SCHLUMBERGER LIMITED The following discussion and analysis contains forward-looking statements, including, without limitation, statements relating to our plans, strategies, objectives, expectations, intentions and resources. Such forward-looking statements should be read in conjunction with our disclosures under "Item 1A. Risk Factors" of this Form 10-K. This section of the Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparison between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of Schlumberger's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
2021 Executive Overview
Continuing a broad recovery that began in 2020, oil markets were generally positive throughout the year, with Brent oil price starting 2021 at the year's low of$51 per barrel, reaching a high of$85 in November. Sentiment in oil markets was largely positive as global demand recovered and supply was managed by a combination of the reassurance of continued intervention from OPEC+, and ongoing capital discipline by publicly traded operators inNorth America . Within the context of strengthening fundamentals across the year, there were several instances where the potential impact of COVID-19 variants raised concerns regarding demand growth. However, these periods were shorter lived than the prolonged decline in 2020, which was characterized by economic lockdowns, and oil prices soon rebounded. Pricing was initially supported by OPEC+ production agreements that had come into effect in 2020 and remained resilient as those production targets were gradually increased in the second half of 2021, as crude and product stocks continued a multiyear downward trend. International activity grew broadly across geographies in the second half of the year, including offshore and deepwater, with operators investing in projects to meet long-term objectives and regional demand growth. Activity inNorth America land also rebounded, albeit from a very low base in 2020, but did not return to prepandemic levels, as investment and production were subdued as a result of continued capital discipline on the part of larger producers.
International natural gas pricing, while following the traditional seasonal
pattern, was volatile, swinging from pandemic-driven lows in 2020 to record
highs around the world. Domestically, US
Against this backdrop, Schlumberger's full-year 2021 revenue of$22.9 billion decreased 3% year-on-year as a result of the divestitures of the OneStim pressure pumping business and theNorth America low-flow artificial lift business during the fourth quarter of 2020. These divestitures were consistent with Schlumberger's strategy to focus on expanding margins, minimizing earnings volatility and focusing on less capital-intensive businesses by high-grading and rationalizing its business portfolio. The divested businesses accounted for approximately 25% of Schlumberger'sNorth America revenue in 2020. Excluding the impact of these divestitures, which generated$1.3 billion of revenue during 2020 (all of which was inNorth America ), full-year 2021 global revenue grew 3% year-on-year, driven by an 8% increase inNorth America and a 2% increase in international revenue. Financial performance in 2021 was driven by global oil and gas activity growth in the second half of the year as investment spending experienced double-digit growth year-on-year. Consequently, Schlumberger's revenue in the second half of 2021 grew 12% compared to the same period of 2020, and increased 18% when adjusted for the effects of the divestitures. International revenue increased 12% year-on-year during the second half of 2021, andNorth America revenue increased 10%, or 44% when adjusted for the effects of the divestitures (which generated$0.5 billion of revenue during the second half of 2020). Looking ahead into 2022, we believe the industry macro fundamentals are very favorable, due to the combination of projected steady demand recovery, an increasingly tight supply market, and supportive oil prices. Schlumberger expects this to result in a material step up in industry capital spending with double-digit growth in both the international and North American markets. Absent any further significant COVID-related disruption, oil demand is expected to exceed prepandemic levels before the end of the year and further strengthen in 2023. We believe these favorable market conditions are similar to those experienced during the last industry supercycle, suggesting that resurgent global demand-led capital spending will result in an exceptional multiyear growth cycle. Throughout 2021, Schlumberger continued to strengthen its core portfolio, enhanced its sustainability leadership, successfully advanced its digital journey, and expanded its new energy portfolio. Schlumberger is well prepared to fully seize this growth ahead. Schlumberger is entering this cycle in a position of strength, having reset its operating leverage, expanded peer-leading margins across multiple quarters, and aligned its technology and business portfolio with the new industry imperatives. 17 --------------------------------------------------------------------------------
Fourth Quarter 2021 Results
(Stated in millions)
Fourth Quarter 2021 Third Quarter 2021
Income Income
Before Before
Revenue Taxes Revenue TaxesDigital & Integration$ 889 $ 335 $ 812 $ 284 Reservoir Performance 1,287 200 1,192 190 Well Construction 2,388 368 2,273 345 Production Systems 1,765 159 1,674 166 Eliminations & other (104 ) (76 ) (104 ) (77 ) 986 908 Corporate & other (1) (140 ) (145 ) Interest income (2) 14 8 Interest expense (3) (123 ) (127 ) Charges & credits (4) 18 47$ 6,225 $ 755 $ 5,847 $ 691
(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) Excludes interest income included in the segments' income (fourth quarter
2021:
(3) Excludes interest expense included in the segments' income (fourth quarter
2021:
(4) Charges and credits are described in detail in Note 3 to the Consolidated
Financial Statements.
Fourth-quarter revenue of
International revenue of$4.90 billion grew 5% sequentially, driven primarily by strengthening activity, increased digital sales, and early benefits of pricing improvements. The sequential revenue increase was led by growth inEurope /CIS/Africa largely due to strong offshore activity inAfrica . This growth was complemented by project startups and activity gains in theMiddle East &Asia and sustained activity growth inLatin America . InNorth America , revenue of$1.28 billion grew 13% sequentially, outperforming the rig count growth. The sequential growth was driven by strong offshore and land drilling activity and increased exploration data licensing. Fourth-quarter pretax segment operating margin of 16% increased 31 basis points (bps) sequentially, reaching its highest quarterly level since 2015, largely as a result of the accretive effect of accelerating digital sales.
Digital & Integration
Fourth-quarter revenue of$889 million increased 10% sequentially, propelled by accelerated digital sales internationally, particularly inEurope /CIS/Africa andMiddle East &Asia , and increased exploration data licensing sales inNorth America offshore and the Permian. These increases, however, were partially offset by the effects of a temporary production interruption in the APS projects inEcuador due to pipeline disruption.
Digital & Integration pretax operating margin of 38% expanded 268 bps sequentially, primarily due to higher digital and exploration data licensing sales.
Reservoir Performance Fourth-quarter revenue of$1.3 billion increased 8% sequentially, primarily due to higher intervention activity across the international offshore markets and activity gains in theMiddle East &Asia .
Reservoir Performance pretax operating margin of 16% was essentially flat sequentially.
18
--------------------------------------------------------------------------------
Fourth-quarter revenue of
Production Systems
Fourth-quarter revenue of$1.8 billion increased 5% sequentially driven by a 6% increase in international revenue. This growth was mainly inEurope /CIS/Africa as a result of strong project progress. Production Systems pretax operating margin of 9% declined 85 bps sequentially due to an unfavorable mix and the impact of delayed deliveries due to global supply and logistics constraints. Full-Year 2021 Results (Stated in millions) 2021 2020 Income Income (Loss) Before Before Revenue Taxes Revenue Taxes
Digital & Integration
353
Well Construction 8,706 1,195 8,614 870
Production Systems 6,710 634 6,650 623
Eliminations & other (376 ) (253 ) (332 ) (172 )
3,365 2,401
Corporate & other (1) (573 ) (681 )
Interest income (2) 31 31
Interest expense (3) (514 ) (534 )
Charges & credits (4) 65 (12,515 )$ 22,929 $ 2,374 $ 23,601 $ (11,298 )
(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) Excludes interest income included in the segments' income (2021:
2020:
(3) Excludes interest expense included in the segments' income (2021:
million; 2020:
(4) Charges and credits are described in detail in Note 3 to the Consolidated
Financial Statements.
Full-year 2021 revenue of $22.9 billion decreased 3% year-on-year primarily as a
result of the divestitures of the OneStim pressure pumping business and the
low-flow artificial lift business during the fourth quarter of 2020. Excluding
the impact of these divestitures, which generated $1.3 billion of revenue (all
of which was in North America ) during 2020, global revenue increased 3%
year-on-year.
In
The growth in 2021 was driven by strong global oil and gas activity in the second half of the year. Schlumberger's revenue in the second half of 2021 grew 12% compared to the same period of 2020 and increased 18% when adjusted for the effects of the divestitures. This growth was pervasive across all geographies and Divisions. Full-year 2021 pretax operating margin of 15% was 450 bps higher compared to 2020, primarily due to the divestiture 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. 19 --------------------------------------------------------------------------------
Digital & Integration
Full-year 2021 revenue of
Year-on-year, pretax operating margin increased 11 percentage points to 35%. Operating margin increased due to improved profitability from APS projects as a result of higher oil prices and reduced amortization expense following the asset impairment charges that were recorded during 2020 relating to certain APS investments. Reservoir Performance Full-year 2021 revenue of$4.6 billion decreased 18% year-on-year, largely reflecting the effects of the OneStim divestiture, which generated$1.2 billion of revenue during 2020. Excluding the impact of the OneStim divestiture, revenue increased 5% year-on-year primarily driven by strong activity inLatin America . Year-on-year, pretax operating margin increased by 779 bps to 14% despite the significant drop in revenue, primarily due to the divestiture of the OneStim business, which was previously dilutive to margins.
Full-year 2021 revenue of
Year-on-year, pretax operating margin increased 363 bps to 14% despite the relatively flat revenue, largely as a result of the implementation of cost control measures.
Production Systems
Full-year 2021 revenue of
Year-on-year, pretax operating margin was essentially flat at 9%.
Interest and Other Income
Interest & other income consisted of the following:
(Stated in millions)
2021 2020
Earnings of equity method investments $ 40 $ 91
Interest income 33 33
Unrealized gain on marketable securities 47 39
Gain on sale of Liberty shares 28 -
$ 148 $ 163
The decrease in earnings of equity method investments in 2021 as compared to
2020 is primarily attributable to Schlumberger's share of net losses associated
with Schlumberger's investment in Liberty. Schlumberger records its share of
Liberty's net income or loss on a one-quarter lag.
During the fourth quarter of 2021 Schlumberger sold 9.5 million of its shares of
Liberty and recognized a gain of $28 million . See Note 3 to the Consolidated
Financial Statements.
During the third quarter of 2021, a start-up company that Schlumberger
previously invested in was acquired. As a result of this transaction,
Schlumberger's ownership interest was converted into shares of a publicly traded
company. Schlumberger recognized an unrealized pretax gain of $47 million to
increase the carrying value of this investment to its estimated fair value of
approximately $55 million . See Note 3 to the Consolidated Financial Statements.
During the fourth quarter of 2020, a start-up company that Schlumberger
previously invested in completed an initial public offering. As a result,
Schlumberger recognized an unrealized gain of
20
--------------------------------------------------------------------------------
value of $43 million as of December 31, 2020 . See Note 3 to the Consolidated
Financial Statements. Schlumberger sold this investment during 2021, which did
not result in a material gain or loss.
Interest Expense
Interest expense of$539 million in 2021 decreased$24 million compared to 2020 primarily as a result of the$2.7 billion year-on-year reduction in total debt outstanding. Other
Research & engineering and General & administrative expenses, as a percentage of Revenue, were as follows:
2021 2020
Research & engineering 2.4 % 2.5 %
General & administrative 1.5 % 1.5 %
Income Taxes
The Schlumberger effective tax rate is sensitive to the geographic mix of
earnings. When the percentage of pretax earnings generated outside of
The Schlumberger effective tax rate was 19% in 2021 as compared to 7% in 2020. The increase in the effective tax rate was primarily due to the charges and credits described in Note 3 to the Consolidated Financial Statements. These charges and credits reduced the effective tax rate in 2020 by 12 percentage points as a significant portion of these charges were not tax-effective. Charges and Credits Schlumberger recorded charges and credits during 2021 and 2020. These charges and credits, which are summarized below, are more fully described in Note 3 to the Consolidated Financial Statements.
The following is a summary of the 2021 charges and credits.
(Stated in millions)
Pretax Tax Net
Third quarter:
Unrealized gain on marketable securities $ (47 ) $ (11 ) $ (36 )
Fourth quarter:
Gain on sale of Liberty shares (28 ) (4 ) (24 )
Early repayment of bonds 10 - 10
$ (65 ) $ (15 ) $ (50 )
21
--------------------------------------------------------------------------------
The following is a summary of the 2020 charges and credits.
(Stated in millions)
Pretax Tax Net
First quarter:
Goodwill $ 3,070 $ - $ 3,070
Intangible assets impairments 3,321 815 2,506
Asset Performance Solutions investments 1,264 (4 )
1,268
North America pressure pumping impairment 587 133 454 Workforce reductions 202 7 195 Other 79 9 70 Valuation allowance - (164 ) 164 Second quarter: Workforce reductions 1,021 71 950 Asset Performance Solutions investments 730 15 715 Fixed asset impairments 666 52 614 Inventory write-downs 603 49 554 Right-of-use asset impairments 311 67
244
Costs associated with exiting certain activities 205 (25 )
230
Multiclient seismic data impairment 156 2
154
Repurchase of bonds 40 2
38
Postretirement benefits curtailment gain (69 ) (16 ) (53 )
Other 60 4 56
Third quarter:
Facility exit charges 254 39 215
Workforce reductions 63 - 63
Other 33 1 32
Fourth quarter:
Gain on sale of OneStim (104 ) (11 ) (93 )
Unrealized gain on marketable securities (39 ) (9 ) (30 )
Other 62 4 58
$ 12,515 $ 1,041 $ 11,474
As a result of the first quarter 2020 impairment charges, commencing with the
second quarter of 2020, depreciation and amortization expense was reduced by
approximately $95 million on a quarterly basis. Approximately $33 million of
this quarterly reduction is reflected in the Digital & Integration Division and
$12 million is reflected in the Reservoir Performance Division. The remaining
$50 million is reflected in the "Corporate & other" line item.
As a result of the second quarter 2020 restructuring and impairment charges,
commencing with the third quarter of 2020, depreciation and amortization expense
was reduced by approximately $80 million and lease expense was reduced by $25
million on a quarterly basis. Approximately $51 million of this quarterly
reduction is reflected in the Digital & Integration Division and $31 million is
reflected in the Reservoir Performance Division, with the remaining $23 million
reflected among the Well Construction Division and Production Systems Division.
As a result of the third quarter 2020 restructuring charges, commencing with the
fourth quarter of 2020, depreciation and lease expense was reduced by $15
million on a quarterly basis. This quarterly reduction is reflected among all of
the Divisions.
22
--------------------------------------------------------------------------------
Liquidity and Capital Resources
Details of the components of liquidity as well as changes in liquidity follow:
(Stated in
millions)
Dec. 31, Dec. 31,
Components of Liquidity: 2021 2020
Cash $ 1,757 $ 844
Short-term investments 1,382 2,162Short-term borrowings and current portion of long-term debt (909 )
(850 )
Long-term debt (13,286 ) (16,036 )
Net debt (1) $ (11,056 ) $ (13,880 )
Changes in Liquidity: 2021 2020
Net income (loss) $ 1,928 $ (10,486 )
Impairments and other charges and credits (65 ) 12,515
Depreciation and amortization (2) 2,120
2,566
Deferred taxes (31 )
(1,248 ) Earnings of equity method investments, less dividends received
10 (28 )
Stock-based compensation expense 324 397
Increase in working capital (3) (45 ) (833 ) US Federal tax refund 477 - Other (67 ) 61 Cash flow from operations 4,651 2,944 Capital expenditures (1,141 ) (1,116 ) APS investments (474 ) (303 ) Multiclient seismic data capitalized (39 ) (101 ) Free cash flow (4) 2,997 1,424 Dividends paid (699 ) (1,734 ) Stock repurchase program - (26 ) Proceeds from employee stock plans 137
146
Proceeds from sale of Liberty shares 109
-
Net proceeds from divestitures -
434
Business acquisitions and investments, net of cash acquired plus debt assumed
(103 ) (33 )
Repayment of finance lease obligations - (188 )
Other (105 ) (181 ) Change in net debt before impact of changes in foreign exchange rates on net debt
2,336 (158 ) Impact of changes in foreign exchange rates on net debt
488 (595 )
(Increase) decrease in Net Debt 2,824 (753 )
Net Debt, Beginning of period (13,880 ) (13,127 )
Net Debt, End of period $ (11,056 ) $ (13,880 ) (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
2020, respectively.
(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 a substitute for or superior
to, cash flow from operations.
23
--------------------------------------------------------------------------------
Key liquidity events during 2021 and 2020 included:
• In
contraction in oil demand due to the COVID-19 pandemic combined with the
weaker commodity price environment at the time, 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, and provided 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. Dividends paid during
2021 and 2020 were
• Cash flow from operations was
2020. The increase in cash flow from operations in 2021 as compared to 2020
was driven by the sharp increase in earnings excluding non-cash charges and
credits and depreciation and amortization expense as a result of the
improved business conditions in 2021, as well as the receipt of the $0.5
billion US federal tax refund described below and a $0.6 billion
year-on-year reduction in severance payments.
• On
billion share repurchase program for Schlumberger common stock. Schlumberger
had repurchased
as of
stock during 2021, and repurchased
2020.
• Capital investments (consisting of capital expenditures, APS investments and
multiclient seismic data capitalized) were
billion in 2020. Capital investments during 2022 are expected to be between
• During the fourth quarter of 2021, Schlumberger deposited sufficient funds
with the trustee for its
(including payment of the
discharge all of its obligations relating to such notes. As a result of
this transaction, Schlumberger recorded a charge of $10 million . Thischarge is reflected in Interest in the Consolidated Statement of Income
(Loss). See Note 3 - Charges and Credits.
• During the fourth quarter of 2021 Schlumberger sold 9.5 million of its
shares of Liberty and received proceeds of
• During the second quarter of 2021, Schlumberger repurchased all
of its 3.30% Senior Notes due 2021.
• During the second quarter of 2021, Schlumberger received a federal tax
refund of
pursuant to the Coronavirus Aid, Relief and Economic Security Act.
• During the fourth quarter of 2020, Schlumberger repaid certain finance lease
obligations totaling
• During the third quarter of 2020, Schlumberger issued
Senior Notes due 2025 and
• During the second quarter of 2020, Schlumberger issued €1.0 billion of
1.375% Guaranteed Notes due 2026, $900 million of 2.650% Senior Notes due
2030 and €1.0 billion of 2.00% Guaranteed Notes due 2032.
• During the second quarter of 2020, Schlumberger repurchased all
of its 4.20% Senior Notes due 2021 and
Notes due 2021. Schlumberger paid a premium of approximately
connection with these repurchases. This premium was classified in
Impairments & other in the Consolidated Statement of Income (Loss). See
Note 3 - Charges and Credits.
• 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
As ofDecember 31, 2021 , Schlumberger had$3.14 billion of cash and short-term investments and committed credit facility agreements with commercial banks aggregating$6.60 billion , all of which was available and unused. Schlumberger believes these amounts, along with cash generated by ongoing operations, will be sufficient to meet future business requirements for the next 12 months and beyond. 24
--------------------------------------------------------------------------------
The following table reflects the carrying amounts of Schlumberger's debt at
(Stated in millions)
2022 2023 2024 2025 2026 2027 2028 2029 Thereafter Total
Fixed rate debt
2.65% Senior Notes $ 600 600
3.63% Senior Notes 295 295
3.65% Senior Notes $ 1,497 1,497
4.00% Notes 80 80
3.70% Notes $ 55 55
3.75% Senior Notes 748 748
0.00% Notes 563 563
1.40% Senior Notes $ 498 498
4.00% Senior Notes 930 930
1.375% Guaranteed Notes $ 1,125 1,125
1.00% Guaranteed Notes 679 679
0.25% Notes $ 1,013 1,013
3.90% Senior Notes $ 1,457 1,457
4.30% Senior Notes $ 846 846
2.65% Senior Notes $ 1,250 1,250
0.50% Notes 1,012 1,012
2.00% Guaranteed Notes 1,118 1,118
7.00% Notes 204 204
5.95% Notes 113 113
5.13% Notes 98 98
Total fixed rate debt $ 895 $ 1,577 $ 1,366 $ 1,428 $ 1,804 $ 1,013 $ 1,457 $ 846 $ 3,795 $ 14,181
Variable rate debt 14 - - - - - - - - 14
Total $ 909 $ 1,577 $ 1,366 $ 1,428 $ 1,804 $ 1,013 $ 1,457 $ 846 $ 3,795 $ 14,195 Interest payments on fixed rate debt obligations by year are as follows:
(Stated in millions) 2022$ 446 2023 418 2024 343 2025 317 2026 265 Thereafter 941$ 2,730
See Note 13, Leases of the Consolidated Financial Statements for details regarding Schlumberger's lease obligations.
Schlumberger has outstanding letters of credit/guarantees that relate to
business performance bonds, custom/excise tax commitments, facility lease/rental
obligations, etc. These were entered into in the ordinary course of business and
are customary practices in the various countries where Schlumberger operates.
25
--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States requires Schlumberger to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. The following accounting policies involve "critical accounting estimates" because they are particularly dependent on estimates and assumptions made by Schlumberger about matters that are inherently uncertain. Schlumberger bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Allowance for Doubtful Accounts
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. During weak economic environments or when there is an extended period of weakness in oil and gas prices, Schlumberger typically experiences delays in the payment of its receivables. However, except for a$469 million accounts receivable write-off during 2017 as a result of the political and economic condition inVenezuela , Schlumberger has not historically had material write-offs due to uncollectible accounts receivable. Schlumberger generates revenue in more than 120 countries. As ofDecember 31, 2021 , five of those countries individually accounted for greater than 5% of Schlumberger's net accounts receivable balance, of which only one (the United States ) accounted for greater than 10% of such receivables. At times in recent periods, Schlumberger has experienced delays in payments from its primary customer inMexico . Included in Receivables, less allowance for doubtful accounts in the Consolidated Balance Sheet as ofDecember 30, 2021 is approximately$0.5 billion of receivables relating toMexico atDecember 31, 2021 ($0.7 billion atDecember 31, 2020 ). 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.
Schlumberger records the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as goodwill. The goodwill relating to each of Schlumberger's reporting units is tested for impairment annually as well as when an event, or change in circumstances, indicates an impairment may have occurred. Under generally accepted accounting principles, Schlumberger has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one or more of its reporting units is greater than its carrying amount. If, after assessing the totality of events or circumstances, Schlumberger determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if Schlumberger concludes otherwise, then it is required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded based on that difference.
Schlumberger has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test.
Schlumberger elected to perform the qualitative assessment described above for purposes of its annual goodwill impairment test in 2021. Based on this assessment, Schlumberger concluded it was more likely than not that the fair value of each of its reporting units was significantly greater than its carrying amount. Accordingly, no further testing was required. During 2020 and 2019, Schlumberger recorded goodwill impairment charges of$3.1 billion and$8.8 billion and intangible asset impairment charges of$3.3 billion and$1.1 billion , respectively. Refer to Note 3 to the Consolidated Financial Statements for details regarding the facts and circumstances that led to this impairment and how the fair value of each reporting unit was estimated, including the significant assumptions used and other details. Long-lived assets, including fixed assets, intangible assets and investments in APS projects, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual 26
-------------------------------------------------------------------------------- disposition. If such cash flows are not sufficient to support the asset's recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows as well as the estimated fair value of long-lived assets involves significant estimates on the part of management. If there is a material change in economic conditions or other circumstances influencing the estimate of future cash flows or fair value, Schlumberger could be required to recognize impairment charges in the future. Income Taxes Schlumberger conducts business in more than 100 tax jurisdictions, a number of which have tax laws that are not fully defined and are evolving. Schlumberger's tax filings are subject to regular audits by the tax authorities. These audits may result in assessments for additional taxes that are resolved with the authorities or, potentially, through the courts. Schlumberger recognizes the impact of a tax position in its financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Tax liabilities are recorded based on estimates of additional taxes that will be due upon the conclusion of these audits. Estimates of these tax liabilities are judgmental and are made based upon prior experience, and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of tax regulations, the ultimate resolution of audits may result in liabilities that could be materially different from these estimates. In such an event, Schlumberger will record additional tax expense or tax benefit in the period in which such resolution occurs.
Revenue Recognition for
Schlumberger recognizes revenue for certain long-term construction-type contracts over time. These contracts involve significant design and engineering efforts in order to satisfy custom designs for customer-specific applications. Under this method, revenue is recognized as work progresses on each contract. Progress is measured by the ratio of actual costs incurred to date on the project in relation to total estimated project costs. Approximately 6% of Schlumberger's revenue in 2021, and 5% in each of 2020 and 2019, respectively, was recognized under this method. The estimate of total project costs has a significant impact on both the amount of revenue recognized as well as the related profit on a project. Revenue and profits on contracts can also be significantly affected by change orders and claims. Profits are recognized based on the estimated project profit multiplied by the percentage complete. Due to the nature of these projects, adjustments to estimates of contract revenue and total contract costs are often required as work progresses. Any expected losses on a project are recorded in full in the period in which they become probable.
Pension and Postretirement Benefits
Schlumberger's pension and postretirement benefit obligations are described in detail in Note 16 to the Consolidated Financial Statements. The obligations and related costs are calculated using actuarial concepts, which include critical assumptions related to the discount rate, expected rate of return on plan assets and medical cost trend rates. These assumptions are important elements of expense and/or liability measurement and are updated on an annual basis, or upon the occurrence of significant events. The discount rate that Schlumberger uses reflects the prevailing market rate of a portfolio of high-quality debt instruments with maturities matching the expected timing of payment of the related benefit obligations. The following summarizes the discount rates utilized by Schlumberger for its various pension and postretirement benefit plans:
• The discount rate utilized to determine the liability for Schlumberger's
United States pension plans and postretirement medical plan was 3.00% atDecember 31, 2021 and 2.60% atDecember 31, 2020 .
• The weighted-average discount rate utilized to determine the liability for
Schlumberger's international pension plans was 2.83% at December 31, 2021
and 2.38% at December 31, 2020 .
• The discount rate utilized to determine expense for Schlumberger's United
States pension plans and postretirement medical plan was 2.60% in 2021 and
3.30% in 2020.
• The weighted-average discount rate utilized to determine expense for
Schlumberger's international pension plans was 2.38% in 2021 and 3.27% in
2020.
The expected rate of return for Schlumberger's retirement benefit plans represents the average rate of return expected to be earned on plan assets over the period that benefits included in the benefit obligation are expected to be paid, with consideration given to the distribution of investments by asset class and historical rates of return for each individual asset class. The average expected rate of return on plan assets forthe United States pension plans was 6.60% in both 2021 and 2020. The weighted average expected rate of return on plan assets for the international pension plans was 6.73% in 2021 and 6.71% in 2020. A lower expected rate of return would increase pension expense. 27 -------------------------------------------------------------------------------- The following illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for Schlumberger'sUnited States and international pension plans: (Stated in millions) Effect on Effect on 2021 Dec. 31, 2021 Change in Assumption Pretax Expense Obligation 25 basis point decrease in discount rate+$41 +$604 25 basis point increase in discount rate -$38 -$568 25 basis point decrease in expected return on plan assets+$34 - 25 basis point increase in expected return on plan assets -$34 -
The following illustrates the sensitivity to changes in certain assumptions,
holding all other assumptions constant, for Schlumberger's
(Stated in millions)
Effect on
Effect on 2021 Dec. 31, 2021
Change in Assumption Pretax Expense Obligation
25 basis point decrease in discount rate - +$42
25 basis point increase in discount rate - -$39
28
--------------------------------------------------------------------------------
© Edgar Online, source
