3. Charges and Credits

Schlumberger recorded the following charges and credits in continuing operations during 2014, 2013 and 2012:

2014

Due to the expectation of lower exploration spending as a result of lower commodity prices, during the fourth quarter of 2014, Schlumberger decided to restructure its WesternGeco marine seismic fleet in order to lower its operating costs. Three previous-generation acquisition vessels with lower towing capacity and higher operating costs will be converted to source vessels, allowing for the termination of two third-party source vessel leases and the retirement of two owned source vessels.

As a result of this restructuring, Schlumberger performed an impairment test and determined that the carrying values of certain of its vessels exceeded their respective fair values by $590 million. This impairment charge relates to the six Explorer-class vessels which were acquired at a premium in the 2007 purchase of Eastern Echo Holdings Plc. The fair value of these vessels was estimated primarily based on the replacement cost method, which was largely based on unobservable inputs that required significant judgments.

In addition to the $590 million impairment charge relating to these six vessels, Schlumberger also recorded an $85 million impairment charge relating to a seismic intangible asset and $131 million of other charges primarily related to lease termination costs and other seismic assets as a result of the restructuring. Schlumberger did not incur any significant cash expenditures as a result of these charges.

During 2014, Venezuela enacted certain changes to its foreign exchange system such that, in addition to the official rate of 6.3 Venezuelan Bolivares fuertes per US dollar, there are currently two other legal exchange rates that may be obtained via different exchange rate mechanisms. These changes included the expansion of what is known as the SICAD I auction rate and the introduction of the SICAD II auction process. The SICAD I and SICAD II exchange rates were approximately 11 and 50 Venezuelan Bolivares fuertes to the US dollar, respectively, at December 31, 2014.

Although the functional currency of Schlumberger’s operations in Venezuela is the US dollar, a portion of the transactions are denominated in local currency. Schlumberger has historically applied the official exchange rate to remeasure local currency transactions and balances into US dollars.

Effective December 31, 2014, Schlumberger concluded that it was appropriate to apply the SICAD II exchange rate as it now believes that this rate best represents the economics of Schlumberger’s business activity in Venezuela. As a result, Schlumberger recorded a $472 million devaluation charge during the fourth quarter of 2014.

Going forward, this change will result in a reduction in the US dollar reported amount of local currency denominated revenues, expenses and, consequently, income before taxes and net income. For example, if Schlumberger had applied an exchange rate of 50 Venezuelan Bolivares fuertes to the US dollar throughout 2014, it would have reduced Schlumberger earnings by approximately $0.08 per share.

In response to lower commodity pricing and anticipated lower exploration and production spending in 2015, Schlumberger decided during the fourth quarter of 2014 to reduce its overall headcount primarily to better align with anticipated activity levels for 2015. As a result of these reductions, Schlumberger recorded a charge of $296 million in the fourth quarter of 2014. Depending on how the market situation evolves, further actions may be necessary, which could result in additional charges in future periods.

During the fourth quarter of 2014, Schlumberger determined that, primarily as a result of the recent decline in commodity prices, the carrying value of its investment in an SPM development project in the Eagle Ford Shale was in excess of its fair value. Accordingly, Schlumberger recorded a $199 million impairment charge. The fair value of this investment was estimated based on the projected present value of future cash flows, which included unobservable inputs that required significant judgments.

The following is a summary of these charges:

	(Stated in millions)

	Pretax		Tax		Net		Classification
WesternGeco restructuring	$	806	$	25	$	781	Impairments & other
Currency devaluation loss in Venezuela		472		—		472	Impairments & other
Workforce reduction		296		37		259	Impairments & other
Impairment of SPM project		199		72		127	Impairments & other
	$	1,773	$	134	$	1,639

2013

·	During the fourth quarter, Schlumberger recorded a $152 million provision relating to accounts receivable from a client in Brazil that filed for bankruptcy.

●	During the second quarter, Schlumberger recorded a $1.028 billion gain as a result of the deconsolidation of its subsea business in connection with the formation of the OneSubsea joint venture with Cameron International Corporation (“Cameron”). Refer to Note 4 – Acquisitions for further details.

●	During the second quarter, Schlumberger recorded a $222 million impairment charge relating to an investment in a company involved in developing drilling-related technology and a $142 million impairment charge relating to an investment in a contract drilling business.

●	In February 2013, Venezuela’s currency was devalued from the prior exchange rate of 4.3 Bolivar Fuertes per US dollar to 6.3 Bolivar fuertes per US dollar. As a result, Schlumberger recorded a $92 million devaluation charge during the first quarter of 2013.

The following is a summary of these charges and credits:

	(Stated in millions)

	Pretax			Tax		Net			Classification
Gain on formation of OneSubsea joint venture	$	(1,028	)	$	—	$	(1,028	)	Gain on formation of OneSubsea
Impairment of equity-method investments		364			19		345		Impairments & other
Provision for accounts receivable		152			30		122		Cost of revenue
Currency devaluation loss in Venezuela		92			—		92		Impairments & other
	$	(420	)	$	49	$	(469	)

2012

●	Schlumberger recorded merger and integration-related charges throughout 2012 of $128 million in connection with its 2010 acquisitions of Smith International, Inc. and Geoservices.

●	During the fourth quarter, Schlumberger recorded a charge of $33 million relating to severance in connection with an initiative to rationalize global overhead costs.

The following is a summary of these charges:

	(Stated in millions)

	Pretax		Tax		Net		Classification
Merger and integration-related costs	$	128	$	16	$	112	Merger & integration
Workforce reduction		33		6		27	Impairments & other
	$	161	$	22	$	139