Schlumberger Announces First-Quarter 2017 Results

  • Revenue of $6.9 billion decreased 3% sequentially
  • GAAP EPS, including Cameron integration charges of $0.05 per share,
    was $0.20
  • EPS, excluding Cameron integration charges, was $0.25
  • Cash flow from operations was $656 million
  • Quarterly cash dividend of $0.50 per share was approved

LONDON--(BUSINESS WIRE)--Schlumberger Limited (NYSE:SLB) today reported results for the first
quarter of 2017.


       

(Stated in millions, except per share amounts)

Three Months Ended    

Change

Mar. 31, 2017     Dec. 31, 2016     Mar. 31, 2016** Sequential     Year-on-year
Revenue $6,894 $7,107

$6,520

-3% 6%
Pretax operating income $757 $810 $901 -7% -16%
Pretax operating margin 11.0% 11.4% 13.8% -42 bps -284 bps
Net income (loss) (GAAP basis) $279 $(204) $501 n/m n/m
Net income, excluding charges and credits* $347 $379 $501 -8% -31%
Diluted EPS (loss per share) (GAAP basis) $0.20 $(0.15) $0.40 n/m n/m
Diluted EPS, excluding charges and credits* $0.25 $0.27 $0.40 -7% -38%

*These are non-GAAP financial measures. See section below entitled
"Charges & Credits" for details.

**First-quarter 2016 does not include Cameron, as the acquisition
closed on April 1, 2016.

n/m = not meaningful
 

Schlumberger Chairman and CEO Paal Kibsgaard commented, “In the first
quarter, the North America land market continued to strengthen in terms
of both activity and pricing, leading us to begin accelerating
deployment of idle capacity for multiple product lines. Revenue growth
was led by hydraulic fracturing and drilling services, but was also
increasingly supported by Artificial Lift, Surface Systems and Valves &
Measurement. In spite of our capacity re-activation being heavily
back-end loaded toward the end of the quarter as we continued to adhere
to our profitable growth approach, we still generated 16% sequential
revenue growth and 66% incremental margins in our hydraulic fracturing
and directional drilling services in US land. These results were driven
by productive customer engagement around pricing recovery and
operational efficiency, together with timely resource additions and
proactive supply chain engagement.

“In the international markets, revenue declined 7% sequentially, driven
by a greater than expected seasonal decline in activity and sales,
particularly in China, Russia land, and the North Sea. In addition, we
saw lower sequential activity in key parts of the Middle East, while
production constraints imposed on our Schlumberger Production Management
(SPM) Shushufindi project in Ecuador also had a negative impact on our
first quarter results. Still, the underlying activity and sentiment from
our global customer base were in line with expectations as seen, for
instance, by the flat sequential revenue trends in the rest of Latin
America as well as in Africa, confirming that these regions have indeed
reached the bottom of the cycle.

“Among the business segments, the first-quarter revenue declines were
led by the Cameron Group, which fell 9% sequentially driven by lower
project volumes in OneSubsea and reduced product sales in Surface
Systems. Reservoir Characterization Group revenue decreased 3%
sequentially due to the seasonal reduction in revenue for our Software
Integrated Solutions (SIS) and WesternGeco product lines. Drilling Group
and Production Group revenues were each 1% lower sequentially as
continued strong growth in hydraulic fracturing and directional drilling
activity in North America land was offset by seasonal revenue reductions
in the international markets.

“As we begin the recovery from one of the deepest downturns on record,
we see four areas as critical for the industry to restore its strength
and advance its capabilities. They are—the need for higher E&P spending
to meet growing hydrocarbon demand over the coming years; the need to
protect and encourage investments in R&E throughout the entire oil and
gas value chain; the need for new business models that foster closer
technical collaboration and commercial alignment between operators and
suppliers; and the need for broader and more integrated technology
platforms that combine hardware, software, data, and expertise.

“While our view of the fundamentals of supply and demand in the oil
markets remains constructive, the continuing underinvestment in new
supply is increasing the likelihood of a medium-term supply deficit as
reservoirs are produced but reserves are not replaced in sufficient
volume. In particular, the market continues to focus on headline decline
numbers, suggesting that production is holding up well. However, a
closer examination of the underlying data clearly shows that the rate of
depletion of proven developed reserves is rapidly accelerating in
several key non-OPEC countries.

“As the recovery builds momentum, industry cash flow and productivity
remain under pressure and limit the industry’s ability to increase
present levels of E&P investment. At the same time, the value chain
remains focused on trying to capture the limited value that is created,
rather than seeking new ways to collectively create more value. This
approach is not sustainable, either from addressing the underlying
industry challenges or from ensuring that the future supply of
hydrocarbons can meet the projected growth in demand.

“At Schlumberger, we are therefore actively seeking to position the
company at the forefront of an industry that needs to evolve. We are
doing this by proactively managing our base business and responding to
the ongoing pressures of commoditization, tailoring our offering and
performance to the prevailing market conditions. In parallel, we are
constantly looking to expand our opportunity set by pursuing a broad and
active M&A program; engaging with existing and new customers to
establish closer collaboration and more aligned business models; and
expanding our offering from technical support to investing alongside our
customers in their projects—all with the aim of driving more activity
for our 19 product and service lines. As we continue to carefully
navigate the current industry landscape, we remain confident and
optimistic about the future of Schlumberger, knowing very well that
beyond the current market challenges lies a wealth of opportunity for
the industry players who are ready and able to think new and to act new.”

Other Events

During the quarter, Schlumberger repurchased 4.7 million shares of its
common stock at an average price of $78.97 per share for a total
purchase price of $372 million.

On March 24, 2017, Schlumberger and Weatherford announced an agreement
to create OneStimSM, a joint venture to deliver completions
products and services for the development of unconventional resource
plays in land markets in the United States and Canada. The joint venture
will offer one of the broadest multistage completions portfolios in the
market combined with one of the largest hydraulic fracturing fleets in
the industry. Schlumberger and Weatherford will have 70%/30% ownership
of the joint venture, respectively. The transaction is expected to close
in the second half of 2017 and is subject to regulatory approvals and
other customary closing conditions.

On March 27, 2017, Schlumberger purchased a minority interest in Borr
Drilling, a Norwegian rig contractor, for $221 million. This transaction
will enable Schlumberger, together with Borr Drilling, to offer
integrated, performance-based drilling contracts in the offshore jack-up
market.

On April 12, 2017, Schlumberger and YPF announced the signing of a
preliminary agreement for a joint venture in a shale oil pilot project
in the Bandurria Sur Block in Vaca Muerta, Neuquén. Schlumberger will
provide reservoir knowledge, integrated field studies, drilling and
completions services, and associated infrastructure. The agreement
involves a $390 million phased investment by Schlumberger, which
includes a significant contribution in-kind of its services at market
pricing. Upon satisfaction of certain closing conditions, Schlumberger
will acquire a 49% interest in the joint venture, and the remaining 51%,
along with the operatorship of the block, will be held by YPF.

On April 20, 2017, the Company’s Board of Directors approved a quarterly
cash dividend of $0.50 per share of outstanding common stock, payable on
July 14, 2017 to stockholders of record on June 1, 2017.

Consolidated Revenue by Geography

       

 

   

(Stated in millions)

Three Months Ended Change
Mar. 31, 2017     Dec. 31, 2016 Sequential
North America $1,871 $1,765 6%
Latin America 952 952 -
Europe/CIS/Africa 1,652 1,834 -10%
Middle East & Asia 2,319 2,494 -7%
Eliminations & other 100 62 n/m
$6,894 $7,107 -3%
 
North America revenue $1,871 $1,765 6%
International revenue $4,922 $5,280 -7%

n/m = not meaningful

First-quarter revenue of $6.9 billion decreased 3% sequentially with
North America growing 6% and International decreasing 7%.

North America

In North America, revenue grew sequentially as unconventional land
activity accelerated during the quarter, partially offset by a decline
in offshore activity. Land revenue experienced double-digit sequential
growth driven by: stronger hydraulic fracturing activity as stage count
increased; higher pricing as capacity utilization improved; greater
uptake of directional drilling products and services as the rig count
grew; and higher Cameron revenue as product sales and fracturing and
flowback rental activity increased. While land revenue in the US posted
double-digit growth on a 27% sequential rig count increase, revenue in
Western Canada grew stronger from a winter ramp-up in activity as
sequential rig count increased by 56%. The offshore revenue decline was
a result of lower WesternGeco multiclient license sales following the
usual, but muted, year-end sales in the previous quarter, although this
was partially offset by Wireline revenue growth from infrastructure-led
exploration activity.

International Areas

International revenue declined sequentially due to reduced Cameron Group
project volume and product sales; decreased SIS software license sales
following the usual, but muted, year-end sales in the previous quarter;
a seasonal drop in activities in the Northern Hemisphere; and continuing
pricing pressure on new tender awards.

Revenue in the Latin America Area was flat sequentially as Brazil
revenue growth was offset by a revenue decline in the Peru, Colombia &
Ecuador GeoMarket where production constraints imposed on the SPM
Shushufindi project in Ecuador impacted results. Argentina, Bolivia &
Chile GeoMarket revenue was also lower, driven by a drop in drilling and
fracturing activity due to the early completion of a number of projects.
Revenue growth in Brazil was driven by stronger OneSubsea activity and
increased WesternGeco multiclient license sales in anticipation of the
upcoming 14th bid round.

Europe/CIS/Africa Area revenue decreased 10%
sequentially primarily due to more severe than usual seasonal activity
reductions in Russia and Kazakhstan that impacted all product lines,
while the UK & Continental Europe GeoMarket also experienced lower
activity and reduced SIS software license sales. Reduced OneSubsea
activity due to a project completed in the Gulf of Guinea and lower
Surface Systems product sales across the Area also contributed to the
decline. Revenue from the Sub-Saharan Africa GeoMarket was essentially
flat as the strong increase in land activity in Congo, Chad and Ethiopia
was offset by the cancellation of an offshore drilling project in Angola
and project delays in offshore Congo.

Middle East & Asia Area revenue decreased 7% sequentially
principally due to pricing pressure and lower drilling and hydraulic
fracturing activity on land in the Middle East. Australia revenue also
decreased due to reduced offshore drilling activity while severe weather
on land affected all product and service lines. China land revenue was
lower due to the seasonal winter slowdown that mainly impacted
Production, Drilling, and Cameron Group activities.

Reservoir Characterization Group

       

 

   

(Stated in millions)

Three Months Ended Change
Mar. 31, 2017     Dec. 31, 2016     Mar. 31, 2016 Sequential     Year-on-year
Revenue $1,618 $1,676 $1,719 -3% -6%
Pretax operating income $281 $319 $334 -12% -16%
Pretax operating margin 17.3% 19.0% 19.4% -170 bps -206 bps

Reservoir Characterization Group revenue of $1.6 billion, of which 78%
came from the international markets, decreased 3% sequentially due to
project completions from a decreasing backlog of Testing & Process
systems that were partially offset by further progress on the early
production facility projects in Kuwait and Egypt. Wireline revenue grew
from infrastructure-led exploration activity in North America, partially
offset by seasonally reduced Wireline revenue in Russia. Following the
usual but muted year-end sales in the previous quarter, lower SIS
software license sales also impacted the Group’s results.

Pretax operating margin of 17% decreased 170 bps sequentially as the
increased contribution from high-margin Wireline exploration activities
was more than offset by reduced profitability in WesternGeco and lower
contributions from SIS software license sales.

Reservoir Characterization Group performance was enhanced by Integrated
Services Management (ISM) operations, where specially trained project
managers provide scheduling, planning, and activity coordination for the
Schlumberger product lines involved in a project. First-quarter
performance was also boosted by new technology deployments and contract
awards.

In Peru, ISM coordinated services for Repsol Peru’s Sagari Project. The
wellsite, which is located in a remote area, is classified as zero
discharge with the requirement that all generated drilling cuttings are
either injected or transported from the location. The ISM team worked
closely with Repsol to deliver directional drilling,
logging-while-drilling, drilling and completion fluids, bits and hole
enlargement, managed pressure drilling, wellbore cleanout tools,
cementing, wireline logging and perforating, well testing, and cuttings
re-injection services. The result for the customer from this integrated
and collaborative effort was that the first two wells were delivered six
days ahead of the planned schedule.

In the Bulgarian sector of the Black Sea, Total E&P Bulgaria drilled its
first deepwater exploration well. Schlumberger ISM managed eight
separate product lines on the rig and coordinated over 100 personnel
involved in the project. Through close collaboration with Total E&P
Bulgaria, the ISM team identified drilling optimization opportunities
that yielded significant results during on-bottom drilling operations.
Total E&P Bulgaria expressed appreciation for the collaborative
environment that Schlumberger brought to the project.

Offshore India, Schlumberger ISM provided drilling and completions
services in the first offshore deepwater well for Oil India Limited in
the Gulf of Mannar. Technical expertise and a total of 19 Schlumberger
services were provided, including technologies from Testing & Process,
Wireline, M-I SWACO, Drilling & Measurements, Bits & Drilling Tools,
Completions, and Well Services product lines. In addition, ISM managed
third-party providers for casing running services, air and marine
logistics, and a shore base facility.

In West Texas, WesternGeco completed acquisition of a 3D wide-azimuth
multiclient survey covering 253 square miles in the southern part of the
Permian basin, bringing total coverage in the area to 655 square miles.
The project was supported by the oil and gas industry and will provide
data to help operators improve the efficiency of drilling and
completions operations in the very active but challenging parts of the
Permian basin.

In the UAE, Sharjah National Oil Corporation contracted WesternGeco to
conduct a 483-km2 3D seismic survey over part of their onshore
concession in Sharjah. The project will use UniQ* land seismic
acquisition platform technology to manage the long offsets required to
image the complex overthrust geology in the area. The survey is an
extension of a previous survey conducted in 2011, which demonstrated the
effectiveness of UniQ platform technology. Data processing will be
conducted in the Abu Dhabi processing center using reverse time
migration to image this complex geology.

In Kazakhstan, Wireline used Quanta Geo* photorealistic reservoir
geology service to evaluate a tight carbonate formation for Karachaganak
Petroleum Operating BV—a consortium of Eni, Shell, Chevron, Lukoil, and
KazMunaiGas. Quanta Geo service technology uses an innovative sonde with
heightened sensitivity to detect vertical and lateral features in the
wellbore. The customer obtained better quality images, which are not
possible when using oil-base mud, thus enabling structural and
stratigraphic interpretation with a higher degree of confidence.

In Brazil, the Libra Consortium—comprised of Petrobras, Royal Dutch
Shell, Total, CNOOC, and CNPC—awarded SIS a five-year contract for
exploration and production software and related services. The consortium
will explore the country’s largest deepwater oilfield, which has an
estimated volume of recoverable oil from 8 to 12 billion barrels. The
contract includes the provision of the Petrel* E&P software platform
with a focus on geological and geophysical interpretation, geologic
modeling, and reservoir engineering.

In Taiwan, CPC Corporation awarded SIS a five-year contract for
software. The contract includes the provision of the Petrel E&P software
platform, Techlog* wellbore software platform, and ECLIPSE* reservoir
simulator. The breadth and depth of the Schlumberger software portfolio
and our ability to provide localized services and support were
instrumental in winning this award.

Drilling Group

       

 

   

(Stated in millions)

Three Months Ended Change
Mar. 31, 2017     Dec. 31, 2016     Mar. 31, 2016 Sequential     Year-on-year
Revenue $1,985 $2,013 $2,493 -1% -20%
Pretax operating income $229 $234 $371 -2% -38%
Pretax operating margin 11.5% 11.6% 14.9% -7 bps -334 bps

Drilling Group revenue of $2.0 billion, of which 74% came from the
international markets, decreased 1% sequentially as strong directional
drilling activity in North America land was offset by lower drilling
activity and pricing pressure in the International Areas. The
improvement in North America revenue came from an increased uptake of
products and services from Drilling & Measurements, Bits & Drilling
Tools, and M-I SWACO. Decreased revenue in the International Areas was
due to reduced sales of M-I SWACO products in the Middle East & Asia
Area, pricing pressure and an unfavorable activity mix for Drilling &
Measurements in the Middle East, and lower Integrated Drilling Services
(IDS) activity in the UK & Continental Europe GeoMarket.

Pretax operating margin of 12% was virtually flat sequentially despite
the slight revenue decline. This was due to pricing improvements from a
greater uptake of Drilling & Measurements and Bits & Drilling Tools
technologies in the US, offsetting the pricing pressure in the
international markets.

Drilling Group performance in the first quarter was strengthened by a
combination of IDS operations, which provide project management,
engineering design, and technical optimization capabilities. Group
performance was also boosted by new technology deployments and contract
awards.

In Russia, IDS provided a combination of technologies and services in
three extended-reach wells for Rosneft-Sakhalinmorneftegaz on Sakhalin
Island in the Lebedinskoye field. The technologies included GeoSphere*
reservoir mapping-while-drilling service to reveal subsurface bedding
and fluid contact details using deep directional electromagnetic
measurements and PowerDrive Xceed* ruggedized rotary steerable systems
to provide a superior degree of accuracy and reliability. The customer
completed operations 103 days ahead of plan. In addition, cumulative
production from the three wells in 2016 was 47% higher than initially
expected.

In the UK sector of the North Sea, IDS developed a custom solution for
Statoil to overcome unique drilling challenges in a heavy oil field. The
Mariner field is characterized by reservoirs located at shallow depths,
and 60 long, closely spaced horizontal wells are planned for
development. An integrated team that included drilling experts from
multiple technology centers helped design a custom bottomhole assembly
that could deliver an aggressive build rate of up to 40° in the 24-in
section. The PowerDrive Archer* high build rate rotary steerable system
and staged hole openers were two of the technologies used in this custom
solution. In the first quarter of 2017, the customer drilled the 24-in
sections of four wells and met every drilling, time, and cost objective
for the project.

In Norway, Statoil Petroleum AS awarded Schlumberger an IDS contract for
the Sleipner area drilling campaign in the Norwegian North Sea. The
contract features an innovative performance incentive structure that
better aligns operator and service company interests. This includes the
provision of services from Drilling & Measurements, Well Services, and
M-I SWACO for two wells and one optional well. Operations are expected
to begin in May 2017.

In Qatar, RasGas Company Limited awarded Schlumberger a five-year
contract with five optional one-year extensions to provide a broad
combination of drilling technologies for up to 70 wells in the North
Field. For example, the contract includes Drilling & Measurements
MicroScope* resistivity- and imaging-while-drilling service, Bits &
Drilling Tools FireStorm* wear-resistant high-impact PDC cutter
technology, Wireline ReSOLVE* instrumented wireline intervention
service, M-I SWACO HydraHib shale inhibitor, and Well Services CemNET
advanced loss-control fiber technology and OpenPath stimulation
services. The North Field is the world’s largest non-associated gas
field, containing approximately 10% of the world’s known reserves.

Offshore Azerbaijan, Drilling & Measurements used a combination of
technologies for State Oil Company of Azerbaijan (SOCAR) to drill a
challenging J-shaped well in Bulla Deniz field. In addition to
overcoming the challenging lithology that historically slows the rate of
penetration (ROP) to as low as 3.1 ft/h, the complex well plan included
simultaneously drilling and enlarging a 7,218-ft section of the
wellbore. The combination of technologies included PowerDrive X6* rotary
steerable technology with arcVISION* array resistivity compensated
service, TeleScope* high-speed telemetry-while-drilling service, and a
Rhino* XS hydraulically expandable reamer. The customer saved $14.4
million by meeting the drilling objectives with zero nonproductive time
in 39 days instead of the 79 days originally planned.

In West Texas, Drilling & Measurements used a combination of
technologies for Parsley Energy to increase drilling performance in long
well laterals in the Midland and Delaware basins. In drilling 80 wells
over the past 12 months, PowerDrive Orbit* rotary steerable systems and
DynaForce* high-performance drilling motors contributed to the 17%
reduction in the average days required to drill a well compared with the
previous year. The customer reduced the average total drilling cost per
lateral foot by 30%.

In North America land, Bits & Drilling Tools used AxeBlade* ridged
diamond element bit technology for Cabot Oil & Gas to improve the
drilling ROP in the top hole sands prior to reaching the Marcellus Shale
formation.


Contacts

Schlumberger Limited
Simon Farrant – Schlumberger Limited, Vice
President of Investor Relations
Joy V. Domingo – Schlumberger
Limited, Manager of Investor Relations
Office +1 (713) 375-3535
investor-relations@slb.com


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