10-K 1 slb-10k_20171231.htm 10-K slb-10k_20171231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

(Mark One)

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

For the fiscal year ended December 31, 2017

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 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

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 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 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”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of June 30, 2017, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately $91.07 billion.

As of December 31, 2017, the number of shares of common stock outstanding was 1,383,932,776.

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 2018 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, 2017 (the “2018 Proxy Statement”).

 

 

 


SCHLUMBERGER LIMITED

Table of Contents

Form 10-K

 

 

 

Page

PART I

 

 

 

 

 

Item 1.

Business

3

 

 

 

Item 1A.

Risk Factors

8

 

 

 

Item 1B.

Unresolved Staff Comments

11

 

 

 

Item 2.

Properties

11

 

 

 

Item 3.

Legal Proceedings

11

 

 

 

Item 4.

Mine Safety Disclosures

11

 

 

 

PART II

 

 

 

 

 

Item 5.

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

12

 

 

 

Item 6.

Selected Financial Data

14

 

 

 

Item 7.

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

15

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 8.

Financial Statements and Supplementary Data

30

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

68

 

 

 

Item 9A.

Controls and Procedures

68

 

 

 

Item 9B.

Other Information

69

 

 

 

PART III

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance of Schlumberger

70

 

 

 

Item 11.

Executive Compensation

70

 

 

 

Item 12.

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

70

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

70

 

 

 

Item 14.

Principal Accounting Fees and Services

70

 

 

 

PART IV

 

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

71

 

 

 

 

Signatures

75

 

 

 

 

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 provider of technology for reservoir characterization, drilling, production and processing to the oil and gas industry.  Having invented wireline logging as a technique for obtaining downhole data in oil and gas wells, today Schlumberger supplies the industry’s most comprehensive range of products and services, from exploration through production, and integrated pore-to-pipeline solutions that optimize hydrocarbon recovery to deliver reservoir performance.  As of December 31, 2017, the Company employed approximately 100,000 people of over 140 nationalities operating in more than 85 countries. Schlumberger has executive offices in Paris, Houston, London and The Hague.

Schlumberger operates in each of the major oilfield service markets, managing its business through four Groups: Reservoir Characterization, Drilling, Production and Cameron.  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 role of the Groups and Technologies is to support Schlumberger in providing the best possible service to customers and to ensure that Schlumberger remains at the forefront of technology development and services integration.  The Groups and Technologies are collectively responsible for driving excellence in execution throughout their businesses; overseeing operational processes, resource allocation and personnel; and delivering superior financial results.

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, OneSurfaceSM, Software Integrated Solutions (SIS) and Integrated Services Management (ISM).

 

 

WesternGeco is a leading geophysical services supplier, providing comprehensive worldwide reservoir interpretation and data processing services. It provides a highly efficient and scientifically advanced imaging platform to its customers. Through access to the industry’s global marine fleet, it provides accurate measurements and images of subsurface geology and rock properties for multiclient surveys. WesternGeco offers the industry’s most extensive multiclient library.

 

 

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. Slickline services provide downhole mechanical well intervention.

 

 

Testing Services provides exploration and production pressure and flow-rate measurement services both at the surface and downhole. Testing has a network of laboratories that conduct rock and fluid characterization. Testing also provides tubing-conveyed perforating services.

 

 

OneSurface provides a unique, reservoir-driven, fit-for-purpose integrated production system for accelerating first oil and gas and maximizing project economics.

 

 

Software Integrated Solutions sells proprietary software and provides consulting, information management and IT infrastructure services to customers in the oil and gas industry. SIS also offers expert consulting services for reservoir characterization, field development planning and production enhancement, as well as industry-leading petrotechnical data services and training solutions.

 

 

Integrated Services Management provides coordination and management of Schlumberger services, products, and third parties in projects around the world.  ISM offers a certified integrated services project manager as a focal point of contact between the project owner and the various Schlumberger services, ensuring alignment of project objectives.

Drilling Group – Consists of the principal Technologies involved in the drilling and positioning of oil and gas wells and comprises Bits & Drilling Tools, M-I SWACO®, Drilling & Measurements, Land Rigs and Integrated Drilling Services (“IDS”).

 

 

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

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M-I SWACO is a 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.

 

 

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

 

 

Land Rigs provides land drilling rigs and related support services.  The land drilling system of the future, currently under development, represents an integrated drilling platform bringing together digitally enabled surface and downhole hardware combined with a common optimization software to create a step-change in operational efficiency.

 

 

Integrated Drilling Services supplies all of the services necessary to construct or change the architecture (re-entry) of wells. IDS covers all aspects of well planning, well drilling, engineering, supervision, logistics, procurement and contracting of third parties, and drilling rig management.

Production Group – Consists of the principal Technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, OneStimSM, Completions, Artificial Lift, Integrated Production Services (“IPS”) and Schlumberger Production Management (“SPM”).

 

 

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. Such services include pressure pumping, well cementing and stimulation, and coiled tubing equipment for downhole mechanical well intervention, reservoir monitoring and downhole data acquisition.

 

 

OneStim provides a low cost-to-serve and highly competitive service delivery platform in North America’s unconventional plays. The services include hydraulic fracturing, multistage completions, perforating, coiled tubing equipment and services for downhole mechanical well intervention, and a vertically integrated product and logistics organization.

 

 

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.

 

 

Integrated Production Services offers the project scope necessary to abandon, maintain, or increase the production of single or multiple wells.  All aspects of project planning are addressed and include well engineering, wellsite supervision, civil engineering, logistics, procurement, contracting of third parties, and workovers.

 

 

Schlumberger Production Management is a business model for field production projects. This model combines 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.

 

SPM creates 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 customer 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.  This includes certain arrangements whereby Schlumberger is only compensated based upon incremental production that it helps deliver above a mutually agreed baseline.  SPM represented less than 5% of Schlumberger’s consolidated revenue for the year ended December 31, 2017.

Cameron Group – Consists of the principal Technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities, and includes OneSubsea®, Surface Systems, Drilling Systems, and Valves & Measurement.

 

 

OneSubsea provides integrated solutions, products, systems and services for the subsea oil and gas market, including integrated subsea production systems involving wellheads, subsea trees, manifolds and flowline connectors, control systems, connectors and services designed to maximize reservoir recovery and extend the life of each field.  OneSubsea offers

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integration and optimization of the entire production system over the life of the field by leveraging flow control expertise and process technologies with petrotechnical expertise and reservoir and production technologies.

 

 

Surface Systems designs and manufactures onshore and offshore platform wellhead systems and processing solutions, including valves, chokes, actuators and Christmas trees, and provides services to oil and gas operators.

 

 

Drilling Systems provides drilling equipment and services to shipyards, drilling contractors, E&P companies and rental tool companies.  The products fall into two broad categories: pressure control equipment and rotary drilling equipment.  These products are designed for either onshore or offshore applications and include drilling equipment packages, blowout preventers (BOPs), BOP control systems, connectors, riser systems, valves and choke manifold systems, top drives, mud pumps, pipe handling equipment, rig designs and rig kits.

 

 

Valves & Measurement serves portions of the upstream, midstream and downstream markets and provides valve products and measurement systems that are primarily used to control, direct and measure the flow of oil and gas as they are moved from wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centers for processing.

Supporting the Groups 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.

Schlumberger’s business is also reported through four geographic areas: North America, Latin America, Europe/CIS/Africa and Middle East & Asia.  Within these geographic areas, a network of GeoMarket* regions provides logistical, technical and commercial coordination.

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 GeoMarkets are responsible for providing the most efficient and cost-effective support possible to the operations.

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 and products.  Manufacturing and engineering facilities as well as research centers are shared, and the labor force is interchangeable.  Technological innovation, quality of service and price differentiation are the principal methods of competition, which vary geographically with respect to the different services and products offered.  While Schlumberger has numerous competitors, both large and small, Schlumberger believes that it is an industry leader in providing geophysical equipment and  services, wireline logging, well production testing, exploration and production software, rig equipment, surface equipment, subsea equipment, artificial lift, hydraulic fracturing, cementing, coiled-tubing services, drilling and completion fluids, solids control and waste management, drilling pressure control, drill bits, measurement-while-drilling, logging-while-drilling, directional-drilling services, and surface data (mud) logging.

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 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 that can temporarily reduce 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, 2017, no single customer exceeded 10% of consolidated revenue. Other than WesternGeco, OneSubsea and Drilling Systems businesses, Schlumberger has no significant backlog due to the nature of its businesses. The WesternGeco backlog was $0.4 billion at December 31, 2017 (all of which is expected to be recognized as revenue in 2018) and $0.8

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billion at December 31, 2016.  The combined backlog of the OneSubsea and Drilling Systems businesses was $2.5 billion at December 31, 2017 (of which approximately 50% is expected to be recognized as revenue during 2018) and $3.1 billion at December 31, 2016.

Financial Information

Financial information by business segment and geographic area for the years ended December 31, 2017, 2016 and 2015 is provided in Note 17 of the Consolidated Financial Statements.

Executive Officers of Schlumberger

The following table sets forth, as of January 24, 2018, the names and ages of the executive officers of Schlumberger, including all offices and positions held by each for the past five years.

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Name

Age

Current Position and Five-Year Business Experience

 

 

 

Paal Kibsgaard

50

Chairman of the Board of Directors, since April 2015; Chief Executive Officer, since August 2011; and Director since April 2011.

 

 

 

Simon Ayat

63

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

 

 

 

Alexander C. Juden

57

Secretary and General Counsel, since April 2009.

 

 

 

Ashok Belani

59

Executive Vice President Technology, since January 2011.

 

 

 

Jean-Francois Poupeau

56

Executive Vice President Corporate Engagement, since May 2017; and Executive Vice President Corporate Development and Communications, June 2012 to April 2017.

 

 

 

Patrick Schorn

49

Executive Vice President, New Ventures, since May 2017; President, Operations, August 2015 to May 2017; President, Operations & Integration, July 2013 to August 2015; and President, Production Group, January 2011 to June 2013.

 

 

 

Khaled Al Mogharbel

47

President, Eastern Hemisphere, since May 2017; President, Drilling Group, July 2013 to April 2017; and President, Middle East, August 2011 to June 2013.

 

 

 

Aaron Gatt Floridia

49

President, Western Hemisphere, since May 2017; Chief Commercial Officer, May 2016 to May 2017; and President, Reservoir Characterization Group, August 2011 to May 2016.

 

 

 

Stephane Biguet

49

Vice President Finance, since December 2017; Vice President and Treasurer, December 2016 to November 2017; Vice President Controller, Operations, August 2015 to December 2016; Vice President Controller, Operations & Integration, November 2013 to August 2015; and Vice President, Global Shared Services Organization, August 2011 to October 2013.

 

 

 

Pierre Chereque

63

Vice President and Director of Taxes, since June 2017; Director of Taxes, Operations July 2004 to May 2017.

 

 

 

Stephanie Cox

49

Vice President Human Resources, since June 2017; President, North America June 2017 to May 2017; President, Asia June 2014 to May 2016; and Vice President, Human Resources May 2009 to May 2014.

 

 

 

Simon Farrant

53

Vice President Investor Relations, since February 2014; Special Projects Manager, December 2013 to January 2014; and Vice President and General Manager, North Sea GeoMarket, April 2012 to November 2013.

 

 

 

Kevin Fyfe

44

Vice President and Controller, since October 2017; Controller, Cameron Group, January 2016 to September 2017; Vice President Finance, OneSubsea July 2013 to December 2015; and Finance Integration Manager, December 2012 to June 2013.

 

 

 

Hinda Gharbi

47

President, Reservoir Characterization Group, since June 2017; President, Wireline June 2013 to May 2017; and President, Asia June 2010 to June 2013.

 

 

 

Howard Guild

46

Chief Accounting Officer, since July 2005.

 

 

 

Claudia Jaramillo

45

Vice President and Treasurer, since December 2017; ERM and Treasury Manager, July 2017 to November 2017; Controller North America, July 2014 to May 2017; and Controller, Drilling and Measurements, July 2011 to June 2014.

 

 

 

Vijay Kasibhatla

54

Director of Mergers and Acquisitions, since January 2013.

 

 

 

Imran Kizilbash

51

Vice President Schlumberger Venture Fund, since December 2016; Vice President and Treasurer, November 2013 to December 2016; Controller, Operations & Integration, July 2013 to October 2013; and Controller, Operations, January 2011 to June 2013.

 

 

 

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Saul R. Laureles

52

Director, Corporate Legal, since July 2014; Assistant Secretary, since April 2007; and Deputy General Counsel, Governance and Securities, October 2012 to June 2014.

 

 

 

Olivier Le Peuch

54

President, Cameron Group, since February 2017; President, Completions October 2014 to January 2017; and Vice President EMS August 2010 to September 2014.

 

 

 

Catherine MacGregor

45

President, Drilling Group, since May 2017; President, Reservoir Characterization Group, August 2016 to April 2017; President, Europe and Africa, July 2013 to July 2016; and Wireline President, May 2009 to June 2013.

 

 

 

Abdellah Merad

44

President, Production Group, since October 2017; Vice President Controller, Operations, December 2016 to April 2017; Vice President, Global Shared Services Organization, November 2013 to December 2016; GeoMarket Cost Management Project Manager, August 2013 to November 2013; and North Africa GeoMarket Manager, June 2010 to July 2013.

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 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 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 products and services is substantially dependent on the levels of expenditures by our customers.  The oil and gas industry downturn has resulted in reduced demand for oilfield services, which has had, and may continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

Demand for the majority of our products and services depends substantially on expenditures by our customers for the exploration, development and production of oil and natural gas reserves. These expenditures are generally dependent on our customers’ views of future oil and natural gas prices and are sensitive to our customers’ views of future economic growth and the resulting impact on demand for oil and natural gas.  Oil and gas prices have declined significantly from their highs in 2014, resulting in lower expenditures by our customers.  During the downturn, many of our customers reduced or delayed their oil and gas exploration and production spending, reducing the demand for our products and services and exerting downward pressure on the prices that we have been able to charge.  These conditions have had, and may continue to have, an adverse impact on our financial condition, results of operations and cash flows.  

Lower oil and gas prices have resulted in a reduction in cash flows for our customers. This has resulted in, and may continue to result in, project modifications, delays and 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;

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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.

There can be no assurance that the demand or pricing for oil and natural gas will follow historic patterns or recover meaningfully in the near term.  Continued or worsening conditions in the oil and gas industry could have a further material adverse effect on 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 over 85 countries in which we operate.

Our non-United States operations accounted for approximately 74% of our consolidated revenue in 2017, 80% in 2016 and 76% in 2015. Operations in countries other than the United States are subject to various risks, including:

 

volatility in political, social and economic conditions;

 

exposure to 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 United States, the European Union or other countries;

 

restrictions under the United States Foreign Corrupt Practices Act (“FCPA”) or similar legislation;

 

restrictions on the repatriation of income or capital;

 

currency exchange controls;

 

inflation; and

 

currency exchange rate fluctuations and devaluations.

Our failure to comply with complex US and foreign laws and regulations could have a material adverse effect on our operations.

We are subject to complex US and foreign laws and regulations, such as the FCPA, the U.K. Bribery Act and various other anti-bribery and anti-corruption laws.  We are also subject to trade control regulations and trade sanctions laws that restrict the movement of certain goods to, and certain operations in, various countries or with certain persons.  Our ability to transfer people and products among certain countries is subject to maintaining required licenses and complying with these laws and regulations.  The internal controls, policies and procedures, and employee training and compliance programs we have implemented to deter prohibited practices may not be effective in preventing employees, contractors or agents from violating or circumventing such internal policies or violating applicable laws and regulations.  Any determination that we have violated or are responsible for violations of anti-bribery, trade control, trade sanctions or anti-corruption laws could have a material adverse effect on our financial condition.  Violations of international and US laws and regulations or the loss of any required licenses may result in fines and penalties, criminal sanctions, administrative remedies or restrictions on business conduct, and could have a material adverse effect on our reputation and our business, operating results and financial condition.

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Demand for our products and services could be reduced by existing and future legislation or regulations.

Environmental advocacy groups and regulatory agencies in the United States and other countries have been focusing considerable attention on the emissions of carbon dioxide, methane and other greenhouse gasses and their potential role in climate change.  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 products and 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.

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 for 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 certain 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 subject to substantial deductibles, 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.

The oilfield service industry is highly competitive.  Our ability to continually provide competitive technology and services can impact our ability to defend, maintain or increase prices for our products and services, maintain market share, and negotiate acceptable contract terms with our customers.  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

10

 


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 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 adversely 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.

Cyberattacks could have a material adverse impact on our business and results of operation.

We rely heavily on information systems to conduct our business.  Although we devote significant resources to protect our systems and data, we have experienced and will continue to experience varying degrees of cyber incidents in the normal conduct of our business. There can be no assurance that the systems we have designed to prevent or limit the effects of cyber incidents or attacks will be sufficient to prevent or detect such incidents or attacks, or to avoid a material adverse impact on our systems when such incidents or attacks do occur.  If our systems for protecting against cybersecurity risks are circumvented or breached, this could result in disruptions to our business operations, access to our financial reporting systems, the loss of access to critical data or systems through ransomware or other attacks, or other loss, misuse or corruption of critical data and proprietary information, including our intellectual property and customer data.

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.”

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

Beijing, China; Beziers and Clamart, France; Fuchinobe, Japan; Kleppestø and Stavanger, Norway; Singapore; Abingdon and Cambridge, United Kingdom; Moscow, Russia; Johor, Malaysia; and within the United States: Boston, Massachusetts; Houston, Katy, Rosharon and Sugar Land, Texas; Berwick, Louisiana; Battle Mountain, Nevada and Greybull, Wyoming.

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.

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.

11

 


PART II

 

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

As of December 31, 2017, there were 26,572 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.”

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 2017 and 2016, were as follows:

 

 

Price Range

 

 

Dividends

 

 

High

 

 

Low

 

 

Declared

 

2017

 

 

 

 

 

 

 

 

 

 

 

QUARTERS

 

 

 

 

 

 

 

 

 

 

 

First

$

87.84

 

 

$

76.14

 

 

$

0.50

 

Second

 

80.89

 

 

 

65.10

 

 

 

0.50

 

Third

 

70.01

 

 

 

62.56

 

 

 

0.50

 

Fourth

 

69.57

 

 

 

61.02

 

 

 

0.50

 

2016

 

 

 

 

 

 

 

 

 

 

 

QUARTERS

 

 

 

 

 

 

 

 

 

 

 

First

$

76.16

 

 

$

59.60

 

 

$

0.50

 

Second

 

81.96

 

 

 

71.69

 

 

 

0.50

 

Third

 

83.97

 

 

 

74.33

 

 

 

0.50

 

Fourth

 

87.00

 

 

 

77.48

 

 

 

0.50

 

 

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.

12

 


The following graph compares the cumulative total stockholder return on Schlumberger common stock 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. It assumes $100 was invested on December 31, 2012 in Schlumberger common stock, in the S&P 500 Index and in the Philadelphia Oil Service Index, as well as the reinvestment of dividends on the last day of the month of payment. 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.

 

Comparison of Five-Year Cumulative Total Return Among

Schlumberger Common Stock, the S&P 500 Index and the

Philadelphia Oil Service Index

Share Repurchases

On July 18, 2013, the Schlumberger Board of Directors (the “Board”) approved a $10 billion share repurchase program for Schlumberger common stock, to be completed at the latest by June 30, 2018.  This program was completed during May 2017.  On January 21, 2016, the Board approved a new $10 billion share repurchase program for Schlumberger common stock.  This new program took effect once the July 18, 2013 program was exhausted.

13

 


Schlumberger’s common stock repurchase program activity for the three months ended December 31, 2017 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 2017

 

529.7

 

 

$

66.44

 

 

 

529.7

 

 

$

9,741,944

 

November 2017

 

528.6

 

 

$

63.61

 

 

 

528.6

 

 

$

9,708,321

 

December 2017

 

496.4

 

 

$

64.37

 

 

 

496.4

 

 

$

9,676,364

 

 

 

1,554.7

 

 

$

64.82

 

 

 

1,554.7

 

 

 

 

 

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,

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

Revenue

$

30,440

 

 

$

27,810

 

 

$

35,475

 

 

$

48,580

 

 

$

45,266

 

Income (loss) from continuing operations

$

(1,505

)

 

$

(1,687

)

 

$

2,072

 

 

$

5,643

 

 

$

6,801

 

Diluted earnings (loss) per share from continuing operations

$

(1.08

)

 

$

(1.24

)

 

$

1.63

 

 

$

4.31

 

 

$

5.10

 

Cash

$

1,799

 

 

$

2,929

 

 

$

2,793

 

 

$

3,130

 

 

$

3,472

 

Short-term investments

$

3,290

 

 

$

6,328

 

 

$

10,241

 

 

$

4,371

 

 

$

4,898

 

Working capital

$

3,215

 

 

$

8,868

 

 

$

12,791

 

 

$

10,518

 

 

$

12,700

 

Fixed income investments, held to maturity

$

-

 

 

$

238

 

 

$

418

 

 

$

442

 

 

$

363

 

Total assets

$

71,987

 

 

$

77,956

 

 

$

68,005

 

 

$

66,904

 

 

$

67,100

 

Long-term debt

$

14,875

 

 

$

16,463

 

 

$

14,442

 

 

$

10,565

 

 

$

10,393

 

Total debt

$

18,199

 

 

$

19,616

 

 

$

18,999

 

 

$

13,330

 

 

$

13,176

 

Schlumberger stockholders' equity

$

36,842

 

 

$

41,078

 

 

$

35,633

 

 

$

37,850

 

 

$

39,469

 

Cash dividends declared per share

$

2.00

 

 

$

2.00

 

 

$

2.00

 

 

$

1.60

 

 

$

1.25

 

 

 

 

 

14

 


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.

2017 Executive Overview

Schlumberger full-year 2017 revenue of $30.4 billion increased 9% year-on-year.  This reflects a full year of activity from the acquired Cameron businesses as compared to only three quarters of activity in 2016.  In addition to the impact of Cameron, revenue growth was driven by unconventional land resource developments in North America due to the recovery in activity combined with market share gains and improved pricing, as the oil and gas industry began to emerge from the longest and deepest downturn in 30 years.

Following two successive years of E&P investment cuts, operators increased their upstream spend in North America by more than 30% in 2017. The increase in oil price afforded by the OPEC agreement gave US producers a means to increase their investment in tight oil. However, apprehension related to growing US supply, and uncertainty surrounding the duration of OPEC and Russia led production cuts held international spending to a level 3% below 2016.

During 2017, the outlook improved for international markets, evidenced by a significant increase in the sanctioning of new projects.  The number of final investment decisions tripled in 2017 as compared to 2016, with 75% of the new projects planned for shallow and deepwater offshore environments.

After starting the year at $55 per barrel, Brent prices fell to $44 in June and then recovered to $67 by the end of the year. The price increase resulted from 2017 demand growth of 1.5 million barrels per day, and strong adherence to a production agreement between OPEC and Russia, which served to reduce oil production by an average of 1.6 million barrels per day compared to the fourth quarter of 2016. Strong demand and restricted supply accelerated the depletion of stocks as the year progressed. By September, OECD crude and product stocks had returned to 2015 levels.

As the oil market began to rebalance in 2017, replacement of conventional oil reserves remains a challenge.  In 2017, discoveries were at an all-time low due to lower exploration activity, and more than 60% of discovered resources were gas.  Oil discoveries accounted for only 3.4 billion barrels, while about 30 billion barrels of conventional oil is produced each year, representing a reserves replacement ratio of only 11%.

In the natural gas markets, low Henry Hub prices and flat domestic consumption allowed the US to transition from importer to exporter of natural gas for the first time since 1957, and Liquified Natural Gas was the enabler. Global LNG trading increased 11% year-on-year driven by demand in Asia. LNG supply growth was also strong, with the addition of six new liquefaction trains in 2017. In today's well-supplied market, both producers and consumers are reluctant to invest in new projects. While the short-term market outlook remains challenged, strong longer-term demand growth signals a future need for new LNG supply capacity.

Schlumberger’s financial performance in 2017 was driven by land activity in North America, where revenue increased over 80% in line with the average rig count increase.  Continued expansion of Schlumberger’s hydraulic fracturing presence in North America resulted in additional fleet redeployments, which benefited the Production Group.  Drilling Group revenue in North America land increased due to the continuing high demand for longer horizontal lateral sections in shale oil wells.  Increased Cameron Surface and Drilling Systems product sales and services also contributed to the strong financial performance in North America.  North America revenue, including offshore, grew 42% year-on-year.

International revenue decreased 2% as compared to 2016.  This decline was driven by soft demand for exploration and development-related products and services as E&P budgets remained tight.  Activity in Latin American decreased due to Schlumberger’s decision to align operations with cash collections in Venezuela.  Robust activity in the Middle East and Russia, driven by integrated drilling and production projects, as well as an additional quarter of activity from the acquired Cameron businesses partially offset these decreases.

During the past three years of unprecedented market downturn, Schlumberger has proactively sought to strengthen its technology offering and presence in key markets around the world.  The most recent example is the expansion of its hydraulic fracturing presence in North America land through the purchase of the US fracturing and pump-down perforating businesses from Weatherford.  In line with the challenging business environment, over the same period Schlumberger has restructured all relevant parts of the company, in terms of both size and organizational structure, to maximize its market competitiveness and operational agility.

With the significant changes seen in customer priorities and buying habits in recent years, Schlumberger has continued to evaluate the present and future return prospects for all of its product lines, as it seeks to maximize its long-term financial performance.  Based on

15

 


this in-depth analysis, Schlumberger identified the seismic acquisition business as the only product line that does not meet Schlumberger’s return expectations going forward, even after factoring in an eventual market recovery.  Schlumberger has, therefore, taken the difficult decision to exit the marine and land seismic acquisition market and instead operate the WesternGeco product line as an asset-light business, built on its leading position within multiclient, data processing and geophysical interpretation.

Looking at the oil market, the strong growth in demand is projected to continue in 2018, on the back of a robust global economy.  On the supply side, the extension of the OPEC- and Russia-led production cuts is already translating into higher-than-expected inventory draws. In North America, 2018 shale oil production is set for another year of strong growth, as the positive oil market sentiments will likely increase both investment appetite and availability of financing.  At the same time, the production base in the rest of the world is showing fatigue after three years of unprecedented under-investment.  The underlying signs of weakness will likely become more evident in the coming year, as the production additions from investments made in the previous upcycle start to noticeably fall off.  Taken together, this means the oil market is now in balance and the previous over-supply discount is gradually being replaced by a market tightness premium, which makes Schlumberger increasingly positive on the global outlook for its business.

These positive oil market sentiments are reflected in third-party E&P spend surveys that predict 15-20% growth in North American investments in 2018, while the international market is expected to grow for the first time in four years, with a projected 5% increase in spend.  As a result, as Schlumberger enters the first year of expected growth in all parts of its global operations since 2014, there is a renewed excitement and enthusiasm throughout the organization, and Schlumberger remains committed to delivering market-leading products and services to its customers and superior returns to its shareholders.

 

 

Full-Year 2017 Results

 

 

 

 

 

 

(Stated in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

 

 

 

 

Income

 

 

 

 

 

 

Income

 

 

 

 

 

 

Before

 

 

 

 

 

 

Before

 

 

Revenue

 

 

Taxes

 

 

Revenue

 

 

Taxes

 

Reservoir Characterization

$

6,786

 

 

$

1,251

 

 

$

6,648

 

 

$

1,249

 

Drilling

 

8,392

 

 

 

1,151

 

 

 

8,561

 

 

 

994

 

Production

 

10,639

 

 

 

928

 

 

 

8,804

 

 

 

507

 

Cameron

 

5,205

 

 

 

733

 

 

 

4,211

 

 

 

653

 

Eliminations & other

 

(582

)

 

 

(142

)

 

 

(414

)

 

 

(130

)

Pretax operating income

 

 

 

 

 

3,921

 

 

 

 

 

 

 

3,273

 

Corporate & other (1)

 

 

 

 

 

(934

)

 

 

 

 

 

 

(925

)

Interest income (2)

 

 

 

 

 

107

 

 

 

 

 

 

 

84

 

Interest expense (3)

 

 

 

 

 

(513

)

 

 

 

 

 

 

(517

)

Charges & credits (4)

 

 

 

 

 

(3,764

)

 

 

 

 

 

 

(3,820

)

 

$

30,440

 

 

$

(1,183

)

 

$

27,810

 

 

$

(1,905

)

 

(1) 

Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets, certain centrally managed initiatives and other nonoperating items.  Full-year 2017 and 2016 include $252 million and $189 million, respectively, of amortization expense associated with intangible assets recorded as a result of the acquisition of Cameron, which was completed on April 1, 2016.

(2)

Excludes interest income included in the segments’ income (2017: $21 million; 2016: $26 million).

(3)

Excludes interest expense included in the segments’ income (2017: $52 million; 2016: $53 million).

(4) 

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

 

Full-year 2017 revenue of $30.4 billion increased 9% year-on-year.  This included a full year of activity from the acquired Cameron businesses versus nine months of activity for the same period in 2016.  Excluding the impact of the Cameron Group, revenue increased 7% year-on-year.  The growth was primarily driven by North America, where the land rig count increased more than 80% versus the same period last year.  

 

Full-year revenue for the Drilling Group declined 2% primarily driven by the 8% decline in offshore rig count combined with Schlumberger’s decision in April 2016 to reduce its activities in Venezuela to align operations with cash collections. Production

16

 


Group revenue increased 21% due to the accelerated land pressure pumping activity growth in North America, while the Reservoir Characterization Group revenue improved 2%.

Full-year 2017 pretax operating margin was expanded 111 basis points (“bps”) to 13%, as improved profitability in North America due to the land activity growth that benefited the Production and Drilling Groups was offset by margin declines in the Reservoir Characterization and Cameron Groups.

Reservoir Characterization Group

Full-year 2017 revenue of $6.8 billion increased 2% year-on-year primarily due to higher WesternGeco and Wireline revenue on projects in the Middle East & Asia Area, North America land, Russia and Mexico.  

Year-on-year, pretax operating margin was essentially flat at 18%.

Drilling Group

Full-year 2017 revenue of $8.4 billion decreased 2% year-on-year primarily due to the rig count declines internationally and in offshore North America combined with pricing pressure.  Revenue also declined as a result of Schlumberger’s decision in April 2016 to reduce its activities in Venezuela to align operations with cash collections.

 

Year-on-year, pretax operating margin increased 210 bps to 14% primarily due to improved profitability in North America due to accelerated land activity and improved pricing. This improvement was partially offset by the negative impact of reduced activity in Venezuela.

Production Group

Full-year 2017 revenue of $10.6 billion increased 21% year-on-year with most of the revenue increase attributable to the accelerated land activity growth in North America that benefited the pressure pumping business which grew 44%. Lower Schlumberger Production Management (SPM) production levels in Ecuador partially offset the revenue increase.

Year-on-year, pretax operating margin increased 297 bps to 9% as a result of improved profitability in North America due to the accelerated land activity and improved pricing.  This was partially offset by reduced margins in SPM due to lower production in Ecuador.

Cameron Group

The Cameron Group contributed full-year revenue of $5.2 billion.  Cameron Group revenue for 2016 included only nine months of revenue following the closing of the acquisition in April 2016. Revenue in 2017 was impacted by a declining project backlog, particularly for the long-cycle businesses of Drilling Systems and OneSubsea.

Year-on-year, pretax operating margin of 14% decreased 142 bps as a result of lower Drilling Systems project volumes.

 

17

 


Full-Year 2016 Results

 

 

 

 

 

 

 

(Stated in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

2015

 

 

 

 

 

 

Income

 

 

 

 

 

 

Income

 

 

 

 

 

 

Before

 

 

 

 

 

 

Before

 

 

Revenue

 

 

Taxes

 

 

Revenue

 

 

Taxes

 

Reservoir Characterization

$

6,648

 

 

$

1,249

 

 

$

9,501

 

 

$

2,450

 

Drilling

 

8,561

 

 

 

994

 

 

 

13,563

 

 

 

2,538

 

Production

 

8,804

 

 

 

507

 

 

 

12,548

 

 

 

1,585

 

Cameron

 

4,211

 

 

 

653

 

 

 

-

 

 

 

-

 

Eliminations & other

 

(414

)

 

 

(130

)

 

 

(137

)

 

 

(63

)

Pretax operating income

 

 

 

 

 

3,273

 

 

 

 

 

 

 

6,510

 

Corporate & other (1)

 

 

 

 

 

(925

)

 

 

 

 

 

 

(768

)

Interest income (2)

 

 

 

 

 

84

 

 

 

 

 

 

 

30

 

Interest expense (3)

 

 

 

 

 

(517

)

 

 

 

 

 

 

(316

)

Charges & credits (4)

 

 

 

 

 

(3,820

)

 

 

 

 

 

 

(2,575

)

 

$

27,810

 

 

$

(1,905

)

 

$

35,475

 

 

$

2,881

 

 

(1)

Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets, certain centrally managed initiatives and other nonoperating items.  Full-year 2016 includes $189 million of amortization expense associated with intangible assets recorded as a result of the acquisition of Cameron, which was completed on April 1, 2016.

(2)

Excludes interest income included in the segments’ income (2016: $26 million; 2015: $22 million).

(3)

Excludes interest expense included in the segments’ income (2016: $53 million; 2015: $30 million).

(4) 

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

Full-year 2016 revenue of $27.8 billion decreased 22% year-on-year.  This included nine months of activity from the Cameron Group, which contributed $4.2 billion of revenue.  

Full-year 2016 revenue from both the Reservoir Characterization and Production Groups declined by 30%, as a result of lower demand for exploration- and development-related products and services as E&P budgets were further reduced.  Drilling Group revenue fell 37% due to the rig count decline in both North America and internationally.

Full-year 2016 pretax operating income margin decreased 658 bps to 12% as a result of the overall decline in activity and pervasive pricing concessions.  The margin decrease was highest in the Reservoir Characterization Group, which contracted by 699 bps to 19%.  Drilling Group pretax operating margin fell 710 bps to 12%, while the Production Group decreased 687 bps to 6%.  The Cameron Group posted a pretax margin of 16%.

Reservoir Characterization Group

Full-year 2016 revenue of $6.7 billion decreased 30% year-on-year primarily due to sustained cuts in exploration and discretionary spending.

Year-on-year, pretax operating margin decreased 699 bps to 19% due to reduced high-margin Wireline and Testing Services activities.

Drilling Group

Full-year 2016 revenue of $8.6 billion decreased 37% year-on-year primarily due to the severe drop in rig count in both North America and internationally combined with pricing pressure that mainly affected Drilling & Measurements and M-I SWACO activity.

Year-on-year, pretax operating margin decreased 710 bps to 12% primarily due to the significant decline in higher-margin activities of Drilling & Measurements combined with pricing weakness.

18

 


Production Group

Full-year 2016 revenue of $8.7 billion decreased 30% year-on-year with most of the decrease attributable to a decline in North America, particularly on Well Services pressure pumping technologies driven by activity declines and pricing pressure as the land rig count declined dramatically.

Year-on-year, pretax operating margin decreased 687 bps to 6% as a result of lower activity and increasing pricing pressure, which continued to impact North America land.

Cameron Group

Cameron Group contributed nine-month revenue of $4.2 billion and pretax operating margin of 16%.  Revenue was impacted by a declining project backlog as well as a further slowdown in North America land activity, which also affected the short-cycle businesses of the Valves & Measurement and Surface product lines.

Pretax operating margin of 16% was driven by strong project execution and manufacturing efficiency in OneSubsea and overall cost control across the Group.

 

Interest and Other Income

Interest & other income consisted of the following:

 

(Stated in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

2015

 

Interest income

$

128

 

 

$

110

 

 

$

52

 

Earnings of equity method investments

 

96

 

 

 

90

 

 

 

184

 

 

$

224

 

 

$

200

 

 

$

236

 

 

The increase in interest income in 2016 as compared to 2015 is primarily attributable to the higher cash and short-term investment balances as a result of the issuance of $6.0 billion of Senior Notes during the fourth quarter of 2015.

The decrease in earnings of equity method investments in 2016 as compared to 2015 primarily reflects the effects of the downturn in the oil and gas industry, which has negatively impacted the majority of Schlumberger’s investments in affiliates, particularly those in North America.  This decrease also reflects the fact that Schlumberger ceased recording equity income from the OneSubsea joint venture in April 2016 as a result of Schlumberger’s acquisition of Cameron.

Interest Expense

Interest expense of $566 million in 2017 was essentially flat as compared to 2016.

Interest expense of $570 million in 2016 increased by $224 million compared to 2015 primarily due to the issuance of $6.0 billion of Senior Notes during the fourth quarter of 2015 and the impact of the $3.0 billion of debt assumed in the acquisition of Cameron.

Other

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

 

 

2017

 

 

2016

 

 

2015

 

Research & engineering

 

2.6

%

 

 

3.6

%

 

 

3.1

%

General & administrative

 

1.4

%

 

 

1.4

%

 

 

1.4

%

 

Research & engineering costs have decreased in terms of both absolute dollars and as a percentage of Revenue in 2017 as compared to 2016 as a result of cost control measures.

 

Although Research & engineering costs increased as a percentage of Revenue in 2016 as compared to 2015, they decreased in absolute dollar terms as a result of cost control measures that were implemented, offset in part by the impact of the Cameron acquisition.

19

 


Income Taxes

The Schlumberger effective tax rate was (27.9)% in 2017, 14.6% in 2016, and 25.9% in 2015.

The Schlumberger effective tax rate has historically been sensitive to the geographic mix of earnings. When the percentage of pretax earnings generated outside of North America increased, the Schlumberger effective tax rate generally decreased. Conversely, when the percentage of pretax earnings generated outside of North America decreased, the Schlumberger effective tax rate generally increased.

The effective tax rate for each of 2017, 2016 and 2015 was significantly impacted by the charges and credits described in Note 3 to the Consolidated Financial Statements because they were only partially tax-effective.  Excluding the impact of these charges and credits, the effective tax rate was 18.2% in 2017, 15.9% in 2016 and 20.2% in 2015.  The increase in the effective tax rate in 2017 as compared to 2016, excluding the impact of charges and credits, was primarily attributable to a change in the geographic mix of earnings as the percentage of pretax earnings generated in North America increased.  The decrease in the effective tax rate, excluding the impact of charges and credits, in 2016 as compared to 2015 was primarily attributed to the geographic mix of earnings and the favorable resolution of the tax examinations in certain jurisdictions.

As discussed in further detail in Note 3 to the Consolidated Financial Statements, on December 22, 2017 the US enacted the Tax Cuts and Jobs Act (the “Act”).  The Act, which is also commonly referred to as “US tax reform”, significantly changes US corporate income tax laws by, among other things, reducing the US corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of US subsidiaries.

Excluding the impact of any discrete items, the provisions of the Act are expected to reduce Schlumberger’s effective tax rate in 2018 by approximately 2 to 3 percentage points compared to what the rate would have otherwise been in the absence of US tax reform.  The ultimate impact on Schlumberger’s effective tax rate will largely depend on the percentage of pretax earnings that Schlumberger generates in the US as compared to the rest of the world.

Charges and Credits

Schlumberger recorded significant charges and credits during 2017, 2016 and 2015. 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 2017 charges and credits, of which $3.211 billion were classified as Impairments & other, $245 million were classified as Cost of sales and $308 million were classified as Merger & integration in the Consolidated Statement of Income (Loss):

 

(Stated in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling

 

 

 

 

 

 

Pretax

 

 

Tax

 

 

Interests

 

 

Net

 

Impairment & other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WesternGeco seismic restructuring charges

$

1,114

 

 

$

20

 

 

$

-

 

 

$

1,094

 

Venezuela investment write-down

 

938

 

 

 

-

 

 

 

-

 

 

 

938

 

Promissory note fair value adjustment and other

 

510

 

 

 

-

 

 

 

12

 

 

 

498

 

Workforce reductions

 

247

 

 

 

13

 

 

 

-

 

 

 

234

 

Multiclient seismic data impairment

 

246

 

 

 

81

 

 

 

-

 

 

 

165

 

Other restructuring charges

 

156

 

 

 

10

 

 

 

22

 

 

 

124

 

Cost of sales

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

Provision for loss on long-term construction project

 

245

 

 

 

22

 

 

 

-

 

 

 

223

 

Merger & integration

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

Merger and integration-related costs

 

308

 

 

 

70

 

 

 

-

 

 

 

238

 

US tax reform charge

 

-

 

 

 

(76

)

 

 

-

 

 

 

76

 

 

$

3,764

 

 

$

140

 

 

$

34

 

 

$

3,590

 

20

 


The following is a summary of the 2016 charges and credits, of which $3.172 billion were classified as Impairments & other, $349 million were classified as Merger & integration and $299 million were classified in Cost of sales in the Consolidated Statement of Income (Loss):

 

(Stated in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pretax

 

 

Tax

 

 

Net

 

Impairment & other

 

 

 

 

 

 

 

 

 

 

 

Workforce reductions

$

880

 

 

$

69

 

 

$

811

 

Other fixed asset impairments

 

684

 

 

 

52

 

 

 

632

 

Inventory write-downs

 

616

 

 

 

49

 

 

 

567

 

North America pressure pumping asset impairments

 

209

 

 

 

67

 

 

 

142

 

Multiclient seismic data impairment

 

198

 

 

 

62

 

 

 

136

 

Facility impairments

 

165

 

 

 

58

 

 

 

107

 

Facility closure costs

 

165

 

 

 

40

 

 

 

125

 

Costs associated with exiting certain activities

 

98

 

 

 

23

 

 

 

75

 

Currency devaluation loss in Egypt

 

63

 

 

 

-

 

 

 

63

 

Contract termination costs

 

39

 

 

 

9

 

 

 

30

 

Other restructuring charges

 

55

 

 

 

-

 

 

 

55

 

Merger & integration

 

 

 

 

 

 

 

 

 

 

 

Other merger and integration-related

 

160

 

 

 

28

 

 

 

132

 

Merger-related employee benefits

 

83

 

 

 

13

 

 

 

70

 

Facility closure costs

 

61

 

 

 

13

 

 

 

48

 

Professional fees

 

45

 

 

 

10

 

 

 

35

 

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

Amortization of inventory fair value adjustment

 

299

 

 

 

90

 

 

 

209

 

 

$

3,820

 

 

$

583

 

 

$

3,237

 

The following is a summary of the 2015 charges and credits, all of which were classified as Impairments & other in the Consolidated Statement of Income (Loss):

 

 

(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

 

21

 


Liquidity and Capital Resources

Schlumberger had total Cash, Short-term investments and Fixed income investments, held to maturity of $5.1 billion, $9.5 billion and $13.5 billion at December 31, 2017, 2016 and 2015, respectively.  Total debt was $18.2 billion, $19.6 billion and $19.0 billion at December 31, 2017, 2016 and 2015, respectively.

Details of the components of liquidity as well as changes in liquidity follows:

 

(Stated in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dec. 31,

 

 

Dec. 31,

 

 

Dec. 31,

 

Components of Liquidity:

2017

 

 

2016

 

 

2015

 

Cash

$

1,799

 

 

$

2,929

 

 

$

2,793

 

Short-term investments

 

3,290

 

 

 

6,328

 

 

 

10,241

 

Fixed income investments, held to maturity

 

-

 

 

 

238

 

 

 

418

 

Short-term borrowings and current portion of long-term debt

 

(3,324

)

 

 

(3,153

)

 

 

(4,557

)

Long-term debt

 

(14,875

)

 

 

(16,463

)

 

 

(14,442

)

Net debt (1)

$

(13,110

)

 

$

(10,121

)

 

$

(5,547

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in Liquidity:

2017

 

 

2016

 

 

2015

 

Income (loss) from continuing operations before noncontrolling interests

$

(1,513

)

 

$

(1,627

)

 

$

2,135

 

Impairments and other charges

 

3,764

 

 

 

3,820

 

 

 

2,575

 

Depreciation and amortization (2)

 

3,837

 

 

 

4,094

 

 

 

4,078