Schlumberger Limited (SLB) — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. Although the request references 2018 Q4, this filing is an annual report; fourth-quarter figures below are unaudited. Financial amounts are in U.S. dollars.
Business context and reporting period
Schlumberger provides oilfield technology, products and services through Reservoir Characterization, Drilling, Production and Cameron. It operated in more than 85 countries and employed approximately 100,000 people. International markets generated about 62% of 2018 revenue; no single customer represented more than 10%.
Key financial metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $32.815 billion | $30.440 billion |
| Income (loss) before taxes | $2.624 billion | $(1.183) billion |
| Net income (loss) attributable to Schlumberger | $2.138 billion | $(1.505) billion |
| Diluted EPS | $1.53 | $(1.08) |
| Cash flow from operations | $5.713 billion | $5.663 billion |
| Free cash flow | $2.472 billion | $1.671 billion |
| Total debt | $16.051 billion | $18.199 billion |
| Cash and short-term investments | $2.777 billion | $5.089 billion |
| Net debt (company-defined, non-GAAP) | $13.274 billion | $13.110 billion |
| Working capital | $2.245 billion | $3.215 billion |
Full-year pretax operating income was $4.187 billion, up 7%; pretax operating margin was approximately 13%, essentially unchanged. Dividends declared were $2.00 per share, and cash dividends paid totaled $2.770 billion. Free cash flow was below cash dividends paid.
Fourth-quarter revenue was $8.180 billion, down 4% sequentially from $8.504 billion. Net income attributable to Schlumberger was $538 million and diluted EPS was $0.39. The fourth-quarter table reports gross margin of $1.008 billion and pretax operating income of $967 million.
Material changes versus prior comparable period
- Revenue grew 8% year over year, driven mainly by North America, where revenue rose 26% to $12.0 billion; international revenue was essentially flat at $20.4 billion.
- Production revenue increased 17% to $12.4 billion, largely on North American land activity and OneStim growth. Drilling revenue rose 10%; Reservoir Characterization fell 4%; Cameron fell 1%.
- North America activity weakened sharply late in the year. Fourth-quarter North America revenue declined 12% sequentially, and OneStim revenue fell 25% as fleets were warm-stacked amid market oversupply.
- Reported earnings rebounded from 2017’s substantial loss, when $3.764 billion of charges and credits included major WesternGeco and Venezuela write-downs. 2018 included $356 million of charges, partly offset by a $215 million gain from the marine seismic business divestiture.
- Operating cash flow was nearly flat year over year. Free cash flow improved, while cash and short-term investments declined and net debt increased modestly, despite lower gross debt.
Outlook, management commentary, risks and unusual items
- Management expected gradual oil-price recovery during 2019 and solid, single-digit international market growth, while describing North America land activity as uncertain. Customers were taking a more conservative approach after late-2018 oil-price volatility. These are expectations, not assurances.
- Management forecast 2019 capital expenditures of $1.5 billion to $1.7 billion. At year-end, the company had $2.8 billion of cash and short-term investments and $4.1 billion of unused committed credit facilities; management said available liquidity should meet business needs for at least 12 months.
- Oil prices fell more than 40% in the fourth quarter of 2018, contributing to a sudden reduction in North American land completion activity. Results remain sensitive to customer E&P spending, oil and gas prices, pricing pressure, geopolitics, foreign exchange, regulation, severe weather, environmental liabilities, operational incidents and cyberattacks.
- Other significant exposures include approximately $1.4 billion of liabilities for uncertain tax positions, whose payment timing the company could not reliably estimate. Management considered material losses from pending legal proceedings remote. The filing also describes potential environmental, safety and well-incident liabilities.
- Schlumberger completed the sale of its marine seismic acquisition business in Q4 for $600 million cash and a 15% equity interest in the buyer; it recorded a $215 million gain and received $579 million net cash proceeds after cash divested. The company had previously decided to cease future marine seismic acquisition activities.
- The company adopted the new lease accounting standard in 2018, recording approximately $1.3 billion of operating lease assets and liabilities at adoption. Prior-year figures were not restated. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether the expected international growth and North American activity outlook materialized, particularly after the Q4 2018 slowdown.
- Cash conversion and shareholder distributions: free cash flow of $2.472 billion versus $2.770 billion of dividends paid, alongside repurchases and investment needs.
- Liquidity and leverage trends: cash and short-term investments fell to $2.777 billion, while net debt rose to $13.274 billion; assess debt maturities and commercial-paper dependence.
- Underlying earnings quality and comparability, including the effect of 2017 impairments, 2018 restructuring and asset charges, and the seismic-sale gain.
- Exposure to uncertain tax positions, customer receivable collection, SPM project investment recovery, and legal, environmental and operational contingencies.