SCHLUMBERGER LIMITED First Quarter 2021 Compared to Fourth Quarter 2020
(Stated in millions)
First Quarter 2021 Fourth Quarter 2020
Income Before Income Before
Revenue Taxes Revenue Taxes
Digital & Integration $ 773 $ 247 $ 833 $ 270
Reservoir Performance 1,002 102 1,247 95
Well Construction 1,935 209 1,866 183
Production Systems 1,590 138 1,649 155
Eliminations & other (77 ) (32 ) (63 ) (49 )
664 654
Corporate & other (1) (150 ) (132 )
Interest income (2) 4 5
Interest expense (3) (132 ) (137 )
Charges and credits (4) - 81
$ 5,223 $ 386 $ 5,532 $ 471
(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
(
(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 declined 6% sequentially, reflecting the expected
reduction in North America following the divestitures of the OneStim® pressure
pumping business and the low-flow artificial lift business during the fourth
quarter of 2020. These divestitures were consistent with Schlumberger's strategy
to focus on high-grading and rationalizing its business portfolio to expand
margins, minimize earnings volatility, and focus on more capital efficient
businesses. Excluding the impact of these divestitures, which generated $285
million of revenue (all of which was in North America ) during the fourth quarter
of 2020, global revenue was essentially flat sequentially as the impact of
seasonally lower activity in the Northern Hemisphere was fully offset by growth
in multiple countries.
In North America , excluding the effects of divestitures, revenue grew 10%
sequentially driven by land revenue which increased 24% due to higher drilling
activity, despite the Texas freeze. Offshore revenue declined 10% sequentially
following the seasonal year-end product sales in the fourth quarter.
International revenue in the quarter reflected the usual seasonal dip, though
China and Russia experienced a particularly severe winter. However, the
sequential revenue decline was less pronounced than in prior years due to strong
growth in Latin America and in several key countries in the Middle East and
Africa. The first-quarter revenue sequential decline was the shallowest since
2008, while international rig count experienced the strongest first-quarter
sequential growth since 2011, affirming the international recovery.
First-quarter revenue was also characterized by growth in Well Construction and
Reservoir Performance, excluding the effects of divestitures, and despite
seasonality in the Northern Hemisphere. Well Construction revenue increased 4%
sequentially due to higher drilling activity in North America and Latin America .
Reservoir Performance decreased 20% due to the OneStim® divesture in North
America -but excluding this, the Division grew by 3% driven by robust
international land and offshore activity. Digital & Integration revenue
decreased 7% sequentially due to seasonally lower sales of software and
multiclient seismic data licenses. Production Systems revenue declined 4%,
mostly due to lower product sales following the strong year-end sales of the
previous quarter.
Sequentially, despite the revenue decline, first-quarter pretax segment
operating income increased 1%. Pretax segment operating income margin expanded
by 88 basis points ("bps') sequentially to 13%, representing a 230 bps
improvement compared to the first quarter of 2020 despite a 30% revenue decline
year-on-year. This performance represents a promising start to the Company's
margin
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expansion ambition this year and highlights the impact of the capital stewardship program and cost reduction measures, which provides Schlumberger with significant operating leverage.
Looking ahead, Schlumberger continues to be encouraged by constructive
macroeconomic drivers. While the world is still grappling with COVID-19
infection rates, vaccination programs and fiscal stimulus packages are expected
to support a rebound of economic activity and oil demand recovery through the
year. Industry analysis estimates 5-6 million barrels-per-day ("bb/d") of oil
demand will be added by the end of 2021 as demand recovery is projected to
improve in the second quarter, exiting the year just 2 million bbl/d short of
2019 levels.
With the gradual return of oil demand, Schlumberger anticipates North America
activity will level off at production maintenance levels, while international
activity is poised to ramp up through the end of 2021 and beyond. Schlumberger
expects to significantly benefit from this anticipated shift to increased
international activity due to the strength and breadth of its international
franchise. Consequently, Schlumberger is increasingly confident that its
international revenue will see double-digit growth in the second half of 2021 as
compared to the same period last year, which implies potential upside to the
already robust growth that is anticipated in 2022 and beyond.
Digital & Integration
Digital & Integration revenue of$773 million decreased 7% sequentially due to seasonally lower sales of digital solutions, software, and multiclient seismic data licenses. Digital & Integration pretax operating margin of 32% was essentially flat sequentially. Despite the revenue decline, operating margin was maintained as the effects of digital solutions and multiclient revenue declines were largely offset by improved profitability from Asset Performance Solutions ("APS") projects.
Reservoir Performance
Reservoir Performance revenue of$1.0 billion declined 20% sequentially. The revenue decline reflected the OneStim divestiture, which generated$274 million of revenue during the fourth quarter of 2020. Excluding the impact of the OneStim divestiture, revenue grew 3% sequentially despite the impact of seasonally lower activity inRussia andChina , due to higher activity inLatin America ,North America , Sub-Sahara Africa , and theMiddle East .
Reservoir Performance pretax operating margin of 10% expanded 261 bps sequentially as profitability was improved due to the divestiture of the OneStim business, which was previously dilutive to margins.
Sequentially,
Production Systems
Production Systems revenue of
Despite the revenue decline, pretax operating margin only decreased 71 bps to
9%, as a result of cost control measures as well as improved profitability in
midstream production systems due to higher activity.
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First Quarter 2021 Compared to First Quarter 2020
(Stated in millions)
First Quarter 2021 First Quarter 2020
Income Income (Loss)
Before Before
Revenue Taxes Revenue Taxes
Digital & Integration $ 773 $ 247 $ 885 $ 151
Reservoir Performance 1,002 102 1,969 134
Well Construction 1,935 209 2,815 331
Production Systems 1,590 138 1,912 191
Eliminations & other (77 ) (32 ) (126 ) (31 )
664 776
Corporate & other (1) (150 ) (228 )
Interest income (2) 4 15
Interest expense (3) (132 ) (129 )
Charges and credits (4) - (8,523 )
$ 5,223 $ 386 $ 7,455 $ (8,089 ) (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
(
(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 2021 revenue of $5.2 billion decreased 30% year-on-year reflecting
the significant fall in activity following the historic demand destruction
driven by the COVID-19 pandemic that commenced in early 2020. More than a year
after the unprecedented global health and economic crisis sparked by the
pandemic began, customers have gradually increased their spending. Revenue also
declined year-on-year, particularly in North America , following the previously
mentioned divestitures during the fourth quarter of 2020. Excluding the impact
of these divestitures, which generated $659 million of revenue (all of which was
in North America ) during the first quarter of 2020, first-quarter 2021 global
revenue declined 23% year-on-year.
In
First-quarter 2021 pretax segment operating margin of 13% was 230 bps higher compared to the same period last year, despite the 30% decline in revenue, due to the divestitures of certain businesses inNorth America , which were previously dilutive to margins, combined with reduced depreciation and amortization expense following the asset impairment charges recorded during 2020 and the effects of cost reduction measures.
Digital & Integration
First-quarter 2021 revenue of$773 million decreased 13% year-on-year following the significant cut in discretionary and exploration activity triggered by the pandemic. Year-on-year, pretax operating margin increased from 17% to 32%. Despite the revenue decline, pretax operating margins increased primarily due to improved profitability from APS projects as a result of reduced amortization following the impairment charges that were recorded in 2020 relating to certain APS investments inNorth America andLatin America .
Reservoir Performance
First-quarter 2021 revenue of
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--------------------------------------------------------------------------------Year-on-year, pretax operating margin increased by 341 bps to 10% largely due to the divestiture of the OneStim business, which was previously dilutive to margins.
First-quarter 2021 revenue of$1.9 billion decreased 31% year-on-year due to the significant drop in rig count inNorth America and internationally due to the effects of the pandemic.
Year-on-year, pretax operating margin decreased 95 bps to 11% primarily due to the significant decrease in revenue.
Production Systems
First-quarter 2021 revenue of$1.6 billion decreased 17% year-on-year primarily driven by theNorth America short-cycle business due to the significant decline in completions activity due to the effects of the pandemic.
Year-on-year, pretax operating margin decreased 127 bps to 9% due to reduced profitability in surface, midstream, and subsea production systems.
Interest and Other Income
Interest & other income consisted of the following:
(Stated in millions)
First Quarter
2021 2020
Equity in net earnings of affiliated companies $ 14 $ 24
Interest income 5 15
$ 19 $ 39
Other
Research & engineering and General & administrative expenses, as a percentage of
Revenue, for the first quarter ended March 31, 2021 and 2020 were as follows:
First Quarter
2021 2020
Research & engineering 2.6 % 2.3 %
General & administrative 1.5 % 1.7 %
The effective tax rate for the first quarter of 2021 was 19%, as compared to 9%
for the same period of 2020. The higher effective tax rate was almost entirely
due to the charges recorded during the first quarter of 2020 (see Note 2 to the
Consolidated Financial Statements) which included a significant amount related
to non-deductible goodwill.
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Charges and Credits
During the first quarter of 2020 Schlumberger recorded the following 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 American pressure pumping 587 133 454
Severance 202 7 195
Other 79 9 70
Valuation allowance - (164 ) 164
$ 8,523 $ 796 $ 7,727 Liquidity and Capital Resources
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: 2021 2020 2020
Cash $ 1,268 $ 1,375 $ 844
Short-term investments 1,642 1,969 2,162
Short-term borrowings and current portion of
long-term debt (749 ) (1,233 ) (850 )
Long-term debt (15,834 ) (15,409 ) (16,036 )
Net debt (1) $ (13,673 ) $ (13,298 ) $ (13,880 )
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Three Months Ended Mar. 31,
Changes in Liquidity: 2021 2020
Net income (loss) $ 312 $ (7,368 )
Impairment and other charges - 8,523
Depreciation and amortization (2) 532 792
Earnings of equity method investments, less dividends received
(13 ) (10 )
Deferred taxes (29 ) (781 )
Stock-based compensation expense 84 108
Increase in working capital (3) (455 ) (482 )
Other (2 ) 2
Cash flow from operations 429 784
Capital expenditures (178 ) (407 )
APS investments (85 ) (163 )
Multiclient seismic data costs capitalized (7 ) (35 )
Free cash flow (4) 159 179
Dividends paid (174 ) (692 )
Proceeds from employee stock plans 62 74
Stock repurchase program - (26 )
Business acquisitions and investments, net of cash acquired plus debt assumed
(13 ) -
Net proceeds from asset divestitures - 298
Other (61 ) (63 )
Change in net debt before impact of changes in foreign exchange rates on net debt
(27 ) (230 ) Impact of changes in foreign exchange rates on net debt
234 59
Decrease (increase) in net debt 207 (171 )
Net debt, beginning of period (13,880 ) (13,127 )
Net debt, end of period $ (13,673 ) $ (13,298 ) (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.
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 at the time, inApril 2020 Schlumberger announced a 75% reduction to its quarterly cash dividend. The revised dividend supports Schlumberger's value proposition through a balanced approach of shareholder distributions and organic investment, while providing flexibility to address the uncertain environment. This decision reflected 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.
Key liquidity events during the first three months of 2021 and 2020 included:
• On
for Schlumberger common stock. Schlumberger had repurchased
Schlumberger common stock under this program as of
2021. Schlumberger did not repurchase any of its common stock during the first
quarter of 2021. Schlumberger repurchased
during the first quarter of 2020.
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•Capital investments (consisting of capital expenditures, APS investments and
multiclient seismic data capitalized) were
quarter of 2021 compared to
2020. Capital investments during the full year of 2021 are expected to be
between
year 2020.
• 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
this transaction, combined with the proceeds received from the divestiture of
a smaller APS project, amounted to
As of
Borrowings under the commercial paper programs at
Schlumberger maintains an allowance for doubtful accounts in order to record accounts receivable at their net realizable value. Judgment is involved in recording and making adjustments to this reserve. Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices. Adjustments to the allowance may be required in future periods depending on how such potential issues are resolved, or if the financial condition of Schlumberger's customers were to deteriorate resulting in an impairment of their ability to make payments. As a large multinational company with a long history of operating in a cyclical industry, Schlumberger has extensive experience in working with its customers during difficult times to manage its accounts receivable. Schlumberger generates revenue in more than 120 countries. As ofMarch 31, 2021 , only five of those countries individually accounted for greater than 5% of Schlumberger's net receivable balance, of which only one (Mexico ) accounted for greater than 10% of such receivables. Schlumberger has recently experienced delays in payment from its primary customer inMexico . Included in Receivables, less allowance for doubtful accounts in the Consolidated Balance Sheet as ofMarch 31, 2021 is approximately$0.7 billion of receivables relating toMexico . Schlumberger's receivables from its primary customer inMexico are not in dispute and Schlumberger has not historically had any material write-offs due to uncollectible accounts receivable relating to this customer.
FORWARD-LOOKING STATEMENTS
This first-quarter 2021 Form 10-Q, as well as other statements we make, contains
"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 Divisions (and for specified business lines or
geographic areas within each Division); oil and natural gas demand and
production growth; oil and natural gas prices; pricing; Schlumberger's response
to, and preparedness for, the COVID-19 pandemic and other widespread health
emergencies; improvements in operating procedures and technology; capital
expenditures by Schlumberger and the oil and gas industry; the business
strategies of Schlumberger, including digital and "fit for basin," as well as
the strategies of Schlumberger's customers; Schlumberger's restructuring efforts
and charges recorded as a result of such efforts; access to raw materials;
Schlumberger's effective tax rate; Schlumberger's APS projects, joint ventures,
and other alliances; future global economic and geopolitical conditions; future
liquidity; and future results of operations, such as margin levels. These
statements are subject to risks and uncertainties, including, but not limited
to, changing 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; 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; Schlumberger's
inability to achieve its financial and performance targets and other forecasts
and expectations; Schlumberger's inability to sufficiently monetize assets; the
extent of future charges; general economic, geopolitical and business conditions
in key regions of the world; foreign currency risk; pricing pressure; weather
and seasonal factors; unfavorable effects of health pandemics; availability and
cost of raw materials; operational modifications, delays or cancellations;
challenges in Schlumberger's supply chain; production declines; Schlumberger's
inability to recognize intended benefits from its business strategies and
initiatives, such as digital or Schlumberger New Energy, as well as its
restructuring and structural cost reduction plans; 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 alternative energy
sources or product substitutes; and other risks and uncertainties detailed in
this Form 10-Q and
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our most recent Form 10-K and Forms 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 2021 Form 10-Q are made as ofApril 28, 2021 , 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.
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