The following excerpt is from the company's
SEC filing.
Revenue of $8.5 billion decreased 6% sequentially
EPS of $0.78 declined 11% sequentially
Free cash flow of $1.7 billion represented 170% of earnings
Sequential and year-over-year decremental operating margins were
35% and 31%, respectively
6.9 million shares repurchased for $545 million
Houston
, October 15, 2015 Schlumberger Limited (NYSE:SLB) today
reported results for the third quarter of 2015.
(Stated in millions, except per share amounts)
Three Months Ended
Change
Sept. 30, 2015
Jun. 30, 2015
Sept. 30, 2014
Year-o n-year
12,646
Pretax operating income
SLB income from continuing operations*
Diluted EPS from continuing operations*
Pretax operating margin
North America revenue
North America pretax operating income
North America pretax operating margin
-1,051
International revenue
International pretax operating income
International pretax operating margin
There were no charges or credits recorded during the second and
third quarters of 2015 or the third quarter of 2014.
Schlumberger Chairman and CEO Paal Kibsgaard commented,
Schlumberger third-quarter revenue decreased 6% sequentially driven
by a continuing decline in rig activity and persistent pricing
pressure throughout our global operations. North America revenue
fell 4% sequentially as we focused on balancing margins and market
share, while International revenue dropped 7% due to customer
budget cuts, activity disruptions, and service pricing erosion.
The business environment deteriorated further in the third
quarter. However, the cost reduction actions we took in previous
quarters and the acceleration of our transformation program enabled
us to protect our financial performance in what is shaping up to be
the most severe downturn in the industry for decades. As a result
of our actions, we have been able to deliver pretax operating
margins well above those seen in any previous downturn and we have
continued to generate significant liquidity with free cash flow of
$1.7 billion in the third quarter, representing 170% of
earnings.
During the first nine months of 2015, our year-on-year revenue
has dropped by 34% in North America, and 18% internationally. In
spite of the size of these declines, our decremental operating
margins over the same period have been limited to 34% in North
America, and 23% internationally. These figures continue to be
substantially better than those we delivered in the 2009
downturn.
Among the business segments, Drilling Group revenue fell 7%
sequentially during the third quarter driven by weakening drilling
activity and by persistent pricing pressure in both North America
and the International Areas. Production Group and Reservoir
Characterization Group revenues each declined 5% as activity and
pricing for pressure pumping services on land in North America
continued to drop and as demand for exploration-related products
and services decreased further internationally.
As we enter the last quarter of the year, the oil market is
still weighed down by fears of reduced growth in Chinese demand and
the expectations regarding the timing and magnitude of additional
Iranian supply. However, the fundamental balance of supply and
demand continues to tighten, driven by both solid global
macroeconomic growth and by weakening supply as the dramatic cuts
in E&P investments are starting to take effect. We expect this
trend to continue as the oil market further recognizes the
magnitude of the industrys annual production replacement
challenge.
However, for oilfield services, the market outlook for the
coming quarters looks increasingly challenging with activity
expected to be reduced further, as lack of available cash flow
exhausts capital spending for a number of our customers, leading
them to take a conservative view on 2016 E&P spending in spite
of any gradual improvement in oil prices. In addition, the winter
season will have the normal impact on activity in the fourth
quarter, which this year is unlikely to be offset by the usual
year-end sales of software, products and multiclient licenses.
In light of conservative customer budgets for next year, we are
therefore entering another period during which we will continually
adjust resources in line with activity, as the recovery now appears
to be delayed. We remain focused on managing our cost base, and are
further accelerating our transformation program to help offset the
impact of lower service pricing. As we navigate the current
commercial landscape, we still look to strike a balance between
market share and operating margins, while continuing to seek
opportunities to extend our portfolio through targeted M&A,
such as our transaction with Cameron, where integration planning is
already well advanced.
At Schlumberger, we remain confident in our capability to
weather this downturn significantly better than our surroundings.
Through our global reach, the strength of our technology offering,
and our transformation program we are creating the leverage to
increase market share, post superior earnings, and continue to
deliver unmatched levels of free cash flow while bringing value for
our customers through improving production, increasing recovery,
and lowering cost per barrel.
Other Events
During the third quarter, Schlumberger repurchased 6.9 million
shares of its common stock at an average price of $78.76 per share
for a total purchase price of $545 million. As of September 30,
2015, Schlumberger had repurchased $8.2 billion of shares under the
$10 billion share repurchase program authorized by the Board of
Directors on July 18, 2013.
On August 26, 2015, Schlumberger and Cameron jointly announced
that they had entered into a definitive merger agreement in which
Cameron will merge with an indirect wholly-owned subsidiary of
Schlumberger in a stock-and-cash transaction. The transaction was
unanimously approved by the boards of directors of both companies.
Under the terms of the agreement, Cameron shareholders will receive
0.716 shares of Schlumberger common stock and a cash payment of
$14.44 in exchange for each Cameron share outstanding. Upon
closing, Cameron shareholders will own approximately 10% of
Schlumbergers outstanding shares of common stock.
On August 31, 2015, Schlumberger and IBM signed an agreement to
provide integrated services to upstream oil and gas customers that
will improve the business impact of production operations
projects.
On September 2, 2015, Schlumberger announced the acquisition of
Novatek Inc. and Novatek IP, LLC, both US-based companies that
specialize in synthetic diamond technology primarily for the oil
and gas industry.
On September 9, 2015, Schlumberger signed a non-binding letter
of intent with a subsidiary of the Bauer Group, a German equipment
supplier, to form a joint venture mainly related to the engineering
and manufacturing of a new generation of land drilling rigs.
On September 30, 2015, Schlumberger acquired T&T Engineering
Services, Inc., a US-based company specializing in land rig design.
The acquisition plays a role in implementing Schlumbergers vision
of combining its integrated downhole drilling technology with a new
generation of highly efficient land rigs.
North America third-quarter revenue of $2.3 billion decreased 4%
sequentially while outperforming the US land horizontal rig count
decline of 7%. Revenue declined on land due to persistent pricing
pressure, while Alaska revenue declined as exploration projects
were completed. In the US Gulf of Mexico, revenue fell slightly on
lower multiclient seismic sales while higher technology sales
limited the impact of pricing concessions. However, the trend of
exploration rigs transferring to drilling and completion activities
continued.
North America pretax operating margin declined 136 basis points
(bps) sequentially to 9%, mainly due to lower pricing across the
basins, which led to more pressure pumping equipment being stacked
and crews reassigned. In certain basins, hydraulic fracturing fleet
deployment was maintained in pursuit of market share and new
technology opportunities. This balanced approach to market share
and margins will be maintained to preserve our lead in overall
profitability levels in North America. Offshore margin also
decreased as work shifted from deepwater exploration to completions
and well intervention.
During the first nine months of 2015, year-on-year revenue has
declined 34% in North America. In spite of this, the decremental
operating margin was only 34%, which represents a marked
improvement over the 58% posted for the same period in the previous
downturn. Pretax operating margin during the first nine months of
2015 declined by 772 bps year-on-year, less than half the 1,589 bps
decrease reported for the same period of 2009. The strength of this
performance was underpinned by prompt cost and resource management,
the growing positive effects of the transformation program, strong
new technology sales, and efficient supply chain management.
In the third quarter, the transformation program enabled an
increase in people productivity through the combination of
multiskilling, remote operations and innovative technology
deployment. In Alaska, by cross training logging-while-drilling
engineers in directional drilling, and by assigning key
responsibilities for the various phases of the operations that
included one remote operations expert working in a Drilling
Technology Integration Center, Drilling & Measurements reduced
their rig crew from five to three. This reduction at the wellsite
saved the customer $180,000 in annualized costs.
During the third quarter, new Schlumberger technologies helped
increase production and operational efficiency in North
America.
Well Services BroadBand* unconventional reservoir completion
technology revenue passed the $1 billion milestone since its market
introduction, establishing it as the fastest-growing new technology
in Schlumberger history. Among fracturing treatments in North
America during the quarter, 29% included BroadBand technology.
In Western Canada, Schlumberger StingBlade* conical diamond
element technology enabled Progress Energy to improve both footage
drilled and rate of penetration (ROP) in the Julienne field of the
Montney Play.
Heterogeneous lithology characteristics in the subsurface
typically result in excessive wear and vibration-induced damage to
the drill bit, making drilling expensive and costs hard to predict.
StingBlade technology helped the customer drill 181% more footage
and increase ROP by 95% compared to offset wells, resulting in
rig-time and bit-related savings of $178,500 on the well.
In US land, Wireline used StreamLINE* polymer-encapsulated
wireline monocable for Encana Oil and Gas (USA), Inc. in the
perforating of wells in the DJ Basin of Colorado that were in close
proximity to town limits. Encanas commitment to environmental and
social responsibility required a perforating solution that did not
exceed strict noise limitations. The solution was an electric
wireline unit using a StreamLINE cable, an electric crane, and an
electric-powered perforating trailer. StreamLINE monocable
technology uses greaseless pressure control to reduce footprint and
increase efficiency.
Also in US land, Smith polycrystalline diamond compact (PDC) bit
with ONYX 360* rolling PDC cutter technology was used for
Chesapeake Energy Corporation to improve drilling performance in
the Haynesville Shale and Colony Granite Wash plays. ONYX 360
technology increased drillbit durability and footage drilled as the
entire diamond edge was used to drill the formations while it
rotated 360°. As a result, the customer reduced drillbit usage 40
to 50% in the Haynesville Shale, and doubled the
footage-drilled-per-bit compared to conventional fixed-cutter bits
in the Colony Wash.
In Alaska, Drilling & Measurements deployed multiple
technologies for ENI to optimize extended reach well placement and
formation evaluation on the Spy Island and Oliktok Point locations.
The PowerDrive Xceed* ruggedized rotary steerable system enabled
accurate steering in a harsh environment while PeriScope HD*
multilayer bed boundary and EcoScope* multifunction
logging-while-drilling services provided advanced well placement.
In addition, NeoScope* sourceless formation
evaluation-while-drilling and adnVISION* azimuthal density neutron
services helped characterize formation porosity and lithology in
order to identity and quantify potential pay zones. As a result,
the customer has now crossed the mark of one million feet drilled
in the project with no unscheduled trips out of the hole due to
Schlumberger over the past 18 months.
International Areas
Revenue for the International Areas of $6.1 billion decreased 7%
sequentially due to customer budget cuts and continued pricing
concessions.
Middle East & Asia Area
revenue of $2.4 billion declined 8% sequentially mainly due to
lower activity in Australia and the Asia-Pacific region as a result
of customer budget cuts and rig count declines. Revenue from the
Middle East GeoMarkets, particularly in Saudi Arabia and Qatar, was
also lower due to the effects of service pricing concessions, a
less favorable revenue mix and project completions.
Europe/CIS/Africa Area
revenue of $2.3 billion decreased 6% sequentially. In
Sub-Saharan Africa, exploration decreased, projects ended, and
offshore rigs demobilizedparticularly in the Angola GeoMarket.
Results were also affected by the completion of exploration
projects in Chad, Equatorial Guinea and South & East Africa.
North Sea revenue declined on lower rig count, project delays and
cancellations as well as pricing discounts and currency weakness.
These effects, however, were partially offset by increased activity
in Russia, Kazakhstan and Uzbekistan as drilling activity
seasonally peaked during the summer.
Revenue in the
Latin America Area
of $1.4 billion dropped 7%, mainly on significantly lower
activity in Mexico and continued weakness in Brazil due to
sustained customer budget cuts that led to rig count reductions.
Reduced activity in Colombia also contributed to the decline. These
reductions, however, were partially offset by steady activity in
Venezuela and Ecuador.
International Area pretax operating margin of 23.7% decreased 72
bps sequentially due to the effects of pricing concessions and as
the activity mix shifted from high-margin exploration to
development and completion work. Middle East & Asia pretax
operating margin decreased 171 bps to 27.0%, Latin America fell 159
bps to 20.7%, while Europe/CIS/Africa increased 92 bps to 22.2% on
the peak summer drilling activity in Russia.
During the first nine months of 2015, year-on-year revenue has
dropped 18% in the International Areas, which is more severe than
the 9% decline in the same period during the 2009 downturn. In
spite of this, the decremental operating margin was only 23%, which
represents a marked improvement over the 61% posted for the
corresponding period in the previous downturn. Pretax operating
margin for the first nine months of 2015 expanded 29 bps, compared
to the 358 bps fall in margin reported for the same period in 2009.
The strength of this performance was a result of proactive cost and
resource management, robust sales of new technology, and the
acceleration of the transformation program focused on workforce
productivity, asset utilization, and reductions in...
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