Business Context and Reporting Period
Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 1997
Business Overview: The company operates primarily in two segments: Oilfield Services and Measurement & Systems. The Oilfield Services segment provides technology and services for the exploration and production of oil and gas. The Measurement & Systems segment includes Automatic Test Equipment, Electronic Transactions, Metering, and Systems & Services.
Key Financial Metrics
| Metric (in thousands) | Q3 1997 | Q3 1996 | 9 Months 1997 | 9 Months 1996 |
|---|---|---|---|---|
| Operating Revenue | $2,736,150 | $2,261,839 | $7,739,889 | $6,440,457 |
| Total Revenue | $2,770,056 | $2,279,945 | $7,812,638 | $6,492,000 |
| Net Income | $356,569 | $228,835 | $923,018 | $596,420 |
| Diluted EPS (Assumed) | $0.69 | $0.46 | $1.80 | $1.20 |
| Operating Cash Flow (9 Mo) | $1,152,439 (1997) vs $831,965 (1996) | |||
| Cash & Short-term Investments | $1,506,751 (Sept 30, 1997) | |||
| Total Debt (Current + Long-term) | $1,735,869 (Sept 30, 1997) |
Note: EPS figures in the table reflect the "assuming dilution" values provided in the notes. Reported EPS was $0.72 for Q3 1997 and $1.87 for the nine-month period.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 21% in Q3 1997 and 20% for the nine-month period compared to 1996. Oilfield Services revenue grew 25% (Q3) and 27% (9 months), driven by a 17% increase in worldwide rig count and higher activity in North America and the Middle East.
- Profitability: Net income rose 56% in Q3 and 55% for the nine-month period. Operating income for Oilfield Services increased 49% (Q3) and 64% (9 months). Measurement & Systems operating income grew 53% (Q3) and 14% (9 months).
- Unusual Items: The 1996 period included $333 million in unusual items (charges and credits largely offsetting each other), which are absent in the 1997 results, contributing to the year-over-year variance.
- Cash Flow: Net cash provided by operating activities increased significantly to $1.15 billion for the first nine months of 1997, up from $832 million in 1996. However, investing activities consumed $1.38 billion, primarily due to $1.0 billion in fixed asset purchases and $631 million in investment increases.
- Dividends: Dividends declared per share remained consistent at $0.1875 for the quarter and $0.5625 for the nine-month period (adjusted for a 2-for-1 stock split in June 1997).
Guidance, Outlook, and Risks
- Outlook: Management notes that results for the interim periods are not necessarily indicative of full-year results. Strong demand continues in North America, the North Sea, and the Middle East. The company is seeing robust growth in seismic survey activity, pumping services, and wireline logging technology.
- Strategic Initiatives: The company is implementing technological innovations such as the NESSIE 4C multiwave array for seismic data and the Anadrill Vision475 for slimhole geosteering. Integrated Project Management (IPM) activity increased over 150% year-over-year, highlighted by the $110 million Burgos project in Mexico.
- Contingencies and Risks:
- Environmental: Accruals exist for environmental remediation related to divested operations. Management believes potential additional costs are not expected to be material.
- Legal: The company is involved in a Texas case regarding a 1988 settlement where a jury award of approximately $75 million was reinstated by an appeals court; the case is pending before the Texas Supreme Court. No provision has been made as the company believes the trial court's original exoneration was correct. Another case involving a $23 million judgment (doubled plus fees) is under appeal.
- Market: Unfavorable exchange rates impacted the Measurement & Systems segment, particularly in Europe. Uncertainty surrounding electricity market deregulation in North America affected metering demand.
Key Facts for Investor Verification
- Stock Split Adjustment: All per-share data and share counts have been adjusted for a two-for-one stock split effective June 2, 1997.
- Asset Sales: In September 1997, two semisubmersible rigs (Drillstar and Sedco Explorer) were sold to a venture in which Schlumberger holds a 25% interest. The $174 million gain is deferred and amortized over six years, having no immediate impact on Q3 results.
- Tax Position: The effective tax rate increased to 23% in Q3 1997 (from a negative rate in Q3 1996 due to unusual items) following the utilization of US tax loss carryforwards.
- Capital Expenditures: Significant cash outflow for fixed assets ($1.0 billion in 9 months) indicates heavy investment in fleet expansion and technology upgrades.
- Debt Levels: Total debt increased from approximately $1.45 billion at year-end 1996 to $1.74 billion at September 30, 1997, driven by higher average debt levels and new issuances.