Schlumberger Limited — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. The filing identifies the registrant as Schlumberger Limited (Schlumberger N.V.).
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $10.668 billion | $9.918 billion | Up 8% |
| Income before taxes | $1.679 billion | $1.687 billion | Down slightly |
| Net income attributable to Schlumberger | $1.259 billion | $1.301 billion | Down 3% |
| Diluted EPS | $0.94 | $0.97 | Down 3% |
| Cash provided by operating activities | $1.119 billion | $758 million | Up $361 million |
Management reported Oilfield Services pretax operating margin of 19.0%, down 59 basis points year over year. The effective tax rate was 24.5%, compared with 23.7%. The $92 million Venezuela currency-devaluation loss contributed to lower earnings and the higher tax rate; it had no related tax benefit.
Cash and short-term investments were $5.561 billion at March 31; including $266 million of held-to-maturity fixed-income investments, these totaled $5.827 billion. Current assets were $23.727 billion and current liabilities $12.771 billion. Gross debt was approximately $11.1 billion and reported net debt was $5.273 billion, versus $5.111 billion at year-end 2012. Operating cash flow less capital expenditures and capitalized multiclient seismic data was approximately $108 million. Capital expenditures were $894 million; seismic data capitalization was $117 million.
Business performance and changes
- Oilfield Services revenue rose 8% year over year, with international revenue up 13%; North America revenue fell 4%. International growth was strongest in Middle East and Asia, supported by activity across technologies, while North American land pricing and activity remained weak.
- Reservoir Characterization revenue increased 9% year over year to $2.803 billion; pretax operating income rose to $758 million and margin reached 27.0%.
- Drilling revenue increased 9% to $4.132 billion; pretax operating income rose to $741 million and margin was 17.9%.
- Production revenue increased 7% to $3.785 billion, but pretax operating income declined to $573 million and margin fell 237 basis points to 15.1%, mainly due to North American land pricing pressure.
- Sequentially, revenue declined 5% from Q4 2012, reflecting seasonality and strong year-end product, software and multiclient sales in the prior quarter. Pretax operating margin declined 37 basis points to 19.0%.
- Q1 2012 included $19 million of income from discontinued operations. Schlumberger sold its Wilson and CE Franklin distribution businesses in 2012.
Outlook, risks and unusual items
- Management expected 2013 capital expenditures of approximately $3.9 billion, compared with $4.7 billion in 2012, and stated that liquidity was sufficient for business needs for at least the next 12 months. No specific revenue or earnings guidance is provided in the filing.
- Venezuela devalued its currency from 4.3 to 6.3 bolivars per U.S. dollar in February 2013. Schlumberger recorded a $92 million pretax and after-tax foreign currency loss. The company also noted payment delays from a national oil company customer in Venezuela.
- Schlumberger disclosed ongoing U.S. government investigations concerning operations in countries subject to sanctions and said it could not predict the outcome or estimate the possible impact. It reported $98 million of Q1 revenue and $56 million of net income from Iran activity, which it intended to discontinue during 2013 as operations were wound down.
- In Deepwater Horizon litigation, the federal court dismissed all claims against M-I SWACO consolidated in the multidistrict litigation during Q1. For other proceedings, management said the probability of a material loss was remote, while noting litigation uncertainty.
- Risks cited include customer spending and exploration activity, pricing erosion, global economic and political conditions, seasonal and weather-related delays, regulation, and operational and technology challenges. The filing reported no material change in risk factors from the 2012 Form 10-K and no material change in market-risk exposure since year-end.
Important facts for investors to verify
- Whether international growth can continue to offset North American land pricing pressure, particularly in Production and Well Services.
- Collections and receivables exposure in Venezuela, the continuing effects of currency devaluation, and progress in winding down Iran operations.
- Outcomes and potential financial or operational consequences of the sanctions-related investigations; the filing does not provide a clear estimate of exposure.
- Whether planned 2013 capital expenditures remain near $3.9 billion and how working-capital needs affect cash generation.
- Debt maturities and refinancing: current portion of long-term debt was $1.996 billion at March 31, versus $1.163 billion at December 31, 2012.