SLB Limited / Schlumberger Limited — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. The filing identifies the registrant as Schlumberger Limited (Schlumberger N.V.); this differs from the company name in the request metadata. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2014 | Change vs. Q3 2013 | Nine months 2014 |
|---|---|---|---|
| Revenue | $12.646 billion | +9% | $35.939 billion, +8% |
| Income from continuing operations | $1.964 billion | +$239 million | $5.393 billion |
| Net income attributable to Schlumberger | $1.949 billion | +$234 million | $5.136 billion |
| Diluted EPS | $1.49 | +$0.20 | $3.91 |
| Pretax operating margin | 22.2% | +68 bps | 21.7%, +149 bps |
| Operating cash flow | — | — | $7.282 billion |
| Free cash flow | — | — | $3.735 billion |
Q3 revenue rose 5% sequentially and pretax operating income rose 7%. International revenue increased 5% year over year and North America revenue increased 18%. Drilling and Production led year-over-year product-group growth; Reservoir Characterization revenue declined 3%.
Cash, debt and liquidity
- At September 30, cash was $3.118 billion, short-term investments were $3.641 billion, and held-to-maturity fixed-income investments were $473 million.
- Gross debt was approximately $13.1 billion, including $1.4 billion of commercial paper borrowings. Management-reported net debt was $5.845 billion, versus $4.443 billion at year-end 2013.
- Cash and short-term investments totaled $6.8 billion. The company had $2.5 billion of unused committed credit facilities and stated these resources were sufficient for at least the next 12 months.
- Nine-month capital expenditures were $2.766 billion. Cash flow from operations less capital expenditures, SPM investments and capitalized multiclient seismic data was $3.735 billion.
Material changes and management commentary
- Year-over-year margin gains reflected stronger international exploration activity, market-share gains, integration-related activity and technology pricing. North America margins contracted year over year, mainly due to pressure-pumping cost inflation.
- Sequential North America growth benefited from a seasonal recovery in Western Canada, higher U.S. land activity and offshore market-share gains. Weather disruptions and Gulf of Mexico loop currents constrained activity.
- Management reported that Russia activity and spending were affected by customer caution and sanctions; Kurdistan operations slowed sharply amid unrest. Venezuela and Brazil also presented operating and market challenges.
- The company repurchased $3.582 billion of shares in the first nine months and said it was accelerating its $10 billion repurchase program, targeting completion in 2.5 years rather than the original five-year plan. Dividends paid were $1.451 billion.
- Full-year 2014 capital expenditures were expected to be approximately $3.8 billion, compared with $3.9 billion in 2013. The filing provides no broader quantified earnings or revenue guidance.
Unusual items, contingencies and risks
- No charges or credits were recorded in continuing operations in the first nine months of 2014. The 2013 comparison included a $1.028 billion OneSubsea formation gain and $456 million of impairment and Venezuela currency-devaluation charges; this makes reported year-to-date comparisons less directly comparable.
- A $205 million charge was recorded in Q2 2014 as a loss from discontinued operations for a U.S. government investigation concerning historical operations in sanctioned countries. Schlumberger was discussing resolution with authorities, but no settlement or ultimate loss amount was certain.
- Schlumberger continued to translate Venezuelan bolivar balances at the official rate of 6.3 per U.S. dollar and reported approximately $460 million of net monetary assets in bolivars. Management estimated that applying a rate of 50 throughout the first nine months would have reduced earnings by about $0.06 per share; applying it on September 30 would have resulted in a one-time $400 million charge, or $0.31 per share.
- Other disclosed risks include customer spending changes, pricing pressure, geopolitical and sanctions developments, weather and seasonal factors, operational delays, regulation, and foreign-exchange exposure. Management said market-risk exposure had not changed materially since year-end 2013.
Important facts for investors to verify
- Whether the sanctioned-country investigation results in a settlement above or below the $205 million accrual.
- Venezuela’s applicable exchange rate, collections from customers, and exposure to further currency devaluation.
- Whether international growth and margin gains continue, given Russia sanctions, Kurdistan disruption, and regional spending uncertainty.
- Execution of the accelerated repurchase plan and its effect on net debt, alongside planned capital spending and dividends.
- The underlying comparability of 2013 results, including the OneSubsea gain, impairment charges and Venezuela devaluation loss.