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Schlumberger Announces Second-Quarter 2017 Results

  • Revenue of $7.5 billion increased 8% sequentially
  • Pretax operating income of $950 million increased 25% sequentially
  • GAAP loss per share, including charges of $0.40 per share, was $0.05
  • EPS, excluding charges, was $0.35
  • Quarterly cash dividend of $0.50 per share was approved

PARIS--(BUSINESS WIRE)-- Schlumberger Limited (NYSE:SLB) today reported results for the second quarter of 2017.

(Stated in millions, except per share amounts)
Three Months Ended Change
Jun. 30, 2017 Mar. 31, 2017 Jun. 30, 2016 Sequential Year-on-year
Revenue $7,462 $6,894 $7,164 8 % 4 %
Pretax operating income $950 $757 $747 25 % 27 %
Pretax operating margin 12.7 % 11.0 % 10.4 % 175 bps 231 bps
Net income (loss) (GAAP basis) $(74 ) $279 $(2,160 ) n/m n/m
Net income, excluding charges & credits* $488 $347 $316 41 % 54 %
Diluted EPS (loss per share) (GAAP basis) $(0.05 ) $0.20 $(1.56 ) n/m n/m
Diluted EPS, excluding charges & credits* $0.35 $0.25 $0.23 40 % 52 %
*These are non-GAAP financial measures. See section below entitled "Charges & Credits" for details.
n/m = not meaningful

Schlumberger Chairman and CEO Paal Kibsgaard commented, "Our second-quarter revenue increased 8% sequentially while pretax operating income rose by 25%, resulting in earnings per share growth of 40%. Beyond seasonal effects, revenue grew in all of our Groups and Areas.

"North America revenue increased 18% following our rapid deployment of idle hydraulic fracturing capacity as land activity further accelerated during the second quarter, partially offset by further weakness offshore in the US Gulf of Mexico. In US land, revenue grew 42% sequentially, a rate almost double that of the 23% increase in land rig count, driven primarily by hydraulic fracturing revenue that grew 68% as completions activity intensified and pricing continued to improve. Directional drilling revenue in US land was also higher as longer laterals requiring rotary steerable systems and advanced drillbit technologies continued to drive drilling intensity. Despite the significant costs associated with reactivating equipment, all of our US land product lines were profitable in the second quarter, driven by higher pricing, market share gains, improved operational efficiency, timely resource additions, and proactive supply chain management.

"In the international markets, revenue increased 4% sequentially, led by Europe/CIS/Africa as activity recovered from the winter slowdown in Russia and the North Sea. Latin America revenue increased due to higher reservoir characterization and drilling activities in the Mexico & Central America GeoMarket, as well as from increased unconventional land activity in Argentina. The Middle East & Asia Area benefited from a seasonal rebound in China, increased activities in Southeast Asia, and higher Integrated Drilling Services (IDS) activity in Iraq.

"Among the business segments, growth in the second quarter was led by the Production and Drilling Groups, where revenue increased sequentially by 14% and 6%, respectively, as hydraulic fracturing and directional drilling activity in US land accelerated. Reservoir Characterization Group revenue increased 9% due to higher international activities beyond the seasonal rebounds in the Russia & CIS and North Sea regions. Cameron Group revenue also increased 3% sequentially driven by higher project volume and product sales for Surface Systems and Valves & Measurement in North America.

"While the activity outlook in North America for the second half of the year remains robust, we are now also seeing more positive signs in the international markets with increases in activity and new project plans starting to emerge in several GeoMarkets. The strengthening in the international markets has so far been concentrated around land activity in Western Siberia and in the OPEC Gulf countries but we are now also seeing an increasing number of new offshore projects being prepared for tendering and final investment decision (FID) in many of the world's shallow water basins.

"In this market, we continue to focus on serving our customers and driving our business forward, building on our successful efforts over the past three years of broadening our technology portfolio and increasing our addressable market, further streamlining our execution machine, and pursuing more collaborative and commercially aligned ways of working with new and existing customers.

"As part of this focus, we announced a new agreement yesterday to acquire a majority equity interest in the Eurasia Drilling Company (EDC). This extends the successful long-term relationship that we have enjoyed with EDC through the strategic alliance that we signed in 2011. Closing of the transaction is subject to approval by the Federal Antimonopoly Service of Russia.

"We also remain on track to close the OneStimSM joint venture transaction in the second half of this year, which will allow us to further capitalize on the recovery in North America land unconventional activity. At the same time, our increasing investments in Schlumberger Production Management through the new projects with OneLNG, YPF, and NNPC and FIRST E&P are not only providing additional short-term opportunities for our various product lines, but also a long-term activity baseline with superior full-cycle financial returns for the company as a whole.

"Based on these, we continue to be optimistic about the future of Schlumberger, as we maintain an attentive watch and flexible approach to the shape and pace of the emerging oil market recovery."

Other Events

During the quarter, Schlumberger repurchased 5.5 million shares of its common stock at an average price of $72.34 per share for a total purchase price of $398 million.

On May 31, 2017, Schlumberger and Production Plus created a joint venture to develop HEAL System™ technology and business. HEAL System technology is designed to lower production costs by mitigating production challenges commonly found in horizontal wells in unconventional resource plays.

On June 29, 2017, Schlumberger, the Nigerian National Petroleum Corporation (NNPC) and FIRST E&P signed an agreement for development of the Anyala and Madu fields in offshore Nigeria. Under the agreement, Schlumberger will contribute the required services in kind and capital for the project development until first oil.

On July 19, 2017, the Company's Board of Directors approved a quarterly cash dividend of $0.50 per share of outstanding common stock, payable on October 13, 2017 to stockholders of record on September 6, 2017.

On July 20, 2017, Schlumberger announced an agreement to acquire a majority (51%) equity interest in EDC. Closing of the transaction is subject to approval by the Federal Antimonopoly Service of Russia.

Consolidated Revenue by Geography

(Stated in millions)
Three Months Ended Change
Jun. 30, 2017 Mar. 31, 2017 Jun. 30, 2016 Sequential Year-on-year
North America $2,202 $1,871 $1,737 18 % 27 %
Latin America 1,039 952 1,007 9 % 3 %
Europe/CIS/Africa 1,750 1,652 1,948 6 % -10 %
Middle East & Asia 2,347 2,319 2,404 1 % -2 %
Eliminations & other 124 100 68 n/m n/m
$7,462 $6,894 $7,164 8 % 4 %
North America revenue $2,202 $1,871 $1,737 18 % 27 %
International revenue $5,136 $4,922 $5,359 4 % -4 %
n/m = not meaningful

Second-quarter revenue of $7.5 billion increased 8% sequentially with North America growing 18% and International increasing 4%.

North America

In North America, revenue grew 18% sequentially following the fast-track deployment of idle capacity as unconventional land activity accelerated during the quarter. US land revenue experienced 42% sequential growth, a rate almost double that of the 23% growth in the US land rig count, driven primarily by hydraulic fracturing revenue that grew 68% as completion activity intensified and pricing continued to improve. Directional drilling revenue in US land was also higher, as well design and longer laterals requiring rotary steerable systems and drillbit technologies continued to drive well productivity. Higher product sales in Cameron Valves & Measurement and increased activity for Cameron Surface Systems contributed to this strong financial performance. US land revenue growth, however, was partially offset by the seasonal spring break-up in Western Canada and lower offshore revenue.

International Areas

Revenue in the Latin America Area increased 9% sequentially on a strong performance in Mexico from the Reservoir Characterization and Drilling Groups. Argentina revenue was also higher on increased unconventional land activity while Brazil and Venezuela activity remained weak. Ecuador revenue declined due to lower production from the Schlumberger Production Management (SPM) Shushufindi project. The effect of this, however, was largely offset by revenue from increased exploration in Colombia.

Europe/CIS/Africa Area revenue increased 6% sequentially as activity recovered following the winter slowdown in the Russia & CIS and North Sea regions. Increased revenue in the Russia & CIS region was driven by the start of offshore exploration drilling campaigns in Sakhalin, Astrakhan, and Kazakhstan despite Russian alignment with OPEC production cut commitments. The increased activity in the North Sea resulted from higher UK and Norway drilling activity as the rig count increased. Sub-Sahara Africa GeoMarket revenue was essentially flat as rig count stabilized with a recovery on land and early signs of customers preparing to resume activity on key offshore projects.

Middle East & Asia Area revenue increased 1% sequentially primarily due to seasonal rebounds in SPM and completions activity in China in addition to higher activity in Vietnam and Thailand. Iraq revenue was also higher on increased IDS deviated well project delivery in the south, while further progress on the early production facility projects coupled with product sales drove revenue higher in Egypt. These increases, however, were partially offset by a decline in revenue in Kuwait following the completion of a WesternGeco land seismic acquisition project and by lower revenue in India due to monsoon weather affecting rig activity.

Reservoir Characterization Group

(Stated in millions)
Three Months Ended Change
Jun. 30, 2017 Mar. 31, 2017 Jun. 30, 2016 Sequential Year-on-year
Revenue $1,759 $1,618 $1,586 9 % 11 %
Pretax operating income $299 $281 $268 7 % 12 %
Pretax operating margin 17.0 % 17.3 % 16.9 % -34 bps 13 bps

Reservoir Characterization Group revenue of $1.8 billion, of which 78% came from the international markets, increased 9% sequentially due to higher WesternGeco multiclient seismic license sales, further progress for Testing & Process on early production facility projects in the Middle East, and higher drillstem test activities in the United Arab Emirates. Wireline revenue also grew from the seasonal activity rebound in the Russia & CIS and North Sea regions, as well as from the start-up of offshore exploration projects in the Sub-Sahara Africa GeoMarket.

Pretax operating margin of 17% was essentially flat sequentially as the increased contribution from high-margin Wireline exploration activities was offset by reduced profitability in Testing & Process due to increased project costs.

Reservoir Characterization Group performance was enhanced by Integrated Services Management (ISM) operations, where specially trained project managers provide scheduling, planning, and activity coordination for the Schlumberger product lines involved in a project. Second-quarter performance was also boosted by new technology deployments and contract awards.

In Vietnam, Idemitsu successfully drilled an exploration well significantly under budget. For this project, Schlumberger was awarded five contracts, and an ISM manager was assigned to coordinate all Schlumberger services. The drilling and data acquisition program was optimized to achieve the well objectives while minimizing the overall costs of the exploration well. Drilling & Measurements StethoScope* formation pressure-while-drilling service and EcoScope* multifunction logging-while-drilling service technologies for reservoir evaluation were successfully run in the 12¼-in and 8½-in holes, respectively. The close collaboration between Schlumberger and the customer led to the completion of the well with no incidents.

Sirius Petroleum, an investment company focused on oil and gas exploration and development opportunities in Nigeria, awarded Schlumberger a multiwell contract for ISM operations in the Ororo field. The contract, which will begin later in 2017, includes directional drilling services, logging, completion and production fluids, cementing and pumping services, well intervention and stimulation products and services, well testing services, wellsite communications, data and software solutions as well as Cameron wellheads and production trees.

Offshore Egypt, Testing & Process used a combination of technologies for Belayim Petroleum Company (Petrobel) to complete a production test of the first appraisal well on the Zohr discovery in the Shorouk block. Working at a water depth of 1,450 m, the production test string included SenTREE 3* subsea test tree and Muzic* wireless telemetry technology that activated the SCAR* inline independent reservoir fluid sampling and Quartet* downhole reservoir testing systems. Additional technologies included a CERTIS* high-integrity reservoir test isolation system, IRDV* intelligent remote dual valve, and Signature* quartz gauges. The use of Testing Manager* well testing real-time data monitoring and collaboration software enabled real-time transient analysis and optimization of the well test program.

In Oman, Schlumberger deployed a combination of technologies for Petroleum Development Oman (PDO) to enhance productivity in seven wells in the Sadad North field. The technologies included a QUANTUM RH* retrievable hydraulic-set sealbore production packer and Testing & Process SXAR automatic gun release systems to create an integrated "shoot and drop" completions operation that could be deployed in a single trip. QUANTUM RH packer technology absorbs the high shock produced during perforation operations while enabling easy recovery. The customer increased production by an average of 200 m3/d of oil per well and saved a total of $700,000 in associated well costs for all seven wells.

Offshore India, Wireline deployed a combination of technologies to increase production and reduce water cut in a well for Oil and Natural Gas Corporation Limited (ONGC). Data collected using the PLT* production logging tool and PressureXpress* reservoir pressure while logging service helped design the optimal workover program. As a result, the customer increased production to 6,100 bbl/d from the original 892 bbl/d and decreased the water cut to 2% from the original 7.7%.

In Kuwait, Wireline used a Saturn* 3D radial probe for Kuwait Oil Company in one exploration well in an extremely tight cretaceous carbonate reservoir. Saturn probe technology positions self-sealing ports against the borehole wall to optimally draw reservoir fluids. The customer saved 14 days of rig time, equivalent to $672,000.

In Russia, Software Integrated Solutions (SIS) entered a technology partnership agreement with the Gazpromneft Scientific Technology Centre to provide Guru* in-context guidance and support software in the Petrel* E&P software platform. The software enables discipline experts to collaborate and make the best possible decisions from exploration to production. The customer benefits from a standard 3D-modeling process that provides a 90% time saving compared with a conventional workflow.

In Norway, Aker BP ASA entered into a four-year framework contract with two optional two-year extensions with Schlumberger for acquisition of 4D seismic data over Alvheim, Bøyla, Skarv/Snadd, and Ula fields in the Norwegian sector of the North Sea. The survey will be conducted in 2017 and use IsoMetrix* marine isometric seismic technology. Processing of the 4D and 3D data from the Alvheim and Skarv surveys will be carried out at the WesternGeco Stavanger Geosolutions center.

WesternGeco was awarded multiple offshore seismic survey contracts for the provision of Q-Marine* point-receiver marine seismic technology with the CLA* continuous line acquisition method. Repsol Exploracion Guyana, S.A. awarded WesternGeco a 4,000-km2 survey offshore Guyana near recent major oil discoveries. In addition, Tullow awarded WesternGeco two contracts—one for a 2,150-km2 3D survey offshore Guyana and the second for data processing of a recently acquired...