Business Context and Reporting Period
Company: Schlumberger Limited (SLB)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Second Quarter and Six Months ended June 30, 2008
Business Overview: Schlumberger operates two primary business segments: Oilfield Services and WesternGeco. The company provides technology and services for the exploration, development, and production of oil and natural gas resources globally.
Key Financial Metrics
| Metric (in millions) | Q2 2008 | Q2 2007 | 6 Months 2008 | 6 Months 2007 |
|---|---|---|---|---|
| Revenue | $6,746 | $5,639 | $13,036 | $11,103 |
| Net Income | $1,420 | $1,258 | $2,758 | $2,439 |
| Diluted EPS | $1.16 | $1.02 | $2.25 | $1.98 |
| Operating Cash Flow (6mo) | $2,729 (2008) vs $2,487 (2007) | |||
| Capital Expenditures (6mo) | $1,645 (2008) vs $1,295 (2007) | |||
| Net Debt (Jun 30, 2008) | $(2,018) (Net Cash Position) | |||
| Effective Tax Rate | 20.9% | 22.3% | 20.1% | 23.1% |
Material Changes vs. Prior Period
- Revenue Growth: Q2 2008 revenue increased 19.6% year-over-year (YoY) to $6.75 billion. Six-month revenue grew 17.4% YoY to $13.04 billion.
- Profitability: Net income rose 12.8% in Q2 and 13.1% for the six-month period. Diluted EPS increased 13.7% in Q2 and 13.6% for the six months.
- Segment Performance:
- Oilfield Services: Q2 revenue grew 22% YoY to $6.07 billion. Pretax operating income increased 13% YoY. Margins improved sequentially but declined YoY due to pricing weakness in North America and consolidation impacts.
- WesternGeco: Q2 revenue was flat (1% increase) at $671 million. Pretax operating income declined 9% YoY to $196 million, driven by reduced high-margin multiclient sales in North America.
- Geographic Drivers: Strong growth was recorded in Europe/CIS/Africa, Middle East & Asia, and Latin America. North America saw revenue growth but margin compression due to pricing pressures in well-stimulation activities.
Guidance, Outlook, and Risks
- Capital Expenditure Outlook: Management expects full-year 2008 capital expenditures, including multiclient seismic data costs, to approach $4.5 billion.
- Share Repurchases: The 2006 share repurchase program (40 million shares) was completed in Q2 2008. A new $8 billion program was approved on April 17, 2008, with $235 million utilized as of June 30, 2008.
- Dividends: The quarterly dividend was increased by 20% to $0.21 per share, effective April 4, 2008.
- Convertible Debentures: Approximately $408 million of convertible debentures were converted into common stock during the first six months of 2008.
- Risks and Contingencies:
- Legal: The company is cooperating with a U.S. Department of Justice inquiry regarding freight forwarding and customs clearance services (Panalpina investigation) under the Foreign Corrupt Practices Act. Management believes any potential liability would not be material.
- Market Risks: Exposure to global economic conditions, oil and gas demand fluctuations, political instability, and operational delays.
Investor Verification Checklist
- Margin Sustainability: Verify the impact of pricing weakness in North American well-stimulation activities on future Oilfield Services margins.
- WesternGeco Recovery: Monitor the trend in high-margin multiclient data sales in North America to assess WesternGeco's profitability recovery.
- Capital Allocation: Track the execution of the new $8 billion share repurchase program and the $4.5 billion capital expenditure guidance.
- Legal Exposure: Review updates on the DOJ investigation regarding Panalpina services to assess potential financial or reputational impact.
- Working Capital: Analyze the $907 million increase in working capital requirements during the six-month period and its effect on future cash flow.