June 30, 2019. 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, 2019 $4,206
SPM investments 194
Impairment (294)
Amortization of SPM investment (188)
Other (15)
Balance at September 30, 2019 $3,903
(10) What was the amount of WesternGeco multiclient
sales in the third quarter of 2019?
Multiclient sales, including transfer
fees, were $200 million in the third
quarter of 2019 and $181 million in the second quarter of 2019.
(11) What was the WesternGeco backlog at the
end of the third quarter of 2019?
The WesternGeco backlog, which is based on signed contracts
with customers, was $321 million at the
end of the third quarter of 2019. It was $312 million
at the end of the second quarter of 2019.
(12) What were the orders and backlog for Cameron's
OneSubsea and Drilling Systems businesses?
The OneSubsea and Drilling Systems orders
and backlog were as follows:
(Stated in millions)
Orders Third Quarter2019 Second Quarter
2019
OneSubsea $320 $428
Drilling Systems $163 $196
Backlog (at the end of period)
OneSubsea* $1,822 $2,170
Drilling Systems $496 $541
*Third quarter 2019 OneSubsea backlog reflects a cancelled project in the North Sea.
(13) What are the components of the $12.7
billion pretax charge included in
Impairments & other in the Consolidated
Statement of Income (Loss)?
The components of the $12.7 billion pretax
charge are as follows (in millions):
Goodwill(a) $8,828
Intangible assets(b) $1,085
North America pressure pumping(c) $1,575
Other North America-related(d) $310
Argentina(e) $127
Equity-method investments(f) $231
Schlumberger Production Management(g) $294
Other(h) $242
$12,692
(a) As a result of market valuations, Schlumberger determined that
the carrying value of certain of its reporting units
was in excess of their fair values resulting in an $8.8 billion
goodwill impairment charge. This charge largely
relates to goodwill associated with the 2010 acquisition
of Smith International, Inc. ("Smith") (a 100% stock
transaction) and the 2016 acquisition of Cameron International
Corporation (a 78% stock transaction).
(b) Schlumberger recorded a $1.085 billion intangible
asset impairment charge. $842 million
of this charge relates to intangible assets
recorded in connection with Schlumberger's
2010 acquisition of Smith. The remaining $243
million primarily relates to intangible
assets recorded in connection with certain
other acquisitions in North America.
(c) Schlumberger recorded a $1.575 billion charge
relating to its pressure pumping business in
North America. This amount consists of $1.324
billion of pressure pumping equipment and
related assets; $98 million of right-of-use assets
under operating leases; $121 million
relating to a supply contract; $19 million of
inventory; and $13 million of severance.
(d) Primarily relates to other businesses in North
America and consists of $230 million of fixed
asset impairments, $70 million of inventory
write-downs and $10 million of severance.
(e) As a result of the ongoing economic challenges in Argentina,
Schlumberger recorded $127 million of charges. This
consists of $72 million of asset impairments, a $26 million
devaluation charge, and $29 million of severance.
(f) Relates to certain equity method investments that were
determined to be other-than-temporarily impaired.
(g) Relates to the carrying value of certain smaller SPM projects.
(h) Consists of $62 million of severance; $57
million relating to the acceleration
of stock-based compensation expense associated
with certain individuals;
$49 million of business divestiture costs;
$29 million relating to the repurchase
of certain Senior Notes; and $45 million of other provisions.
(14) What is the depreciation and amortization expense effect of
the impairment charges on the third quarter's results?
As these impairment charges were effective as of August 31,
2019, the third-quarter operating results include a
one-month reduction in depreciation and amortization expense
of $27 million. Approximately $21 million of this
amount relates to the Production segment. The remaining $6
million is reflected in our "Corporate & other" line
item. The after-tax impact of this one-month reduction
is approximately one-and-a-half cents in terms of EPS.
About Schlumberger
Schlumberger is the world's leading provider of technology for
reservoir characterization, drilling, production, and processing to
the oil and gas industry. With product sales and services in more
than 120 countries and employing approximately 105,000 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 executive offices in Paris, Houston,
London, and The Hague, and reported revenues of $32.82 billion in
2018. For more information, visit www.slb.com.
*Mark of Schlumberger or Schlumberger companies.
Notes
Schlumberger will hold a conference call to discuss the earnings
press release and business outlook on Friday, October 18, 2019. The
call is scheduled to begin at 8:30 a.m. US Eastern Time. To access
the call, which is open to the public, please contact the
conference call operator at +1 (800) 288-8967 within North America,
or +1 (612) 333-4911 outside North America, approximately 10
minutes prior to the call's scheduled start time. Ask for the
"Schlumberger Earnings Conference Call." At the conclusion of the
conference call, an audio replay will be available until November
19, 2019 by dialing +1 (800) 475-6701 within North America, or +1
(320) 365-3844 outside North America, and providing the access code
471224. 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
19, 2019.
This third-quarter 2019 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; our
effective tax rate; future global economic conditions; and future
results of operations. These statements are subject to risks and
uncertainties, including, but not limited to, global economic
conditions; changes in exploration and production spending by
Schlumberger's customers and changes in the level of oil and
natural gas exploration and development; general economic,
political and business conditions in key regions of the world;
foreign currency risk; pricing pressure; weather and seasonal
factors; operational modifications, delays or cancellations;
production declines; changes in government regulations and
regulatory requirements, including those related to offshore oil
and gas exploration, radioactive sources, explosives, chemicals,
hydraulic fracturing services and climate-related initiatives; the
inability of technology to meet new challenges in exploration; and
other risks and uncertainties detailed in this third-quarter 2019
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 - Vice President of Investor Relations,
Schlumberger LimitedJoy V. Domingo - Director of Investor
Relations, Schlumberger LimitedOffice +1 (713)
375-3535investor-relations@slb.com
View source version on businesswire.com:
https://www.businesswire.com/news/home/20191018005185/en/
This information is provided by Business Wire
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