SLB Limited (Schlumberger Limited) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement figures are in millions unless noted.
Business context and operating performance
Schlumberger provides oilfield services and products globally. In Q2, recovery in customer activity drove sequential revenue growth across all four divisions. Management said global revenue grew 8% sequentially, with international revenue up 7% and North America up 11%. International activity growth exceeded the seasonal rebound, while North American growth was led by U.S. land activity.
Q2 revenue was $5.634 billion, up 5% year over year and 8% sequentially. Six-month revenue was $10.857 billion, down 15% year over year. Excluding $818 million of revenue from businesses divested in late 2020, six-month revenue declined 9%.
Key financial metrics
| Metric | Q2 2021 | Comparable period |
|---|---|---|
| Revenue | $5.634 billion | $5.356 billion in Q2 2020; $5.223 billion in Q1 2021 |
| Income (loss) attributable to Schlumberger | $431 million | $(3.434) billion in Q2 2020 |
| Diluted earnings (loss) per share | $0.30 | $(2.47) in Q2 2020 |
| Pretax segment operating margin | 14%, up 162 basis points sequentially | Highest since 2015, according to management |
Q2 2020 earnings included $3.724 billion of impairments and other charges; the six-month 2020 period included $12.247 billion. No charges or credits were recorded in the first six months of 2021. The prior-year charges materially affect year-over-year profit comparisons.
- Six-month profit: Income attributable to Schlumberger was $730 million, compared with a loss of $10.810 billion in the first six months of 2020. Diluted EPS was $0.51 versus a loss of $7.79.
- Cash flow: Six-month operating cash flow was $1.649 billion, compared with $1.587 billion in 2020. Free cash flow, a company-defined non-GAAP measure, was $1.028 billion versus $644 million.
- Capital investment: $621 million in the first six months. Management expected full-year 2021 capital investments of $1.5–$1.7 billion.
- Debt and liquidity: At June 30, cash and short-term investments totaled $2.682 billion; net debt was $13.041 billion, down from $13.880 billion at December 31, 2020. Long-term debt was $15.687 billion, with $36 million of short-term borrowings and current debt. Management reported $6.45 billion of available, unused committed facilities and said liquidity was sufficient for at least the next 12 months.
- Shareholder returns: Dividends paid in the first six months were $349 million. The declared dividend was $0.25 per share, versus $0.625 per share in the comparable 2020 period. No shares were repurchased in the first six months of 2021.
Material changes versus prior periods
- Q2 revenue rose 5% year over year, while six-month revenue remained down 15% amid the ongoing recovery from pandemic-driven activity declines and the effect of business divestitures.
- Six-month pretax operating margin was 14%, up 440 basis points year over year, supported by divestiture of businesses that had weighed on margins, cost reductions, and lower depreciation and amortization after 2020 impairments.
- All four divisions increased revenue sequentially. Q2 pretax segment operating income rose 22% sequentially.
- During Q2, the company repurchased all $665 million of its 3.30% Senior Notes due 2021. It also received a $477 million U.S. federal tax refund related to carryback of net operating losses.
Outlook, risks and contingencies
Management expected international activity momentum to continue and forecast double-digit international revenue growth in the second half of 2021 compared with the second half of 2020, implying full-year international revenue growth. It expected North American growth to moderate, while noting that private exploration and production spending could provide upside. The filing does not provide a clear consolidated revenue or EPS forecast.
Management cautioned that the COVID-19 Delta variant and related disruptions could slow economic reopening. Other disclosed risks include changes in oil and gas demand and customer spending, commodity prices, geopolitical and economic conditions, inflation, foreign-currency exposure, supply-chain constraints, and regulatory and climate-related developments.
- The company reported approximately $0.7 billion of receivables relating to Mexico, where it had experienced payment delays from its primary customer. The amounts were not in dispute, and the company reported no history of material write-offs for that customer.
- Management said the likelihood of a material loss in pending legal proceedings was remote, while noting litigation outcomes are inherently uncertain.
- The filing disclosed residual dealings with Iran limited to taxes and other typical governmental charges, and legacy bank accounts associated with amounts owed for prior services.
Important facts for investors to verify
- Whether international activity and the stated second-half growth outlook materialized, and how Delta-related disruption affected demand.
- Whether Mexico receivables were collected on schedule and whether customer payment delays or credit allowances changed.
- Trends in net debt, free cash flow, capital investment, committed-facility availability, and the dividend following the 2020 reduction.
- How much of the $3.0 billion backlog at June 30, 2021 converted to revenue; the filing said approximately 50% was expected to be recognized within 12 months and noted the business does not have significant backlog.
- Whether further asset impairments, restructuring costs, or other unusual charges arose after the period; 2020 valuations relied on assumptions about future cash flows and market conditions.