Business Context and Reporting Period
Company: Schlumberger Limited (Schlumberger N.V.)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended June 30, 1998
Business Overview: A global provider of oilfield services and measurement systems. The company operates primarily through two segments: Oilfield Services and Measurement & Systems.
Key Financial Metrics
| Metric (in thousands) | Q2 1998 | Q2 1997 | 6 Months 1998 | 6 Months 1997 |
|---|---|---|---|---|
| Operating Revenue | $2,853,302 | $2,601,679 | $5,653,436 | $5,003,739 |
| Net Income | $359,355 | $306,506 | $710,087 | $566,449 |
| Diluted EPS | $0.69 | $0.60 | $1.37 | $1.11 |
| Cash from Operations (6mo) | N/A | $757,443 | $621,212 | |
| Operating Cash Flow (Q2) | N/A | Not explicitly stated for Q2 only | ||
| Long-Term Debt | $1,137,778 (Jun 30, 1998) | $1,069,056 (Dec 31, 1997) | ||
| Cash & Short-Term Investments | $1,781,252 (Jun 30, 1998) | $1,761,077 (Dec 31, 1997) | ||
| Gross Margin | 27% (Q2 1998) | 27% (6mo 1998) |
Note: All financial figures are in thousands of dollars unless otherwise noted.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 10% in Q2 1998 and 13% for the first six months compared to the prior year periods.
- Profitability: Net income rose 17% in Q2 and 25% for the six-month period. Diluted EPS increased 15% (Q2) and 23% (6mo).
- Segment Performance:
- Oilfield Services: Revenue grew 11% (Q2) and 15% (6mo). Operating income increased 16% (Q2) and 23% (6mo). Growth was driven by contract drilling (+25% Q2), marine seismic (+28% Q2), and pressure pumping/cementing (+11% Q2).
- Measurement & Systems: Revenue grew 6% (Q2) and 7% (6mo). Operating income was flat in Q2 but rose 11% for the six months. Smart Cards & Terminals saw significant growth, offsetting declines in Metering activities.
- Expense Trends: Research & engineering expenses increased 19% (Q2) and 17% (6mo). Interest expense increased due to higher average debt levels.
- Debt and Liquidity: Long-term debt increased by approximately $69 million from year-end 1997. Cash and short-term investments remained stable at approximately $1.78 billion.
Guidance, Outlook, and Risks
- Merger Activity: Schlumberger announced a definitive stock merger agreement with Camco International Inc. on June 19, 1998. The transaction is expected to close in Q3 1998 and will be accounted for as a pooling of interests.
- Strategic Alliances: Entered into strategic alliances with Russian oil companies YUKOS and Sibneft to provide oilfield services, with operations expected to commence in early 1999.
- Year 2000 Issue: Management estimates the total cost to address Year 2000 compliance will be between $40 million and $60 million. These costs are treated as period expenses. The company believes known problems can be corrected to avoid significant interruptions.
- Environmental and Legal Contingencies: Accruals exist for environmental remediation related to past operations. Management does not expect additional costs to be material. Various legal proceedings are ongoing, but potential liabilities are not expected to be material.
- Market Conditions: Oilfield Services revenue growth occurred despite a decrease in global rig counts in Q2 (down 8%). The Metering business faced declines due to market shifts toward electronic products and price drops in specific regions (e.g., Italy, France).
Key Facts for Investor Verification
- Camco Merger Status: Verify the closing date and final terms of the Camco International merger, including any regulatory hurdles beyond the US antitrust review mentioned.
- Year 2000 Cost Accuracy: Monitor actual Year 2000 compliance expenditures against the $40-$60 million estimate to ensure no material overruns.
- Rig Count vs. Revenue: Analyze the sustainability of revenue growth in Oilfield Services given the reported decline in global rig counts (8% drop in Q2).
- Measurement & Systems Turnaround: Track the progress of the Metering business rationalization plan and the impact of the pending sale of Retail Petroleum Systems to Tokheim Corporation.
- Debt Levels: Review the trend in interest expense and total debt, noting the increase in long-term debt and the impact on future liquidity.