SCHLUMBERGER LIMITED First Quarter 2020 Compared to Fourth Quarter 2019
(Stated in millions)
First Quarter 2020 Fourth Quarter 2019
Income (Loss) Income (Loss)
Before Before
Revenue Taxes Revenue Taxes
Reservoir Characterization $ 1,311 $ 184 $ 1,643 $ 368
Drilling 2,291 285 2,442 303
Production 2,703 212 2,867 253
Cameron 1,254 121 1,387 126
Eliminations & other (104 ) (26 ) (111 ) (44 )
776 1,006
Corporate & other (1) (228 ) (215 )
Interest income (2) 15 8
Interest expense (3) (129 ) (138 )
Charges and credits (4) (8,523 ) (209 )
$ 7,455 $ (8,089 ) $ 8,228 $ 452
(1) Comprised principally of certain corporate expenses not allocated to the
segments, stock-based compensation costs, amortization expense associated
with certain intangible assets, certain centrally managed initiatives and
other nonoperating items.
(2) Interest income excludes amounts which are included in the segments' income
($- million in Q1 2020;
(3) Interest expense excludes amounts which are included in the segments' income
(
(4) Charges and credits are described in detail in Note 2 to the Consolidated
Financial Statements.
First-quarter revenue of $7.5 billion declined 9% sequentially and 5%
year-on-year as the unprecedented global health and economic crisis sparked by
the COVID-19 pandemic increasingly impacted industry activity during the
quarter. The effect of this was amplified late in the quarter by a new battle
for market share between the world's largest oil producers. This created
simultaneous shocks in oil supply and demand resulting in the most challenging
industry environment in many decades. The spread of COVID-19 has caused more
than 50 countries to implement lockdown measures affecting three billion people.
Worldwide economic activity is falling sharply, and oil demand destruction is
leading to an unprecedented supply-demand imbalance in the range of 20-30
million bbl/d. This is translating to near-term uncertainties in activity and
budget projections.
Customer spending and drilling activity in North America declined as oil prices
slipped early in the quarter before falling abruptly in March. This resulted in
a 7% sequential decrease in North America revenue to $2.3 billion . International
activity, which was expected to be seasonally lower sequentially, suffered from
COVID-19-related activity disruptions and initial customer spending cuts in
response to falling oil prices. International revenue of $5.1 billion declined
10% sequentially.
The sequential international revenue decline was led by lower winter activity in
the Europe /CIS/Africa area, particularly in the Russia & Central Asia and the
United Kingdom & Continental Europe GeoMarkets. Latin America area revenue also
decreased, mainly due to reduced WesternGeco® multiclient seismic license sales.
Middle East & Asia area revenue declined on lower product sales following strong
year-end sales and a seasonal decline in activity. COVID-19-related activity
disruptions during the quarter impacted our operations, particularly in China ,
Malaysia , Iraq , Italy , Romania , the United Kingdom , Gabon , Mozambique , Congo,
Nigeria , Angola , and offshore North America .
At this time, customer feedback and Schlumberger's analysis indicate global
capex spend is expected to decline by about 20% in 2020, with the largest share
of the reduction affecting North America , which is estimated to drop by about
40%. In contrast, international E&P capex is expected to decline by about 15%.
Final investment decision sanctions are expected to fall back to trough levels of 2015, which would indicate project delays to 2021 and beyond.
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In this environment-the duration of which remains uncertain-Schlumberger has
planned for a range of scenarios and has taken a number of actions. To protect
its workforce in the wake of COVID-19, Schlumberger has taken steps to keep its
people safe by supporting those affected, mandating that as many employees and
contractors as possible work from home, and monitoring those who cannot do so
and are required to be at work. To reinforce cost control and cash discipline,
Schlumberger is reducing its structural and variable costs, and restructuring
its organization to match activity where necessary, including furloughing
personnel, cutting salaries, lowering headcount, and closing facilities.
Additionally, Schlumberger's Board of Directors and executive officers have
voluntarily agreed to reductions in their cash compensation. The capital
investment program has been reduced by more than 30% and resources will be
allocated to the more resilient markets while Schlumberger remains focused on
capital stewardship and maintaining its commitment to a strong balance sheet.
The second quarter is likely to be the most uncertain and disruptive quarter the
industry has ever seen. The extent to which Schlumberger's future results are
affected by COVID-19 will depend on various factors and consequences beyond the
Company's control, such as the duration and scope of the pandemic; additional
actions by businesses and governments in response to the pandemic, and the speed
and effectiveness of responses to combat the virus. COVID-19, and the volatile
regional and global economic conditions stemming from the pandemic, could also
aggravate the risk factors identified in Schlumberger's Annual Report on Form
10-K for the fiscal year ended December 31, 2019 . COVID-19 may also materially
adversely affect Schlumberger's results in a manner that is either not currently
known or that Schlumberger does not currently consider to be a significant risk
to its business. See also the risk factor relating to COVID-19 disclosed in Item
8.01 of Schlumberger's Current Report on Form 8-K filed on April 17, 2020 .
Reservoir Characterization
Reservoir Characterization revenue of$1.3 billion decreased 20% sequentially. This decrease was primarily due to seasonally lower sales of software and multiclient seismic licenses and reduced winter activity in the Northern Hemisphere. Additionally, customers began to cut both discretionary spend and activity toward the end of the quarter, which affected exploration activity in several GeoMarkets. Reservoir Characterization pretax operating margin of 14% fell 839 basis points ("bps") sequentially due to the lower sales of software and multiclient seismic licenses as well as the effects of lower exploration activity.
Drilling
Drilling revenue of$2.3 billion decreased 6% sequentially with approximately half of the revenue decline attributable to the divestiture of the businesses and associated assets of DRILCO,Thomas Tools , and Fishing & Remedial Services (the "Drilling Tools businesses") which was completed at the end of the fourth quarter of 2019. Revenue also decreased due to seasonality effects in the Northern Hemisphere. The US land rig count was 6% lower sequentially including a 15% drop in the last two weeks of March. Drilling pretax operating margin of 12% was resilient, as it remained flat with the previous quarter despite the sequential revenue decline as profitability was boosted by the divestiture of the Drilling Tools businesses, which were previously dilutive to margins.
Production
Production revenue of$2.7 billion declined 6% sequentially. This was driven by lower Well Services activity and weaker Artificial Lift Solutions sales in the international markets. OneStim® revenue grew slightly as its scale-to-fit strategy successfully generated higher fleet utilization, however activity fell sharply in mid-March as customers cut their spending. OneStim began to stack more frac fleets in response and have reduced their active fleets by 27% during March. Production pretax operating margin of 8% contracted by 98 bps sequentially due to reduced profitability inNorth America while international margins were flat despite lower revenue.Cameron Cameron revenue of$1.3 billion decreased 10% sequentially mostly due to lower revenue inNorth America from the short-cycle businesses of Surface Systems and Valves & Process Systems. Revenue was impacted by the temporary closure of manufacturing facilities inItaly andMalaysia caused by COVID-19-related disruptions that impacted OneSubsea®, Surface Systems, and Valves & Process Systems activity.
Cameron pretax operating margin of 10% improved slightly by 57 bps.
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First Quarter 2020 Compared to First Quarter 2019
(Stated in millions)
First Quarter 2020 First Quarter 2019
Income (Loss) Income (Loss)
Before Before
Revenue Taxes Revenue TaxesReservoir Characterization$ 1,311 $ 184$ 1,459 $ 281 Drilling 2,291 285 2,387 307 Production 2,703 212 2,890 217 Cameron 1,254 121 1,259 148 Eliminations & other (104 ) (26 ) (116 ) (45 ) 776 908 Corporate & other (1) (228 ) (273 ) Interest income (2) 15 10 Interest expense (3) (129 ) (136 ) Charges and credits (4) (8,523 ) -$ 7,455 $ (8,089 ) $ 7,879 $ 509
(1) Comprised principally of certain corporate expenses not allocated to the
segments, stock-based compensation costs, amortization expense associated
with certain intangible assets, certain centrally managed initiatives and
other nonoperating items.
(2) Interest income excludes amounts which are included in the segments' income
($- million in 2020;
(3) Interest expense excludes amounts which are included in the segments' income
(
(4) Charges and credits are described in detail in Note 2 to the Consolidated
Financial Statements.
First-quarter 2020 revenue of $7.5 billion decreased 5% year-on-year as
customers began to cut spending in response to falling oil prices caused by the
simultaneous shocks in oil supply and demand due to the unprecedented global
health and economic crisis sparked by the COVID-19 pandemic. North America
revenue declined 17% year-on-year. The international business showed some
resilience as revenue increased 2% year-on-year against the backdrop of an
increasingly difficult operating environment.
Reservoir Characterization
First-quarter 2020 revenue of$1.3 billion fell 10% year-on-year as customers began to cut discretionary spending, which caused a reduction in exploration activity that impacted Wireline,WesternGeco , and Software Integrated Solutions ("SIS"). Activity was also lower in a number of countries affected by COVID-19-related disruptions. Year-on-year, pretax operating margin dropped 525 bps year-on-year to 14% due to lower high-margin exploration activity. Lower sales of SIS software andWesternGeco multiclient seismic licenses also contributed to the year-on-year margin contraction. Drilling First-quarter 2020 revenue of$2.3 billion decreased 4% year-on-year largely due to the divestiture of the Drilling Tools businesses at the end of the fourth quarter of 2019. Revenue also declined due to the significant drop in rig count inNorth America as customers reduced spending due to falling oil prices. Internationally, activity was also reduced in a number of countries in theMiddle East &Asia andEurope /CIS/Africa areas impacted by COVID-19-related disruptions. Year-on-year, pretax operating margin decreased 42 bps to 12%. While margins were lower due to the decrease in revenue and COVID-19-related disruptions, profitability was boosted by the divestiture of the Drilling Tools businesses which was previously dilutive to margins. 19 --------------------------------------------------------------------------------
Production
First-quarter 2020 revenue of$2.7 billion decreased 6% year-on-year primarily due to lower OneStim revenue as customers inNorth America land continued to decrease their investment spending resulting in the stacking of additional fleet capacity.
Year-on-year, pretax operating margin increased by 32 bps to 8% as improved
margins in Asset Performance Solutions ("APS") internationally were largely
offset by reduced profitability in OneStim in
Cameron
First-quarter 2020 revenue of
Year-on-year, pretax operating margin decreased 209 bps to 10% primarily driven by reduced profitability in the short cycle businesses of Surface Systems and Valves & Process Systems. Interest and Other Income
Interest & other income consisted of the following:
(Stated in millions)
First Quarter
2020 2019
Equity in net earnings of affiliated companies $ 24 $ 3
Interest income 15 11
$ 39 $ 14 The increases in earnings from equity method investments primarily relates to higher income associated with Schlumberger's equity investments in rig- and seismic-related businesses.
Other Research & engineering and General & administrative expenses, as a percentage of Revenue, for the first quarter endedMarch 31, 2020 and 2019 were as follows: First Quarter 2020 2019 Research & engineering 2.3 % 2.2 % General & administrative 1.7 % 1.4 % The effective tax rate for the first quarter of 2020 was 9%, as compared to 16% for the same period of 2019. The lower effective tax rate was almost entirely due to the charges described in Note 2 to the Consolidated Financial Statements, which were primarily related to non-deductible goodwill. 20 --------------------------------------------------------------------------------
Charges and Credits
Schlumberger recorded the following charges in connection with the preparation
of its first quarter 2020 financial statements, which are fully described in
Note 2 to the Consolidated Financial Statements:
(Stated in millions)
Pretax Tax Net
Goodwill $ 3,070 $ - $ 3,070
Intangible assets 3,321 (815 ) 2,506
APS investments 1,264 4 1,268
North America pressure pumping 587 (133 ) 454
Severance 202 (7 ) 195
Other 79 (9 ) 70
Valuation allowance - 164 164
$ 8,523 $ (796 ) $ 7,727 The first quarter 2020 results did not include any benefit from reduced
depreciation and amortization expense as a result of the first quarter
impairment charges. However, going forward, depreciation and amortization
expense will be reduced by approximately
There were no charges or credits recorded during the first quarter of 2019.
Schlumberger expects to record a significant charge relating to severance during the second quarter of 2020. However, at this time the amount cannot be reasonably estimated.
Liquidity and Capital Resources
The effects of the COVID-19 pandemic have resulted in a significant and swift reduction in international andU.S. economic activity. These effects have adversely affected the demand for oil and natural gas, as well as for Schlumberger's products and services, and caused significant volatility and disruption of the financial markets. This period of extreme economic disruption, low oil prices and reduced demand for Schlumberger's products and services has had, and is likely to continue to have, a material adverse impact on our business, results of operations, access to sources of liquidity and financial condition. In view of the uncertainty of the depth and extent of the contraction in oil demand due to the COVID-19 pandemic combined with the weaker commodity price environment, Schlumberger has turned its strategic focus to cash conservation and protecting its balance sheet. Schlumberger therefore reduced its dividend by 75%, commencing with the next dividend payment inJuly 2020 . The revised dividend supports Schlumberger's value proposition through a balanced approach of shareholder distributions and organic investment, while providing the flexibility to weather the uncertain environment. This decision reflects the Company's focus on its capital stewardship program as well as its commitment to maintain both a strong liquidity position and a strong investment grade credit rating that provides privileged access to the financial markets. Details of the components of liquidity as well as changes in liquidity follow: (Stated in millions) Mar. 31, Mar. 31, Dec. 31, Components of Liquidity: 2020 2019 2019 Cash$ 1,375 $ 1,230 $ 1,137 Short-term investments 1,969 925 1,030 Short-term borrowings and current portion of long-term debt (1,233 ) (99 ) (524 ) Long-term debt (15,409 ) (16,449 ) (14,770 ) Net debt (1)$ (13,298 ) $ (14,393 ) $ (13,127 ) 21
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Changes in Liquidity: Three Months Ended Mar. 31,
2020 2019
Net income (loss) $ (7,368 ) $ 430
Impairment and other charges 8,523 -
Depreciation and amortization (2) 792 903
Earnings of equity method investments, less dividends received
(10 ) 3
Deferred taxes (781 ) (72 )
Stock-based compensation expense 108 108
Increase in working capital (3) (482 ) (1,048 )
Other 2 2
Cash flow from operations 784 326
Capital expenditures (407 ) (413 )
APS investments (163 ) (151 )
Multiclient seismic data costs capitalized (35 ) (45 )
Free cash flow (4) 179 (283 )
Dividends paid (692 ) (692 )
Proceeds from employee stock plans 74 106
Stock repurchase program (26 ) (98 )
Net proceeds from asset divestitures 298 -
Business acquisitions and investments, net of cash
acquired plus debt assumed - (5 )
Other (4 ) (147 )
Increase in net debt (171 ) (1,119 )
Net debt, beginning of period (13,127 ) (13,274 )
Net debt, end of period $ (13,298 ) $ (14,393 ) (1) "Net debt" represents gross debt less cash and short-term
investments. 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 APS investments.
(3) Includes severance payments of approximately
during the three months ended
(4) "Free cash flow" represents cash flow from operations less capital
expenditures, APS investments and multiclient seismic data costs capitalized.
Management believes that free cash flow is an important liquidity measure for
the company and that it is useful to investors and management as a measure of
our ability to generate cash. Once business needs and obligations are met,
this cash can be used to reinvest in the company for future growth or to
return to shareholders through dividend payments or share repurchases. Free
cash flow does not represent the residual cash flow available for
discretionary expenditures. Free cash flow is a non-GAAP financial measure
that should be considered in addition to, not as substitute for or superior
to, cash flow from operations.
Key liquidity events during the first three months of 2020 and 2019 included:
• On
program for Schlumberger common stock. Schlumberger had repurchased $1.0
billion of Schlumberger common stock under this program as of March 31,
2020 .
The following table summarizes the activity under the share repurchase program:
(Stated in millions, except per share amounts)
Total cost Total number Average price
of shares of shares paid per
purchased purchased share
Three months ended March 31, 2020 $ 26 0.8 $ 33.81
Three months ended March 31, 2019 $ 98 2.3 $ 42.79
• Capital expenditures were
and 2019, respectively. Capital expenditures for full-year 2020 are expected
to be approximately
2019.
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• During the first quarter of 2020, Schlumberger issued €400 million of 0.25%
Notes due 2027 and €400 million of 0.50% Notes due 2031.
• During the first quarter of 2020, Schlumberger completed the sale of its 49%
interest in the Bandurria Sur Block in
from this transaction, combined with the proceeds received from the
divestiture of a smaller APS project, amounted to $298 million .
• During the first quarter of 2019, Schlumberger issued
Senior Notes due 2024 and
Schlumberger generates revenue in more than 120 countries. As of
As ofMarch 31, 2020 , Schlumberger had$3.3 billion of cash and short-term investments on hand. Schlumberger had separate committed debt facility agreements aggregating$6.3 billion that support commercial paper programs, of which$3.5 billion was available and unused. Additionally, subsequent to the end of the first quarter of 2020, Schlumberger entered into a €1.2 billion committed revolving credit facility. This one-year facility can be extended at Schlumberger's option for up to an additional year. Schlumberger can potentially upsize this facility through syndication. Schlumberger believes these amounts are sufficient to meet future business requirements for at least the next 12 months.
Borrowings under the commercial paper programs at
FORWARD-LOOKING STATEMENTS
This first-quarter 2020 Form 10-Q, as well as other statements we make, contain "forward-looking statements" within the meaning of the federal securities laws, which include any statements that are not historical facts, such as our forecasts or expectations regarding business outlook; growth for Schlumberger as a whole and for each of its segments (and for specified products or geographic areas within each segment); oil and natural gas demand and production growth; oil and natural gas prices; improvements in operating procedures and technology, including our transformation program; capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger's customers; our effective tax rate; future global economic conditions; and future results of operations. These statements are subject to risks and uncertainties, including, but not limited to, changing global economic conditions; public health crises, such as the COVID-19 pandemic, and any related actions taken by businesses and governments; changes in exploration and production spending by Schlumberger's customers and changes in the level of oil and natural gas exploration and development; the results of operations and financial condition of Schlumberger's customers and suppliers, particularly during extended periods of low prices for crude oil and natural gas; 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 competitiveness of alternate-energy sources or product substitutes; and other risks and uncertainties detailed in this Form 10-Q and our most recent Form 10-K and Form 8-K filed with or furnished to theSEC . 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. Statements in this first-quarter 2020 Form 10-Q are made as ofApril 22, 2020 , and Schlumberger disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise. 23
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