Schlumberger Limited (Schlumberger N.V.) — Q1 2014 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2014, compared primarily with Q1 2013; sequential comparisons are with Q4 2013. Schlumberger provides oilfield services through Reservoir Characterization, Drilling, and Production groups. Amounts below are in U.S. dollars; financial-statement amounts are in millions unless stated otherwise.
Key financial results
| Metric | Q1 2014 | Comparable period |
|---|---|---|
| Revenue | $11.239 billion | $10.570 billion in Q1 2013 (+6%); $11.906 billion in Q4 2013 (-6% sequentially) |
| Income before taxes | $2.077 billion | $1.617 billion in Q1 2013 |
| Income from continuing operations | $1.608 billion | $1.211 billion in Q1 2013 |
| Net income attributable to Schlumberger | $1.592 billion | $1.259 billion in Q1 2013 |
| Diluted EPS | $1.21 | $0.90 from continuing operations in Q1 2013; $0.94 total net income per diluted share |
| Operating margin | 21.1% pretax Oilfield Services margin | Up 248 basis points year over year; down 80 basis points sequentially |
| Cash from operating activities | $1.635 billion | $1.138 billion in Q1 2013 |
| Capital expenditures | $864 million | $894 million in Q1 2013 |
Financial position and cash flow
- At March 31, cash was $3.752 billion, short-term investments $3.326 billion, and held-to-maturity fixed-income investments $358 million. Management reported $7.1 billion of cash and short-term investments on hand.
- Debt totaled approximately $12.5 billion, based on the net-debt reconciliation: $11.120 billion of long-term debt plus $1.369 billion of short-term borrowings and current long-term debt. Net debt was $5.053 billion, compared with $4.443 billion at year-end 2013 and $5.273 billion at March 31, 2013.
- Current assets were $25.353 billion and current liabilities $11.899 billion. The company had $2.7 billion of unused committed credit facilities; it stated available liquidity was sufficient for business needs for at least the next 12 months. Commercial-paper borrowings were $1.1 billion.
- Investing activities provided $374 million, primarily reflecting $1.576 billion of net investment sales, partly offset by capital spending, seismic-data capitalization, and acquisitions/investments. Financing activities used $1.708 billion, including $899 million of repurchases, $410 million of dividends, and net debt repayments.
Material changes and operating trends
- Year-over-year revenue grew 6%; North America increased 12% and international revenue increased 5%. Middle East & Asia grew 19%, while Latin America declined 8%, principally due to lower activity and pricing in Brazil and reduced rig count in Mexico.
- All three product groups grew year over year: Reservoir Characterization revenue +2%, Drilling +7%, and Production +10%. Pretax operating income increased 7%, 22%, and 33%, respectively.
- Sequential revenue fell 6%, reflecting unusually strong year-end product, software, and multiclient sales, seasonal weather slowdowns, completed marine seismic surveys, and delays in Brazil and Mexico. North American pressure-pumping activity partly offset these effects.
- Q1 2014 had no charges or credits. Q1 2013 included a $92 million pretax and after-tax Venezuelan currency-devaluation loss. Q1 2013 also included $56 million of income from discontinued operations related to Iran; Schlumberger completed the wind-down of those operations in Q2 2013.
Outlook, commentary, and risks
- Management expected full-year 2014 capital expenditures of approximately $3.8 billion, versus $3.9 billion in 2013. The filing does not provide clear full-year revenue or earnings guidance.
- The company said it was accelerating its $10 billion share-repurchase program, aiming to complete it in approximately 2.5 years rather than the original five-year target. It repurchased $899 million of shares in Q1 2014; $2.6 billion had been repurchased under the program through March 31, 2014.
- Schlumberger continued to remeasure Venezuelan bolivar-denominated transactions at the official rate of 6.3 per U.S. dollar. It reported approximately $330 million of net monetary assets in bolivares; use of a different legal exchange rate or an official-rate devaluation could result in a charge and lower reported revenue, expenses, and pretax income.
- A U.S. grand jury investigation and related regulatory inquiry concerning historical operations in sanctioned countries remained unresolved. The company was cooperating and could not estimate the outcome or potential impact. It also noted past payment delays by its Venezuelan national-oil-company customer.
- Other cited risks include customer spending and pricing, political and economic conditions (including Russia and Ukraine), weather, operational delays, and regulation. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Venezuelan currency controls, exchange-rate changes, or customer payment delays could affect reported results, receivables, or cash collection.
- The status and potential financial consequences of the sanctions-related investigation, for which the filing provides no estimable impact.
- Whether seasonal and year-end sales effects reverse, and whether international growth and North American pricing support margins.
- Execution of the accelerated repurchase plan alongside planned capital spending, dividends, and debt management.
- That Q1 comparisons distinguish continuing operations from the prior-year Iran discontinued operation and Venezuelan one-time currency loss.