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 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparison between 2021 and 2020 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 SLB's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .
2022 Executive Overview
We delivered strong fourth quarter results and concluded a remarkable year for SLB with great success. Full-year 2022 revenue of$28.1 billion increased 23% year on year. All Divisions and geographical areas experienced double digit revenue growth. 2022 was transformative for SLB as we set new safety, operational, and performance benchmarks for our customers and strengthened our market position both internationally and inNorth America . We launched our bold new brand identity, reinforcing our leadership position in energy technology, digital, and sustainability, and demonstrated our ability to deliver superior earnings in this early phase of a structural upcycle in energy. InNorth America , we seized the growth cycle throughout the year, increased our pretax operating margins close to 600 basis points ("bps"), and almost doubled our pretax operating income. We effectively harnessed our refocused portfolio, fit-for-basin technology, and performance differentiation to gain greater market access and improved pricing, particularly in the drilling markets where we significantly outperformed rig count growth. Today, we have built one of the highest-quality oilfield services and equipment businesses inNorth America through the implementation of our returns-focused strategy. In the international markets, after a first half of the year that was impacted by geopolitical conflict and supply chain bottlenecks, activity began to visibly expand in the second half of the year, resulting in full year revenue growth of 20% and margin expansion of more than 150 bps. We laid the foundation for further growth and margin expansion through pricing improvements and a solid pipeline of incremental contract awards. In theMiddle East , SLB is well positioned to be a key beneficiary of this visible market expansion, and we expect record levels of upstream investment by national oil companies to continue in the next few years. During the year, we secured a sizeable share of tender awards in the region, driven by our differentiated performance, fit-for-purpose technology, and best-in-class local content. Similarly, across offshore basins, we continue to consolidate our advantaged position with new contract awards, particularly inLatin America andAfrica . Beyond our financial results, we made significant progress in our sustainability initiatives during the year, including launching several new Transition Technologies to support the decarbonization of oil and gas. Our Transition Technologies portfolio revenue grew more than 30% year-on-year, and we project it will cross the$1 billion revenue mark in 2023. Finally, we initiated increased returns to shareholders, demonstrating confidence in our strategy, our financial outperformance, and our commitment to superior returns. We increased our dividend by 40% inApril 2022 , followed by a further 43% increase inJanuary 2023 , and we resumed our share buyback program in the first quarter of 2023. The fourth quarter affirmed a distinctive new phase in the upcycle with the much-anticipated acceleration of activity in theMiddle East , as revenue in the region increased by double digits. Offshore activity continued to strengthen, partially offset by seasonality in the Northern Hemisphere. InNorth America , the US land rig count remains at robust levels, although the pace of growth is moderating. Additionally, pricing continues to trend favorably, extending beyondNorth America and into the international regions, supported by new technology and very tight equipment and service capacity in certain markets.
These activity dynamics, improved pricing, and our commercial
success-particularly in the
We strengthened our balance by reducing our net debt by
Looking ahead, we believe the macro backdrop and market fundamentals that underpin a strong multi-year upcycle for energy remain very compelling in both oil and gas and in low-carbon energy resources. First, oil and gas demand is forecasted by theInternational Energy Agency ("IEA") to grow by 1.7 million barrels per day in 2023 despite concerns for a potential economic slowdown in certain regions. In parallel, markets remain very tightly supplied. Second, energy security is prompting a sense of urgency to make further investments to ensure capacity expansion and diversity of supply. And third, the secular trends of digital and decarbonization are set to accelerate with significant digital technology advancements, favorable government policy support, and increased spending on low-carbon initiatives and resources. Based on these factors, global upstream spending projections continue to trend positively. Activity growth is expected to be broad-based, marked by an acceleration in international basins. These positive activity dynamics will be amplified by higher service pricing 17 --------------------------------------------------------------------------------
and tighter service sector capacity. The impact of loosening COVID-19
restrictions and an earlier than expected reopening of
Overall, the combination of these effects will result in a very favorable mix
for SLB with significant growth opportunities in our Core, Digital, and New
Energy and we expect another year of very strong growth and margin expansion.
Fourth Quarter 2022 Results
(Stated in millions)
Fourth Quarter 2022 Third Quarter 2022
Pretax Pretax
Revenue Income Revenue Income
Digital & Integration $ 1,012 $ 382 $ 900 $ 305
Reservoir Performance 1,554 282 1,456 244
Well Construction 3,229 679 3,084 664
Production Systems 2,215 238 2,150 224
Eliminations & other (131 ) (24 ) (113 ) (37 )
Pretax segment operating income 1,557 1,400
Corporate & other (1) (169 ) (155 )
Interest income (2) 14 8
Interest expense (3) (118 ) (119 )
Charges & credits (4) 63 -
$ 7,879 $ 1,347 $ 7,477 $ 1,134 (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
2022:
(3) Excludes interest expense included in the segments' income (fourth quarter
2022:
(4) Charges & credits are described in detail in Note 3 to the Consolidated
Financial Statements.
Fourth-quarter revenue of$7.9 billion increased 5% sequentially. Revenue grew across all Divisions and geographical areas, with robust year-end sales in digital and particularly strong service activity offshore and in theMiddle East where a significant inflection was witnessed as capacity expansion projects mobilized. International revenue of$6.2 billion grew 5% sequentially, driven by continued strengthening activity. This revenue increase was led by theMiddle East &Asia andLatin America , both of which grew 7%. InNorth America , revenue of$1.6 billion increased 6% sequentially driven by strong year-end exploration data licensing sales in the USGulf of Mexico boostingNorth America offshore revenue. US land revenue increased 4% sequentially due to drilling revenue growth, which outperformed the rig count growth.
Fourth-quarter pretax segment operating margin of 19.8% was the highest since 2015.
Digital & Integration
Digital & Integration fourth-quarter revenue of
Digital & Integration pretax operating margin of 38% expanded 386 bps sequentially, due to improved profitability in exploration data licensing and digital solutions.
Reservoir Performance Reservoir Performance revenue of$1.6 billion increased 7% sequentially from new projects and activity gains internationally, particularly in theMiddle East andAfrica .
Reservoir Performance pretax operating margin of 18% expanded 146 bps
sequentially. Profitability was boosted by higher offshore and exploration
activity, mainly in
Well Construction Well Construction revenue of$3.2 billion increased 5% sequentially, outperforming global rig count growth due to strong activity from new projects and solid pricing improvements internationally, particularly in theMiddle East &Asia andLatin America . 18 --------------------------------------------------------------------------------Well Construction pretax operating margin of 21% contracted 50 bps sequentially, as improved profitability from increasing activity in theMiddle East &Asia ,North America , andLatin America was more than offset by the onset of seasonal effects in the Northern Hemisphere.
Production Systems
Production Systems revenue of$2.2 billion increased 3% sequentially primarily due to higher international sales of artificial lift, completions, and midstream productions systems.
Production Systems pretax operating margin of 11% expanded 32 bps sequentially primarily due to an improved revenue mix.
Full-Year 2022 Results
(Stated in millions)
2022 2021
Pretax Pretax
Revenue Income Revenue Income
Digital & Integration $ 3,725 $ 1,357 $ 3,290 $ 1,141
Reservoir Performance 5,553 881 4,599 648
Well Construction 11,397 2,202 8,706 1,195
Production Systems 7,862 748 6,710 634
Eliminations & other (446 ) (177 ) (376 ) (253 )
Pretax segment operating income 5,011 3,365
Corporate & other (1) (637 ) (573 )
Interest income (2) 27 31
Interest expense (3) (477 ) (514 )
Charges & credits (4) 347 65
$ 28,091 $ 4,271 $ 22,929 $ 2,374 (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 (2022:
2021:
(3) Excludes interest expense included in the segments' income (2022:
million; 2021:
Charges & credits in 2021.
(4) Charges and credits are described in detail in Note 3 to the Consolidated
Financial Statements.
Full-year 2022 revenue of
International revenue increased 20% to$21.9 billion led byLatin America andEurope /CIS/Africa with revenue growth of 27% and 25%, respectively, while revenue in theMiddle East &Asia increased 12%. InNorth America , revenue increased 34% to$6.0 billion primarily driven by robust onshore drilling activity; higher sales of production systems; a strong contribution from the APS project inCanada ; and increased exploration data licensing in the USGulf of Mexico .
Full-year pretax operating margin of 18% increased 316 bps due to improved operating leverage from higher activity, a favorable activity mix, and an improving pricing environment.
Digital & Integration
Digital & Integration full-year revenue of$3.7 billion increased 13% year on year, primarily driven by increased APS project activity inEcuador andCanada and higher exploration data licensing sales in the USGulf of Mexico .
Digital & Integration pretax operating margin of 36% expanded 177 bps year on year largely due to improved profitability in exploration data licensing.
Reservoir Performance
Reservoir Performance full-year revenue of$5.6 billion increased 21% year on year as a result of strong international activity led by theMiddle East &Asia andLatin America on higher activity and improved pricing. 19 --------------------------------------------------------------------------------
Reservoir Performance pretax operating margin of 16% increased 177 bps year on year primarily due to improved profitability in intervention activity.
Well Construction full-year revenue of$11.4 billion grew 31% year on year with strong growth across all geographical areas led byNorth America andLatin America , which grew 56% and 53%, respectively. This growth was driven by higher land and offshore activity along with improved pricing.
Production Systems
Production Systems full-year revenue of$7.9 billion increased 17% year on year driven by new projects and increased sales activity primarily inEurope ,Africa , andNorth America . Double digit growth was posted in midstream, artificial lift, surface production systems and subsea production systems.
Production Systems pretax operating margin of 10% was essentially flat primarily as a result of higher logistics costs and a less favorable revenue mix.
Interest & Other Income, Net
Interest & other income, net consisted of the following:
(Stated in millions)
2022 2021
Gain on sale of Liberty shares $ 325 $ 28
Loss on Blue Chip Swap transactions (139 ) -
Gain on ADC equity investment 107 -
Earnings of equity method investments 164 40
Interest income 99 33
Gain on sale of real estate 43 -
Gain on repurchase of bonds 11 -
Unrealized gain on marketable securities - 47
$ 610 $ 148
During 2022, SLB sold 47.8 million of its shares of Liberty and recognized a
gain of $325 million . During 2021, SLB sold 9.5 million of its shares of Liberty
and recognized a gain of $28 million .
SLB's functional currency in Argentina is the US dollar and it uses Argentina's
official exchange rate to remeasure its Argentine peso-denominated net assets
into US dollars. The Central Bank of Argentina maintains certain currency
controls that limit SLB's ability to access US dollars in Argentina and remit
cash from its Argentine operations. A legal indirect foreign exchange mechanism
exists-in the form of capital market transactions known as Blue Chip Swaps,
which effectively results in a parallel US dollar exchange rate. This parallel
rate, which cannot be used as the basis to remeasure SLB's net monetary assets
in US dollars under US GAAP, was approximately 93% higher than Argentina's
official exchange rate at December 31, 2022 . During the fourth quarter of 2022,
SLB entered into Blue Chip Swap transactions that resulted in a loss of $139
million .
SLB's peso-denominated net assets in Argentina were approximately $40 million at
December 31, 2022 (as compared to approximately $270 million at September 30,
2022 ), primarily consisting of cash. If Argentina's official exchange rate
converges with the parallel rate, SLB would incur a loss on its peso-denominated
net assets in Argentina . Additionally, SLB may enter into further Blue Chip
Swap transactions in the future. Argentina represented less than 5% of SLB's
consolidated revenue in 2022.
SLB has an investment in the Arabian Drilling Company ("ADC"), an onshore and
offshore gas and oil rig drilling company in Saudi Arabia , that it accounts for
under the equity method. During the fourth quarter of 2022, ADC completed an
initial public offering ("IPO"). In connection with the IPO, SLB sold a portion
of its interest in a secondary offering that resulted in SLB receiving net
proceeds of $223 million . As a result of these transactions, SLB's ownership
interest in ADC decreased from 49% to approximately 34%. SLB recognized a gain
of $107 million , representing the gain on the sale of a portion of its interest
as well as the effect of the ownership dilution of its equity investment due to
the IPO.
The increase in earnings of equity method investments in 2022 as compared to
2021 is primarily due to SLB's investment in Liberty, as Liberty experienced net
losses in 2021 as compared to net income in 2022, as well as higher earnings
from SLB's investment in ADC.
The increase in interest income was primarily driven by the effect of higher
cash and short-term investment balances and interest rates in Argentina . This
increase was more than offset by approximately $100 million of foreign exchange
losses recorded during 2022 ($13
20
--------------------------------------------------------------------------------million during 2021) relating to the remeasurement of Argentine peso-denominated net monetary assets as the official Argentine peso exchange rate devalued compared to the US dollar throughout 2022.
During 2022, SLB sold certain real estate and recognized a gain of
During the fourth quarter of 2022, SLB repurchased$395 million of its 3.75% Senior Notes due 2024 and$409 million of its 4.00% Senior Notes due 2025 for$790 million , resulting in a gain of$11 million after considering the write-off of the related deferred financing fees and other costs. During 2021, a start-up company that SLB previously invested in was acquired. As a result of this transaction, SLB's ownership interest was converted into shares of a publicly traded company. SLB 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 .
Interest Expense
Interest expense of$490 million in 2022 decreased$49 million compared to 2021 primarily as a result of the repayment of$1.7 billion and$2.1 billion of debt during 2022 and 2021, respectively.
Other
Research & engineering and General & administrative expenses, as a percentage of Revenue, were as follows:
2022 2021
Research & engineering 2.3 % 2.4 %
General & administrative 1.3 % 1.5 %
Income Taxes
The SLB effective tax rate is sensitive to the geographic mix of earnings. When
the percentage of pretax earnings generated outside of North America increases,
the SLB effective tax rate generally decreases. Conversely, when the percentage
of pretax earnings generated outside of North America decreases, the SLB
effective tax rate generally increases.
The effective tax rate was 18% in 2022 as compared to 19% in 2021. The decrease
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 2022 by approximately one percentage point.
Charges and Credits
SLB recorded charges and credits during 2022 and 2021. 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 2022 charges and credits:
(Stated in millions)
Pretax Tax Benefit
Charge (Credit) (Expense) Net
First quarter:
Gain on sale of Liberty shares $ (26 ) $ (4 ) $ (22 )
Second quarter:
Gain on sale of Liberty shares (215 ) (14 ) (201 )
Gain on sale of real estate (43 ) (2 ) (41 )
Fourth quarter:
Gain on sale of Liberty shares (84 ) (19 ) (65 )
Loss on Blue Chip Swap transactions 139 - 139
Gain on ADC equity investment (107 ) (3 ) (104 )
Gain on repurchase of bonds (11 ) (2 ) (9 )
$ (347 ) $ (44 ) $ (303 )
21--------------------------------------------------------------------------------
The following is a summary of the 2021 charges and credits:
(Stated in millions)
Pretax Tax Benefit
Charge (Credit) (Expense) 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 ) 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: 2022 2021
Cash $ 1,655 $ 1,757
Short-term investments 1,239 1,382Short-term borrowings and current portion of long-term debt (1,632 )
(909 )
Long-term debt (10,594 ) (13,286 )
Net debt (1) $ (9,332 ) $ (11,056 )
Changes in Liquidity: 2022 2021
Net income $ 3,492 $ 1,928
Charges and credits (347 ) (65 )
Depreciation and amortization (2) 2,147 2,120
Stock-based compensation expense 313
324
Deferred taxes (39 ) (31 ) Earnings of equity method investments, less dividends received (96 ) 10 Increase in working capital (1,709 ) (45 ) US Federal tax refund - 477 Other (41 ) (67 ) Cash flow from operations 3,720 4,651 Capital expenditures (1,618 ) (1,141 ) APS investments (587 ) (474 ) Exploration data capitalized (97 ) (39 ) Free cash flow (3) 1,418 2,997 Dividends paid (848 ) (699 ) Proceeds from employee stock purchase plan 141
137
Proceeds from exercise of stock options 81
-
Taxes paid on net-settled stock-based compensation awards
(93 ) (24 ) Business acquisitions and investments, net of cash acquired plus debt assumed
(58 ) (103 )
Proceeds from sale of Liberty shares 732 109
Proceeds from sale of ADC shares 223
-
Proceeds from sale of real estate 120
-
Purchases of BlueChip Swap securities (259 )
-
Proceeds from sales of BlueChip Swap securities 111
-
Other (105 )
(81 ) Change in net debt before impact of changes in foreign exchange rates on net debt
1,463 2,336
Impact of changes in foreign exchange rates on net debt 261 488 Decrease in Net Debt 1,724 2,824 Net Debt, Beginning of period (11,056 ) (13,880 ) Net Debt, End of period$ (9,332 ) $ (11,056 ) 22
--------------------------------------------------------------------------------
(1) "Net debt" represents gross debt less cash and short-term investments.
Management believes that Net debt provides useful information regarding the
level of SLB'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, exploration data costs and APS investments.
(3) "Free cash flow" represents cash flow from operations less capital
expenditures, APS investments and exploration 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.
Key liquidity events during 2022 and 2021 included:
• Cash flow from operations of
capital consuming
in 2021. The increase in working capital was largely the result of
receivables increasing $1.7 billion (32%) and inventories increasing $0.7
billion (22%), respectively, from 2021 to 2022, while these balances were
relatively flat at the end of 2021 as compared to 2020. The increase inreceivables was driven primarily by the fact that SLB's fourth quarter 2022
revenue increased 27% as compared to the same period last year. The increase
in inventories was a result of the significant activity growth that SLB
experienced in 2022 that is expected to continue in 2023. These increases in
working capital were partially offset by increases in accounts payable and
accrued liabilities that were a source of cash of $0.7 billion in 2022
compared to $0.2 billion in 2021.
The increase in working capital in 2022 was partially offset by the effects of a
$1.3 billion increase in net income, excluding the effects of the previously
mentioned charges and credits (which had no impact on cash flow from
operations), in 2022 as compared to 2021. In addition, cash flow from operations
in 2021 benefited from a federal tax refund of $477 million relating to the
carryback of US net operating losses pursuant to the Coronavirus Aid, Relief and
Economic Security Act.
• In
from
beginning with the dividend payable in
and 2021 were
SLB announced a further 43% increase to its quarterly cash dividend from
with the dividend payable in
• On
repurchase program for SLB common stock. SLB had repurchased
SLB common stock under this program as of December 31, 2022 . SLB did not
repurchase any of its common stock during 2022 and 2021. SLB resumed
repurchases under this program in the first quarter of 2023.
• Capital investments (consisting of capital expenditures, APS investments and
exploration data capitalized) were
2021. Capital investments during 2023 are expected to be approximately
to $2.6 billion as SLB continues to support the strong revenue growth that
is expected to continue in 2023.
• During 2022, SLB sold 47.8 million of its shares of Liberty and received
proceeds of
Liberty and received proceeds of
• During the fourth quarter of 2022, SLB repurchased
Senior Notes due 2024 and $409 million of its 4.00% Senior Notes due 2025
for $790 million .
• During the fourth quarter of 2022, SLB sold a portion of its equity interest
in ADC in a secondary offering that resulted in SLB receiving net proceeds
of
• During the second quarter of 2022, SLB sold certain real estate and received
proceeds of
• During the fourth quarter of 2021, SLB deposited sufficient funds with the
trustee for its
discharge all of its obligations relating to such notes.
• During the second quarter of 2021, SLB repurchased all
3.30% Senior Notes due 2021.
As of
23
--------------------------------------------------------------------------------
The following table reflects the carrying amounts of SLB's debt at December 31,
2022 by year of maturity:
(Stated in millions)
After
2023 2024 2025 2026 2027 2028 2029 2030 2031 Total
Fixed rate debt
3.65% Senior
Notes $ 1,499 1,499
4.00% Notes 79 79
0.00% Notes $ 531 531
3.75% Senior
Notes 355 355
3.70% Notes 54 54
4.00% Senior
Notes $ 522 522
1.40% Senior
Notes 499 499
1.375% Guaranteed
Notes $ 1,060 1,060
1.00% Guaranteed
Notes 636 636
0.25% Notes $ 955 955
3.90% Senior
Notes $ 1,464 1,464
4.30% Senior
Notes $ 847 847
2.65% Senior
Notes $ 1,250 1,250
2.00% Guaranteed
Notes $ 1,055 1,055
0.50% Notes 954 954
7.00% Notes 202 202
5.95% Notes 112 112
5.13% Notes 98 98
Total fixed ratedebt$ 1,578 $ 940 $ 1,021 $ 1,696 $ 955 $ 1,464 $ 847 $ 1,250 $ 2,421 $ 12,172 Variable rate debt 54 - - - - - - - - 54 Total$ 1,632 $ 940 $ 1,021 $ 1,696 $ 955 $ 1,464 $ 847 $ 1,250 $ 2,421 $ 12,226
Interest payments on fixed rate debt obligations by year are as follows:
(Stated in millions) 2023$ 386 2024 320 2025 301 2026 265 2027 235 Thereafter 706$ 2,213
See Note 13, Leases of the Consolidated Financial Statements for details regarding SLB's lease obligations.
SLB 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 SLB operates.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States requires SLB 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 SLB about matters that are inherently uncertain. SLB 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
SLB 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
24
--------------------------------------------------------------------------------to the allowance may be required in future periods depending on how such potential issues are resolved, or if the financial condition of SLB'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, SLB 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, SLB 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 , SLB has not historically had material write-offs due to uncollectible accounts receivable. SLB has a global footprint in more than 100 countries. As ofDecember 31, 2022 , three of those countries individually accounted for greater than 5% of SLB's net accounts receivable balance, of which only two (the United States andMexico ) accounted for greater than 10% of such receivables. Included in Receivables, less allowance for doubtful accounts in the Consolidated Balance Sheet as ofDecember 31, 2022 is approximately$1.0 billion of receivables relating toMexico . SLB's receivables from its primary customer inMexico are not in dispute and SLB has not historically had any material write-offs due to uncollectible accounts receivable relating to this customer.
SLB 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 SLB'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, SLB 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, SLB 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 SLB 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.
SLB 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.
SLB elected to perform the qualitative assessment described above for purposes of its annual goodwill impairment test in 2022. Based on this assessment, SLB 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. 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 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, SLB could be required to recognize impairment charges in the future.
Income Taxes
SLB conducts business in more than 100 tax jurisdictions, a number of which have tax laws that are not fully defined and are evolving. SLB'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. SLB 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, SLB will record additional tax expense or tax benefit in the period in which such resolution occurs.
Revenue Recognition for
SLB 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 5% of SLB's revenue in
2022, 6% in 2021, and 5% in 2020, 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.
25
--------------------------------------------------------------------------------Pension and Postretirement Benefits
SLB'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 and the expected rate of return on plan assets. 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 SLB 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 SLB for its various pension and postretirement benefit plans:
• The discount rate utilized to determine the liability for SLB's United
States pension plans and postretirement medical plan was 5.50% at
December 31, 2022 and 3.00% at December 31, 2021 .
• The weighted-average discount rate utilized to determine the liability for
SLB's international pension plans was 5.41% at
at
• The discount rate utilized to determine expense for SLB's
pension plans and postretirement medical plan was 3.00% in 2022 and 2.60% in
2021.
• The weighted-average discount rate utilized to determine expense for SLB's
international pension plans was 2.83% in 2022 and 2.38% in 2021.
The expected rate of return for SLB's retirement benefit plans represents the long-term average rate of return expected to be earned on plan assets based on expectations regarding future rates of return for the portfolio considering the asset allocation and related historical rate of return. The average expected rate of return on plan assets forthe United States pension plans was 4.40% in 2022 and 6.60% in 2021. The weighted average expected rate of return on plan assets for the international pension plans was 5.05% in 2022 and 6.73% in 2021. A lower expected rate of return increases pension expense.
The following illustrates the sensitivity to changes in certain assumptions,
holding all other assumptions constant, for SLB's
(Stated in millions)
Effect on
Effect on 2022 Dec. 31, 2022
Change in Assumption Pretax Expense Obligation
25 basis point decrease in discount rate +$31 +$334
25 basis point increase in discount rate -$30 -$321
25 basis point decrease in expected return on plan assets +$38 -
25 basis point increase in expected return on plan assets -$38 -
The following illustrates the sensitivity to changes in certain assumptions,
holding all other assumptions constant, for SLB's United States postretirement
medical plans:
(Stated in millions)
Effect on
Effect on 2022 Dec. 31, 2022
Change in Assumption Pretax Expense Obligation
25 basis point decrease in discount rate -$3 +$23
25 basis point increase in discount rate +$3 -$22
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