SLB Limited (Schlumberger) — Third-Quarter 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unless otherwise noted, amounts are in U.S. dollars. The filing describes a severe downturn associated with COVID-19, lower oil prices, and reduced customer activity.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Change |
|---|---|---|---|
| Revenue | $5.258 billion | $8.541 billion | Down 38% |
| Net loss attributable to Schlumberger | $82 million | $11.383 billion | 2019 included much larger impairment charges |
| Loss per share, diluted | $0.06 | $8.22 | — |
| Loss before taxes | $54 million | $11.971 billion | — |
Nine-month revenue was $18.069 billion, down 27% from $24.689 billion. Schlumberger reported a nine-month net loss attributable to the company of $10.892 billion, or $7.84 per diluted share, versus a $10.470 billion loss, or $7.56 per share, in 2019.
Third-quarter segment pretax operating margins were Reservoir Characterization 17%, Drilling 10%, Production 13%, and Cameron 6%. Versus the prior year, margins contracted in Reservoir Characterization, Drilling, and Cameron; Production margin increased, supported by cost reductions and lower depreciation and amortization after impairments.
- Cash flow: Nine-month operating cash flow was $2.066 billion, versus $3.179 billion in 2019. Free cash flow, as defined by the company, was $870 million, versus $1.242 billion.
- Capital spending: Nine-month capital expenditures were $858 million. Full-year 2020 capex was expected to be approximately $1.1 billion, about 35% below 2019.
- Debt and liquidity: At September 30, cash was $1.219 billion and short-term investments were $2.618 billion. Total short- and long-term debt was approximately $17.763 billion; company-reported net debt was $13.926 billion, up from $13.127 billion at year-end 2019.
- Available facilities: Of $8.06 billion in committed facilities supporting commercial paper programs, $6.98 billion was available and unused. Commercial paper borrowings were $1.08 billion. Management said available resources were sufficient for at least the next 12 months.
- Equity and dividend: Total equity declined to $12.369 billion from $24.176 billion at year-end 2019, largely reflecting the nine-month loss. The quarterly dividend was reduced 75% in April; Q3 dividends declared were $0.125 per share.
Material changes and unusual items
- Revenue fell year over year across all four segments. North America revenue declined 59% in Q3 and international revenue declined 27%; the filing cites lower activity, customer budget cuts, COVID-19 disruption, and reduced offshore work.
- Impairments and other charges totaled $12.596 billion for the first nine months of 2020, including $3.070 billion of goodwill impairments, $3.321 billion of intangible-asset impairments, and significant APS, pressure-pumping, workforce, fixed-asset, inventory, and lease-related charges. Q3 charges were $350 million pretax, principally facility exits and workforce reductions.
- For comparison, Q3 2019 included $12.692 billion of impairments and other charges, including $8.828 billion of goodwill impairment. The substantially smaller Q3 2020 loss should therefore be viewed alongside the sharp revenue contraction and impairment-affected comparisons.
- Schlumberger reduced its workforce by more than 21,000 in Q2 and continued restructuring in Q3. It recorded a $69 million postretirement-plan curtailment gain in Q2. Management cautioned that further restructuring or impairment charges could occur.
- Long-term debt increased from $14.770 billion at year-end 2019 to $16.471 billion. The company issued debt during 2020 and repurchased 2021 notes; it also reported a $40 million premium on those repurchases.
Outlook, management commentary, and risks
Management expected Q4 to benefit from improving U.S. land completions and modest drilling resumption in the U.S. and Canada. International activity was described as steady after Q3 budget resets, with Northern Hemisphere seasonality and muted year-end product and multiclient sales expected to weigh on activity. The filing gives no numerical revenue or earnings guidance.
Management characterized the coming quarters as a transition period at the trough of the cycle. It cited potential longer-term recovery support from economic stimulus and producer supply discipline, while warning that recovery remained fragile and further COVID-19 waves could materially affect the outlook. The filing also identifies customer spending, oil and gas demand and prices, geopolitical and economic conditions, pricing pressure, currency movements, supply-chain constraints, and execution of restructuring and business strategies as risks.
On August 31, Schlumberger agreed to contribute its North American OneStim hydraulic-fracturing business to Liberty Oilfield Services in exchange for a 37% equity interest. The transaction, subject to approvals and customary conditions, was expected to close in Q4 2020. OneStim represented approximately 5% of nine-month consolidated revenue.
Management reported that pending legal proceedings were not expected to result in a material loss, although outcomes are uncertain. Disclosure controls were considered effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the OneStim transaction closed on the anticipated terms and timing, and how its contribution changes reported revenue and results.
- Whether Q4 activity and the broader recovery matched management’s qualitative outlook, particularly given COVID-19 and oil-market uncertainty.
- Actual cash generation, severance payments, and net-debt trajectory; approximately $0.7 billion of severance liability remained at quarter-end.
- Whether additional impairments or restructuring charges occur, and whether the assumptions behind asset valuations remain supportable.
- Whether liquidity, credit-facility availability, and debt maturities continue to support management’s stated 12-month funding expectation.