3. Charges and Credits

Schlumberger recorded the following charges and credits in continuing operations during 2015, 2014 and 2013:

2015

Schlumberger decided to reduce its headcount during the first quarter of 2015 as a result of the severe fall in activity in North America, combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices. Schlumberger recorded a $390 million charge during the first quarter associated with this headcount reduction as well as an incentivized leave of absence program. Based on the activity outlook for 2016, as well as to further streamline its support structure, Schlumberger decided to further reduce its headcount and expand its incentivized leave of absence program during the fourth quarter of 2015. Schlumberger recorded an additional $530 million charge during the fourth quarter associated with these actions. Approximately $360 million of the costs remained unpaid as of December 31, 2015.
As a result of unfavorable oil and gas industry market conditions that have continued to deteriorate and their impact on the activity outlook, Schlumberger determined that the carrying values of certain assets were no longer recoverable and also took certain decisions that resulted in the following impairment and restructuring charges during the fourth quarter of 2015:

- $776 million of fixed asset impairments primarily related to underutilized pressure pumping and other equipment in North America, as well as certain lower-tier drilling rigs. The fair value of these assets was based on the projected present value of future cash flows that these assets are expected to generate.

- $269 million to write-down the carrying value of certain inventory, primarily in North America.

- $182 million to reduce the carrying value of an investment in an SPM project to its estimated fair value, as a result of the recent decline in commodity prices and considering this project is approaching the end of its contractual term. The fair value of this investment was estimated based on the projected present value of its future cash flows.

- $177 million associated with certain of Schlumberger’s owned and leased facilities, including the expected sale of certain properties and the termination of certain leases.

- $77 million relating to assets that are no longer recoverable as a result of geopolitical issues in certain countries in the Middle East.

- $41 million relating to contract termination costs.

- $84 million of other charges associated with current market conditions, including $40 million relating to an other-than-temporary impairment of marketable securities and $15 million relating to the impairment of an equity-method investment.

Because certain of these impairment charges were estimated based on the projected present value of future cash flows, which included unobservable inputs that required significant judgments, additional charges may be required in future periods should industry conditions worsen.

In February 2015, the Venezuelan government replaced the SICAD II exchange rate (described in further detail below) with a new foreign exchange market system known as SIMADI. The SIMADI exchange rate was approximately 192 Venezuelan Bolivares fuertes to the US dollar as of March 31, 2015. As a result, Schlumberger recorded a $49 million devaluation charge during the first quarter of 2015, reflecting the adoption of the SIMADI exchange rate.

This change results in a reduction in the US dollar reported amount of local currency denominated revenues, expenses and, consequently, income before taxes and net income in Venezuela. If Schlumberger had applied an exchange rate of 192 Venezuelan Bolivares fuertes to the US dollar throughout 2014, it would have reduced Schlumberger earnings by approximately $0.09 per share.

The following is a summary of these charges and credits, all of which were classified as Impairments & other in the Consolidated Statement of Income:

	(Stated in millions)

	Pretax		Tax		Net
Workforce reductions.....................................	$	920	$	107	$	813
Fixed asset impairments....................................		776		141		635
Inventory write-downs.....................................		269		27		242
Impairment of SPM project.................................		182		36		146
Facility closures.........................................		177		37		140
Geopolitical events.......................................		77		-		77
Currency devaluation loss in Venezuela.........................		49		-		49
Contract termination costs..................................		41		2		39
Other................................................		84		7		77
	$	2,575	$	357	$	2,218

2014

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

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

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

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

Schlumberger had historically applied the official exchange rate to remeasure local currency transactions and balances into US dollars. Effective December 31, 2014, Schlumberger concluded that it was appropriate to apply the SICAD II exchange rate as it believed that rate best represented the economics of Schlumberger’s business activity in Venezuela. As a result, Schlumberger recorded a $472 million devaluation charge during the fourth quarter of 2014.

In response to lower commodity pricing and anticipated lower exploration and production spending in 2015, Schlumberger decided during the fourth quarter of 2014 to reduce its overall headcount primarily to better align with anticipated activity levels for 2015. As a result of these reductions, Schlumberger recorded a charge of $296 million in the fourth quarter of 2014.
During the fourth quarter of 2014, Schlumberger determined that, primarily as a result of the recent decline in commodity prices, the carrying value of its investment in an SPM development project in the Eagle Ford Shale was in excess of its fair value. Accordingly, Schlumberger recorded a $199 million impairment charge. The fair value of this investment was estimated based on the projected present value of future cash flows.

The following is a summary of these charges, all of which were classified as Impairments & other in the Consolidated Statement of Income:

	(Stated in millions)

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

2013

During the fourth quarter, Schlumberger recorded a $152 million provision relating to accounts receivable from a client in Brazil that filed for bankruptcy, which is classified in Cost of revenue in the Consolidated Statement of Income.

During the second quarter, Schlumberger recorded a $1.028 billion gain as a result of the deconsolidation of its subsea business in connection with the formation of the OneSubsea joint venture with Cameron, which is classified as Gain on formation of OneSubsea in the Consolidated Statement of Income. Refer to Note 4 – Acquisitions for further details.

During the second quarter, Schlumberger recorded a $222 million impairment charge relating to an investment in a company involved in developing drilling-related technology and a $142 million impairment charge relating to an investment in a contract drilling business, both of which are classified in Impairments & other in the Consolidated Statement of Income.

In February 2013, Venezuela’s currency was devalued from the prior exchange rate of 4.3 Bolivar fuertes per US dollar to 6.3 Bolivar fuertes per US dollar. As a result, Schlumberger recorded a $92 million devaluation charge during the first quarter of 2013, which is classified in Impairments & other in the Consolidated Statement of Income.

The following is a summary of these charges and credits:

	(Stated in millions)

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