10-K 1 slb-10k_20141231.htm 10-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

(Mark One)

þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 1-4601

 

Schlumberger N.V.

(Schlumberger Limited)

(Exact name of registrant as specified in its charter)

 

 

Curaçao

 

52-0684746

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

42, rue Saint-Dominique
Paris, France

 

75007

 

 

 

5599 San Felipe, 17th Floor
Houston, Texas, United States of America

 

77056

 

 

 

62 Buckingham Gate,

London, United Kingdom

 

SW1E 6AJ

 

 

 

Parkstraat 83, The Hague,
The Netherlands

 

2514 JG

(Addresses of principal executive offices)

 

(Zip Codes)

Registrant’s telephone number in the United States, including area code, is: (713) 513-2000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

New York Stock Exchange

Euronext Paris

The London Stock Exchange

SIX Swiss Exchange

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) YES þ NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

þ

 

Accelerated filer

 

¨

 

Non-accelerated filer

 

¨

 

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO þ

As of June 30, 2014, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately $152.9 billion.

As of December 31, 2014, the number of shares of common stock outstanding was 1,275,312,404.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required to be furnished pursuant to Part III of this Form 10-K is set forth in, and is hereby incorporated by reference herein from, Schlumberger’s definitive proxy statement for its 2015 Annual General Meeting of Stockholders, to be filed by Schlumberger with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2014 (the “2015 Proxy Statement”).

 

 

 


SCHLUMBERGER LIMITED

Table of Contents

Form 10-K

 

 

 

Page

PART I

 

 

 

 

 

Item 1.

Business

3

 

 

 

Item 1A.

Risk Factors

7

 

 

 

Item 1B.

Unresolved Staff Comments

9

 

 

 

Item 2.

Properties

9

 

 

 

Item 3.

Legal Proceedings

10

 

 

 

Item 4.

Mine Safety Disclosures

10

 

 

 

PART II

 

 

 

 

 

Item 5.

Market for Schlumberger’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

11

 

 

 

Item 6.

Selected Financial Data

13

 

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 8.

Financial Statements and Supplementary Data

30

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

64

 

 

 

Item 9A.

Controls and Procedures

64

 

 

 

Item 9B.

Other Information

64

 

 

 

PART III

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance of Schlumberger

65

 

 

 

Item 11.

Executive Compensation

65

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

65

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

65

 

 

 

Item 14.

Principal Accounting Fees and Services

65

 

 

 

PART IV

 

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

66

 

 

 

 

Signatures

67

 

 

 

 

Certifications

 

 

 

2

 


PART I

 

Item 1. Business.

All references in this report to “Registrant,” “Company,” “Schlumberger,” “we” or “our” are to Schlumberger Limited (Schlumberger N.V., incorporated in Curaçao) and its consolidated subsidiaries.

 

Founded in 1926, Schlumberger is the world’s leading supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. Having invented wireline logging as a technique for obtaining downhole data in oil and gas wells, Schlumberger today provides the industry’s widest range of products and services from exploration through production. As of December 31, 2014, the Company employed approximately 120,000 people of over 140 nationalities operating in approximately 85 countries. Schlumberger has principal executive offices in Paris, Houston, London and The Hague.  

 

Schlumberger operates in each of the major oilfield service markets, managing its business through three Groups: Reservoir Characterization, Drilling and Production.  Each Group consists of a number of technology-based service and product lines, or Technologies.  These Technologies cover the entire life cycle of the reservoir and correspond to a number of markets in which Schlumberger holds leading positions.  The business is also reported through four geographic Areas: North America, Latin America, Europe/CIS/Africa and Middle East & Asia. Within these Areas, a network of GeoMarket* regions provides logistical, technical and commercial coordination.

 

The role of the Groups and Technologies is to ensure that Schlumberger provides the best possible service to customers and that it remains at the forefront of technology development.  The Groups and Technologies are collectively responsible for driving excellence in execution throughout their businesses, overseeing operational processes, resource allocation, personnel and delivering superior financial results. The GeoMarket structure offers customers a single point of contact at the local level for field operations and brings together geographically focused teams to meet local needs and deliver customized solutions. The Areas and GeoMarkets are responsible for providing the most efficient and cost effective support possible to the operations.

 

The Groups are as follows:

 

Reservoir Characterization Group – Consists of the principal Technologies involved in finding and defining hydrocarbon resources.  These include WesternGeco, Wireline, Testing Services, Schlumberger Information Solutions (SIS) and PetroTechnical Services.  WesternGeco seismic acquisition services and PetroTechnical Services interpretation solutions combine to provide the industry’s most extensive multiclient library.

 

·

WesternGeco is a leading geophysical services supplier, providing comprehensive worldwide reservoir imaging, monitoring and development services.  WesternGeco provides increasingly accurate measurements and images of subsurface geology and rock properties for both customer proprietary and multiclient surveys.

·

Wireline provides the information necessary to evaluate subsurface formation rocks and fluids to plan and monitor well construction, and to monitor and evaluate well production.  Wireline offers both openhole and cased-hole services including wireline perforating.

·

Testing Services provides exploration and production pressure and flow-rate measurement services both at the surface and downhole.  The Technology also provides tubing-conveyed perforating services.

·

Schlumberger Information Solutions sells proprietary software and provides consulting, information management and IT infrastructure services that support core oil and gas industry operational processes.

·

PetroTechnical Services supplies interpretation and integration of all exploration and production data types, as well as expert consulting services for reservoir characterization, field development planning production enhancement and multi-disciplinary reservoir and production solutions.  PetroTechnical Services offers the industry’s most extensive multiclient data library and provides industry petrotechnical training solutions.

 

Drilling Group – Consists of the principal Technologies involved in the drilling and positioning of oil and gas wells and comprises Bits & Advanced Technologies, M-I SWACO, Geoservices, Drilling & Measurements, Drilling Tools & Remedial, Saxon Rig Services and Integrated Project Management well construction projects.

 

·

Bits & Advanced Technologies designs, manufactures and markets roller cone and fixed cutter drill bits for all environments. The drill bits include designs for premium market segments where faster penetration rates and increased footage provide significant economic benefits in lowering overall well costs.  The technologies leverage proprietary modeling and simulation software for the design of application-specific bits and cutting structures.

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·

M-I SWACO is the leading supplier of drilling fluid systems engineered to improve drilling performance by anticipating fluids-related problems, fluid systems and specialty equipment designed to optimize wellbore productivity and production technology solutions formulated to maximize production rates. M-I SWACO also provides engineered managed pressure drilling and underbalanced drilling solutions, as well as environmental services and products to safely manage waste volumes generated in both drilling and production operations.

·

Geoservices supplies mud logging services for geological and drilling surveillance.

·

Drilling & Measurements provides directional drilling, measurement-while-drilling and logging-while-drilling services for all well profiles as well as engineering support.

·

Drilling Tools & Remedial provides a wide variety of bottom hole assembly drilling tools, borehole enlargement technologies and impact tools, as well as a comprehensive collection of tubulars and tubular services for oil and gas drilling operations.

·

Saxon Rig Services provides land drilling and related support services.

  

 

Production Group – Consists of the principal Technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, Completions, Artificial Lift, Well Intervention, Water Services and Schlumberger Production Management field production projects.

 

·

Well Services provides services used during oil and gas well drilling and completion as well as those used to maintain optimal production throughout the life of a well. The services include pressure pumping, well cementing and stimulation operations as well as intervention activities.

·

Completions supplies well completion services and equipment that include packers, safety valves, sand control technology as well as a range of intelligent well completions technology and equipment.

·

Artificial Lift provides production equipment and optimization services using electrical submersible pumps, gas lift equipment, rod lift systems, progressing cavity pumps and surface horizontal pumping systems.

·

Well Intervention develops coiled tubing equipment and services and provides slickline services for downhole mechanical well intervention, reservoir monitoring and downhole data acquisition.

·

Water Services specializes in the development, management and environmental protection of water resources.

 

Schlumberger has a 40% equity ownership interest in OneSubseaTM, a joint venture with Cameron International Corporation (“Cameron”).  The joint venture manufactures and develops products, systems and services for the subsea oil and gas market.  Schlumberger’s 40% share of the net income of the joint venture is reflected in the results of the Production Group.

Schlumberger also offers customers its services through business models known as Integrated Project Management (IPM), for well construction projects, and Schlumberger Production Management (SPM), for field production projects. These models combine the required services and products of the Technologies with drilling rig management, specialized engineering and project management expertise to provide a complete solution to well construction and production improvement.

 

IPM projects are typically of multiyear duration and include start-up costs and significant third-party components that cover services Schlumberger does not provide directly.  Projects may be fixed price in nature and may contain penalties for non-performance.  

 

SPM commercial arrangements create alignment between Schlumberger and the asset holder and/or the operator whereby Schlumberger receives remuneration in line with its value creation.  These projects are generally focused on developing and co-managing production of Schlumberger’s customers’ assets under long-term agreements.  Schlumberger will invest its own services and products, and in some cases cash, into the field development activities and operations.  Although in certain arrangements Schlumberger is paid for a portion of the services or products it provides, generally Schlumberger will not be paid at the time of providing its services or upon delivery of its products.  Instead, Schlumberger is generally compensated based upon cash flow generated or on a fee-per-barrel basis for any incremental production Schlumberger helps deliver above a mutually agreed baseline.

 

Supporting the Technologies is a global network of research and engineering centers. Through this organization, Schlumberger is committed to advanced technology programs that enhance oilfield efficiency, lower finding and producing costs, improve productivity, maximize reserve recovery and increase asset value while accomplishing these goals in a safe and environmentally sound manner.

 

Managed outside the Group structure is Schlumberger Business Consulting, which helps oil and gas companies achieve fast and sustainable performance improvements.  

 

Schlumberger primarily uses its own personnel to market its offerings. The customer base, business risks and opportunities for growth are essentially uniform across all services. There is a sharing of manufacturing and engineering facilities as well as research centers, and the labor force is interchangeable. Technological innovation, quality of service and price differentiation are the principal methods of competition, which varies geographically with respect to the different services offered. While there are numerous competitors, both large and small, Schlumberger believes that it is an industry leader in providing geophysical services, wireline logging, well testing,

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drilling and completion fluids, solids and waste management, coiled-tubing, drill bits, measurement-while-drilling, logging-while-drilling, directional drilling services and mud logging. A large proportion of Schlumberger offerings is non-rig related; consequently, revenue does not necessarily correlate to the rig count.

GENERAL

Intellectual Property

Schlumberger owns and controls a variety of intellectual property, including but not limited to patents, proprietary information and software tools and applications that, in the aggregate, are material to Schlumberger’s business. While Schlumberger seeks and holds numerous patents covering various products and processes, no particular patent or group of patents is considered material to Schlumberger’s business.

Seasonality

Seasonal changes in weather and significant weather events can temporarily affect the delivery of oilfield services. For example, the spring thaw in Canada and consequent road restrictions can affect activity levels, while the winter months in the North Sea, Russia and China can produce severe weather conditions which typically result in temporarily reduced levels of activity. In addition, hurricanes and typhoons can disrupt coastal and offshore operations. Furthermore, customer spending patterns for multiclient data, software and other oilfield services and products generally result in higher activity in the fourth quarter of each year as clients seek to utilize their annual budgets.

Customers and Backlog of Orders

For the year ended December 31, 2014, no single customer exceeded 10% of consolidated revenue. Other than WesternGeco, Schlumberger has no significant backlog due to the nature of its businesses. The WesternGeco backlog, which is based on signed contracts with customers, was $0.7 billion at December 31, 2014 ($0.9 billion at December 31, 2013).

Financial Information

Financial information by business segment and geographic area for the years ended December 31, 2014, 2013 and 2012 is provided in Note 17 of the Consolidated Financial Statements.

Executive Officers of Schlumberger

The following table sets forth, as of January 29, 2015, the names and ages of the executive officers of Schlumberger, including all offices and positions held by each for at least the past five years.

 

5

 


Name

Age

Current Position and Five-Year Business Experience

Paal Kibsgaard

47

Chief Executive Officer, since August 2011; Director since April 2011; Chief Operating Officer, February 2010 to July 2011; President Reservoir Characterization Group, May 2009 to February 2010.

 

 

 

Simon Ayat

60

Executive Vice President and Chief Financial Officer, since March 2007.

 

 

 

Alexander Juden

54

Secretary and General Counsel, since April 2009.

 

 

 

Ashok Belani

56

Executive Vice President, Technology, since January 2011; President, Reservoir Characterization Group, February 2010 to August 2011; Vice President and Chief Technology Officer, April 2006 to February 2010.

 

 

 

Jean-Francois Poupeau

53

Executive Vice President Corporate Development and Communications, since June 2012; President, Drilling Group, May 2010 to June 2012; President, Drilling & Measurements, July 2007 to April 2010.

 

 

 

Khaled Al Mogharbel

44

President, Drilling Group, since July 2013; President, Middle East, August 2011 to June 2013; Project – Gulfsands Petroleum – Syria, July 2009 to July 2011.

 

 

 

Stephane Biguet

46

Vice President Controller, Operations & Integration, since November  2013; Vice President, Global Shared Services Organization, August 2011 to October 2013; Mergers and Acquisitions Director, February 2011 to July 2011; Controller, Reservoir Characterization Group, October 2008 to July 2011.

 

 

 

Mark Danton

58

Vice President – Director of Taxes, since January 1999.

 

 

 

Simon Farrant

50

Vice President, Investor Relations, since February 2014; Special Projects Manager, October 2013 to January 2014; GeoMarket Manager, North Sea, April 2012 to September 2013; Integration Manager, Smith Merger, April 2010 to April 2012; Portfolio Manager, Mergers & Acquisitions, July 2004 to March 2010.

 

 

 

Sherif Foda

45

President, Production Group, since July 2013; President, Europe and Africa, June 2011 to June 2013; Saudi Arabia and Bahrain GeoMarket Manager, June 2009 to June 2011.

 

 

 

Aaron Gatt Floridia

46

President, Reservoir Characterization Group, since August 2011; President Middle East, May 2009 to July 2011.

 

 

 

Howard Guild

43

Chief Accounting Officer, since July 2005.

 

 

 

Imran Kizilbash

48

Vice President and Treasurer, since November 2013; Controller, Operations & Integration, July 2013 to October 2013; Controller, Operations, January 2011 to June 2013; Controller, Schlumberger Limited, May 2009 to January 2011.

 

 

 

Gerard Martellozo

59

Vice President Human Resources, since June 2014; Senior Advisor to the CEO, August 2012 to May 2014; Human Resources Manager, Drilling Group, May 2010 to July 2012; Human Resources Manager, Reservoir Characterization Group, May 2009 to April 2010.

 

 

 

Patrick Schorn

46

President, Operations and Integration, since July 2013; President, Production Group, January 2011 to June 2013; President Well Services, May 2008 to January 2011.

Available Information

The Schlumberger Internet website is www.slb.com. Schlumberger uses its Investor Relations website, www.slb.com/ir, as a routine channel for distribution of important information, including news releases, analyst presentations, and financial information. Schlumberger makes available free of charge on or through its Investor Relations website at www.slb.com/ir access to its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, its Proxy Statements and Forms 3, 4 and 5

6

 


filed on behalf of directors and executive officers, and amendments to each of those reports, as soon as reasonably practicable after such material is filed with or furnished to the Securities and Exchange Commission (“SEC”). Alternatively, you may access these reports at the SEC’s Internet website at www.sec.gov. Copies are also available, without charge, from Schlumberger Investor Relations, 5599 San Felipe, 17th Floor, Houston, Texas 77056.  Unless expressly noted, the information on our website or any other website is not incorporated by reference in this Form 10-K and should not be considered part of this Form 10-K or any other filing Schlumberger makes with the SEC.

Item 1A. Risk Factors.

The following discussion of risk factors known to us contains important information for the understanding of our “forward-looking statements,” which are discussed immediately following Item 7A. of this Form 10-K and elsewhere. These risk factors should also be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and related notes included in this Form 10-K.

We urge you to consider carefully the risks described below, as well as in other reports and materials that we file with the SEC and the other information included or incorporated by reference in this Form 10-K. If any of the risks described below or elsewhere in this Form 10-K were to materialize, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected. In such case, the trading price of our common stock could decline and you could lose part or all of your investment. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also materially adversely affect our financial condition, results of operations and cash flows.

Demand for the majority of our services is substantially dependent on the levels of expenditures by the oil and gas industry. A substantial or an extended decline in oil and gas prices could result in lower expenditures by the oil and gas industry, which could have a material adverse effect on our financial condition, results of operations and cash flows.

Demand for the majority of our services depends substantially on the level of expenditures by the oil and gas industry for the exploration, development and production of oil and natural gas reserves. These expenditures are generally dependent on the industry’s view of future oil and natural gas prices and are sensitive to the industry’s view of future economic growth and the resulting impact on demand for oil and natural gas. Declines, as well as anticipated declines, in oil and gas prices could also result in project modifications, delays or cancellations, general business disruptions, and delays in payment of, or nonpayment of, amounts that are owed to us. These effects could have a material adverse effect on our financial condition, results of operations and cash flows.

The prices for oil and natural gas have historically been volatile and can be affected by a variety of factors, including:

demand for hydrocarbons, which is affected by general economic and business conditions;

the ability or willingness of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels for oil;

oil and gas production levels by non-OPEC countries;

the level of excess production capacity;

political and economic uncertainty and geopolitical unrest;

the level of worldwide oil and gas exploration and production activity;

access to potential resources;

governmental policies and subsidies;

the costs of exploring for, producing and delivering oil and gas;

technological advances affecting energy consumption; and

weather conditions.

The oil and gas industry has historically experienced periodic downturns, which have been characterized by diminished demand for oilfield services and downward pressure on the prices we charge. A significant downturn in the oil and gas industry could result in a reduction in demand for oilfield services and could adversely affect our financial condition, results of operations and cash flows.

A significant portion of our revenue is derived from our non-United States operations, which exposes us to risks inherent in doing business in each of the approximately 85 countries in which we operate.

Our non-United States operations accounted for approximately 71% of our consolidated revenue in 2014, 73% in 2013 and 72% in 2012. Operations in countries other than the United States are subject to various risks, including:

political and economic conditions in certain areas;

exposure to possible expropriation of our assets or other governmental actions;

social unrest, acts of terrorism, war or other armed conflict;

confiscatory taxation or other adverse tax policies;

deprivation of contract rights;

trade and economic sanctions or other restrictions imposed by the European Union, the United States or other countries;

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restrictions under the United States Foreign Corrupt Practices Act or similar legislation in other countries;

restrictions on the repatriation of income or capital;

currency exchange controls;

inflation; and

currency exchange rate fluctuations and devaluations.

 

During the fourth quarter of 2014, Schlumberger completed the wind down of its operations in the Republic of Sudan.

As previously disclosed, during the second quarter of 2013, Schlumberger completed the wind down of its service operations in Iran. Prior to this, certain non-US subsidiaries of Schlumberger provided oilfield services to the National Iranian Oil Company and certain of its affiliates (“NIOC”). Schlumberger has reclassified the results of this business as a discontinued operation. All prior periods have been restated accordingly.

Schlumberger’s residual transactions or dealings with the government of Iran during 2014 consisted of payments of taxes and other typical governmental charges. Two non-US subsidiaries of Schlumberger maintained depository accounts at the Dubai branch of Bank Saderat Iran (“Saderat”), and at Bank Tejarat (“Tejarat”) in Tehran for the deposit by NIOC of amounts owed to non-US subsidiaries of Schlumberger for prior services rendered in Iran. One non-US subsidiary also maintains an account at Tejarat for payment of local expenses such as taxes and utilities. Schlumberger anticipates that it will discontinue its dealings with Saderat and Tejarat following the receipt of all amounts owed to Schlumberger for prior services rendered in Iran.

Environmental compliance costs and liabilities could reduce our earnings and cash available for operations.

We are subject to increasingly stringent laws and regulations relating to importation and use of hazardous materials, radioactive materials, chemicals and explosives and to environmental protection, including laws and regulations governing air emissions, hydraulic fracturing, water discharges and waste management. We incur, and expect to continue to incur, capital and operating costs to comply with environmental laws and regulations. The technical requirements of these laws and regulations are becoming increasingly complex, stringent and expensive to implement. These laws may provide for “strict liability” for remediation costs, damages to natural resources or threats to public health and safety. Strict liability can render a party liable for damages without regard to negligence or fault on the part of the party. Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances.

We use and generate hazardous substances and wastes in our operations. In addition, many of our current and former properties are, or have been, used for industrial purposes. Accordingly, we could become subject to material liabilities relating to the investigation and cleanup of potentially contaminated properties, and to claims alleging personal injury or property damage as the result of exposures to, or releases of, hazardous substances. In addition, stricter enforcement of existing laws and regulations, new laws and regulations, the discovery of previously unknown contamination or the imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could reduce our earnings and our cash available for operations.

We could be subject to substantial liability claims, which could adversely affect our financial condition, results of operations and cash flows.

The technical complexities of our operations expose us to a wide range of significant health, safety and environmental risks. Our offerings involve production-related activities, radioactive materials, chemicals, explosives and other equipment and services that are deployed in challenging exploration, development and production environments. An accident involving these services or equipment, or a failure of a product, could cause personal injury, loss of life, damage to or destruction of property, equipment or the environment, or suspension of operations. Our insurance may not protect us against liability for some kinds of events, including events involving pollution, or against losses resulting from business interruption. Moreover, we may not be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate. Any damages caused by our services or products that are not covered by insurance, or are in excess of policy limits or are subject to substantial deductibles, could adversely affect our financial condition, results of operations and cash flows.

Demand for our products and services could be reduced by changes in governmental regulations or in the law.

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Existing or future legislation and regulations related to greenhouse gas emissions and climate change, as well as government initiatives to conserve energy or promote the use of alternative energy sources, may significantly curtail demand for and production of fossil fuels such as oil and gas in areas of the world where our customers operate and thus adversely affect future demand for our services. This may, in turn, adversely affect our financial condition, results of operations and cash flows.

Some international, national, state and local governments and agencies have also adopted laws and regulations or are evaluating proposed legislation and regulations that are focused on the extraction of shale gas or oil using hydraulic fracturing. Hydraulic fracturing is a stimulation treatment routinely performed on oil and gas wells in low-permeability reservoirs. Specially engineered fluids are pumped at high pressure and rate into the reservoir interval to be treated, causing cracks in the target formation. Proppant, such as sand of a particular size, is mixed with the treatment fluid to keep the cracks open when the treatment is complete. Future hydraulic fracturing-related legislation or regulations could limit or ban hydraulic fracturing, or lead to operational delays and increased costs, and therefore reduce demand for our pressure pumping services. If such additional international, national, state or local legislation or regulations are enacted, it could adversely affect our financial condition, results of operations and cash flows.

If we are unable to maintain technology leadership, this could adversely affect any competitive advantage we hold.

If we are unable to continue to develop and produce competitive technology or deliver it to our clients in a timely and cost-competitive manner in the various markets we serve, it could adversely affect our financial condition, results of operations and cash flows.

Limitations on our ability to protect our intellectual property rights, including our trade secrets, could cause a loss in revenue and any competitive advantage we hold.

Some of our products or services, and the processes we use to produce or provide them, have been granted patent protection, have patent applications pending or are trade secrets. Our business may be adversely affected if our patents are unenforceable, the claims allowed under our patents are not sufficient to protect our technology, our patent applications are denied, or our trade secrets are not adequately protected. Our competitors may be able to develop technology independently that is similar to ours without infringing on our patents or gaining access to our trade secrets, which could adversely affect our financial condition, results of operations and cash flows.

We may be subject to litigation if another party claims that we have infringed upon its intellectual property rights.

The tools, techniques, methodologies, programs and components we use to provide our services may infringe upon the intellectual property rights of others. Infringement claims generally result in significant legal and other costs and may distract management from running our core business. Royalty payments under licenses from third parties, if available, would increase our costs. Additionally, developing non-infringing technologies would increase our costs. If a license were not available, we might not be able to continue providing a particular service or product, which could adversely affect our financial condition, results of operations and cash flows.

Failure to obtain and retain skilled technical personnel could impede our operations.

We require highly skilled personnel to operate and provide technical services and support for our business. Competition for the personnel required for our businesses intensifies as activity increases. In periods of high utilization it may become more difficult to find and retain qualified individuals. This could increase our costs or have other adverse effects on our operations.

Severe weather conditions may affect our operations.

Our business may be materially affected by severe weather conditions in areas where we operate. This may entail the evacuation of personnel and stoppage of services. In addition, if particularly severe weather affects platforms or structures, this may result in a suspension of activities. Any of these events could adversely affect our financial condition, results of operations and cash flows.

Cyber attacks could affect our business.

If our systems for protecting against cybersecurity risks are circumvented or breached, this could result in the loss of our intellectual property or other proprietary information, including customer data, and disruption of our business operations.

 

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Schlumberger owns or leases numerous manufacturing facilities, administrative offices, service centers, research centers, data processing centers, mines, ore, drilling fluid and production chemical processing centers, sales offices and warehouses throughout the world. Schlumberger views its principal manufacturing, mining and processing facilities, research centers and data processing centers as its “principal owned or leased facilities.”

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The following sets forth Schlumberger’s principal owned or leased facilities:

Beijing, China; Clamart, France; Mumbai, India; Fuchinobe, Japan; Oslo and Stavanger, Norway; Singapore; Abingdon, Cambridge, Gatwick and Stonehouse, United Kingdom; Moscow, Russia; and within the United States: Boston, Massachusetts; Houston, Katy, Rosharon and Sugar Land, Texas; Battle Mountain, Nevada; Greybull, Wyoming and Florence, Kentucky.

Item 3. Legal Proceedings.

The information with respect to this Item 3. Legal Proceedings is set forth in Note 16 of the Consolidated Financial Statements.

Item 4. Mine Safety Disclosures.

The barite and bentonite mining operations of M-I LLC, an indirect wholly-owned subsidiary, are subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-K.

 

 

10

 


PART II

 

Item 5. Market for Schlumberger’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities.

As of December 31, 2014, there were 21,348 stockholders of record. The principal United States market for Schlumberger’s common stock is the New York Stock Exchange (“NYSE”), where it is traded under the symbol “SLB,” although it is traded on other exchanges in and outside the United States, including the Euronext Paris, the London Stock Exchange and the SIX Swiss Exchange.

Common Stock, Market Prices and Dividends Declared per Share

Quarterly high and low prices for Schlumberger’s common stock as reported by the NYSE (composite transactions), together with dividends declared per share in each quarter of 2014 and 2013, were as follows:

 

 

 

Price Range

 

 

Dividends
Declared

 

 

High

 

 

Low

 

 

 

2014

 

 

 

  

 

 

 

  

 

 

 

QUARTERS

 

 

 

  

 

 

 

  

 

 

 

First

$

98.45

  

  

$

85.77

  

  

$

0.4000

  

Second

 

118.13

  

  

 

96.66

  

  

 

0.4000

  

Third

 

118.76

 

  

 

100.30

  

  

 

0.4000

  

Fourth

 

102.40

 

  

 

78.47

  

  

 

0.4000

  

 

 

 

 

  

 

 

 

  

 

 

 

2013

 

 

 

  

 

 

 

  

 

 

 

QUARTERS

 

 

 

  

 

 

 

  

 

 

 

First

$

82.00

  

  

$

70.12

  

  

$

0.3125

  

Second

 

77.84

  

  

 

69.08

  

  

 

0.3125

  

Third

 

89.72

 

  

 

71.84

  

  

 

0.3125

  

Fourth

 

94.91

 

  

 

84.91

  

  

 

0.3125

  

There are no legal restrictions on the payment of dividends or ownership or voting of such shares, except as to shares held as treasury stock. Under current legislation, stockholders are not subject to any Curaçao withholding or other Curaçao taxes attributable to the ownership of such shares.

The following graph compares the cumulative total stockholder return on Schlumberger common stock, assuming reinvestment of dividends on the last day of the month of payment into common stock of Schlumberger, with the cumulative total return on the Standard & Poor’s 500 Index (S&P 500 Index) and the cumulative total return on the Philadelphia Oil Service Index (OSX) over the five-year period ended December 31, 2014. The stockholder return set forth below is not necessarily indicative of future performance. The following graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Schlumberger specifically incorporates it by reference into such filing.

 

11

 


Comparison of five-year cumulative total return among

Schlumberger common stock, the S&P 500 Index and the

Philadelphia Oil Service Index (OSX)

 

Assumes $100 invested on December 31, 2009 in Schlumberger common stock, in the S&P 500 Index and in the Philadelphia Oil Service Index (OSX) and reinvestment of dividends on the last day of the month of payment.

Share Repurchases

On July 18, 2013, the Schlumberger Board of Directors approved a $10 billion share repurchase program for Schlumberger common stock, to be completed at the latest by June 30, 2018. Schlumberger is accelerating this share repurchase program with the aim of completing it in 2.5 years as compared to the original target of 5 years.

Schlumberger’s common stock repurchase program activity for the three months ended December 31, 2014 was as follows:

 

 

 

 

  

 

 

  

(Stated in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Total number
of shares
purchased

 

  

Average price
paid per
share

 

  

Total number of
shares purchased
as part of publicly
announced program

 

  

Maximum value of
shares that may yet
be purchased
under the program

 

October 1 through October 31, 2014

 

3,720.5

  

  

$

95.68

  

  

 

3,720.5

  

  

$

4,344,679

  

November 1 through November 30, 2014

 

2,529.6

  

  

$

96.52

  

  

 

2,529.6

  

  

$

4,100,530

  

December 1 through December 31, 2014

 

5,891.7

  

  

$

84.07

  

  

 

5,891.7

  

  

$

3,605,238

  

 

 

12,141.8

  

  

$

90.22

  

  

 

12,141.8

  

  

 

 

 

In connection with the exercise of stock options under Schlumberger’s incentive compensation plans, Schlumberger routinely receives shares of its common stock from optionholders in consideration of the exercise price of the stock options. Schlumberger does not view these transactions as requiring disclosure under this Item 5 as the number of shares of Schlumberger common stock received from optionholders is not material.

12

 


Unregistered Sales of Equity Securities

None.

 

Item 6. Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with both “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” of this Form 10-K in order to understand factors, such as business combinations and charges and credits, which may affect the comparability of the Selected Financial Data:

  

(Stated in millions, except per share amounts)

 

 

 

 

 

Year Ended December 31,

 

 

2014

 

  

2013

 

  

2012

 

  

2011

 

  

2010

 

Revenue

$

48,580

  

  

$

45,266

  

  

$

41,731

  

  

$

36,579

  

  

$

26,280

  

Income from continuing operations

$

5,643

  

  

$

6,801

  

  

$

5,230

  

  

$

4,516

  

  

$

4,048

  

Diluted earnings per share from continuing operations

$

4.31

  

  

$

5.10

  

  

$

3.91

  

  

$

3.32

  

  

$

3.21

  

Working capital

$

10,518

  

  

$

12,700

  

  

$

11,788

  

  

$

10,001

  

  

$

7,233

  

Total assets

$

66,904

  

  

$

67,100

  

  

$

61,547

  

  

$

55,201

  

  

$

51,767

  

Net debt (1)

$

5,387

  

  

$

4,443

  

  

$

5,111

  

  

$

4,850

  

  

$

2,638

  

Long-term debt

$

10,565

  

  

$

10,393

  

  

$

9,509

  

  

$

8,556

  

  

$

5,517

  

Schlumberger stockholders’ equity

$

37,850

  

  

$

39,469

  

  

$

34,751

  

  

$

31,263

  

  

$

31,226

  

Cash dividends declared per share

$

1.60

  

  

$

1.25

  

  

$

1.10

  

  

$

1.00

  

  

$

0.84

  

(1) 

“Net Debt” represents gross debt less cash, short-term investments and fixed income investments, held to maturity. Management believes that Net Debt provides useful information regarding the level of Schlumberger indebtedness by reflecting cash and investments that could be used to repay debt.

 

 

13

 


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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.

Executive Overview

Revenue for 2014 reached a record $48.6 billion, up 7% and growing for the fifth consecutive year. In North America, revenue surged by $2.3 billion, or 16%, driven by strong activity both on land and offshore as well as by the penetration of innovative hydraulic stimulation technologies. International revenue increased by $1.2 billion, or 4%, on significant strength in the Middle East & Asia, despite considerable headwinds in the face of activity challenges, geopolitical unrest, falling oil prices and international sanctions elsewhere.

Oil markets remained relatively well-balanced during 2014 as increasing global production capacity almost matched increasing demand. Yet, after more than three years of remarkable stability, oil prices declined dramatically by more than 40% late in the year to end at their lowest levels since 2009. However, unlike the 2009 decline which was triggered by a global economic recession, the 2014 decline resulted from a higher market supply of oil that became increasingly evident as North American tight oil production continued to grow and OPEC shifted focus from protecting oil prices to protecting market share. At the same time, production recovered in countries that had suffered degrees of geopolitical disturbance, and the US dollar strengthened to further weaken overall commodity prices.

In natural gas markets, US prices reached multiyear highs in February 2014 on exceptionally cold weather and risks of local supply shortages. Storage, however, returned to historical average levels at the end of 2014 as sustained production growth in the Marcellus play and increasing associated gas production in US tight oil plays more than offset the impact of low activity levels in other unconventional plays. Overall, these increasing supplies more than met growing demand. Internationally, natural gas prices eased broadly in 2014 on mild temperatures in Europe, LNG capacity additions in the Pacific region, and the impact of weaker oil prices on oil-indexed natural gas pricing formulas.

Against this background, Schlumberger’s performance in 2014 was led by North America, where revenue grew by 16% on robust land activity, increased service intensity, market share gains and new technology penetration. Offshore operations, however, suffered from a number of operational delays that particularly affected drilling and exploration activity. The 4% growth in International revenue was led by activity in a number of key markets, both on land and offshore. Middle East & Asia revenue grew by 10%, driven by Saudi Arabia, Australia, the United Arab Emirates and Oman.  Revenue in Europe/CIS/Africa improved by 1%, led by the Sub-Saharan region on strong exploration and development activities in the Central West Africa, Angola and Continental Europe GeoMarkets. Norway also showed strong growth through market share gains and higher rig-related services for a number of customers. In Latin America, however, revenue slipped by 1% as strong activity in Venezuela and Ecuador was unable to compensate for lower activity and pricing in both Brazil and Mexico.

From a Group perspective, performance was led by the Drilling Group, mainly as result of robust demand for Drilling & Measurements services and M-I SWACO Technologies as activity strengthened in North America and Middle East & Asia. Rig revenue from the May 2014 acquisition of Saxon also contributed to Drilling Group growth. The Production Group benefitted from strong results in Well Services, where pressure pumping activity increased through market share gains, operational efficiency improvements and the introduction of new technology. Schlumberger Production Management grew as projects in Latin America, particularly in Ecuador, continued to progress ahead of plan. Production Group activity was also boosted by expansion in the Artificial Lift business as a number of regional acquisitions were added to the portfolio, both in operations and in equipment design and production. However, strength in the Drilling and Production Groups was offset by a slight fall in Reservoir Characterization Group revenue. While testing activity expanded on higher exploration work and software sales increased in all Areas, weakness in the seismic market lowered marine vessel utilization and reduced multiclient seismic data license sales.

As Schlumberger enters a challenging 2015, the reduction in commodity prices, which have resulted from the higher marketed supply of oil, raises short-term uncertainty as it relates to the spending and activity levels of our customers. However, Schlumberger believes that the oil markets are, in fact, relatively well-balanced and that increasing global production capacity is in line with the overall growth in demand resulting from the continuing global economic recovery. In the longer term, decline rates will impact production capacity, and weaker exploration will delay supply additions, the combination of which ultimately will lead to tighter market conditions and consequently drive increasing investment.

In this uncertain environment, Schlumberger continues to focus on the things it can control and has already restructured and resized the business to match the reduced activity levels it expects as 2015 develops.  These actions resulted in certain charges, which are described in detail in Note 3 to the reduced Consolidated Financial Statements, being recorded during the fourth quarter of 2014.

14

 


Fourth Quarter 2014 Results

Product Groups

 

 

 

(Stated in millions)

  

 

 

 

 

 

Fourth Quarter 2014

 

 

Third Quarter 2014

 

 

Revenue

 

 

Income
before
taxes

 

 

Revenue

 

 

Income
before
taxes

 

Reservoir Characterization

$

3,093

  

 

$

956

  

 

$

3,184

  

 

$

954

  

Drilling

 

4,658

  

 

 

966

  

 

 

4,821

  

 

 

1,045

  

Production

 

4,954

  

 

 

908

  

 

 

4,697

  

 

 

857

  

Eliminations & other

 

(64

 

 

(49

 

 

(56

 

 

(50

)  

      Pretax operating income 

 

 

  

 

 

2,781

  

 

 

 

  

 

 

2,806

  

Corporate & other (1)

 

 

  

 

 

(221

 

 

 

  

 

 

(210

Interest income (2)

 

 

  

 

 

8

  

 

 

 

  

 

 

8

  

Interest expense (3)

 

 

  

 

 

(80

 

 

 

  

 

 

(84

Charges & credits (4)

 

 

  

 

 

(1,773

 

 

 

  

 

 

 

 

$

12,641

  

 

$

715

  

 

$

12,646

  

 

$

2,520

  

 

Geographic Areas

 

 

 

(Stated in millions)

  

 

 

 

 

 

Fourth Quarter 2014

 

 

Third Quarter 2014

 

 

Revenue

 

  

Income
before
taxes

 

 

Revenue

 

  

Income
before
taxes

 

North America

$

4,324

 

  

$

849

  

 

$

4,255

 

  

$

825

  

Latin America

 

2,053

 

  

 

429

  

 

 

2,036

 

  

 

446

  

Europe/CIS/Africa

 

3,063

 

  

 

683

  

 

 

3,303

 

  

 

774

  

Middle East & Asia

 

3,094

 

  

 

877

  

 

 

2,970

 

  

 

820

  

Eliminations & other

 

107

 

  

 

(57

 

 

82

 

  

 

(59

      Pretax operating income 

 

 

 

  

 

2,781

  

 

 

 

 

  

 

2,806

  

Corporate & other (1)

 

 

 

  

 

(221

 

 

 

 

  

 

(210

Interest income (2)

 

 

 

  

 

8

  

 

 

 

 

  

 

8

  

Interest expense (3)

 

 

 

  

 

(80

 

 

 

 

  

 

(84

Charges & credits (4)

 

 

 

  

 

(1,773

 

 

 

 

  

 

 

 

$

12,641

 

  

$

715

  

 

$

12,646

 

  

$

2,520

  

(1)

Comprised principally of certain corporate expenses not allocated to the segments, interest on postretirement medical benefits, stock-based compensation costs, amortization expense associated with certain intangible assets and other nonoperating items.

(2) 

Excludes interest income included in the segments’ income (fourth quarter 2014: $5 million; third quarter 2014: $5 million).

(3) 

Excludes interest expense included in the segments’ income (fourth quarter 2014: $7 million; third quarter 2014: $6 million).

(4)

Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements.

Fourth-quarter revenue of $12.6 billion was flat sequentially. North America revenue of $4.3 billion increased $69 million, or 2%, sequentially. International revenue of $8.2 billion decreased $98 million, or 1%, sequentially.

 

Sequentially, Reservoir Characterization Group revenue decreased 3%, to $3.1 billion, and Drilling Group revenue decreased 3%, to $4.7 billion. Production Group revenue increased 5% sequentially to $5.0 billion. The decrease in Reservoir Characterization Group revenue was primarily due to the seasonal drop in marine seismic activity in the North Sea and Eastern Canada.  Wireline revenue also decreased on lower exploration activity in Angola and seasonal activity and currency declines in Russia.  These sequential decreases were partially offset by year-end multiclient license and software sales. Drilling Group revenue decreased primarily on unfavorable currency effects and activity declines in Russia for Drilling & Measurements and M-I SWACO Technologies.  In Mexico, lower

15

 


Integrated Project Management (IPM) activity, due to budgetary constraints, also contributed to the decrease. The increase in Production Group revenue reflected stronger activity in Western Canada, higher uptake of technology, continued efficiency improvements, and improved pressure pumping logistics in North America land. Year-end sales of Completions and Artificial Lift products also contributed to the sequential increase.

 

Sequentially by Area, Middle East & Asia led the increase with revenue of $3.1 billion growing 4%, driven by record revenue in Saudi Arabia and Bahrain, increased activity in Kuwait and the United Arab Emirates, and year-end product and software sales across the Area. In Latin America, revenue of $2.1 billion grew by 1% on increased activity in Venezuela and Colombia, offset by decreased work scope in Mexico due to budgetary constraints. In Europe/CIS/Africa, revenue of $3.1 billion fell 7% due mainly to weakness in the ruble and the seasonal activity decline in Russia.  Following the peak summer drilling and exploration campaigns of the previous quarter, customer spending decelerated as oil prices weakened.  As a result, rig count reductions led to activity declines in Angola, Norway and the United Kingdom GeoMarkets. North America revenue of $4.3 billion increased 2% sequentially with land revenue up 5%.  Land revenue increased both in the US and Western Canada on higher pressure pumping activity, continued efficiency improvement, and higher uptake of new technology.  Fourth-quarter activity in the US Gulf of Mexico increased by 12% driven by year-end multiclient license sales and the resumption of operations after loop current disruptions in the third quarter. Eastern Canada revenue declined sequentially following completion of the season’s exploration program and marine seismic activity.

 

Sequentially, fourth-quarter pretax operating income of $2.8 billion was down 1%. International pretax operating income of $2.0 billion was down 2%, while North America pretax operating income of $849 million was up 3%.

 

Sequentially, pretax operating margin of 22.0% decreased 19 basis points (bps), as International Area pretax operating margin of 24.2% decreased 33 bps.  Middle East & Asia margin increased 71 bps to 28.3% while Latin America decreased 102 bps to 20.9% and Europe/CIS/Africa declined 112 bps to 22.3%.  The decline in International Area margin was primarily driven by an unfavorable revenue mix in the fourth quarter following the high-margin peak summer drilling and exploration campaigns of the third quarter. Unfavorable currency effects and activity declines in Russia also contributed to margin contraction. North America pretax operating margin increased 24 bps sequentially, to 19.6%, on increased Western Canada activity, continued efficiency gains, and increased penetration of new technology. North America offshore margin improved on a better revenue mix from high-margin multiclient license sales. Sequentially by segment, Reservoir Characterization Group pretax operating margin of 30.9% was 95 bps higher on a favorable revenue mix from high-margin multiclient license and software sales while Drilling Group pretax operating margin declined 94 bps to 20.7% mainly due to currency and activity declines in Russia. Reservoir Production Group pretax operating margin of 18.3% was flat sequentially as pricing pressure, particularly in the US land market, was offset by improved activity in Western Canada and by improved efficiency, better fleet utilization, and recovery of logistical costs in the North America land markets.

Reservoir Characterization Group

Fourth-quarter revenue of $3.1 billion declined 3% sequentially. Pretax operating income of $956 million was flat sequentially. The decrease in revenue was primarily driven by the seasonal drop in marine seismic activity in the North Sea and Eastern Canada.  Wireline revenue also decreased on lower exploration activity in Angola and seasonal activity and currency declines in Russia.  These sequential decreases were partially offset by year-end multiclient license and software sales.

 

Sequentially, pretax operating margin of 30.9% increased 95 bps. This increase reflected a favorable revenue mix from high-margin multiclient license and software sales.

Drilling Group

Fourth-quarter revenue of $4.7 billion declined 3% sequentially. Pretax operating income of $966 million was 8% lower sequentially.

These decreases were primarily due to the unfavorable currency effects and activity declines in Russia for Drilling & Measurements and M-I SWACO Technologies.  In Mexico, lower IPM activity due to budgetary constraints also contributed to the decrease.

 

Sequentially, pretax operating margin declined 94 bps, to 20.7%, mainly due to currency and activity declines in Russia.

Production Group

Fourth-quarter revenue of $5.0 billion increased 5% sequentially. Pretax operating income of $908 million was 6% higher sequentially.  Sequentially, revenue increased due to improved activity in Western Canada, higher uptake of new technology, continued efficiency improvements, and improved logistics in pressure pumping in North America land. Year-end sales of Completions and Artificial Lift products also contributed to the sequential increase.

 

Sequentially, pretax operating margin of 18.3% was flat as pricing pressure, particularly in the US land market, was offset by an improved volume of activity in Western Canada and by improved efficiency, better fleet utilization, and recovery of logistical costs in the North America land markets.

16

 


Full-Year 2014 Results

Product Groups

 

 

 

(Stated in millions)

  

 

 

 

 

 

2014

 

 

2013

 

 

Revenue

 

 

Income
before
taxes

 

 

Revenue

 

 

Income
before
taxes

 

Reservoir Characterization

$

12,224

  

 

$

3,607

  

 

$

12,463

  

 

$

3,660

  

Drilling

 

18,462

  

 

 

3,872

  

 

 

17,099

  

 

 

3,293

  

Production

 

18,111

  

 

 

3,227

  

 

 

15,927

  

 

 

2,619

  

Eliminations & other

 

(217

 

 

(130

 

 

(223

 

 

(228

      Pretax operating income  

 

 

  

 

 

10,576

  

 

 

 

  

 

 

9,344

  

Corporate & other (1)

 

 

  

 

 

(848

 

 

 

  

 

 

(726

Interest income (2)

 

 

  

 

 

31

  

 

 

 

  

 

 

22

  

Interest expense (3)

 

 

  

 

 

(347

 

 

 

  

 

 

(369

Charges & credits (4)

 

 

  

 

 

(1,773

 

 

 

  

 

 

420

 

 

$

48,580

  

 

$

7,639

  

 

$

45,266

  

 

$

8,691

  

 

Geographic Areas

 

 

 

(Stated in millions)

  

 

 

 

 

 

2014

 

 

2013

 

 

Revenue

 

  

Income
before
taxes

 

 

Revenue

 

  

Income
before
taxes

 

North America

$

16,151

  

  

$

3,057

  

 

$

13,897

  

  

$

2,735

  

Latin America

 

7,699

  

  

 

1,639

  

 

 

7,754

  

  

 

1,589

  

Europe/CIS/Africa

 

12,515

  

  

 

2,765

  

 

 

12,411

  

  

 

2,593

  

Middle East & Asia

 

11,875

  

  

 

3,273

  

 

 

10,767

  

  

 

2,697

  

Eliminations & other

 

340

  

  

 

(158

 

 

437

  

  

 

(270

      Pretax operating income  

 

 

  

  

 

10,576

  

 

 

 

  

  

 

9,344

  

Corporate & other (1)

 

 

  

  

 

(848

 

 

 

  

  

 

(726

Interest income (2)

 

 

  

  

 

31

  

 

 

 

  

  

 

22

  

Interest expense (3)

 

 

  

  

 

(347

 

 

 

  

  

 

(369

Charges & credits (4)

 

 

  

  

 

(1,773

 

 

 

  

  

 

420

 

 

$

48,580

  

  

$

7,639

  

 

$

45,266

  

  

$

8,691

  

(1) 

Comprised principally of certain corporate expenses not allocated to the segments, interest on postretirement medical benefits, stock-based compensation costs, amortization expense associated with certain intangible assets and other nonoperating items.

(2)

Excludes interest income included in the segments’ income (2014: $20 million; 2013: $11 million).

(3)

Excludes interest expense included in the segments’ income (2014: $22 million; 2013: $22 million).

(4) 

Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements.

Full-year 2014 revenue of $48.6 billion grew $3.3 billion, or 7%, versus the same period last year with International revenue of $32.1 billion increasing $1.2 billion, or 4%, and North America revenue of $16.2 billion growing $2.3 billion, or 16%.

 

Internationally, higher activities in a number of GeoMarkets, both offshore and in key land markets, contributed to the increase.  The increase was led by the Middle East & Asia which increased 10%, mainly from robust drilling and exploration results in Saudi Arabia, Australia, the United Arab Emirates and Oman.  Europe/CIS/Africa increased 1%, led by the Sub-Saharan Africa region on strong development and exploration activities, particularly in Central West Africa, Angola and Continental Europe GeoMarkets.  Norway also experienced strong growth driven by market share gains and higher rig-related services for a number of customers.  Latin

17

 


America, however, decreased 1% primarily as a result of lower activity and pricing in Brazil and Mexico which was partially offset by strong activity in Argentina and Ecuador.

 

North America revenue increased 16% mainly due to land which was up 22%, while offshore was down 3%.  The increase in land was driven by market share gains in pressure pumping, artificial lift and drilling services.   The pressure pumping growth was augmented by improvements in operational efficiency and the introduction of new technologies.  The decrease in offshore revenue was attributable to lower drilling and exploration activities, and due to a series of operational delays that impacted several product lines earlier in the year combined with lower multiclient sales.  

 

Full-year 2014 pretax operating income of $10.6 billion grew $1.2 billion, or 13%, versus the same period last year with International pretax operating income of $7.7 billion increasing 12% and North America pretax operating income of $3.1 billion increasing 12%.

 

Full-year 2014 pretax operating margin of 21.8% increased 113 bps compared to 2013, as International Area pretax operating margin was up 168 bps, to 23.9%, while North America pretax operating margin was down 75 bps, to 18.9%.  The increase in International Area margins reflected increased high-margin exploration activities, market share gains, growth in accretive integration-related activities and premium pricing on new technology introductions.  The North America margin contraction reflected pressure pumping commodity inflation.

Reservoir Characterization Group

Full-year 2014 revenue of $12.2 billion was down 2% compared to 2013.  Revenue increased in Testing Services, from higher offshore exploration, and Schlumberger Information Solutions, driven by software sales across all international areas.  However, these increases were offset by lower WesternGeco marine vessel utilization and reduced multiclient seismic sales.

 

Year-on-year, pretax operating margin increased 14 bps, to 29.5%, largely due to the higher-margin exploration activities that benefited Wireline Technologies and Testing Services.  Higher margin software sales also contributed to the improvement.   These increases were partially offset by lower profitability in WesternGeco due to lower vessel utilization and lower PetroTechnical Services multiclient seismic sales.

Drilling Group

Full-year 2014 revenue of $18.5 billion was 8% higher than the 2013, primarily due to the robust demand for Drilling & Measurements services and M-I SWACO Technologies as activity strengthened in the North America and Middle East & Asia Areas.  Rig revenue from the May 2014 acquisition of Saxon also contributed to the growth.

 

Year-on-year, pretax operating margin increased 171 bps, to 21.0%, primarily due to the increase in higher-margin exploration activities of Drilling & Measurements in North America offshore and in the international markets.  Improved profitability on Integrated Project Management activities also contributed to the margin increase.

Production Group

Full-year 2014 revenue of $18.1 billion increased 14% compared to 2013, primarily from Well Services pressure pumping technologies driven by market share gains, improvements in operational efficiency and the introduction of new technologies.  Schlumberger Production Management (SPM) revenue grew as projects in Latin America continued to progress ahead of work plans.  Revenue from the expanding artificial lift business also contributed to the year-on-year growth.  

 

Year-on-year, pretax operating margin increased 138 bps, to 17.8%, mainly on improved profitability for Well Services and Well Intervention, particularly in the International Areas.  SPM activities also contributed to the margin expansion.  However, these improvements were partially offset by the decrease in margins in North America due to pressure pumping commodity cost inflation.

18

 


 

Full-Year 2013 Results

Product Groups

  

 

(Stated in millions)

  

 

 

 

 

 

2013

 

 

2012

 

 

Revenue

 

 

Income
before
taxes

 

 

Revenue

 

  

Income
before
taxes

 

Reservoir Characterization

$

12,463

  

 

$

3,660

  

 

$

11,360

  

  

$

3,080

  

Drilling

 

17,099

  

 

 

3,293

  

 

 

15,691

  

  

 

2,778

  

Production

 

15,927

  

 

 

2,619

  

 

 

14,802

  

  

 

2,327

  

Eliminations & other

 

(223

 

 

(228

 

 

(122

)  

  

 

(68

      Pretax operating income  

 

 

  

 

 

9,344

  

 

 

 

  

  

 

8,117

  

Corporate & other (1)

 

 

  

 

 

(726

 

 

 

  

  

 

(696

Interest income (2)

 

 

  

 

 

22

  

 

 

 

  

  

 

30

  

Interest expense (3)

 

 

  

 

 

(369

 

 

 

  

  

 

(331

Charges & credits (4)

 

 

  

 

 

420

 

 

 

 

  

  

 

(161

 

$

45,266

  

 

$

8,691

  

 

$

41,731

  

  

$

6,959

  

 

Geographic Areas

  

 

(Stated in millions)

  

 

 

 

 

 

2013

 

 

2012

 

 

Revenue

 

  

Income
before
taxes

 

 

Revenue

 

  

Income
before
taxes

 

North America

$

13,897

  

  

$

2,735

  

 

$

13,535

  

  

$

2,737

  

Latin America

 

7,754

  

  

 

1,589

  

 

 

7,554

  

  

 

1,387

  

Europe/CIS/Africa

 

12,411

  

  

 

2,593

  

 

 

11,510

  

  

 

2,253

  

Middle East & Asia

 

10,767

  

  

 

2,697

  

 

 

8,717

  

  

 

1,914

  

Eliminations & other

 

437

  

  

 

(270

 

 

415

  

  

 

(174

      Pretax operating income  

 

 

  

  

 

9,344

  

 

 

 

  

  

 

8,117

  

Corporate & other (1)

 

 

  

  

 

(726

 

 

 

  

  

 

(696

Interest income (2)

 

 

  

  

 

22

  

 

 

 

  

  

 

30

  

Interest expense (3)

 

 

  

  

 

(369

 

 

 

  

  

 

(331

Charges & credits (4)

 

 

  

  

 

420

 

 

 

 

  

  

 

(161

 

$

45,266

  

  

$

8,691

  

 

$

41,731

  

  

$

6,959

  

(1)

Comprised principally of certain corporate expenses not allocated to the segments, interest on postretirement medical benefits, stock-based compensation costs, amortization expense associated with certain intangible assets and other nonoperating items.

(2)

Excludes interest income included in the segments’ income (2013: $11 million; 2012: $- million).

(3)

Excludes interest expense included in the segments’ income (2013: $22 million; 2012: $9 million).

(4) 

Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements.

Full-year 2013 revenue of $45.3 billion increased 8% versus the same period last year with International revenue 11% higher and North America revenue increasing 3%.

 

Internationally, higher exploration and development activities in a number of GeoMarkets, both offshore and in key land markets, contributed to the increase.  The increase was led by the Middle East & Asia, which increased 24%, mainly from robust results across a diversified portfolio of projects and activities in Saudi Arabia, Iraq, and United Arab Emirates; increased seismic surveys across Asia; and sustained land and offshore drilling activity in the Australasia and China GeoMarkets.  Europe/CIS/Africa increased 8%, led by the Russia and Central Asia region on strong land activity in West Siberia and robust offshore projects in Sakhalin.  The Sub-

19

 


Saharan Africa region increased on strong development, exploration and seismic activities as well.  Latin America was 3% higher, mainly due to solid progress on an SPM project in Ecuador and strong IPM results in Argentina.

 

North America growth was driven by increased offshore revenue as a result of higher drilling and exploration activities.  This increase was largely offset by a decline in land as a result of a reduction in rig count and pricing weakness in the areas of drilling, stimulation and wireline, although the downward pricing trend slowed during the second and third quarters.  

 

Full-year 2013 pretax operating income of $9.3 billion increased 15% versus the same period last year as international pretax operating income of $6.88 billion increased 24%, while North America pretax operating income of $2.7 billion was flat.

 

Pretax operating margin of 20.6% increased 119 bps, as international pretax operating margin expanded 225 bps to 22.2%, while North America pretax operating margin declined 55 bps to 19.7%.  The expansion in international margins was due to increased high-margin exploration, seismic and deepwater activities, while the North American margin contraction was due to continued pricing pressure.

Reservoir Characterization Group

Full-year revenue of $12.5 billion was 10% higher than the same period last year led by Testing Services, WesternGeco, Wireline and SIS Technologies, primarily due to market share gains and higher exploration activity in both offshore and key international land markets.

 

Pretax operating margin increased 226 bps to 29.4% largely due to the higher-margin exploration activities that benefited Testing Services and Wireline Technologies.

Drilling Group

Full-year revenue of $17.1 billion was 9% higher than the previous year primarily due to the robust demand for Drilling & Measurements services as offshore drilling activity strengthened in the US Gulf of Mexico, Sub-Sahara Africa, Russia and the Middle East & Asia Area and rig count increases in key international land markets, namely in Saudi Arabia, China and Australia.  Drilling Tools & Remedial and M-I SWACO Technologies expanded across all Areas and IPM increased on projects in Iraq, Australia and Argentina.

 

Pretax operating margin increased 156 bps to 19.3% primarily due to Drilling & Measurements, which benefited from higher-margin exploration activities both in North America offshore and in the international markets.

Production Group

Full-year revenue of $15.9 billion increased 8% year-on-year on increased Well Intervention activity and strong international sales of Completion and Artificial Lift products and Well Services technologies.  SPM also posted strong growth.  While North America land rig count declined, well and stage counts increased through drilling efficiency.  Despite the efficiency-driven activity increase, Well Services revenue in North America declined due to pricing weakness.

 

Pretax operating margin increased slightly by 72 bps to 16.4%. Margin expanded as a result of improved profitability in SPM, Completions and Artificial Lift, partially offset by a margin decline in Well Services technologies, primarily in North America, as a result of pricing pressure and cost inflation.

Interest and Other Income

Interest and other income consisted of the following:

  

(Stated in millions)

 

 

 

 

 

2014

 

  

2013

 

  

2012

 

Interest income

$

51

  

  

$

33

  

  

$

30

  

Earnings of equity method investments

 

240

  

  

 

132

  

  

 

142

  

 

$

291

  

  

$

165

  

  

$

172

  

20

 


The increase in earnings of equity method investments in 2014 as compared to 2013 primarily reflects the strong performance of a drilling service company in which Schlumberger has an investment, as well as the impact of the first full year of results from the OneSubsea joint venture.

Interest Expense

Interest expense of $369 million in 2014 decreased by $22 million compared to 2013 primarily as the effect of an increase in the weighted average debt balance of approximately $1.1 billion was more than offset by a 0.4% decrease in the weighted average borrowing rates from 3.2% in 2013 to 2.8% in 2014.

Interest expense of $391 million in 2013 increased by $51 million compared to 2012 primarily due to an increase in the weighted average debt balance of approximately $1.2 billion combined with a 0.1% increase in the weighted average borrowing rates from 3.1% in 2012 to 3.2% in 2013.

Other

Research & engineering and General & administrative expenses, as a percentage of Revenue, were as follows:

 

 

2014

 

 

2013

 

 

2012

 

Research & engineering

 

2.5

 

 

2.6

 

 

2.8

General & administrative

 

1.0

 

 

0.9

 

 

1.0

Income Taxes

The Schlumberger effective tax rate was 25.2% in 2014, 21.3% in 2013, and 24.4% in 2012.

The Schlumberger effective tax rate is sensitive to the geographic mix of earnings. When the percentage of pretax earnings generated outside of North America increases, the Schlumberger effective tax rate will generally decrease. Conversely, when the percentage of pretax earnings generated outside of North America decreases, the Schlumberger effective tax rate will generally increase.

The effective tax rate for both 2014 and 2013 was significantly impacted by the charges and credits described in Note 3 to the Consolidated Financial Statements.  Excluding the impact of these charges and credits, the effective tax rate in 2014 was 21.9% compared to 22.9% in 2013.  The decrease in the effective tax rate, excluding the impact of charges and credits, was primarily attributable to the change in the geographic mix of earnings and the favorable resolution of tax examinations in certain jurisdictions.  

The charges and credits recorded in both 2014 and 2013 had a significant impact on the effective tax rate because, for the most part, they were not tax effective. However, the charges and credits in 2012 did not have a significant impact on the effective tax rate.  The decrease in the effective tax rate in 2013 as compared to 2012, excluding the impact of charges and credits, was primarily attributable to the fact that Schlumberger generated a smaller proportion of its pretax earnings in North America in 2013 as compared to 2012.

Charges and Credits

Schlumberger recorded significant charges and credits in continuing operations during 2014, 2013 and 2012. 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 2014 charges and credits:

 

(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

 

 

 

21

 


The following is a summary of the 2013 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

)

 

 

The following is a summary of the 2012 charges and credits:

  

(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

  

  

 

Net Debt

Net Debt represents gross debt less cash, short-term investments and fixed income investments, held to maturity. 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.

Details of changes in Net Debt follow:

  

 

(Stated in millions)

  

 

 

 

 

 

2014

 

 

2013

 

 

2012

 

Income from continuing operations

$

5,711

 

 

$

6,843

 

 

$

5,259

 

Gain on formation of OneSubsea

 

  

 

 

(1,028

)  

 

 

  

Impairments and other charges

 

1,773

 

 

 

608

 

 

 

 

Depreciation and amortization (1)

 

4,094

  

 

 

3,879

  

 

 

3,647

  

Earnings of equity method investments, less dividends received

 

(113

)

 

 

(71

)

 

 

(61

)

Pension and other postretirement benefits expense

 

355

  

 

 

518

  

 

 

403

 

Stock-based compensation expense

 

329

  

 

 

315

  

 

 

335

 

Pension and other postretirement benefits funding

 

(390

)

 

 

(538

)

 

 

(673

)

(Increase) decrease in working capital

 

(36

)  

 

 

90

  

 

 

(2,045

)  

Other

 

(528

)  

 

 

74

  

 

 

50

  

Cash flow from operations

 

11,195

 

 

 

10,690

 

 

 

6,915

 

Capital expenditures

 

(3,976

)

 

 

(3,943

)

 

 

(4,694

)

SPM investments

 

(740

)

 

 

(902

)

 

 

(372

)

Multiclient seismic data capitalized

 

(321

)

 

 

(394

)

 

 

(351

)

Free cash flow (2)

 

6,158

 

 

 

5,451

 

 

 

1,498

 

Stock repurchase program

 

(4,678

)

 

 

(2,596

)

 

 

(972

)

Dividends paid

 

(1,968

)

 

 

(1,608

)

 

 

(1,432

)

Proceeds from employee stock plans

 

825

  

 

 

537

  

 

 

410

  

 

337

 

 

 

1,784

 

 

 

(496

)

Business acquisitions and investments, net of cash acquired and debt assumed

 

(1,501

)

 

 

(610

 

 

(845

)  

Payment for OneSubsea transaction

 

 

 

 

(600

)

 

 

 

Proceeds from divestiture

 

 

 

 

 

 

 

1,028

 

Other

 

220

  

 

 

94

  

 

 

52

  

(Increase) decrease in Net Debt

 

(944

)

 

 

668

 

 

 

(261

)  

Net Debt, Beginning of period

 

(4,443

)

 

 

(5,111

)

 

 

(4,850

)  

Net Debt, End of period

$

(5,387

)

 

$

(4,443

)

 

$

(5,111

)

22

 


(1) 

Includes depreciation of property, plant and equipment and amortization of intangible assets, multiclient seismic data costs and SPM investments.

(2) 

“Free cash flow” represents cash flow from operations less capital expenditures, SPM investments and multiclient seismic data capitalized.  Management believes that this is an important measure because it represents funds available to reduce debt and pursue opportunities that enhance shareholder value such as acquisitions and returning cash to shareholders through stock repurchases and dividends.

 

 

 

(Stated in millions)

  

 

 

 

 

Components of Net Debt

Dec. 31
2014

 

 

Dec. 31
2013

 

 

Dec. 31
2012

 

Cash

$

3,130

  

 

$

3,472

  

 

$

1,905

  

Short-term investments

 

4,371

  

 

 

4,898

  

 

 

4,369

  

Fixed income investments, held to maturity

 

442

  

 

 

363

  

 

 

245

  

Long-term debt – current portion

 

(1,244

)

 

 

(1,819

)

 

 

(1,163

)

Short-term borrowings

 

(1,521

)

 

 

(964

)

 

 

(958

)

Long-term debt

 

(10,565

)

 

 

(10,393

)

 

 

(9,509

)

 

$

(5,387

)

 

$

(4,443

)

 

$

(5,111

)

Key liquidity events during 2014, 2013 and 2012 included:

·

During the fourth quarter of 2013, Schlumberger issued $1.5 billion of 3.65% Senior Notes due 2023.

·

During the fourth quarter of 2013, Schlumberger issued €0.5 billion of 1.50% Guaranteed Notes due 2019.

During the second quarter of 2013, Schlumberger paid Cameron $600 million in connection with the formation of the OneSubsea joint venture.

During the third quarter of 2012, Schlumberger issued $1 billion of 1.25% Senior Notes due 2017 and $1 billion of 2.40% Senior Notes due 2022.

During the third quarter of 2012, Schlumberger completed the divestiture of its 56% interest in CE Franklin Ltd. for $122 million in cash.

During the second quarter of 2012, Schlumberger completed the divestiture of its Wilson distribution business for $906 million in cash.  

On April 17, 2008, the Schlumberger Board of Directors (the “Board”) approved an $8 billion share repurchase program for shares of Schlumberger common stock, to be acquired before December 31, 2011. On July 21, 2011, the Board approved an extension of this repurchase program to December 31, 2013. This program was completed during the third quarter of 2013.

On July 18, 2013, the Board approved a new $10 billion share repurchase program to be completed at the latest by June 30, 2018. Schlumberger had repurchased $6.4 billion of shares under this new share repurchase program as of December 31, 2014.  Schlumberger is accelerating this share repurchase program with the aim of completing it in 2.5 years as compared to the original target of 5 years.

The following table summarizes the activity under these share repurchase programs during 2014, 2013 and 2012:

 

 

(Stated in thousands, except per share amounts)

 

 

 

 

 

 

 

Total cost
of shares
purchased

 

  

Total number
of shares
purchased

 

  

Average price
paid per
share

 

 

2014

$

4,677,687

  

  

 

47,545.9

  

  

$

98.38

  

 

2013

$

2,596,447

  

  

 

31,349.5

  

  

$

82.82

  

 

2012

$

971,883

  

  

 

14,087.8

  

  

$

68.99

  

 

 

·

Net cash provided by operating activities was $11.2 billion in 2014, $10.7 billion in 2013 and $6.9 billion in 2012. The increase in net cash flow from operations in 2014 as compared to 2013 was largely attributable to an increase in earnings before non-cash charges and credits and depreciation and amortization expense.  The improvement in net cash flow from operating activities in 2013 as compared to 2012 reflected a strong working capital performance despite an 8.5% increase in revenue. 

23

 


At times in recent years, Schlumberger has experienced delays in payments from its national oil company customer in Venezuela. Schlumberger operates in approximately 85 countries. At December 31, 2014, only three of those countries individually accounted for greater than 5% of Schlumberger’s accounts receivable balance, of which only one, the United States, represented greater than 10%. Venezuela represented less than 5% of Schlumberger’s accounts receivable balance at December 31, 2014.

Dividends paid during 2014, 2013 and 2012 were $1.97 billion, $1.61 billion and $1.43 billion, respectively.

On January 15, 2015, Schlumberger announced that its Board had approved a 25% increase in the quarterly dividend, to $0.50.

On January 16, 2014, Schlumberger announced that its Board had approved a 28% increase in the quarterly dividend  to $0.40.

On January 17, 2013, Schlumberger announced that its Board had approved a 13.6% increase in the quarterly dividend to $0.3125.

Capital expenditures were $4.0 billion in 2014, $3.9 billion in 2013 and $4.7 billion in 2012. Capital expenditures are expected to approach $3.4 billion for the full year 2015.

During 2014, 2013 and 2012 Schlumberger made contributions of $390 million, $538 million and $673 million, respectively, to its postretirement benefit plans. The US pension plans were 86% funded at December 31, 2014 based on the projected benefit obligation. This compares to 96% funded at December 31, 2013.

Schlumberger’s international defined benefit pension plans were a combined 94% funded at December 31, 2014 based on the projected benefit obligation. This compares to 104% funded at December 31, 2013.

Schlumberger currently anticipates contributing approximately $400 million to its postretirement benefit plans in 2015, subject to market and business conditions.

On January 20, 2015, Schlumberger announced that it has entered into an agreement to acquire a minority ownership of approximately 45% in Eurasia Drilling Company Limited, the largest provider of onshore drilling services in Russia.  The cost of this transaction, which is expected to close during the first quarter of 2015, is approximately $1.7 billion in cash.

 

Schlumberger maintains a €5.0 billion Guaranteed Euro Medium Term Note program. This program provides for the issuance of various types of debt instruments such as fixed or floating rate notes in Euro, US dollar or other currencies.  Schlumberger has issued €0.5 billion 1.50% Guaranteed Notes due 2019 and €1.0 billion 2.75% Guaranteed Notes due 2015 under this program.

As of December 31, 2014, Schlumberger had $7.5 billion of cash and short-term investments on hand. Schlumberger had separate committed debt facility agreements aggregating $3.9 billion with commercial banks, of which $2.3 billion was available and unused as of December 31, 2014. The $3.9 billion of committed debt facility agreements included $3.5 billion of committed facilities which support commercial paper programs. Schlumberger believes that these amounts are sufficient to meet future business requirements for at least the next 12 months.

The total outstanding commercial paper borrowings were $1.538 billion as of December 31, 2014 and $95 million as of December 31, 2013.  

Summary of Contractual Obligations

  

  

 

 

  

(Stated in millions)

 

 

 

 

 

 

 

 

 

  

 

 

  

Payment Period

 

 

  

Total

 

  

2015

 

  

2016 - 2017

 

  

2018 - 2019

 

  

After 2019

 

Debt (1)

  

$

13,330

  

  

$

2,765

  

  

$

2,665

  

  

$

2,709

  

  

$

5,191

  

Interest on fixed rate debt obligations (2)

  

 

1,456

  

  

 

265

  

  

 

409

  

  

 

366

  

  

 

416

  

Operating leases

  

 

1,630

  

  

 

330

  

  

 

456

  

  

 

290

  

  

 

554

  

Purchase obligations (3)

  

 

2,444

  

  

 

1,913

  

  

 

311

  

  

 

104

  

  

 

116

  

 

  

$

18,860

  

  

$

5,273

  

  

$

3,841

  

  

$

3,469

  

  

$

6,277

  

(1)

Excludes future payments for interest.

(2)

Excludes interest on $3.7 billion of variable rate debt, which had a weighted average interest rate of 1.3% as of December 31, 2014.

24

 


(3)

Represents an estimate of contractual obligations in the ordinary course of business. Although these contractual obligations are considered enforceable and legally binding, the terms generally allow Schlumberger the option to reschedule and adjust its requirements based on business needs prior to the delivery of goods.

Refer to Note 18 Pension and Other Benefit Plans of the Consolidated Financial Statements for details regarding Schlumberger’s pension and other postretirement benefit obligations.

As discussed in Note 14 Income Taxes of the Consolidated Financial Statements, included in the Schlumberger Consolidated Balance Sheet at December 31, 2014 is approximately $1.4 billion of liabilities associated with uncertain tax positions in the over 100 jurisdictions in which Schlumberger conducts business. Due to the uncertain and complex application of tax regulations, combined with the difficulty in predicting when tax audits throughout the world may be concluded, Schlumberger cannot make reliable estimates of the timing of cash outflows relating to these liabilities.

Schlumberger has outstanding letters of credit/guarantees which 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.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires Schlumberger to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and 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. A discussion of all of Schlumberger’s significant accounting policies is included in Note 2 to the Consolidated Financial Statements.

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.

Multiclient Seismic Data

The WesternGeco business capitalizes the costs associated with obtaining multiclient seismic data. The carrying value of the multiclient seismic data library at December 31, 2014 and 2013 was $793 million and $667 million, respectively. Such costs are charged to Cost of revenue based on the percentage of the total costs to the estimated total revenue that Schlumberger expects to receive from the sales of such data. However, under no circumstances will an individual survey carry a net book value greater than a 4-year, straight-line amortized value.

The carrying value of surveys is reviewed for impairment annually as well as when an event or change in circumstance indicates an impairment may have occurred. Adjustments to the carrying value are recorded when it is determined that estimated future revenues, which involve significant judgment on the part of Schlumberger, would not be sufficient to recover the carrying value of the surveys. Significant adverse changes in Schlumberger’s estimated future cash flows could result in impairment charges in a future period. For purposes of performing the annual impairment test of the multiclient library, larger surveys, which are typically prefunded by customers, are analyzed for impairment on a survey by survey basis and other smaller surveys are analyzed based on two pools of surveys: United States and non-United States. The United States and non-United States pools were determined to be the most appropriate level at which to perform the impairment review based upon a number of factors, including (i) various macroeconomic factors that influence the ability to successfully market surveys, and (ii) the focus of the sales force and related costs.

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. Depending on how such potential issues are resolved, or if the financial condition of Schlumberger customers were to deteriorate resulting in an impairment of their ability to make payments, adjustments to the allowance may be required.

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Goodwill, Intangible Assets and Long-Lived Assets

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 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, then there is no need to perform any further testing. However, if Schlumberger concludes otherwise, then it is required to perform the first step of a two-step 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 to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value.

Schlumberger has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test.

For purposes of performing the impairment test for goodwill, Schlumberger’s reporting units are its three Groups: Reservoir Characterization, Drilling and Production. Schlumberger elected to perform the qualitative assessment described above for purposes of its annual goodwill impairment test in 2014. Based on this assessment, Schlumberger concluded that it was more likely than not that the fair value of each of its reporting units was greater than its carrying amount. Accordingly, no further testing was required.

Long-lived assets, including fixed assets, intangible assets and investments in SPM 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, 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 which are resolved with the authorities or, potentially, through the courts. Tax liabilities are recorded based on estimates of additional taxes which will be due upon the conclusion of these audits. Estimates of these tax liabilities 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 which 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.

Pension and Postretirement Benefits

Schlumberger’s pension and postretirement benefit obligations are described in detail in Note 18 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 Schlumberger uses reflects the prevailing market rate of a portfolio of high-quality debt instruments with maturities matching the expected timing of the payment of the 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 plans was 4.15% at December 31, 2014 and 4.85% at December 31, 2013.

The weighted-average discount rate utilized to determine the liability for Schlumberger’s international pension plans was 4.07% at December 31, 2014 and 4.76% at December 31, 2013.

The weighted-average discount rate utilized to determine expense for Schlumberger’s United States pension plans and postretirement medical plans increased from 4.25% in 2013 to 4.85% in 2014.

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The weighted-average discount rate utilized to determine expense for Schlumberger’s international pension plans increased from 4.38% in 2013 to 4.76% in 2014.

The expected rate of return for our 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. The expected rate of return for Schlumberger’s United States pension plans has been determined based upon expected rates of return for the investment portfolio, with consideration given to the distribution of investments by asset class and historical rates of return for each individual asset class. The weighted average expected rate of return on plan assets for the United States pension plans decreased from 7.50% in 2013 to 7.25% in 2014. The weighted average expected rate of return on plan assets for the international pension plans was 7.50% in both 2014 and 2013. A lower expected rate of return would increase pension expense.

Schlumberger’s medical cost trend rate assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. The overall medical cost trend rate assumption utilized to determine the 2014 postretirement medical expense was 7.25% graded to 5% over the next ten years. The overall medical trend rate assumption utilized to determine the postretirement medical liability at December 31, 2014 was 7.00% graded to 5% over the next ten years.

The following illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for the United States and international pension plans:

 

 

  

(Stated in millions)

 

 

 

 

 

 

 

 

 

 

Change in Assumption

  

Effect on 2014
Pretax Pension
Expense

 

  

Effect on
Dec. 31, 2014
Liability

 

 

25 basis point decrease in discount rate

  

+$

52

  

  

+$

481