Market Overview

Schlumberger Announces Third-Quarter 2017 Results

Share:
  • Revenue of $7.9 billion increased 6% sequentially
  • Pretax operating income of $1.1 billion increased 11% sequentially
  • GAAP EPS, including Cameron integration-related charges of $0.03 per
    share, was $0.39
  • EPS, excluding Cameron integration-related charges, was $0.42
  • Cash flow from operations was $1.9 billion; free cash flow was $1.1
    billion

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 charges & credits* $581 $488 $353 19% 65%

Diluted EPS (loss per share) (GAAP basis)

$0.39 $(0.05 ) $0.13 n/m 200%

Diluted EPS, excluding charges and credits*

$0.42 $0.35 $0.25 20% 68%
 
*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 America 2,602 $2,202 $1,699 18% 53%
Latin America 952 1,039 992 -8% -4%
Europe/CIS/Africa 1,838 1,750 1,872 5% -2%
Middle East & Asia 2,357 2,347 2,385 - -1%
Other 156 124 71 n/m n/m
$7,905 $7,462 $7,019 6% 13%
 
North America revenue $2,602 $2,202 $1,699 18% 53%
International revenue $5,147 $5,136 $5,249 - -2%
 
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 operating income $311 $299 $329 4% -5%
Pretax operating margin 17.6 % 17.0 % 19.7 % 56 bps -217 bps

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 operating income $301 $302 $218 - 38%
Pretax operating margin 14.2 % 14.3 % 10.8 % -14 bps 339 bps

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 operating income $283 $221 $91 28% 212%
Pretax operating margin 9.8 % 8.9 % 4.3 % 97 bps 552 bps

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 operating income $194 $174 $215 11% -10%
Pretax operating margin 14.9 % 13.8 % 16.0 % 116 bps -110 bps

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 noncontrolling interests   11   14   9   50
Net income (loss) attributable to Schlumberger (1)   $545   $176   $749   $(1,482)
 
Diluted earnings (loss) per share of Schlumberger (1)   $0.39   $0.13   $0.54   $(1.10)
 
Average shares outstanding 1,385 1,392 1,388 1,345
Average shares outstanding assuming dilution   1,392   1,401   1,395   1,345
 
Depreciation & amortization included in expenses (2)   $956   $998   $2,931   $3,078
(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 portion of long-term debt

1,289 3,153
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 Liquidity  

Sept. 30,
2017

 

Jun. 30,
2017

 

Dec. 31,
2016

 

Sept. 30,
2016

Cash and short-term investments   $4,952   $6,218   $9,257   $10,756
Fixed income investments, held to maturity - 13 238 354
Short-term borrowings and current portion of long-term debt (1,289) (2,224) (3,153) (3,739)
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 September 30,       2017   2017   2016
Net income (loss) before noncontrolling interests $758 $556 $(1,432)
Impairment and other charges, net of tax before noncontrolling
interests
679 36 2,652
$1,437 $592 $1,220
Depreciation and amortization (2) 2,931 956 3,078
Pension and other postretirement benefits expense 79 27 139
Stock-based compensation expense 261 81 210
Pension and other postretirement benefits funding (107) (33) (127)
Change in working capital (1,473) (134) (223)
US federal tax refund 685 685 -
Other (401) (276) (49)
Cash flow from operations (3) $3,412 $1,898 $4,248
 
Capital expenditures (1,482) (598) (1,401)
SPM investments (492) (164) (869)
Multiclient seismic data capitalized (223) (33) (497)
Free cash flow (4) 1,215 1,103 1,481
 
Stock repurchase program (868) (98) (662)
Dividends paid (2,086) (693) (1,951)
Proceeds from employee stock plans 261 118 344
(1,478) 430 (788)
 
Business acquisitions and investments, net of cash acquired plus
debt assumed
(382) (18) (3,866)
Other (227) (27) 34
(Increase) decrease in Net Debt (2,087) 385 (4,620)
Net Debt, beginning of period (10,121) (12,593) (5,547)
Net Debt, end of period $(12,208) $(12,208) $(10,167)
(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  

Diluted
EPS

Schlumberger net income (GAAP basis) $677 $121 $11 $545 $0.39
Merger & integration 49   13   -   36   0.03
Schlumberger net income, excluding charges & credits $726   $134   $11   $581   $0.42
 
Second Quarter 2017
Pretax   Tax  

Noncont.
Interests

  Net  

Diluted
EPS *

Schlumberger net loss (GAAP basis) $17 $98 $(7) $(74) $(0.05)
Promissory note fair value adjustment and other (2) 510 - 12 498 0.36
Merger & integration 81   17   -   64   0.05
Schlumberger net income, excluding charges & credits $608   $115   $5   $488   $0.35
 
Third Quarter 2016
Pretax   Tax  

Noncont.
Interests

  Net  

Diluted
EPS *

Schlumberger net income (GAAP basis) $200 $10 $14 $176 $0.13
Merger and integration:
Merger-related employee benefits and professional fees 46 10 - 36 0.03
Other merger and integration related costs 42 5 - 37 0.03
Amortization of purchase accounting inventory fair value adjustment
(1)
149   45   -   104   0.07
Schlumberger net income, excluding charges & credits $437   $70   $14   $353   $0.25
(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  

Diluted
EPS

Schlumberger net income (GAAP basis) $1,027 $269 $9 $749 $0.54
Promissory note fair value adjustment and other (2) 510 - 12 498 0.36
Merger & integration 213   44   -   169   0.12
Schlumberger net income, excluding charges & credits $1,750   $313   $21   $1,416   $1.02
 
Nine Months 2016
Pretax   Tax  

Noncont.
Interests

  Net  

Diluted
EPS *

Schlumberger net loss (GAAP basis) $(1,691) $(259) $50 $(1,482) $(1.10)
Impairment & other:
Fixed asset impairments 1,058 177 - 881 0.65
Workforce reduction 646 63 - 583 0.43
Inventory write-downs 616 49 - 567 0.42
Multiclient seismic data impairment 198 62 - 136 0.10
Other restructuring charges 55 - - 55 0.04
Merger & integration:
Merger-related employee benefits and professional fees 138 27 - 111 0.08
Other merger and integration-related costs 134 24 - 110 0.08
Amortization of purchase accounting inventory fair value adjustment
(1)
299   90   -   209   0.15
Schlumberger net income, excluding charges & credits $1,453   $233   $50   $1,170   $0.86
(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  

Income
Before
Taxes

  Revenue  

Income
Before
Taxes

  Revenue  

Income
Before
Taxes

Reservoir Characterization $1,771   $311 $1,759   $299 $1,667   $329
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 & other (159) (30) (165) (46) (114) (38)
Pretax operating income 1,059 950 815
Corporate & other (234) (242) (267)
Interest income(1) 30 28 24
Interest expense(1) (129) (128) (135)
Charges & credits   (49)   (591)   (237)
$7,905 $677 $7,462 $17 $7,019 $200
 
(Stated in millions)
  Nine Months Ended
Sept. 30, 2017 Sept. 30, 2016
Revenue  

Income
Before
Taxes

Revenue  

Income
Before
Taxes

Reservoir Characterization $5,148 $891 $4,972 $930
Drilling 6,212 832 6,548 760
Production 7,559 614 6,601 379
Cameron 3,791 530 2,865 465
Eliminations & other (449) (101) (283) (72)
Pretax operating income 2,766 2,462
Corporate & other (715) (679)
Interest income(1) 82 61
Interest expense(1) (383) (391)
Charges & credits   (723)   (3,144)
$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 Quarter
2017

   

Second Quarter
2017

Weighted average shares outstanding 1,385     1,387
Assumed exercise of stock options 1 1
Unvested restricted stock 6     5
Average shares outstanding, assuming dilution 1,392     1,393

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 Quarter
2017

   

Second Quarter
2017

OneSubsea $347     $181
Drilling Systems $156

 

$170
 
Backlog (at the end of period)
OneSubsea $2,328 $2,371
Drilling Systems $523

 

$566

About Schlumberger
Schlumberger is the world's leading
provider of technology for reservoir characterization, drilling,
production, and processing to the oil and gas industry. Working in more
than 85 countries and employing approximately 100,000 people who
represent over 140 nationalities, Schlumberger supplies the industry's
most comprehensive range of products and services, from exploration
through production, and integrated pore-to-pipeline solutions that
optimize hydrocarbon recovery to deliver reservoir performance.

Schlumberger Limited has principal offices in Paris, Houston, London and
The Hague, and reported revenues of $27.81 billion in 2016. For more
information, visit www.slb.com.

*Mark of Schlumberger or of Schlumberger companies.

Japan Oil, Gas and Metals National Corporation (JOGMEC),
formerly Japan National Oil Corporation (JNOC), and Schlumberger
collaborated on a research project to develop logging while drilling
(LWD) technology that reduces the need for traditional chemical sources.
Designed around the pulsed neutron generator (PNG), EcoScope service
uses technology that resulted from this collaboration. The PNG and the
comprehensive suite of measurements in a single collar are key
components of the EcoScope service that deliver game-changing LWD
technology.

Notes

Schlumberger will hold a conference call to discuss the earnings press
release and business outlook on Friday, 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.

View Comments and Join the Discussion!