Business Context and Reporting Period
Company: Schlumberger Limited (SLB)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Third Quarter and Nine Months ended September 30, 2008
Business Overview: Schlumberger operates two primary business segments: Oilfield Services and WesternGeco. The company provides technology and services for the exploration, development, and production of oil and gas resources globally.
Key Financial Metrics
| Metric | Q3 2008 | Q3 2007 | 9M 2008 | 9M 2007 |
|---|---|---|---|---|
| Revenue | $7,259 million | $5,926 million | $20,295 million | $17,029 million |
| Net Income | $1,526 million | $1,354 million | $4,285 million | $3,793 million |
| Diluted EPS | $1.25 | $1.09 | $3.50 | $3.08 |
| Operating Cash Flow (9M) | $4,891 million (vs. $4,111 million in 9M 2007) | |||
| Capital Expenditures (9M) | $2,815 million (including multiclient seismic data) | |||
| Net Debt (End of Period) | $(1,735) million (Net Cash Position) | |||
| Total Outstanding Debt | $5.7 billion | |||
| Cash & Investments | ~$4.0 billion |
Material Changes vs. Prior Period
- Revenue Growth: Q3 2008 revenue increased 22% year-over-year (YoY) to $7.26 billion. Nine-month revenue grew 19% YoY to $20.29 billion.
- Profitability: Net income rose 13% YoY in Q3 and 13% YoY for the nine-month period. Diluted EPS increased 15% YoY in Q3.
- Segment Performance:
- Oilfield Services: Q3 revenue up 24% YoY; Pretax operating income up 13% YoY. Growth driven by North America, Latin America, and Europe/CIS/Africa.
- WesternGeco: Q3 revenue up 12% YoY; Pretax operating income up 16% YoY. Sequential growth driven by Marine and Multiclient segments.
- Margins: Oilfield Services pretax operating margin decreased sequentially from 28.1% to 26.7% due to hurricane impacts in the US Gulf of Mexico and a mix of lower-margin Integrated Project Management (IPM) services. WesternGeco margins improved sequentially to 39.8%.
- Acquisitions: Acquired additional 5.5% stake in Framo Engineering AS (total 52.75%) and made other minor acquisitions totaling $345 million in cash during the first nine months.
Outlook, Risks, and Management Commentary
- Market Conditions: Management notes a rapid deterioration in credit markets and uncertainty regarding the global economy. A slowing in the rate of customer spending is anticipated, particularly in North America and emerging exploration markets.
- Hurricane Impact: The hurricane season (Gustav and Ike) impacted Q3 earnings by approximately $0.04 per share. Without this effect, diluted EPS would have been $1.29.
- Capital Expenditures: Full-year 2008 capital expenditures are expected to approach $3.9 billion.
- Shareholder Returns:
- Dividends: Quarterly dividend increased 20% to $0.21 per share, effective April 2008.
- Repurchases: Completed a 40 million share program in Q2 2008. Approved a new $8 billion repurchase program in April 2008; $780 million utilized as of September 30, 2008.
- Legal Contingencies: Cooperating with a US Department of Justice inquiry regarding freight forwarding services (Panalpina investigation). Management believes any potential liability would not be material.
- Debt Management: Issued €500 million 5.25% Guaranteed Notes in September 2008. Converted approximately $436 million of convertible debentures into common stock during the nine-month period.
Key Facts for Investor Verification
- Net Cash Position: Verify the company's ability to maintain a net cash position of $1.7 billion despite increased debt issuance and capital expenditures.
- Margin Compression: Monitor the impact of cost inflation and the mix of lower-margin IPM services on Oilfield Services profitability in future quarters.
- Geographic Exposure: Assess the sensitivity of revenue to potential slowdowns in North American natural gas production and emerging markets due to credit market tightening.
- Share Repurchase Execution: Track the utilization of the new $8 billion share repurchase program relative to stock price fluctuations.
- Legal Proceedings: Monitor the outcome of the DOJ investigation regarding freight forwarding services for potential financial or reputational impact.