Market Overview

Schlumberger Announces Second-Quarter 2018 Results

Share:
  • Revenue of $8.3 billion increased 6% sequentially
  • Pretax operating income of $1.1 billion increased 12% sequentially
  • Second-quarter GAAP EPS, including charges of $0.12 per share, was
    $0.31
  • Second-quarter EPS, excluding charges, was $0.43
  • Cash flow from operations was $987 million

Schlumberger Limited (NYSE:SLB) today reported results for the second
quarter of 2018.

       
(Stated in millions, except per share amounts)
Three Months Ended           Change
Jun. 30, 2018     Mar. 31, 2018   Jun. 30, 2017 Sequential     Year-on-year
Revenue $8,303 $7,829 $7,462 6% 11%
Pretax operating income $1,094 $974 $950 12% 15%
Pretax operating margin 13.2% 12.4% 12.7% 75 bps 45 bps
Net income - GAAP basis $430 $525 $(74) -18% n/m
Net income, excluding charges & credits* $594 $525 $488 13% 22%
Diluted EPS - GAAP basis $0.31 $0.38 $(0.05) -18% n/m
Diluted EPS, excluding charges & credits* $0.43 $0.38 $0.35 13% 23%
 
*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, "The second
quarter was both busy and exciting for Schlumberger as we completed a
number of major milestones in preparation for the broad-based global
activity upturn that is now emerging. We delivered solid top-line growth
both in North America and the international markets, building on our
strong contract portfolios and our recent tender wins. We mobilized an
unprecedented 29 new rigs for our international integrated drilling
business, including our first commercial Land Rig of the Future
deployment in Saudi Arabia. We successfully rolled out our new,
streamlined operations support organization, building on five years of
methodical investment to further professionalize all aspects of our
work, which will set new standards for internal efficiency, quality,
teamwork, and collaboration. As part of this, we made the last
adjustment to our organizational setup in the second quarter to conclude
the removal of one complete layer of our management and support
structure. This will further reduce our cost base, and improve our
agility and competitiveness going forward.

"Given the considerable number of new projects we are starting up
throughout our international operations, our organization has responded
well to both mobilization and project startup challenges. However, the
associated costs together with some operational delays impacted our
second-quarter pretax operating margins. This resulted in our sequential
margin expansion being below our expectations.

"In North America, excluding Cameron, second-quarter revenue of $2.5
billion increased 12% sequentially as we continued our deployment of
additional hydraulic fracturing and directional drilling capacity.
Despite the impact of the spring breakup in Canada, North America Land
revenue grew 9%, driven by market share gains and operational efficiency
improvements while pricing remained flat. In the hydraulic fracturing
market, we are seeing an accelerating customer trend of separating the
procurement of pumping services and sand supply. As our multiyear
vertical integration investment program approaches completion, it
enables us to bid competitively on integrated or stand-alone sand
contracts. North America Offshore activity began to recover during the
second quarter with new drilling projects starting up in Eastern Canada,
the US Gulf of Mexico, and the Caribbean, resulting in sequential
offshore revenue growth of 22%.

"Excluding Cameron, second-quarter revenue in the international markets
of $4.4 billion grew 6% sequentially despite flat revenue in Russia, and
only nominal growth in the Middle East, where startup and project delays
affected our results. Sequential growth was driven by an 18% improvement
in Asia and Australia, 9% in Europe and Africa, and 3% in Latin America.
These figures confirm that a much broader-based international recovery
is now emerging. Pricing improved in the international markets during
the second quarter, and while the numbers are not yet material, a trend
has been established and customer pricing discussions are continuing
both for new and existing contracts. With a number of large-scale
project awards absorbing our remaining spare capacity in both drilling
and production services, our equipment will be fully deployed during the
fourth quarter, after which we expect a further strengthening of the
international pricing recovery.

"Growth in the second quarter was led by Production where revenue
increased sequentially by 10%, driven by OneStimSM in North
America. Revenue from both Reservoir Characterization and Drilling
increased 5% sequentially due to higher international activity beyond
the seasonal rebounds in the Northern Hemisphere. The increase in
revenue was driven by higher OneSurfaceSM activity,
additional Software Integrated Solutions (SIS) sales, and the start of
integrated drilling projects in the Middle East, India, Mexico, and
offshore North America. Cameron revenue decreased 1% sequentially on
lower OneSubseaTM project volume, although this was partially
offset by higher service activity in North America for Surface Systems
and higher product sales for Valves & Measurement.

"The market fundamentals continue to evolve favorably for our
international business as the global balance of crude oil supply and
demand tightens further. Global GDP growth remains strong, with any
impact of headwinds from the US-China trade dispute likely to become
clearer in the next few quarters. Despite OPEC's recent decision to
increase production, the global supply base continues to weaken from
geopolitical pressure to remove Iranian production from the market, no
apparent resolution to falling production in Venezuela, and Libyan
exports continuing to be volatile. In North America, lack of additional
pipeline capacity in the Permian Basin is becoming an increasing
constraint to production growth. At the same time, spare production
capacity, which is essentially limited to only a few OPEC countries, is
now nearing its lowest level for more than a decade while decline in the
world's mature production base continues to accelerate. These
developments underline the growing need for E&P spending to increase
significantly, particularly in the international markets, as it is
becoming more and more apparent that the new projects expected to come
online during the next few years will not be sufficient to meet the
increasing demand.

"These views underpin the strong confidence we have in our business
outlook. Although the last four years have been marked by the deepest
downturn in generations, we have capitalized on a number of market
opportunities while simultaneously transforming our company to be even
more competitive in the broad-based recovery that is now emerging. The
expansion of our portfolio has significantly increased our total
addressable market by 50% and we have reached new levels of efficiency
in all our activities. We are primed and ready to capture the growth
opportunities coming from the positive market fundamentals, and we are
excited by the activity and pricing opportunities that the new industry
landscape presents."

Other Events

During the quarter, Schlumberger repurchased 1.5 million shares of its
common stock at an average price of $68.45 per share, for a total
purchase price of $103 million.

On July 18, 2018, the Company's Board of Directors approved a quarterly
cash dividend of $0.50 per share of outstanding common stock, payable on
October 12, 2018 to stockholders of record on September 5, 2018.

Consolidated Revenue by Area

 
        (Stated in millions)
Three Months Ended     Change
Jun. 30, 2018     Mar. 31, 2018     Jun. 30, 2017 Sequential     Year-on-year
North America $3,139 $2,835 $2,202 11% 43%
Latin America 919 870 1,039 6% -12%
Europe/CIS/Africa 1,778 1,704 1,750 4% 2%
Middle East & Asia 2,367 2,309 2,347 3% 1%
Other 99 111 124 n/m n/m
$8,303 $7,829 $7,462 6% 11%
 
North America revenue $3,139 $2,835 $2,202 11% 43%
International revenue $5,065 $4,883 $5,136 4% -1%
 
North America revenue, excluding Cameron $2,528 $2,265 $1,728 12% 46%
International revenue, excluding Cameron $4,358 $4,129 $4,348 6% -
n/m = not meaningful
 

Second-quarter consolidated revenue of $8.3 billion increased 6%
sequentially, with North America revenue of $3.1 billion growing 11% and
international revenue of $5.1 billion increasing 4%.

North America

North America Area consolidated revenue increased 11%
sequentially following the continued deployment of additional hydraulic
fracturing and directional drilling capacity. Despite the impact of the
spring breakup in Canada, North America Land revenue grew 9%
sequentially, outperforming both the 7% increase in US land rig count
and the 8% growth in US land market stage count. This performance was
driven by market share gains and operational efficiency improvements as
pricing remained flat. Activity in the US land market continued to be
strong as customers developed more effective well designs, balancing
lateral length and completion volumes to maximize productivity while
managing overall cost. The customer trend of separating the procurement
of pumping services and sand supply accelerated during the quarter.
However, the vertical integration of the Schlumberger offering provides
maximum potential for revenue from both integrated pumping services and
sand supply contracts. As a result, OneStim revenue grew 17%
sequentially. North America Offshore activity began to recover, with new
drilling projects starting up in Eastern Canada, the US Gulf of Mexico,
and the Caribbean, resulting in sequential revenue growth of 22% boosted
by market share gains and multiclient sales. Higher service revenue and
product sales in Valves & Measurement, together with increased activity
for Surface Systems, also contributed to the Area's strong financial
performance.

International

Consolidated revenue in the Latin America Area increased 6%
sequentially due to strong performance in the Latin America South
GeoMarket as a result of higher Cameron activity and increased hydraulic
fracturing stage count, as well as increased coiled tubing activity on
unconventional land operations in Argentina. Revenue in the Mexico &
Central America GeoMarket also increased following the start up of
Integrated Drilling Services (IDS) activity, while revenue in the Latin
America North GeoMarket was essentially flat sequentially.

Europe/CIS/Africa Area consolidated revenue increased 4%
as drilling activity recovered from the winter slowdowns in the North
Sea and Europe. Revenue in Sub-Sahara Africa increased from the start of
new projects in Angola, Nigeria, Ghana, Ivory Coast, and Cameroon; North
Africa increased from higher activity and product sales in Algeria,
Libya, and Chad; and Russia was essentially flat sequentially due to
delays in the startup of the summer offshore campaigns. Revenue growth
in the North Sea resulted from higher UK and Norway drilling activity as
the rig count increased, while in Continental Europe revenue increased
mainly from higher drilling activity in Romania.

Consolidated revenue in the Middle East & Asia Area increased
3% sequentially, led by stronger activity in the Far East Asia &
Australia GeoMarket, mainly in Indonesia, offshore Australia, and from a
seasonal recovery in China. In the Northern Middle East GeoMarket,
progress was strong on OneSurface integrated production system projects
in Kuwait and Egypt, while the Eastern Middle East GeoMarket benefited
from the start up of IDS projects in Iraq. In the South & East Asia
GeoMarket, operations began on drilling projects in Myanmar, Vietnam,
and India. In Saudi Arabia, sequential revenue growth was limited by
delays and logistical challenges in the startup phases of some lump-sum
turnkey (LSTK) projects. Cameron revenue was sequentially lower in the
Far East Asia & Australia and Northern Middle East GeoMarkets, partially
offsetting the effects of the strengthening activity across the Area.

Reservoir Characterization

 
        (Stated in millions)
Three Months Ended     Change
Jun. 30, 2018     Mar. 31, 2018     Jun. 30, 2017 Sequential     Year-on-year
Revenue $1,636 $1,556 $1,759 5% -7%
Pretax operating income $350 $307 $299 14% 17%
Pretax operating margin 21.4% 19.7% 17.0% 166 bps 439 bps
 

Reservoir Characterization revenue of $1.6 billion, of which 75% came
from the international markets, increased 5% sequentially due to higher
activity beyond the seasonal rebounds in the Northern Hemisphere. Growth
was mainly due to higher Wireline activity from new projects offshore
North America and new contracts in the Far East Asia & Australia
GeoMarket; further progress on OneSurface integrated production system
projects in Kuwait and Egypt; and increased SIS software maintenance and
license sales in Mexico, Brazil, Russia, and Kuwait. The increase in
Reservoir Characterization revenue was partially offset by reduced
WesternGeco activity as marine seismic acquisition contracts continued
to wind down.

Reservoir Characterization pretax operating margin of 21% was 166 basis
points (bps) higher sequentially due to the recovery in higher-margin
Wireline activity and stronger sales of SIS software licenses.

Reservoir Characterization benefited from Integrated Services Management
(ISM), SIS, and WesternGeco contract awards as well as the application
of technology and domain knowledge to strengthen operational performance.

In Alaska, ISM helped a major independent E&P company complete a
six-well exploration campaign within the originally approved five-well
budget. The ISM team optimized the delivery of technologies and services
from multiple product lines, which confirmed the presence of oil and
verified the potential of the play. The technologies included Microscope
HD* resistivity- and high-definition imaging-while-drilling service,
proVISION* nuclear magnetic resonance service, SonicScope* multipole
sonic-while-drilling service, and Saturn* 3D radial probe.

International Frontier Resources Corporation awarded SIS a software as a
service contract (SaaS) for the DELFI* cognitive E&P environment for the
characterization of reservoirs with complex structural and stratigraphic
challenges in its operations in the Tecolutla Project.

In Indonesia, Pertamina Hulu Mahakam awarded Schlumberger a three-year
contract for the provision of E&P software. The software includes OLGA*
dynamic multiphase flow, PIPESIM* steady-state multiphase flow, and
ECLIPSE* industry-reference reservoir simulators; ProSource* E&P data
management and delivery system; and Petrel* E&P software and Avocet*
production operations software platforms.

In Thailand, Wireline deployed a combination of advanced reservoir
sampling technologies in the Wassana Field for KrisEnergy Thailand to
reduce rig time by more than three days compared with conventional
sampling methods. These had resulted in contaminated samples and a
clogged pump due to the reservoir's heavy oil and unconsolidated sands.
The combination of Saturn 3D radial probe, InSitu Fluid Analyzer*
real-time downhole fluid analysis system, and MDT* modular formation
dynamics tester technologies enabled the customer to certify the
reservoir's reserves and optimize future development plans.

Egyptian General Petroleum Corporation (EGPC) and Schlumberger have
signed a minimum 15-year agreement that gives WesternGeco permission to
commercialize multiclient projects throughout the entire Gulf of Suez,
an area of approximately 12,500 km2. The agreement, which is the second
of its type, includes 2D and 3D geophysical acquisition, processing,
reprocessing, and interpretation services.

Lundin awarded WesternGeco the data processing and imaging of a 70-km2
ocean-bottom seismic (OBS) 4D reservoir monitoring survey over the
Edvard Grieg Field in the Norwegian sector of the North Sea. Work will
be performed by the OBS processing teams in the WesternGeco Geosolutions
Center using a bespoke time-lapse workflow to increase reservoir
understanding and help direct field development decisions.

WesternGeco received a direct award from Sound Energy for a 2,700-km 2D
survey using UniQ* land seismic acquisition platform technology over the
Meridja and Tendrara Fields in Morocco. The project includes
electromagnetics, magnetotellurics, surface wave joint inversion, and
data processing methods—all conducted in the Schlumberger Integrated EM
Center of Excellence.

Drilling

 
        (Stated in millions)
Three Months Ended     Change
Jun. 30, 2018     Mar. 31, 2018     Jun. 30, 2017 Sequential     Year-on-year
Revenue $2,234 $2,126 $2,107 5% 6%
Pretax operating income $289 $293 $302 -1% -4%
Pretax operating margin 12.9% 13.8% 14.3% -83 bps -139 bps
 

Drilling revenue of $2.2 billion, of which 72% came from the
international markets, increased 5% sequentially due to higher activity
offshore North America and stronger international activity beyond the
seasonal rebounds in the Northern Hemisphere. The start of IDS projects
in the Middle East, India, and Mexico favorably impacted M-I SWACO,
Drilling & Measurements, and Bits & Drilling Tools. New projects in the
North America Offshore GeoMarket and new contracts in the Far East Asia
& Australia GeoMarket, the Middle East, and the Mexico & Central America
GeoMarket drove the growth in M-I SWACO. Drilling & Measurements revenue
increased from new drilling campaigns in Australia, China, Romania, and
the North Sea. Stronger Bits & Drilling Tools revenue was due to higher
product sales in Algeria and Italy.

Drilling pretax operating margin of 13% declined 83 bps sequentially as
the mobilization of resources for new projects across our international
operations resulted in additional costs.

Drilling performance in the second quarter was underpinned by IDS
contract awards and project mobilizations that deployed drilling
technologies to help lower the cost per barrel.

Equinor awarded Schlumberger new integrated services and well services
contracts for Equinor-operated fields on the Norwegian Continental
Shelf. Initially awarded for four years, the contracts include options
for five two-year extensions. The contract scope includes integrated
drilling services, cementing and pumping, drilling and completions
fluids, electrical logging, and completions. The integrated delivery
model will strengthen the interaction between the service supplier, rig
supplier, and operator. In addition, a letter of intent has been signed
with Schlumberger for a future exploration rig not yet chartered by
Equinor.

Equinor also awarded Schlumberger the following new contracts for its
international operations.

  • In the UK, a letter of intent was issued for integrated drilling and
    well services in the Mariner Field in the UK sector of the North Sea.
  • In Brazil, a contract was awarded for integrated drilling services for
    Phase I and Phase II development of the Peregrino Field located in the
    Campos Basin.
  • In Tanzania, a contract was awarded for an offshore exploration well.
    The integrated services contract includes the provision of multiple
    product lines as well as project management services.

In Wyoming, Schlumberger used a combination of technologies in an
integrated drilling services project for Wold Energy Partners to reduce
drilling time in four wells in the Powder River Basin by a total of more
than 16 days compared with AFE. Technologies included ONYX 360* rolling
PDC cutter, PowerDrive vorteX* powered rotary steerable system, and
LiteCRETE* lightweight cement slurry.

In Iraq, ENI Iraq BV awarded Schlumberger an IDS contract, starting in
2018, for the construction of 11 wells targeting the Mishrif Formation
in the Zubair Field. The contract includes technologies from
Schlumberger Land Rigs, Drilling & Measurements, Bits & Drilling Tools,
M-I SWACO, Completions, Wireline, and Well Services.

In Norway, Point Resources AS awarded Schlumberger a four-year IDS
contract with an option for extension. The contract provides services in
production and exploration wells on the Norwegian Continental Shelf and
includes the majority of drilling and completions services.

In Bangladesh, SOCAR AQS International DMCC awarded Schlumberger a
12-month IDS contract to drill wells in three different fields—Semutang,
Begumganj, and Madarganj.

In Oman, IDS enabled HydroCarbon Finder E&P to reduce drilling time in a
well by 14 days compared with the AFE plan. The technologies deployed
included the EcoScope*multifunction logging-while-drilling
service, PowerDrive Archer* high build rate rotary steerable system,
PeriScope* bed boundary mapping service, and MicroScope* resistivity-
and imaging-while-drilling service. This well is the customer's first
discovery in Block-15 in the Natih-C Formation.

In Alaska, Drilling & Measurements used a combination of technologies to
help a North Slope operator to drill the longest horizontal lateral in
North America of 21,748 ft. The technologies used in this dual-lateral
well included the PowerDrive Orbit* rotary steerable system, PeriScope
HD* multilayer bed boundary detection service, and SonicScope multipole
sonic-while-drilling service.

Production

 
        (Stated in millions)
Three Months Ended     Change
Jun. 30, 2018     Mar. 31, 2018     Jun. 30, 2017 Sequential     Year-on-year
Revenue $3,257 $2,959 $2,496 10% 30%
Pretax operating income $316 $216 $221 46% 43%
Pretax operating margin 9.7% 7.3% 8.9% 239 bps 84 bps
 

Production revenue of $3.3 billion, of which 48% came from the
international markets, increased 10% sequentially. Despite the impact of
the spring breakup in Canada, OneStim revenue in North America land grew
17% sequentially, outperforming both the 7% increase in US land rig
count and the 8% growth in US land market stage count. This performance
was driven by market share gains from deployment of additional capacity
and operational efficiency improvements as pricing remained flat. The
customer trend of separating the procurement of pumping services and
sand supply accelerated during the quarter. However, the vertical
integration of the Schlumberger offering enabled participation in both
integrated and stand-alone sand contracts to maintain the full revenue
potential of both pumping services and sand supply. New contracts
outside North America in Australia, Indonesia, India, and the seasonal
recovery in China contributed to international growth, while activity in
Saudi Arabia benefited from increased stimulation and coiled tubing work
as well as from higher completions product sales.

Production pretax operating margin of 10% increased 239 bps sequentially
due to the increased activity and operational efficiency improvements of
OneStim hydraulic fracturing operations in the North America Land
GeoMarket. Margin also improved due to the benefits from the vertical
integration of the pressure pumping business.

Production benefited from increased OneStim operations as well as new
contract awards and the deployment of advanced stimulation and
completions technologies.

In South Texas, OneStim executed a project for Chesapeake Energy to
continuously improve operational efficiency in the Eagle Ford Shale
play. Through waste identification and elimination, standardized
procedures, and technology implementation, OneStim increased total
operating time and productivity. Results included a 50% improvement in
pad-to-pad mobilization time, a 55% increase in stages placed per day,
and a 17% increase in pumping hours per day. On average, Chesapeake
saved $150,000 per pad and reduced operating time on each pad by four
days.

In South Texas, OneStim used a geoengineered approach to help Lonestar
Resources Ltd. increase oil production up to 86% compared with offset
wells in the Eagle Ford Shale play. A combination of technologies
enabled optimization of drilling, completions, and stimulation plans
across long laterals in 18 wells in two fields while avoiding drilling
challenges associated with ash beds, faults, and nearby water-bearing
zones. The geoengineered wells produced more hydrocarbon per 1,000 ft of
lateral section compared with offset wells. On average, six oil wells
produced 80% more and four wells in a high gas-to-oil ratio area
produced 86% more. ThruBit* through-the-bit logging services improved
knowledge of rock properties while the Kinetix Shale* reservoir-centric
stimulation-to-production software was used to optimize completion and
stimulation treatments.

In Russia, Well Services deployed the BroadBand Precision* integrated
completion service for Gazprom Neft to reduce operating time in a well
by more than eight days compared with the planned AFE. The reservoir's
complex geology favored a horizontal well with multistage stimulation.
BroadBand Precision service set a new field record by completing 30
fracturing stages within 220 hours, which was approximately 53% faster
than originally planned.

In Colombia, Ecopetrol awarded Schlumberger a six-year contract for the
provision of Artificial Lift Solutions electric submersible pumps (ESPs)
and supporting services throughout the country. This will include REDA
Maximus* ESP systems equipped with REDA Continuum* unconventional
extended-life ESP stages to accommodate a broad range of expected
production volumes.

In North Kuwait, Well Services deployed ACTive* real-time downhole
coiled tubing services and the OpenPath Reach* extended-contact
stimulation service for Kuwait Oil Company to increase total oil
production fourfold in four wells in the Sabriya Field. VDA*
viscoelastic diverting fluid was deployed to block off a thief zone in a
long horizontal water injector well and the OpenPath Reach stimulation
treatment created a network of wormholes in the reservoir. This resulted
in a 400-psi increase in the reservoir's bottomhole pressure, improving
the effectiveness of the waterflood system while eliminating the need
for a workover rig.

In Sakhalin, Schlumberger Completions installed the Manara* production
and reservoir management system to enhance production in the Odoptu
Field for the Sakhalin-1 Project.

Cameron

 
        (Stated in millions)
Three Months Ended     Change
Jun. 30, 2018     Mar. 31, 2018     Jun. 30, 2017 Sequential     Year-on-year
Revenue $1,295 $1,310 $1,265 -1% 2%
Pretax operating income $166 $166 $174 - -5%
Pretax operating margin 12.8% 12.7% 13.8% 17 bps -94 bps
 

Cameron revenue of $1.3 billion, of which 52% came from international
markets, declined 1% sequentially primarily due to lower OneSubsea
revenue on a declining project backlog. This decline was partially
offset by higher service activity for Surface Systems in North America
and higher product sales for Valves & Measurement, while Drilling
Systems revenue was essentially flat sequentially. By geography, North
America and Latin America revenue grew sequentially, but this was more
than offset by lower revenue in Middle East & Asia, while
Europe/CIS/Africa revenue was flat.

Cameron pretax operating margin of 13% was essentially flat
sequentially, as increased sales in Surface Systems and Valves &
Measurement, combined with improved project execution in OneSubsea,
offset the impact of falling margin in Drilling Systems from the
declining backlog.

Cameron won new contracts during the quarter for managed pressure
drilling (MPD) systems and integrated drilling packages as well as
integrated services contracts for pressure control equipment management
and production enhancement.

Transocean awarded Schlumberger a contract for the provision of key
components for two MPD systems for use offshore in the US Gulf of
Mexico. The MPD system provides greater control of the annular pressure
profile throughout the wellbore and enables drilling of narrow-pressure
margin formations safely and more efficiently.

In Norway, Transocean added four floating rigs operating in the
Norwegian sector of the North Sea to an existing pressure control
equipment management service contract with Schlumberger for a period of
10 years. With this agreement, Schlumberger provides a comprehensive
suite of solutions that support maintenance and service of blowout
preventer systems and other pressure control equipment for 13 of
Transocean's ultradeepwater and harsh environment drilling rigs.

In Russia, LUKOIL awarded Schlumberger a contract for the provision of a
complete drilling package, including pressure control and rig equipment,
fluid and solids handling, and a cementing unit for operations in the
Caspian Sea. Construction of the rig, which will occur in Astrakhan, is
expected to begin in the third quarter of 2019.

Murphy Sabah Oil Co., Ltd. awarded Schlumberger an integrated services
contract for a three-well production enhancement campaign offshore in
the Siakap North-Petai Field in Malaysia. Contract scope includes
project management and vessel services, well stimulation, fluid and
pumping services, coiled tubing services, and a OneSubsea MARS* multiple
application reinjection system as well as a subsea modular injection
system.

 

Financial Tables

 
Condensed Consolidated Statement of Income (Loss)
(Stated in millions, except per share amounts)
       
Second Quarter     Six Months
Periods Ended June 30,         2018     2017     2018     2017
       
Revenue $8,303 $7,462 $16,131 $14,356
Interest and other income 40 62 82 108
Expenses
Cost of revenue 7,179 6,468 13,980 12,544
Research & engineering 175 196 347 406
General & administrative 114 110 225 208
Impairments & other (1) 184 510 184 510
Merger & integration (1) - 81 - 164
Interest         144     142     287     281
Income before taxes $547 $17 $1,190 $351
Tax expense (1)         106     98     219     148
Net income (loss) $441 $(81) $971 $203
Net income (loss) attributable to noncontrolling interests         11     (7)     16     (2)
Net income (loss) attributable to Schlumberger (1)         $430     $(74)     $955     $205
 
Diluted earnings (loss) per share of Schlumberger (1)         $0.31     $(0.05)     $0.69     $0.15
 
Average shares outstanding 1,384 1,387 1,385 1,390
Average shares outstanding assuming dilution         1,392     1,387     1,393     1,397
 
Depreciation & amortization included in expenses (2)         $876     $986     $1,750     $1,975
 
(1)     See section entitled "Charges & Credits" for details.
(2) Includes depreciation of property, plant and equipment and
amortization of intangible assets, multiclient seismic data costs
and SPM investments.
 

Condensed Consolidated Balance Sheet

 

(Stated in millions)

             
Jun. 30, Dec. 31,
Assets         2018       2017
Current Assets
Cash and short-term investments $3,049 $5,089
Receivables 8,606 8,084
Other current assets         5,245       5,324
16,900 18,497
Fixed assets 11,504 11,576
Multiclient seismic data 686 727
Goodwill 25,121 25,118
Intangible assets 9,092 9,354
Other assets         6,853       6,715
          $70,156       $71,987
 
Liabilities and Equity                  
Current Liabilities
Accounts payable and accrued liabilities $9,367 $10,036
Estimated liability for taxes on income 1,264 1,223
Short-term borrowings and current portion
of long-term debt 3,736 3,324
Dividends payable         699       699
15,066 15,282
Long-term debt 13,865 14,875
Deferred taxes 1,541 1,650
Postretirement benefits 971 1,082
Other liabilities         1,816       1,837
33,259 34,726
Equity         36,897       37,261
          $70,156       $71,987
 
 

Liquidity

 
(Stated in millions)

Components of Liquidity

       

Jun. 30,

2018

   

Mar. 31,

2018

   

Dec. 31,

2017

   

Jun. 30,

2017

Cash and short-term investments         $3,049     $4,165     $5,089     $6,218
Fixed income investments, held to maturity - - - 13
Short-term borrowings and current portion of long-term debt (3,736) (4,586) (3,324) (2,224)
Long-term debt (13,865) (13,526) (14,875) (16,600)
Net Debt (1) $(14,552) $(13,947) $(13,110) $(12,593)
 
Details of changes in liquidity follow:
 
Six Second Six
Months Quarter Months
Periods Ended June 30,                 2018       2018       2017
Net income before noncontrolling interests $971 $441 $203
Impairment and other charges, net of tax before noncontrolling
interests
164 164 643
$1,135 $605 $846
Depreciation and amortization (2) 1,750 876 1,975
Stock-based compensation expense 176 86 180
Pension and other postretirement benefits funding (74) (35) (74)
Change in working capital (1,338) (502) (1,339)
Other (94) (43) (74)
Cash flow from operations (3) $1,555 $987 $1,514
Capital expenditures (974) (520) (884)
SPM investments (434) (194) (328)
Multiclient seismic data capitalized (47) (21) (190)
Free cash flow (4) 100 252 112
Dividends paid (1,385) (693) (1,393)
Stock repurchase program (200) (103) (770)
Proceeds from employee stock plans 131 4 143
(1,354) (540) (1,908)
Business acquisitions and investments, net of cash acquired plus
debt assumed
(47) (34) (364)
Other (41) (31) (200)
Increase in Net Debt (1,442) (605) (2,472)
Net Debt, beginning of period (13,110) (13,947) (10,121)
Net Debt, end of period $(14,552) $(14,552) $(12,593)
 
(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 $160 million and $84 million during
the six months and second quarter ended June 30, 2018, respectively;
and $230 million and $90 million during the six months and second
quarter ended June 30, 2017, respectively.
(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 second-quarter
2018 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)
 
        Second Quarter 2018
Pretax     Tax    

Noncont.

Interests

    Net     Diluted

EPS

Schlumberger net income (GAAP basis) $547     $106     $11     $430     $0.31
Workforce reductions 184     20     -     164     0.12
Schlumberger net income, excluding charges & credits $731     $126     $11     $594     $0.43
 
Six Months 2018
Pretax     Tax    

Noncont.

Interests

    Net     Diluted

EPS *

Schlumberger net income (GAAP basis) $1,190 $219 $16 $955 $0.69
Workforce reductions 184     20     -     164     0.12
Schlumberger net income, excluding charges & credits $1,374     $239     $16     $1,119     $0.80
 
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 510 - 12 498 0.36
Merger & integration 81     17     -     64     0.05
Schlumberger net income, excluding charges & credits $608     $115     $5     $488     $0.35
 
Six Months 2017
Pretax     Tax    

Noncont.

Interests

    Net     Diluted

EPS *

Schlumberger net income (GAAP basis) $351 $148 ($2) $205 $0.15
Promissory note fair value adjustment and other 510 - 12 498 0.36
Merger & integration 164     31     -     133     0.10
Schlumberger net income, excluding charges & credits $1,025     $179     $10     $836     $0.60
 

* Does not add due to rounding

There were no charges or credits during the first quarter of 2018.

 
 

Segments

 
(Stated in millions)
        Three Months Ended
Jun. 30, 2018     Mar. 31, 2018     Jun. 30, 2017
Revenue    

Income

Before

Taxes

Revenue    

Income

Before

Taxes

Revenue    

Income

Before

Taxes

Reservoir Characterization $1,636 $350 $1,556 $307 $1,759 $299
Drilling 2,234 289 2,126 293 2,107 302
Production 3,257 316 2,959 216 2,496 221
Cameron 1,295 166 1,310 166 1,265 174
Eliminations & other (119) (27) (122) (8) (165) (46)
Pretax operating income 1,094 974 950
Corporate & other (239) (225) (242)
Interest income(1) 11 25 28
Interest expense(1) (135) (131) (128)
Charges & credits   (184)   -   (591)
$8,303 $547 $7,829 $643 $7,462 $17
 
(Stated in millions)
Six Months Ended
Jun. 30, 2018 Jun. 30, 2017
Revenue

Income

Before

Taxes

Revenue

Income

Before

Taxes

Reservoir Characterization $3,192 $657 $3,377 $580
Drilling 4,360 582 4,092 531
Production 6,216 532 4,683 331
Cameron 2,605 332 2,494 336
Eliminations & other (242) (35) (290) (71)
Pretax operating income 2,068 1,707
Corporate & other (464) (480)
Interest income(1) 36 52
Interest expense(1) (266) (254)
Charges & credits   (184)   (674)
$16,131 $1,190 $14,356 $351
 

(1) Excludes interest included in the Segments results.

 
 

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 was the cash flow from operations for the second quarter
of 2018?

Cash flow from operations for the second quarter of 2018 was $987
million and included $84 million of severance payments.
 

3)

What was the cash flow from operations for the first half of
2018?

Cash flow from operations for the first half of 2018 was $1.6
billion and included approximately $160 million of severance
payments.
 

4)

What was included in "Interest and other income" for the second
quarter of 2018?

"Interest and other income" for the second quarter of 2018 was $40
million. This amount consisted of earnings of equity method
investments of $28 million and interest income of $12 million.
 

5)

How did interest income and interest expense change during the
second quarter of 2018?

Interest income of $12 million declined $16 million sequentially.
Interest expense of $144 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,
certain centrally managed initiatives, and other nonoperating items.
 

7)

What was the effective tax rate (ETR) for the second quarter of
2018?

The ETR for the second quarter of 2018, calculated in accordance
with GAAP, was 19.3% as compared to 17.6% for the first quarter of
2018. Excluding charges and credits, the ETR for the second quarter
of 2018 was 17.2%. There were no charges and credits in the first
quarter of 2018.
 

8)

How many shares of common stock were outstanding as of June 30,
2018 and how did this change from the end of the previous quarter?

There were 1.384 billion shares of common stock outstanding as of
June 30, 2018. The following table shows the change in the number of
shares outstanding from March 31, 2018 to June 30, 2018.
 
(Stated in millions)
Shares outstanding at March 31, 2018           1,385
Shares issued to optionees, less shares exchanged -
Vesting of restricted stock -
Shares issued under employee stock purchase plan -
Stock repurchase program (1)
Shares outstanding at June 30, 2018 1,384
 

9)

 

What was the weighted average number of shares outstanding
during the second quarter of 2018 and first quarter of 2018, 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 1.384 billion
during the second quarter of 2018 and 1.385 billion during the first
quarter of 2018.
 
The following is a reconciliation of the weighted average shares
outstanding to the average number of shares outstanding, assuming
dilution, used in the calculation of diluted earnings per share,
excluding charges and credits.
 
(Stated in millions)
         

Second Quarter

2018

   

First Quarter

2018

Weighted average shares outstanding 1,384

 

  1,385
Assumed exercise of stock options 1

 

2
Unvested restricted stock 7

 

  7
Average shares outstanding, assuming dilution 1,392

 

  1,394
 

10)

 

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 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 Segment for services and products that each Segment
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 Production.

 

12)

What was the unamortized balance of Schlumberger's investment
in SPM projects at June 30, 2018 and how did it change in terms of
investment and amortization when compared to March 31, 2018?

The unamortized balance of Schlumberger's investments in SPM
projects was approximately $4.1 billion at both June 30, 2018 and
March 31, 2018. 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 March 31, 2018         $4,112
SPM investments 194
Amortization of SPM investment (135)
Translation & other (95)
Balance at June 30, 2018 $4,076
 

13)

 

What was the amount of WesternGeco multiclient sales in the
second quarter of 2018?

Multiclient sales, including transfer fees, were $117 million in the
second quarter of 2018 and $119 million in the first quarter of 2018.
 

14)

What was the WesternGeco backlog at the end of the second
quarter of 2018?

The WesternGeco backlog, which is based on signed contracts with
customers, was $317 million at the end of the second quarter of
2018. It was $358 million at the end of the first quarter of 2018.
 

15)

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

The OneSubsea and Drilling Systems orders and backlog were as
follows:
 
        (Stated in millions)
Orders

Second Quarter

2018

   

First Quarter

2018

OneSubsea $312 $329
Drilling Systems $288 $218

 

Backlog (at the end of period)
OneSubsea $1,654 $2,002

Drilling Systems

$482 $398

 

 

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 Schlumberger companies.

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

Notes

Schlumberger will hold a conference call to discuss the earnings press
release and business outlook on Friday, July 20, 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 August 20, 2018 by dialing +1 (800) 475-6701 within North America,
or +1 (320) 365-3844 outside North America, and providing the access
code 449359. The conference call will be webcast simultaneously at www.slb.com/irwebcast
on a listen-only basis. A replay of the webcast will also be available
at the same web site until August 31, 2018.

This second-quarter 2018 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, and 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; and other risks and uncertainties detailed in
this second-quarter 2018 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!