Charges and Credits

6 Months Ended

Jun. 30, 2021

Restructuring And Related Activities [Abstract]

Charges and Credits

2.   Charges and Credits

Schlumberger did not record any charges or credits during the first six months of 2021.

During the first six months of 2020, Schlumberger recorded the following charges and credits, all of which are classified as Impairments & other in the Consolidated Statement of Income (Loss):

	(Stated in millions)
	Pretax			Tax			Net
First quarter:
Goodwill	$	3,070		$	-		$	3,070
Intangible assets		3,321			815			2,506
Asset Performance Solutions investments		1,264			(4	)		1,268
North American pressure pumping		587			133			454
Severance		202			7			195
Other		79			9			70
Valuation allowance		-			(164	)		164
Second quarter:								-
Workforce reductions		1,021			71			950
Asset Performance Solutions investments		730			15			715
Fixed asset impairments		666			52			614
Inventory write-downs		603			49			554
Right-of-use asset impairments		311			67			244
Costs associated with exiting certain activities		205			(25	)		230
Multiclient seismic data impairment		156			2			154
Repurchase of bonds		40			2			38
Postretirement benefits curtailment gain		(69	)		(16	)		(53	)
Other		61			4			57
	$	12,247		$	1,017		$	11,230

First quarter 2020:

• Geopolitical events that increased the supply of low-priced oil to the global market occurred at the same time that demand weakened due to the worldwide effects of the COVID-19 pandemic, leading to a collapse in oil prices during March 2020.  As a result, Schlumberger’s market capitalization deteriorated significantly compared to the end of 2019.  Schlumberger’s stock price reached a low during the first quarter of 2020 not seen since 1995.  Additionally, the Philadelphia Oil Services Sector index, which is comprised of companies involved in the oil services sector, reached an all-time low.  As a result of these facts, Schlumberger determined that it was more likely than not that the fair value of certain of its reporting units were

less than their carrying value.  Therefore, Schlumberger performed an interim goodwill impairment test that resulted in a $3.1 billion goodwill impairment charge.

Schlumberger used the income approach to estimate the fair value of its reporting units, but also considered the market approach to validate the results.  The income approach estimates the fair value by discounting each reporting unit’s estimated future cash flows using Schlumberger’s estimate of the discount rate, or expected return, that a marketplace participant would have required as of the valuation date.  The market approach includes the use of comparative multiples to corroborate the discounted cash flow results. The market approach involves significant judgement involved in the selection of the appropriate peer group companies and valuation multiples.

Some of the more significant assumptions inherent in the income approach include the estimated future net annual cash flows for each reporting unit and the discount rate.  Schlumberger selected the assumptions used in the discounted cash flow projections using historical data supplemented by current and anticipated market conditions and estimated growth rates.  Schlumberger’s estimates are based upon assumptions believed to be reasonable.  However, given the inherent uncertainty in determining the assumptions underlying a discounted cash flow analysis, particularly in the current volatile market, actual results may differ from those used in Schlumberger’s valuations which could result in additional impairment charges in the future.

The discount rates utilized to value Schlumberger’s reporting units were between 12.0% and 13.5%, depending on the risks and uncertainty inherent in the respective reporting unit as well as the size of the reporting unit.  Assuming all other assumptions and inputs used in each of the respective discounted cash flow analysis were held constant, a 50-basis point increase or decrease in the discount rate assumptions would have changed the fair value of the seven reporting units, on average, by less than 5%.

• The negative market indicators described above were triggering events that indicated that certain of Schlumberger’s long-lived intangible and tangible assets may have been impaired.  Recoverability testing indicated that certain long-lived assets were impaired.  The estimated fair value of these assets was determined to be below their carrying value.  As a result, Schlumberger recorded the following impairment charges:

- $3.3 billion relating to intangible assets, of which $2.2 billion related to Schlumberger’s 2016 acquisition of Cameron International Corporation and $1.1 billion related to Schlumberger’s 2010 acquisition of Smith International, Inc.  Following this impairment charge, the carrying value of the impaired intangible assets was approximately $0.9 billion.

- $1.3 billion relating to the carrying value of certain Asset Performance Solutions (“APS”) projects in North America.

- $0.6 billion of fixed assets associated with the pressure pumping business in North America.  

• $202 million of severance.

• $79 million of other restructuring charges, primarily consisting of the impairment of an equity method investment that was determined to be other-than-temporarily impaired.

• $164 million relating to a valuation allowance against certain deferred tax assets.

Second quarter 2020:

• As previously noted, late in the first quarter of 2020, geopolitical events that increased the supply of low-priced oil to the global market occurred at the same time as demand weakened due to the worldwide effects of the COVID-19 pandemic, which led to a collapse in oil prices.  As a result, the second quarter of 2020 was the most challenging quarter in decades.  Schlumberger responded to these market conditions by taking actions to restructure its business and rationalize its asset base during the second quarter of 2020.  These actions included reducing headcount, closing facilities and exiting business lines in certain countries.  Additionally, due to the resulting activity decline, Schlumberger had assets that would no longer be utilized.  As a consequence of these circumstances and decisions, Schlumberger recorded the following restructuring and asset impairment charges:

- $1.021 billion of severance associated with reducing its workforce by more than 21,000 employees.  

- $730 million relating to the carrying value of certain APS projects in Latin America.

- $666 million of fixed asset impairments primarily relating to equipment that would no longer be utilized and facilities it exited.

- $603 million write-down of the carrying value of inventory to its net realizable value.

- $311 million write-down of right-of-use assets under operating leases associated with leased facilities Schlumberger exited and excess equipment.

- $205 million of costs associated with exiting certain activities.

- $156 million impairment of certain multiclient seismic data.

- $61 million of other costs, including a $42 million increase in the allowance for the doubtful accounts.

• During the second quarter of 2020, Schlumberger repurchased certain Senior Notes which resulted in a $40 million charge.

• As a consequence of the workforce reductions described above, Schlumberger recorded a curtailment gain of $69 million relating to its US postretirement medical plan.  See Note 11 – Pension and Other Postretirement Benefit Plans for further details.

The fair value of the impaired intangible assets, fixed assets, APS investments, right-of-use assets and multiclient seismic data was estimated based on the present value of projected future cash flows that the underlying assets were expected to generate.  Such estimates included unobservable inputs that required significant judgement.