Schlumberger Limited (NYSE: SLB) — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results; it is an annual report, not a standalone Q4 filing. Schlumberger provides oilfield technology and services through Reservoir Characterization, Drilling, Production and Cameron.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $32.917 billion | $32.815 billion |
| Gross margin, as reported | $4.197 billion | $4.337 billion |
| Net income (loss) attributable to Schlumberger | $(10.137) billion | $2.138 billion |
| Diluted earnings (loss) per share | $(7.32) | $1.53 |
| Cash flow from operations | $5.431 billion | $5.713 billion |
| Free cash flow (non-GAAP) | $2.695 billion | $2.472 billion |
| Cash and short-term investments at year-end | $2.167 billion | $2.777 billion |
| Total debt at year-end | $15.294 billion | $16.051 billion |
| Net debt (non-GAAP) | $13.127 billion | $13.274 billion |
The annual loss primarily reflects $12.901 billion of net pretax charges and credits, including an $8.828 billion goodwill impairment, $1.575 billion of North American pressure-pumping charges and other asset impairments and restructuring costs. The company recorded a $247 million gain on formation of the Sensia joint venture. The 2019 effective tax rate was 3%; the filing says the unusually low rate was largely related to charges, primarily nondeductible goodwill.
Annual revenue was essentially flat, with international revenue up 7% to $21.8 billion and North American revenue down 10% to $10.8 billion. Segment revenue and pretax operating margins were: Reservoir Characterization $6.312 billion and 21%; Drilling $9.721 billion and 13%; Production $11.987 billion and 8%; Cameron $5.336 billion and 11%.
Fourth quarter
Revenue was $8.228 billion, down 4% sequentially. Net income attributable to Schlumberger was $333 million, or $0.24 per diluted share; gross margin was $1.101 billion. International revenue grew 2% sequentially, while North American revenue fell 14%. Segment pretax operating margins were 22% for Reservoir Characterization, 12% for Drilling, 9% for Production and 9% for Cameron.
Liquidity, debt and capital allocation
Operating cash flow declined to $5.431 billion. Capital expenditures were $1.724 billion; APS investments were $781 million and capitalized multiclient seismic costs were $231 million. Dividends paid were $2.769 billion. Schlumberger had $4.3 billion available and unused under committed credit facilities of $6.5 billion and said liquidity was sufficient for expected business requirements for at least 12 months. Commercial paper borrowings were $2.2 billion. The company declared a $2.00-per-share dividend for 2019.
Changes, outlook and risks
- Material changes: Goodwill and intangible assets fell to $16.042 billion and $7.089 billion, respectively, following impairment charges. Total assets declined to $56.312 billion from $70.507 billion. The company formed Sensia with Rockwell Automation (Schlumberger owns 47%) and divested its Drilling Tools businesses; combined transaction proceeds were reported as $586 million.
- 2020 outlook: Management expected international E&P capital spending growth in the mid-single digits and expected its international portfolio revenue to grow at the same pace or faster, excluding businesses transferred to Sensia or divested. Growth was expected to be weighted toward the second half. Management anticipated OPEC+ production cuts could constrain activity in parts of the Middle East and Russia in the first half. North America strategy emphasized scaling operations to activity, improving margins and returns, and focusing on asset-light models. 2020 capital expenditures were expected to be similar to 2019.
- Key risks: Customer spending is sensitive to oil and gas prices, economic conditions and capital discipline. Other material exposures include international political, currency and regulatory risks; climate and hydraulic-fracturing rules; environmental liabilities and catastrophic operating incidents; competition and technology execution; cyberattacks; and collection risks. The filing notes that future restructuring or impairment charges may occur if strategy or industry conditions warrant.
- Contingencies and controls: Management considered material loss from currently pending legal proceedings remote, while noting litigation uncertainty. Uncertain tax-position liabilities were approximately $1.3 billion, excluding accrued interest and penalties; timing of related cash outflows could not be reliably estimated. Management and the auditor reported effective internal control over financial reporting.
Investor facts to verify
- Review the impairment assumptions and remaining goodwill, particularly the $8.8 billion goodwill charge and sensitivity to discount rates.
- Assess whether international growth and the projected second-half 2020 activity recovery materialized, and whether North American restructuring improved margins.
- Reconcile reported earnings with the large impairment and restructuring items; distinguish GAAP results from non-GAAP free cash flow and net debt.
- Monitor liquidity, commercial paper refinancing, debt maturities, dividend coverage and the uncertain-tax-position exposure.
- Check the financial contribution and terms of Sensia and the Drilling Tools divestiture, and the performance of APS investments.