SLB (Schlumberger Limited) — Q2 2019 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2019. Schlumberger provides oilfield services and equipment through Reservoir Characterization, Drilling, Production, and Cameron. Amounts below are USD unless stated otherwise; financial statement amounts are in millions.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $8,269 | $8,303 | $16,149 | $16,131 |
| Income before taxes | $593 | $547 | $1,101 | $1,190 |
| Net income attributable to Schlumberger | $492 | $430 | $913 | $955 |
| Diluted earnings per share | $0.35 | $0.31 | $0.65 | $0.69 |
| Operating cash flow | Not provided separately | Not provided separately | $1,434 | $1,555 |
| Free cash flow | Not provided separately | Not provided separately | $176 | $100 |
- Q2 revenue was essentially flat year over year; income attributable to Schlumberger rose about 14%, while diluted EPS increased from $0.31 to $0.35. Six-month revenue was flat, but attributable income and diluted EPS declined about 4% and 6%, respectively.
- Q2 segment pretax margins: Reservoir Characterization 20%, Drilling 12%, Production 8%, and Cameron 13%. Year-over-year margins weakened in Reservoir Characterization, Drilling, and Production; Cameron was approximately flat.
- Six-month operating cash flow was down to $1.434 billion from $1.555 billion. Free cash flow, a company-defined non-GAAP measure, was $176 million versus $100 million. Working capital use was $1.460 billion.
- At June 30, cash and short-term investments totaled $2.348 billion. Gross debt was approximately $17.076 billion, including $16.978 billion of long-term debt and $98 million current debt; net debt was $14.728 billion, versus $13.274 billion at December 31, 2018.
- Commercial paper borrowings were $3.2 billion. Committed credit facilities totaled $6.5 billion, with $3.3 billion available and unused. Management said liquidity was sufficient for business needs for at least the next 12 months.
- Dividends paid in the first half were $1.385 billion; share repurchases were $199 million. The declared dividend was $1.00 per share for the first half.
Material changes and operating trends
- Sequentially, Q2 revenue rose 5%: international revenue increased 8% and North America 2%. International growth was led by Europe/CIS/Africa and included gains in Latin America and Far East Asia/Australia.
- Year over year, Q2 international revenue increased 8%, while North America revenue declined 11%. For the first half, international revenue rose 6% and North America land revenue fell 12%.
- Q2 Drilling revenue increased 8% year over year, principally from international demand. Production revenue decreased 5%, mainly from lower North American OneStim activity; Cameron revenue decreased 4%. Reservoir Characterization revenue was essentially flat.
- Compared with Q2 2018, reported earnings benefited from the absence of a $184 million pretax ($164 million after-tax) headcount-reduction charge recorded in 2018. No charges or credits were recorded in the first half of 2019.
Outlook, commentary, and risks
- Management expected 2019 international E&P investment to grow 7%–8%, while North America land spending was tracking toward a 10% decline. It forecast full-year 2019 capital expenditures of approximately $1.5–$1.7 billion, compared with $2.2 billion in 2018.
- Management described oil-market sentiment as balanced and expected oil prices to remain range-bound around then-current levels. It cited trade-war concerns, geopolitical tensions, OPEC/Russia production cuts, and slowing US shale growth. It also noted a longer-term risk from mature-field declines and insufficient new project supply.
- Risks identified include changes in customer E&P spending, pricing pressure, economic and political conditions, foreign-currency movements, seasonality and weather, operational delays or cancellations, regulation, and technology challenges.
- Management considered material loss from pending legal proceedings remote, while noting litigation remains uncertain. Schlumberger also disclosed residual Iran-related dealings limited to taxes and other typical governmental charges, and certain bank accounts connected with amounts owed for prior services.
- Debt increased during the period. The company issued notes and completed a debt exchange; the exchange included a $48 million premium, substantially in new notes, amortized as additional interest expense.
Key facts for investors to verify
- Whether international growth can offset continued weakness in North America, particularly lower land activity and pricing pressure.
- Whether cash conversion improves: first-half operating cash flow was lower year over year, working capital consumed $1.460 billion, and free cash flow remained below dividends paid.
- Debt and refinancing exposure, including commercial paper levels, committed facility availability, and the effect of new notes and the debt exchange on interest expense.
- Segment margin recovery, especially in Production and Drilling, and the assumptions behind management’s 2019 investment and capital expenditure outlook.
- Potential developments in disclosed legal, regulatory, geopolitical, currency, and Iran-related matters.