Market Overview

Schlumberger Announces Full-Year and Fourth-Quarter 2017 Results

Share:
  • Fourth-quarter revenue of $8.2 billion increased 3% sequentially
  • Fourth-quarter pretax operating income of $1.2 billion increased 9%
    sequentially
  • Fourth-quarter GAAP loss per share, including charges of $2.11 per
    share, was $1.63
  • Fourth-quarter EPS, excluding charges, was $0.48
  • Full-year and fourth-quarter cash flow from operations were $5.7
    billion and $2.3 billion, respectively

Schlumberger Limited (NYSE:SLB) today reported results for full-year
2017 and the fourth quarter of 2017.

Full-Year Results

    (Stated in millions, except per share amounts)
Twelve Months Ended   Change
Dec. 31, 2017   Dec. 31, 2016 Year-on-year
Revenue $30,440 $27,810 9%
Pretax operating income $3,921 $3,273 20%
Pretax operating margin 12.9% 11.8% 111 bps
Net loss (GAAP basis) $(1,505) $(1,687) n/m
Net income, excluding charges and credits* $2,085 $1,550 35%
Diluted EPS (loss per share) (GAAP basis) $(1.08) $(1.24) n/m
Diluted EPS, excluding charges and credits* $1.50 $1.14 32%
 
*These are non-GAAP financial measures. See section below entitled
"Charges & Credits" for details.
n/m = not meaningful

Full-year 2017 revenue of $30.4 billion increased 9% year-on-year. This
included a full year's activity from the acquired Cameron businesses as
compared to three quarters of activity in 2016. Excluding the addition
of Cameron, revenue growth was driven by land activity in North America,
which increased by 82% in line with the increase in rig count. Full-year
Production Group revenue increased 21%, Reservoir Characterization Group
revenue improved 2%, and Drilling Group revenue declined 2%.

Full-year 2017 pretax operating income grew 20% and pretax operating
margin of 13% expanded 111 basis points (bps). This was driven by
improved profitability in North America due to the growth in land
activity that benefited both the Production and Drilling Groups.

Fourth-Quarter Results

 
    (Stated in millions, except per share amounts)
Three Months Ended   Change
Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Sequential   Year-on-year
Revenue $8,179 $7,905 $7,107 3% 15%
Pretax operating income $1,155 $1,059 $810 9% 43%
Pretax operating margin 14.1% 13.4% 11.4% 73 bps 272 bps
Net income (loss) - GAAP basis $(2,255) $545 $(204) n/m n/m
Net income, excluding charges & credits* $668 $581 $379 15% 76%
Diluted EPS (loss per share) - GAAP basis $(1.63) $0.39 $(0.15) n/m n/m
Diluted EPS, excluding charges & credits* $0.48 $0.42 $0.27 14% 78%
 
*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, "We closed the
year with fourth-quarter revenue growing 3% sequentially while pretax
operating income rose 9%. Sequential growth was driven by strong
activity in North America, Saudi Arabia, and Latin America, while
revenue in the Europe, CIS, and Africa Area seasonally declined.
Earnings per share of $0.48, excluding charges, were 14% higher than the
third quarter.

"Among the business segments, the fourth-quarter revenue increase was
led by the Production Group, which grew by 7%. Production Group
performance was driven by strong international activity, with more than
20% sequential growth in Saudi Arabia, Russia, and Argentina. In North
America land, revenue grew 6% following the redeployment of additional
pressure pumping fleets, despite a slight sequential decline in market
activity.

"Cameron Group revenue increased 9% sequentially with growth across all
product lines led by OneSubsea, on higher project volume and increased
service revenue. Drilling Group revenue had more modest sequential
growth of 3%, driven by strong M-I SWACO sales in Mexico and North
America and increased Integrated Drilling Services activity in Kuwait.
Reservoir Characterization Group revenue decreased 8% sequentially, as
the seasonal decline in Wireline activity in Russia and lower revenue on
a long-term project in the Middle East were partially offset by year-end
sales of SIS software and WesternGeco multiclient seismic licenses.

"Pretax operating margin grew 73 bps sequentially to 14.1% driven by
improved profitability in the Production, Drilling, and Reservoir
Characterization Groups.

"Over the past three years of unprecedented market downturn, we have
proactively sought to strengthen our technology offering and our market
presence in key markets around the world, with the expansion of our
hydraulic fracturing presence in North America land being the most
recent example. In line with the challenging business environment over
the same period, we have restructured all relevant parts of the company,
in terms of size and organizational set-up, to maximize our market
competitiveness and operational agility.

"With the significant changes seen in customer priorities and buying
habits in recent years, we have also continued to evaluate the present
and future return prospects for all of our product lines, as we look to
maximize all aspects of the Company's long-term financial performance.
Based on this in-depth analysis, the only product line that does not
meet our return expectations going forward, even factoring in an
eventual market recovery, is our seismic acquisition business. We have
therefore taken the difficult decision to exit the marine and land
seismic acquisition market, and instead turn our WesternGeco product
line into an asset-light business, built on our leading position within
multiclient, data processing, and geophysical interpretation services.

"Looking at the oil market, the strong growth in demand is projected to
continue in 2018, on the back of a robust global economy. On the supply
side, the extension of the OPEC- and Russia-led production cuts is
already translating into higher-than-expected inventory draws. In North
America, 2018 shale oil production is set for another year of strong
growth, as the positive oil market sentiments will likely increase both
investment appetite and availability of financing. At the same time, the
production base in the rest of the world is showing fatigue after three
years of unprecedented underinvestment. The underlying signs of weakness
will likely become more evident in the coming year, as the production
additions from investments made in the previous upcycle start to
noticeably fall off. All together this means the oil market is now in
balance and the previous oversupply discount is gradually being replaced
by a market tightness premium, which makes us increasingly positive on
the global outlook for our business.

"These positive oil market sentiments are reflected in the third-party
E&P spend surveys, which predict 15–20% growth in North American
investments in 2018, while the international market is expected to grow
for the first time in four years, with a projected 5% increase in spend.
So, as we enter the first year of growth in all parts of our global
operations since 2014, there is renewed excitement and enthusiasm
throughout our organization, and we remain committed to delivering
market-leading products and services to our customers, and superior
returns to our shareholders."

Other Events

During the quarter, Schlumberger repurchased 1.6 million shares of its
common stock at an average price of $64.82 per share for a total
purchase price of $101 million.

On December 7, 2017, Schlumberger Production Management (SPM) and Torxen
Energy, a private Canadian E&P company, completed the purchase of the
Palliser Block asset located in Alberta, Canada, from Cenovus Energy, an
integrated Canadian oil company.

In December 2017, Schlumberger announced plans to develop a
state-of-the-art industrial manufacturing center at the King Salman
Energy Park in the Kingdom of Saudi Arabia. The 500,000-m2 center will
manufacture products for drilling, exploration, production, and
midstream operations. The first phase is expected to be completed in the
second quarter of 2018.

On December 29, 2017, Schlumberger purchased the US hydraulic fracturing
and pumpdown perforating businesses from Weatherford for $430 million.
Schlumberger took ownership of Weatherford's US-based facilities, field
assets, and supplier and customer contracts related to these businesses.
This transaction will expand the Schlumberger OneStimSM
business.

On January 17, 2018, the Company's Board of Directors approved a
quarterly cash dividend of $0.50 per share of outstanding common stock,
payable on April 13, 2018 to stockholders of record on February 7, 2018.

Consolidated Revenue by Area

    (Stated in millions)
Three Months Ended   Change
Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Sequential   Year-on-year
North America 2,811 $2,602 $1,765 8% 59%
Latin America 1,034 952 952 9% 9%
Europe/CIS/Africa 1,808 1,838 1,834 -2% -1%
Middle East & Asia 2,396 2,357 2,494 2% -4%
Other 130 157 62 n/m n/m
$8,179 $7,905 $7,107 3% 15%
 
North America revenue $2,811 $2,602 $1,765 8% 59%
International revenue $5,237 $5,147 $5,280 2% -1%
n/m = not meaningful

Fourth-quarter revenue of $8.2 billion increased 3% sequentially, with
North America growing 8% and International increasing 2%.

North America

North America Area revenue grew 8% sequentially on increased land
activity and improved pricing, while offshore revenue increased due to
WesternGeco year-end multiclient seismic license sales. North America
land revenue grew 5% sequentially despite a 1% decline in total market
stage count. This increase was mostly driven by OneStim activity, which
was boosted by additional fleet redeployments. Drilling Group revenue in
North America land increased due to the continued high demand for longer
lateral sections in shale oil wells. Increased Cameron Surface and
Drilling Systems product sales and services also contributed to higher
revenue in North America.

International

Revenue in the Latin America Area increased 9% sequentially due
to increased Drilling and Production Group activities in Argentina and
Colombia. SPM project revenue in Ecuador was essentially flat, while
revenue in the Mexico & Central America GeoMarket declined following the
strong WesternGeco multiclient seismic license sales recorded in the
third quarter. Higher project volume for OneSubsea also contributed to
increased revenue in the Area.

Given the recent economic and political developments in Venezuela,
Schlumberger determined that it was appropriate to write-down its
investment in the country. As a result, Schlumberger recorded a charge
of $938 million during the fourth quarter of 2017.

Europe/CIS/Africa Area revenue declined 2%
sequentially as peak summer activity ended in Russia, the North Sea, and
Continental Europe. This decline, however, was partially offset by
strong SIS software sales as well as increased sales of Completions,
Artificial Lift, and Bits & Drilling Tools products across the Area.
Sub-Saharan Africa revenue declined sequentially from lower activity in
Congo as well as from the absence of WesternGeco multiclient seismic
license sales in Mozambique recorded in the third quarter.

Middle East & Asia Area revenue increased 2% sequentially due
to strong Integrated Production Services (IPS) project activity in the
Saudi Arabia & Bahrain GeoMarket. This increase was partially offset by
lower revenue as a result of a change in estimate on a long-term
construction project in the Middle East that is accounted for under the
percentage-of-completion method. Activity was higher for the Production
and Drilling Groups in the Eastern Middle East and Far East Asia &
Australia GeoMarkets, with notably stronger Integrated Drilling Services
(IDS) project activity in Kuwait. Increased Valves & Measurement product
sales and higher project volume for OneSubsea in Australia also
contributed to increased revenue in the Area.

Reservoir Characterization Group

    (Stated in millions)
Three Months Ended   Change
Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Sequential   Year-on-year
Revenue $1,638 $1,771 $1,676 -8% -2%
Pretax operating income $360 $311 $319 16% 13%
Pretax operating margin 22.0% 17.6% 19.0% 441 bps 294 bps

Reservoir Characterization Group revenue of $1.6 billion, of which 74%
came from the international markets, decreased 8% sequentially. This was
driven by the effects of a seasonal decline in Wireline activity in
Russia and by a change in estimate on a long-term project in the Middle
East. This decline was partially offset by year-end sales of SIS
software and WesternGeco multiclient seismic licenses. Geographically,
increased sales of SIS software were recorded across a number of
GeoMarkets, while higher sales of WesternGeco multiclient seismic
licenses in the US Gulf of Mexico were partially offset by lower license
sales in the Mexico & Central America GeoMarket.

Pretax operating margin of 22% was 441 bps higher sequentially,
supported by increased contributions of high-margin SIS software and
WesternGeco multiclient seismic license sales, as well as the impact of
the accounting for the long-term project in the Middle East.

Reservoir Characterization Group performance was enhanced by Integrated
Services Management (ISM) operations and strengthened by contract awards
and new technology deployments.

BP awarded Schlumberger an ISM contract for the well construction of
five to eight development wells in the Mad Dog 2 project in the US Gulf
of Mexico. The scope of work in this performance contract includes all
drilling-related services with a goal of achieving lower well
construction costs while maintaining safety, reliability, and integrity
requirements.

In Indonesia, ISM drilled 13 wells for KS ORKA for the Sorik Marapi
Geothermal project in North Sumatra. This included the deployment of
technologies and services from six different product lines, such as the
Xtreme* high-pressure, high-temperature well logging platform and
i-DRILL* integrated dynamic system analysis service. This resulted in
99.9% operating efficiency in this challenging high-temperature
environment.

Schlumberger announced at the SIS Global Forum in Paris, France, that BP
will be a strategic partner on the DrillPlan* digital well construction
planning solution and on a future execution solution focused on the
drilling of a well. BP will pilot these solutions during its development
of the Khazzan field in Oman. The DrillPlan solution is the first step
in the DELFI* cognitive E&P environment. This technology has the
potential to deliver a well planning program in days rather than weeks
and is part of a fully integrated well construction offering.

In December, Schlumberger inaugurated the newly expanded reservoir rock
and fluid analysis laboratory in Houston, Texas. The laboratory enables
petrotechnical experts to better leverage physical and digital rock and
fluid analysis for comprehensive reservoir characterization. Integrating
data and insight from field and laboratory measurements conducted at
this new facility into the DELFI cognitive E&P environment will enhance
collaboration across E&P teams to realize the full potential of all
available data and science in optimizing oil and gas assets.

In South Texas, Wireline deployed a combination of technologies for
Chesapeake Operating LLC to complete the second largest microseismic
fracture characterization project in North America in the JJ Henry
field. The technologies included VSI* versatile seismic imager arrays
positioned horizontally by a TuffTRAC* cased hole services tractor to
enable real-time mapping of experimental unconventional resource
stimulation designs. Analysis of this data will enable the customer to
derisk decisions affecting stimulation design and well placement.

Drilling Group

    (Stated in millions)
Three Months Ended   Change
Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Sequential   Year-on-year
Revenue $2,180 $2,120 $2,013 3% 8%
Pretax operating income $319 $301 $234 6% 36%
Pretax operating margin 14.6% 14.2% 11.6% 43 bps 300 bps

Drilling Group revenue of $2.2 billion, of which 73% came from the
international markets, increased 3% sequentially driven by strong M-I
SWACO sales in Mexico and North America land, as well as increased IDS
activity in Kuwait. Higher drilling activity in Argentina and Colombia,
new drilling project startups in Qatar and China, the restart of onshore
activity in Libya, and increased drillbit sales in Algeria also
contributed to the revenue growth.

Pretax operating margin of 15% expanded 43 bps sequentially from
improved profitability in Drilling & Measurements and from increased M-I
SWACO product sales.

Drilling Group performance in the fourth quarter was strengthened by
contract awards, IDS operations, and a full range of technologies and
integrated drilling systems that helped reduce operating costs.

Saudi Aramco awarded Schlumberger two IDS contracts to provide drilling
rigs and services for up to 146 gas wells and up to 128 oil wells over
three years. IDS will use enhanced processes and the latest technology
to increase efficiency levels and improve cost effectiveness while
maintaining the highest operational safety standards.

Kuwait Energy awarded Schlumberger a one-year IDS contract for four
wells and one optional well in the Siba field. The integrated services
will include Bits & Drilling Tools StingBlade* conical diamond element
bits as well as technologies from Drilling & Measurements, M-I SWACO,
Wireline, Completions, and Well Services.

In India, Vedanta Limited (Cairn Oil & Gas) awarded Schlumberger a
two-year IDS contract with an optional one-year extension valued at $40
million for an offshore exploration campaign in the Bay of Bengal. The
contract includes the provision of services and technologies from
multiple Schlumberger product lines, such as M-I SWACO, Drilling &
Measurements, Bits & Drilling Tools, Wireline, Well Services, and
OneSubsea.

In the Mexico sector of the Gulf of Mexico, IDS used a combination of
technologies for Hokchi Energy to reduce drilling time by 154 days and
improve the rate of penetration (ROP) by 50% in a four-well campaign,
enabling Hokchi to drill a fifth appraisal well—all within the time
frame and budget of the initial project scope. Technologies included
Bits & Drilling Tools FireStorm* wear-resistant high-impact PDC cutter
technology, Rhino XS2* full-cycle expandable reamer, the i-DRILL
integrated dynamic system analysis service, and Drilling & Measurements
PowerDrive X6* rotary steerable system.

Offshore Russia, IDS used a combination of technologies for
LUKOIL-Nizhnevolzhskneft to save $4.6 million in operating costs by
eliminating the need for three pilot wells in the Filanovsky field in
the Caspian Sea. Well construction was performed 19 days faster than
planned. The GeoSphere* reservoir mapping-while-drilling service enabled
the customer to precisely land the well in the target zone, thus
decreasing technical risks for completions operations.

In the UK sector of the North Sea, Drilling & Measurements used the
GeoSphere reservoir mapping-while-drilling service for Centrica Energy
to eliminate the need for a pilot hole and complex sidetracking
operations in the Chestnut field. The GeoSphere service enabled
real-time adjustments to the well trajectory while drilling, maximizing
reservoir contact of the horizontal well in the complex injectite
reservoir.

In Argentina, Drilling & Measurements used a combination of technologies
for a major oil producer to drill the longest lateral section in the
Vaca Muerta Shale play. The horizontal section in the Pampa de las
Yeguas field is 3,152 m in length. The technologies included the
PowerDrive Orbit* rotary steerable system and the PowerDrive Archer*
high build rate rotary steerable system.

In the Norwegian sector of the North Sea, Drilling Group technologies
helped save Statoil $5.5 million in operating costs, equivalent to 28
days of operating time, in the Gullfaks field. A customized solution
enabled Statoil to gain access to the reservoir with a conventional
borehole-sized drillstring in a challenging cased-hole section. The
combination of technologies that helped reduce operating time and
increase system reliability included the TrackMaster* comprehensive
whipstock sidetracking solution, PowerDrive X6 rotary steerable system,
and Rhino RHE* dual-reamer rathole elimination system.

Production Group

    (Stated in millions)
Three Months Ended   Change
Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Sequential   Year-on-year
Revenue $3,079 $2,876 $2,203 7% 40%
Pretax operating income $315 $283 $128 11% 146%
Pretax operating margin 10.2% 9.8% 5.8% 39 bps 440 bps

Production Group revenue of $3.1 billion, of which 54% came from the
international markets, increased 7% sequentially. Performance was driven
by strong international activity, with more than 20% sequential growth
in Saudi Arabia, Russia, and Argentina. In North America, land revenue
grew 6% following the redeployment of additional pressure pumping fleets
despite a 1% decline in market stage count. Sequentially, SPM revenue
was essentially flat.

Pretax operating margin of 10% increased 39 bps sequentially due to
improved pricing on land in North America. Incremental margin in North
America land was 23%, expanding pretax operating margin by almost 100
bps during the quarter.

The Production Group benefited from technology deployments and contract
awards.

Occidental Petroleum Corporation (Oxy) and Schlumberger signed an MOU
for a five-year service partnership in the Aventine project in New
Mexico's Delaware basin. The partners will jointly reduce the cost per
barrel in the safest and most efficient way possible. Pending final
contract negotiation, the agreement includes a minimum scope of 700
wells, exclusivity of services, and construction of a Schlumberger
facility within the Oxy acreage that will service the Aventine project
as well as other operators in the region.

In Louisiana, OneStim 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, while pressure analysis verified stimulation
throughout the perforated interval. As a result, Aethon Energy awarded
Schlumberger the work for a dedicated fracturing fleet in this basin.

In North America land, OneStim deployed the BroadBand Sequence
fracturing service for Encana to refracture wells in two shale plays. In
the Eagle Ford Shale, the Broadband Sequence service increased oil
production in one well from approximately 50 bbl/d to 650 bbl/d and
increased flowing pressure from 250 psi to 5,000 psi. In the Haynesville
Shale, the BroadBand Sequence service helped increase gas production in
one well from 100 Mscf/d to 5,000 Mscf/d, with flowing pressure
increasing from 1,500 psi to 6,000 psi. Selection of the wells for
refracturing was based on the quality of the reservoir, completion and
production history, and location relative to offset wells.

In the United Kingdom, Hurricane Energy awarded Schlumberger a contract
for the provision of Artificial Lift Solutions technologies for the
Lancaster Basement field on the UK Continental Shelf west of Shetland.
The technologies include REDA Maximus* electric submersible pump systems
with variable speed drive systems.

In British Colombia, HEAL System™ technology was used for several oil
and gas customers to increase productivity by an average of 75% in 25
horizontal wells in the Montney Shale. As a joint venture between
Schlumberger and Production Plus Energy Services Inc., HEAL System
technology is designed to lower production costs by mitigating
multiphase slug fluid flow and excessive gas interference during the
production phases of horizontal unconventional wells. This technology
has now been introduced in all major liquid-rich shale basins in North
America land.

Cameron Group

    (Stated in millions)
Three Months Ended   Change
Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Sequential   Year-on-year
Revenue $1,414   $1,297   $1,346 9% 5%
Pretax operating income $203 $194 $188 5% 8%
Pretax operating margin 14.4% 14.9% 14.0% -58 bps 38 bps

Cameron Group revenue of $1.4 billion, of which 56% came from
international markets, increased 9% sequentially. Growth was recorded
across all product lines, led by OneSubsea on higher project volume and
increased service revenue in Australia and Mexico. Surface Systems
revenue increased due to stronger product sales on land in North
America, while Drilling Systems revenue grew on product volume increases
in the US and Norway. Valves & Measurement revenue increased from higher
product sales in Saudi Arabia and the Eastern Middle East GeoMarket.

Pretax operating margin of 14% decreased 58 bps sequentially, mainly due
to a change in mix in Surface and Drilling Systems.

Cameron Group performance benefitted from Subsea Integration Alliance
synergies, capital-efficient solutions, contract awards, and new
technology commercialization.

Ophir Equatorial Guinea Limited—a subsidiary of Ophir Energy—awarded the
Subsea Integration Alliance (a partnership between OneSubsea and Subsea
7), an engineering, procurement, construction, installation, and
commissioning (EPCIC) contract for the Fortuna FLNG project in
Equatorial Guinea. The contract includes subsea umbilicals, risers and
flowlines, and a subsea production system. The project will deliver 440
Mmscf/d of gas through infrastructure comprising four wells located at
an average water depth of 1,790 m. Expenditure under the EPCIC contract
will only commence after the project FID. Delivery of first gas is
expected in 2020.

Schlumberger installed and commissioned the industry's first all-OEM
managed pressure drilling (MPD) system for drilling contractor Stena
Drilling. The closed-loop MPD system, currently installed on the
ultradeepwater drillship Stena Carron, was recently used to drill
exploration wells offshore Guyana.

This quarter, Schlumberger commercialized the GROVE IST* integrated seat
technology ball valve that requires up to 70% less torque, reducing wear
on moving parts, resulting in lower total cost of ownership. The GROVE
IST valve also weighs up to 40% less than conventional ball valves,
which is a key benefit in harsher environments where larger-sized valves
are typically required. In addition, GROVE IST technology uses a
patented seat-on-ball design that exceeded the industry standard on
sealing performance by a factor of 100 during qualification pressure
testing.

In Queensland Australia, Senex Energy awarded Schlumberger an IDS
contract for the well construction of 30 coal seam gas wells. This
integrated contract includes Schlumberger Land Rigs and, for the first
time in Australia, Surface Systems wellheads. Operations started in June
2017 and were completed in November 2017. This integrated operation with
a single rig achieved a benchmark of 3 days and 16 hours to drill and
complete a well, including the time needed to move the rig.

Introduced in 2014, OneSubsea Capital-Efficient Solutions extend
market-leading subsea boosting technology and are now an integral part
of all customer projects. Capital-Efficient Solutions have reduced the
average lead times of subsea products by more than 50%, saving up to 60%
in project costs. As a portfolio of standardized designs that leverages
streamlined engineering and manufacturing processes, Capital-Efficient
Solutions deliver integrated subsea production systems, which reduce
project cycle time and overall cost. The adoption of prequalified
quality plans, suppliers, materials, and welding specifications has
enhanced the efficiency and reliability of the product-manufacturing
life cycle.

Financial Tables

Condensed Consolidated Statement of Income (Loss)
        (Stated in millions, except per share amounts)
 
Fourth Quarter Twelve Months
Periods Ended December 31, 2017 2016 2017   2016
 
Revenue $8,179 $7,107 $30,440 $27,810
Interest and other income 52 47 224 200
Expenses
Cost of revenue (1) 7,201 6,193 26,543 24,409
Research & engineering 192 261 787 1,012
General & administrative 109 99 432 403
Impairments & other (1) 2,701 599 3,211 3,172
Merger & integration (1) 95 76 308 349
Interest 143 139 566 570
Loss before taxes $(2,210) $(213) $(1,183) $(1,905)
Tax expense (benefit) (1) 62 (19) 330 (278)
Net loss $(2,272) $(194) $(1,513) $(1,627)
Net income (loss) attributable to noncontrolling interests (17) 10 (8) 60
Net loss attributable to Schlumberger (1) $(2,255) $(204) $(1,505) $(1,687)
 
Diluted loss per share of Schlumberger (1) $(1.63) $(0.15) $(1.08) $(1.24)
 
Average shares outstanding 1,385 1,391 1,388 1,357
Average shares outstanding assuming dilution 1,385 1,391 1,388 1,357
 
Depreciation & amortization included in expenses (2) $906 $1,016 $3,837 $4,094
(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)
 
Dec. 31, Dec. 31,
Assets     2017     2016
Current Assets
Cash and short-term investments $5,089 $9,257
Receivables 8,084 9,387
Other current assets     5,324     5,283
18,497 23,927
Fixed income investments, held to maturity - 238
Fixed assets 11,576 12,821
Multiclient seismic data 727 1,073
Goodwill 25,118 24,990
Intangible assets 9,354 9,855
Other assets     6,715     5,052
      $71,987     $77,956
 
Liabilities and Equity            
Current Liabilities
Accounts payable and accrued liabilities $10,036 $10,016
Estimated liability for taxes on income 1,223 1,188

Short-term borrowings and current portion of long-term debt

3,324 3,153
Dividends payable     699     702
15,282 15,059
Long-term debt 14,875 16,463
Deferred taxes 1,650 1,880
Postretirement benefits 1,082 1,495
Other liabilities     1,837     1,530
34,726 36,427
Equity     37,261     41,529
      $71,987     $77,956

Liquidity

        (Stated in millions)
Dec. 31, Sept. 30, Dec. 31,
Components of Liquidity     2017   2017   2016
Cash and short-term investments $5,089 $4,952 $9,257
Fixed income investments, held to maturity - - 238
Short-term borrowings and current portion of long-term debt (3,324) (1,289) (3,153)
Long-term debt (14,875) (15,871) (16,463)
Net Debt (1) $(13,110) $(12,208) $(10,121)
 
Details of changes in liquidity follow:
 
Twelve Fourth Twelve
Months Quarter Months
Periods Ended December 31,     2017   2017   2016
 
Net loss before noncontrolling interests $(1,513) $(2,272) $(1,627)
Impairment and other charges, net of tax before noncontrolling
interests
3,624 2,945 3,237
$2,111 $673 $1,610
Depreciation and amortization (2) 3,837 906 4,094
Pension and other postretirement benefits expense 104 25 187
Stock-based compensation expense 343 82 267
Pension and other postretirement benefits funding (133) (26) (174)
Change in working capital (823) 650 416
US federal tax refund 685 - -
Other (461) (59) (139)
Cash flow from operations (3) $5,663 $2,251 $6,261
 
Capital expenditures (2,107) (625) (2,055)
SPM investments (1,609) (1,117) (1,031)
Multiclient seismic data capitalized (276) (53) (630)
Free cash flow (4) 1,671 456 2,545
 
Dividends paid (2,778) (692) (2,647)
Stock repurchase program (969) (101) (778)
Proceeds from employee stock plans 297 36 415
(1,779) (301) (465)
 
Business acquisitions and investments, net of cash acquired plus
debt assumed
(847) (465) (4,022)
Other (363) (136) (87)
Increase in Net Debt (2,989) (902) (4,574)
Net Debt, beginning of period (10,121) (12,208) (5,547)
Net Debt, end of period $(13,110) $(13,110) $(10,121)
(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 $455 million and $108 million during
the twelve months and fourth quarter ended December 31, 2017,
respectively; and $850 million during the twelve months ended
December 31, 2016. The twelve months ended December 31, 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 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 Full-Year and
Fourth-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; 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)

 
Fourth Quarter 2017
    Noncont.     Diluted
Pretax   Tax   Interests   Net   EPS *
Schlumberger net loss (GAAP basis) $(2,210) $62 $(17) $(2,255) $(1.63)
Impairments & other :
WesternGeco seismic restructuring 1,114 20 - 1,094 0.79
Venezuela investment write-down 938 - - 938 0.67
Workforce reductions 247 13 - 234 0.17
Multiclient seismic data impairment 246 81 - 165 0.12
Other restructuring charges 156 10 22 124 0.09
Merger & integration 95 26 - 69 0.05
Provision for loss on long-term construction project (1) 245 22 - 223 0.16
US tax reform (2) -   (76)   -   76   0.05
Schlumberger net income, excluding charges & credits $831   $158   $5   $668   $0.48
 
Third Quarter 2017
Noncont. Diluted
Pretax   Tax   Interests   Net   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
 
Fourth Quarter 2016
Noncont. Diluted
Pretax   Tax   Interests   Net   EPS *
Schlumberger net loss (GAAP basis) $(213) $(19) $10 $(204) $(0.15)
Impairments & other :
Workforce reduction 234 6 - 228 0.16
Facility closure costs 165 40 - 125 0.09
Costs associated with exiting certain activities 98 23 - 75 0.05
Currency devaluation loss in Egypt 63 - - 63 0.04
Contract termination costs 39 9 - 30 0.02
Merger & integration 76   14   -   62   0.04
Schlumberger net income, excluding charges & credits $462   $73   $10   $379   $0.27
(1)   Recorded in Cost of revenue in the Condensed Consolidated Statement
of Income (Loss).
(2) Recorded in Tax expense (benefit) in the Condensed Consolidated
Statement of Income (Loss).
 
* Does not add due to rounding.
      (Stated in millions, except per share amounts)
 
Twelve Months 2017
Pretax   Tax Noncont.   Net   Diluted
        Interests       EPS *
Schlumberger net loss (GAAP basis) $(1,183) $330 $(8) $(1,505) $(1.08)
Impairments & other :
WesternGeco seismic restructuring 1,114 20 - 1,094 0.78
Venezuela investment write-down 938 - - 938 0.67
Promissory note fair value adjustment and other 510 - 12 498 0.36
Workforce reductions 247 13 - 234 0.17
Multiclient seismic data impairment 246 81 - 165 0.12
Other restructuring charges 156 10 22 124 0.09
Merger & integration 308 70 - 238 0.17
Provision for loss on long-term construction project (1) 245 22 - 223 0.16
US tax reform (2) -   (76)   -   76   0.05
Schlumberger net income, excluding charges & credits $2,581   $470   $26   $2,085   $1.50
 
Twelve Months 2016
Pretax Tax Noncont. Net Diluted
        Interests       EPS *
Schlumberger net loss (GAAP basis) $(1,905) $(278) $60 $(1,687) $(1.24)
Impairments & other :
Fixed asset impairments 1,058 177 - 881 0.65
Workforce reduction 880 69 - 811 0.59
Inventory write-downs 616 49 - 567 0.42
Multiclient seismic data impairment 198 62 - 136 0.10
Facility closure costs 165 40 - 125 0.09
Costs associated with exiting certain activities 98 23 - 75 0.05
Currency devaluation loss in Egypt 63 - - 63 0.05
Other restructuring charges 55 - - 55 0.04
Contract termination costs 39 9 - 30 0.02
Merger & integration 349 64 - 285 0.21
Amortization of purchase accounting inventory fair value adjustment (1) 299   90   -   209   0.15
Schlumberger net income, excluding charges & credits $1,915   $305   $60   $1,550   $1.14
(1)   Recorded in Cost of revenue in the Condensed Consolidated Statement
of Income (Loss).
(2) Recorded in Tax expense (benefit) in the Condensed Consolidated
Statement of Income (Loss).
 
* Does not add due to rounding.

Product Groups

 

           

(Stated in millions)

Three Months Ended
Dec. 31, 2017 Sept. 30, 2017 Dec. 31, 2016

 

Income

 

Income

 

  Income
Before Before Before

Revenue

Taxes  

Revenue

Taxes

Revenue

Taxes
Reservoir Characterization $1,638 $360 $1,771 $311 $1,676 $319
Drilling 2,180 319 2,120 301 2,013 234
Production 3,079 315 2,876 283 2,203 128
Cameron 1,414 203 1,297 194 1,346 188
Eliminations & other (132) (42) (159) (30) (131) (59)
Pretax operating income 1,155 1,059 810
Corporate & other (219) (234) (245)
Interest income(1) 25 30 23
Interest expense(1) (130) (129) (126)
Charges & credits   (3,041)   (49)   (675)
$8,179 $(2,210) $7,905 $677 $7,107 $(213)
(Stated in millions)
    Twelve Months Ended
Dec. 31, 2017   Dec. 31, 2016

 

  Income

 

  Income
Before Before

Revenue

Taxes  

Revenue

Taxes
Reservoir Characterization $6,786 $1,251 $6,648 $1,249
Drilling 8,392 1,151 8,561 994
Production 10,639 928 8,804 507
Cameron 5,205 733 4,211 653
Eliminations & other (582) (142) (414) (130)
Pretax operating income 3,921 3,273
Corporate & other (934) (925)
Interest income(1) 107 84
Interest expense(1) (513) (517)
Charges & credits   (3,764)   (3,820)
$30,440 $(1,183) $27,810 $(1,905)
(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 2018?

Capex (excluding multiclient and SPM investments) for the full year
2018 is expected to be approximately $2 billion, which is similar to
the levels of 2017 and 2016.
 
2)

What were the cash flow from operations and free cash flow for
the fourth quarter of 2017?

Cash flow from operations for the fourth quarter of 2017 was $2.3
billion and included $108 million of severance payments. Free cash
flow for the fourth quarter of 2017 was $456 million and included
$108 million of severance payments and the purchase of the Palliser
Block asset.
 
3)

What were the cash flow from operations and free cash flow for
the full year of 2017?

Cash flow from operations for the full year of 2017 was $5.7 billion
and included $455 million of severance payments. Free cash flow for
the full year of 2017 was $1.7 billion and included $455 million of
severance payments and the purchase of the Palliser Block asset
during the fourth quarter of 2017.
 
4)

What was included in "Interest and other income" for the fourth
quarter of 2017?

"Interest and other income" for the fourth quarter of 2017 was $52
million. This amount consisted of earnings of equity method
investments of $22 million and interest income of $30 million.
 
5)

How did interest income and interest expense change during the
fourth quarter of 2017?

Interest income of $30 million was flat sequentially. Interest
expense of $143 million was essentially flat sequentially.
 
6)

What is the difference between pretax operating income and
Schlumberger's consolidated income before taxes?

The difference principally consists of corporate items, charges and
credits, and interest income and interest expense not allocated to
the segments as well as stock-based compensation expense,
amortization expense associated with certain intangible assets
(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 fourth quarter of
2017?

The ETR for the fourth quarter of 2017, calculated in accordance
with GAAP, was -2.8% as compared to 17.9% for the third quarter of
2017. The ETR for the fourth quarter of 2017, excluding charges and
credits, was 19.0% as compared to 18.4% for the third quarter of
2017.
 
8)

What is the impact of US tax reform on Schlumberger?

US tax reform significantly changes US corporate income tax laws
by, among other things, reducing the US corporate income tax rate
to 21% starting in 2018 and creating a territorial tax system with
a one-time mandatory tax on previously deferred foreign earnings
of US subsidiaries. As a result, Schlumberger recorded a net
charge of $76 million during the fourth quarter of 2017. This
amount, which is included in Tax expense (benefit) in the
Consolidated Statement of Income (Loss), consists of two
components: (i) a $410 million charge relating to the one-time
mandatory tax on previously deferred earnings of certain non-US
subsidiaries that are owned either wholly or partially by a US
subsidiary of Schlumberger and (ii) a $334 million credit
resulting from the remeasurement of Schlumberger's net deferred
tax liabilities in the US based on the new lower corporate income
tax rate.

 
After considering the impact of foreign tax credits and tax losses,
the cash tax payable as a result of the one-time mandatory tax on
previously deferred foreign earnings of Schlumberger's US subsidiary
will not be significant.
 
As a non-US company, Schlumberger's corporate structure results in
us largely paying taxes where we operate and earn profits, without
having to incur additional layers of taxes. Given this structure,
the primary impact of US tax reform on Schlumberger is that a lower
federal tax rate will be applied to income earned by our US
business. Absent the impact of US tax reform, our ETR would likely
increase by approximately 2 to 3 percentage points in 2018 as
compared to our fourth quarter 2017 ETR. However, the impact of US
tax reform for 2018 is expected to largely offset this increase. As
a result, we expect the full-year 2018 ETR to approximate our Q4
2017 ETR before charges and credits.
 
9)

How many shares of common stock were outstanding as of December
31, 2017 and how did this change from the end of the previous
quarter?

There were 1.384 billion shares of common stock outstanding as of
December 31, 2017. The following table shows the change in the
number of shares outstanding from September 30, 2017 to December 31,
2017.

 

 

(Stated in millions)

Shares outstanding at September 30, 2017 1,385
Shares sold to optionees, less shares exchanged -
Vesting of restricted stock 1
Shares issued under employee stock purchase plan -
Stock repurchase program (2)
Shares outstanding at December 31, 2017 1,384
10)  

What was the weighted average number of shares outstanding
during the fourth quarter of 2017 and third 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 fourth quarter of 2017 and 1.385 billion during the third
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)

 

Fourth Quarter

 

Third Quarter

2017  

2017

Weighted average shares outstanding 1,385 1,385
Assumed exercise of stock options 1 1
Unvested restricted stock 5   6
Average shares outstanding, assuming dilution 1,391   1,392
11)  

What are Schlumberger Production Management (SPM) projects and
how does Schlumberger recognize revenue from these projects?

SPM projects are focused on developing and comanaging production on
behalf of Schlumberger customers under long-term agreements.
Schlumberger will invest its own services, products, and in some
cases, cash, into the field development activities and operations.
Although in certain arrangements Schlumberger recognizes revenue and
is paid for a portion of the services or products it provides,
generally Schlumberger will not be paid at the time of providing its
services or upon delivery of its products. Instead, Schlumberger
recognizes revenue and is compensated based upon cash flow generated
or on a fee-per-barrel basis. This may include certain arrangements
whereby Schlumberger is only compensated based upon incremental
production it helps deliver above a mutually agreed base

 

 
12)

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.
 
13)

What was the unamortized balance of Schlumberger's investment
in SPM projects at December 31, 2017 and how did it change in
terms of investment and amortization when compared to September
30, 2017?

The unamortized balance of Schlumberger's investments in SPM
projects was approximately $4.1 billion and $2.8 billion at December
31, 2017 and September 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 September 30, 2017 $2,804
SPM investments 1,117
Other additions 279
Amortization of SPM investment (135)
Balance at December 31, 2017 $4,065
14)  

What was the amount of WesternGeco multiclient sales in the
fourth quarter of 2017?

Multiclient sales, including transfer fees, were $166 million in the
fourth quarter of 2017 and $127 million in the third quarter of 2017.
 
15)

What was the WesternGeco backlog at the end of the fourth
quarter of 2017?

WesternGeco backlog, which is based on signed contracts with
customers, was $399 million at the end of the fourth quarter of
2017. It was $489 million at the end of the third quarter of 2017.
 
16)

What were the orders and backlog for the Cameron Group's
OneSubsea and Drilling Systems businesses?

OneSubsea and Drilling Systems orders and backlog were as follows:
   

 

 

(Stated in millions)

 

Fourth Quarter Third Quarter

Orders

2017   2017
OneSubsea $282 $347
Drilling Systems $150

 

$156
 
Backlog (at the end of period)
OneSubsea $2,060 $2,328
Drilling Systems $408

 

$523
17)  

What does the $3.041 billion of pretax charges recorded during
the fourth quarter of 2017 relate to?

The $3.041 billion of pretax charges recorded during the fourth
quarter of 2017 consists of the following (in millions):
WesternGeco seismic restructuring     $1,114
Venezuela write-down (1) 938
Workforce reductions (2) 247
Multiclient seismic data impairment 246
Other (3) 496
$3,041
(1) Given the recent economic and political developments
in Venezuela, Schlumberger determined that it was appropriate
to write-down its investment in the country. As a result,
Schlumberger recorded a charge of $938 million, consisting of:
$469 million of accounts receivable, a $105 million
other-than-temporary impairment charge relating to promissory
notes, $285 million of fixed assets, and $79 million of other assets.
(2) Represents reductions associated with the
restructuring of our geographical and product line organizations.
(3) Other includes the following: a $245 million
provision for an estimated loss on a long-term surface facility
construction
project that is accounted for under the percentage-of-completion
method; a $95 million of merger and integration
charges relating to Cameron, and the Weatherford transaction; and
$156 million of other restructuring charges.

About Schlumberger

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

Schlumberger Limited has principal offices in Paris, Houston, London and
The Hague, and reported revenues of $30.44 billion in 2017. For more
information, visit www.slb.com.

*Mark of Schlumberger or of Schlumberger companies.

Notes

Schlumberger will hold a conference call to discuss the earnings press
release and business outlook on Friday, January 19, 2018. The call is
scheduled to begin at 8:30 a.m. US Eastern Time. To access the call,
which is open to the public, please contact the conference call operator
at +1 (800) 288-8967 within North America, or +1 (612) 333-4911 outside
North America, approximately 10 minutes prior to the call's scheduled
start time. Ask for the "Schlumberger Earnings Conference Call." At the
conclusion of the conference call an audio replay will be available
until February 19, 2018 by dialing +1 (800) 475-6701 within North
America, or +1 (320) 365-3844 outside North America, and providing the
access code 433023.

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 February 28, 2018.

This full-year and fourth-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 effects of U.S. tax reform; our effective
tax rate; 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 full-year and
fourth-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.

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