Schlumberger Limited (Schlumberger N.V.) — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. The filing is for Schlumberger Limited, the entity identified in the source filing; it is not titled “SLB Limited.” Dollar amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $6,894 | $6,520 | +6% |
| Income before taxes | $334 | $622 | -46% |
| Net income attributable to Schlumberger | $279 | $501 | -44% |
| Diluted earnings per share | $0.20 | $0.40 | -50% |
| Cash provided by operating activities | $656 | $1,210 | Down $554 |
| Free cash flow | $15 | $(103) | Improved $118 |
Management reported a first-quarter pretax operating margin of 11%, down 284 basis points year over year. Services revenue declined to $4,937 from $5,763, while product sales increased to $1,957 from $757. The revenue increase included a full quarter of Cameron, acquired April 1, 2016; excluding Cameron, revenue declined 13% year over year.
Segment revenue and pretax operating margins were: Reservoir Characterization, $1,618 and 17%; Drilling, $1,985 and 12%; Production, $2,187 and 5%; and Cameron, $1,229 and 13%. All three legacy groups reported lower revenue and margins year over year, with activity declines and international pricing pressure cited as key factors.
Liquidity, debt and balance sheet
- At March 31, cash was $1,902 and short-term investments were $5,451. Including $238 of held-to-maturity fixed-income investments, net debt was $11,396, versus $10,121 at December 31, 2016.
- Short-term borrowings and current debt were $2,449; long-term debt was $16,538. Commercial paper borrowings totaled $2.9 billion.
- Operating cash flow fell year over year, with working capital uses of $791, including a $670 decrease in accounts payable and accrued liabilities. Capital expenditures were $381; SPM investments were $144 and capitalized multiclient seismic costs were $116.
- The company reported $7.4 billion of cash and short-term investments and $3.7 billion available and unused under committed debt facilities. Management said liquidity was sufficient for business requirements for at least the next 12 months.
- Total assets were $76,175 and total equity was $41,054 at quarter-end.
Material developments, outlook and risks
- Q1 included $82 of pretax Cameron merger and integration charges ($68 after tax). Management also attributed $63 of corporate and other expense to Cameron-related intangible amortization.
- Full-year 2017 capital expenditures were expected to be approximately $2.2 billion, compared with $2.1 billion in 2016. The filing provides no specific earnings or revenue guidance.
- Schlumberger and Weatherford agreed to form OneStim, a North America land completions joint venture, with Schlumberger owning 70%. Closing was expected in the second half of 2017, subject to approvals and other conditions; Schlumberger agreed to pay Weatherford $535 in cash.
- Venezuela net receivables were approximately $1.2 billion; $700 was reclassified to long-term other assets during the quarter. Ecuador receivables were also approximately $1.2 billion. The company cited customer payment delays and said Venezuela activity had been reduced to align operations with cash collections.
- Management identified customer spending, pricing pressure, payment delays, geopolitical and currency risks, operational changes, and Cameron integration and synergy execution among forward-looking risks. It considered a material loss from pending legal proceedings remote, while noting litigation uncertainty.
- The company estimated that adopting the lease accounting standard in 2019 would add approximately $1.3 billion of assets and liabilities to its balance sheet.
Most important facts for investors to verify
- Whether revenue and margins recover in the legacy businesses amid continued international pricing pressure and weaker activity.
- Collection and impairment risk for Venezuela and Ecuador receivables, including the timing of cash recovery.
- Cash conversion and net-debt trends, given lower operating cash flow and shareholder distributions during the quarter.
- OneStim’s closing conditions, $535 cash payment, and expected contribution to operating performance.
- Progress on Cameron integration and realization of expected benefits; the filing does not quantify expected synergies.