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| SLB > SEC Filings for SLB > Form 10-Q on 29-Apr-2009 | All Recent SEC Filings |
29-Apr-2009
Quarterly Report
BUSINESS REVIEW
First Quarter 2009 Compared to Fourth Quarter 2008
First Quarter Fourth Quarter
2009 2008 % chg
(Stated in millions)
Oilfield Services
Revenue $ 5,439 $ 6,256 (13 )%
Pretax Operating Income $ 1,255 $ 1,599 (21 )%
WesternGeco
Revenue $ 551 $ 599 (8 )%
Pretax Operating Income $ 55 $ 88 (38 )%
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Pretax operating income represents the segments' income before taxes and noncontrolling interests. The pretax operating income excludes such items as corporate expenses, amortization of certain intangible assets, interest on postretirement medical benefits, stock-based compensation costs, and interest income and interest expense not allocated to the segments.
Revenue for the first quarter of 2009 was $6.00 billion versus $6.87 billion in the fourth quarter of 2008. Income from continuing operations attributable to Schlumberger for the first quarter of 2009 was $938 million compared to $1.15 billion in the fourth quarter of 2008. The fourth quarter 2008 results included after tax and noncontrolling interest charges of $93.0 million, primarily related to work-force reductions and certain assets write-offs.
The rate of decline in revenue at Oilfield Services accelerated considerably compared to the fourth quarter, largely due to the precipitous drop in the North American natural gas rig count. Outside North America, low activity in Russia and the fall of many local currencies against the US dollar remained the principal causes of weakness. At WesternGeco, the rate of sequential revenue decline slowed to 8% as continuing weak North American Multiclient revenue was partially offset by improved Marine revenues.
The headcount reductions announced last quarter have largely been completed. In order to better match the cost base to the lower activity and pricing levels, there will likely be a further similar reduction over the coming months.
Management's visibility on 2009 has not materially changed from the end of the fourth quarter. A significant recovery in North American gas drilling is not expected before 2010. Overseas, while activity declines will be limited, customers are actively seeking and are obtaining price relief to improve the economics of current projects. At the same time, exploration expenditures are being deferred in favor of projects that produce immediate cash flow. However, management is encouraged to see offshore deepwater activity resisting fairly well to the current budget cuts.
As indicated last quarter, management remains convinced that in the longer term any demand recovery for oil will need to be accompanied by increased investment to offset a decline in the ageing production base.
First-quarter 2009 revenue of $5.44 billion decreased 13% sequentially. North America revenue dropped significantly due to reduced activity and pricing pressure in the US Land, US Gulf of Mexico and Canada GeoMarkets*. In Europe/CIS/Africa, revenue fell primarily as a result of weaker activity in the Russia, North
Africa and Caspian GeoMarkets, as well as from the weakening of the US dollar versus local currencies. Middle East & Asia revenue declined due to reduced activity in the Arabian, Brunei/Malaysia/Philippines and East Mediterranean GeoMarkets. Latin America revenue decreased mostly on lower activity in Venezuela/Trinidad & Tobago and reduced product sales in Peru/Colombia/Ecuador, partially offset by stronger Integrated Project Management (IPM) results in Mexico/Central America and increased offshore services in Brazil. Among the Technologies, Well Services, Wireline, Schlumberger Information Solutions (SIS) and Artificial Lift led the declines in revenue.
Sequentially first-quarter pretax operating income of $1.26 billion was down 21%. Pretax operating margin decreased 248 basis points (bps) to 23.1% primarily due to the drop in activity and pricing pressure in North America.
North America
Revenue of $1.19 billion was down 23% compared to the fourth-quarter of 2008. Pretax operating income of $163 million decreased 53% versus the fourth-quarter of 2008.
The US Land GeoMarket recorded a significant decrease in revenue as low natural gas prices and a lack of available credit for some customers resulted in a rapid and deep reduction in activity coupled with heavy pricing pressure. US Gulf of Mexico GeoMarket revenue was down due to weak shelf drilling activity and associated pricing erosion, while Canada GeoMarket revenue decreased on unusually low winter drilling activity and early spring break-up. These decreases, however, were partially offset by seasonally high exploration-related activity in the Alaska GeoMarket.
Pretax operating margin decreased sequentially by 858 bps to 13.7% on the precipitous activity decline and consequent pricing pressure in the US Land and US Gulf of Mexico GeoMarkets.
Latin America
Revenue of $1.03 billion was 7% lower than the previous quarter. Pretax operating income of $203 million increased 1% compared to the fourth- quarter of 2008.
Sequentially, the Venezuela/Trinidad & Tobago GeoMarket revenue decreased as a result of lower activity-related demand for Drilling & Measurements, Well Services and Wireline technologies, coupled with reduced IPM activity. In the Peru/Colombia/Ecuador GeoMarket, revenue fell following the year-end sales in the prior quarter of SIS software and Artificial Lift products, while the Argentina/Bolivia/Chile GeoMarket decreased on lower activity-related demand for Wireline, Drilling & Measurements and Well Services technologies. Area revenue was also reduced by 2% due to the weakening of local currencies against the US dollar. These decreases were partially offset by increased revenue in the Mexico/Central America GeoMarket due to efficiency gains on IPM projects, and in the Brazil GeoMarket as the result of robust demand for high technology Drilling & Measurements and Wireline services for offshore operations, as well as for Completion systems products.
Pretax operating margin improved sequentially by 168 bps to 19.7% primarily due to the positive impact of the efficiency gains in Mexico/Central America, and to a favorable mix of higher-margin exploration activity offshore Brazil. These increases were partially offset by reduced gain share from an IPM project in Peru/Colombia/Ecuador.
Europe/CIS/Africa
Revenue of $1.80 billion decreased 12% compared to the fourth-quarter of 2008. Pretax operating income of $467 million decreased 12% sequentially.
Sequentially, the weakening of local currencies against the US dollar, primarily in Russia and the North Sea, reduced Area revenue by 5%. In addition, Russia experienced a sharp drop in revenue as the result of seasonal weather-related slowdowns, further reductions in customer activity, and heavy pricing pressure. Revenue for the North Africa GeoMarket was down due to lower demand for Well Services technologies and SIS products while the Caspian GeoMarket experienced reduced demand for Well Services, Drilling & Measurements and Wireline services as customer activity slowed. Weaker Framo revenue also contributed to the Area decline. These decreases were partially offset by improved activity in the Nigeria & Gulf of Guinea GeoMarket that resulted in increased demand for Wireline services.
Pretax operating margin was essentially flat at 25.9% as the impact of lower activity in North Africa, a less favorable revenue mix in West & South Africa, and weaker Framo sales and services were largely offset by increased higher-margin activity in the North Sea and Nigeria & Gulf of Guinea GeoMarkets.
Middle East & Asia
Revenue of $1.38 billion was 6% lower sequentially. Pretax operating income of $456 million decreased 7% compared to the fourth-quarter of 2008.
Sequentially, Area revenue decreased primarily due to reduced customer activity in the Arabian, Brunei/Malaysia/Philippines, East Mediterranean and Thailand/Vietnam GeoMarkets, while seasonal weather-related slowdowns affected the China/Japan/Korea GeoMarket. These declines in activity mainly affected demand for Well Testing, Wireline and Drilling & Measurements services.
Pretax operating margin was sequentially steady at 33.1% as the positive impact from a more favorable mix of higher-margin services in the Australia/Papua New Guinea/New Zealand, India, Gulf and Qatar GeoMarkets offset the impact of the lower overall activity in the Area.
First-quarter revenue of $551 million decreased 8% versus the fourth-quarter of 2008. Pretax operating income of $55 million was down 38% sequentially.
Sequentially, Multiclient revenue decreased sharply, primarily in North America, as customers further curtailed discretionary spending. Data Processing recorded a sequential decrease across all areas except Latin America, while Land was down due to the completion of projects in the Middle East. These decreases were partially offset by an increase in Marine revenue with the start of several new proprietary contracts.
Total backlog decreased $319 million to $1.5 billion at the end of the quarter, partly due to delayed contract awards pending the results of licensing rounds in several countries.
Pretax operating margin decreased 483 bps to 9.9% primarily due to the lower Multiclient and Data Processing revenues, which were partially offset by improvements from Land as the result of efficient shutdowns following contract completions.
First Quarter 2009 Compared to First Quarter 2008
First Quarter
2009 2008 % chg
(Stated in millions)
Oilfield Services
Revenue $ 5,439 $ 5,605 (3 )%
Pretax Operating Income $ 1,255 $ 1,502 (16 )%
WesternGeco
Revenue $ 551 $ 676 (18 )%
Pretax Operating Income $ 55 $ 196 (72 )%
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Pretax operating income represents the segments' income before taxes and noncontrolling interests. The pretax operating income excludes such items as corporate expenses, amortization of certain intangible assets, interest on postretirement medical benefits, stock-based compensation costs, and interest income and interest expense not allocated to the segments.
First-quarter 2009 revenue was $6.00 billion versus $6.29 billion in the first quarter of 2008.
Income from continuing operations attributable to Schlumberger was $938 million in the first quarter of 2009 as compared to $1.30 billion in the first quarter of 2008.
First-quarter 2009 revenue of $5.44 billion was 3% lower compared to the same period last year. The weakening of local currencies against the US dollar reduced Oilfield Services first-quarter 2009 revenue by approximately 5%. In addition, revenue was down significantly in North America as the result of weaker activity and pricing pressure in US Land, US Gulf of Mexico and Canada while Europe/CIS/Africa revenue was lower primarily due to reduced activity in Russia. These decreases were partially offset by an increase in Latin America revenue due to increased IPM project work in Mexico/Central America and higher offshore activity in Brazil partially offset weaker activity in Venezuela/Trinidad & Tobago. Middle East & Asia revenue was also higher due to growth in several Middle East GeoMarkets.
First-quarter pretax operating income of $1.26 billion was 16% lower year-on year. Pretax operating margin declined 371 bps to 23.1% mostly as a result of the drop in activity and pricing pressure in North America.
North America
First-quarter 2009 revenue of $1.19 billion was 16% lower year-on-year. US Land revenue dropped significantly as low natural gas prices and a lack of available credit for some customers resulted in a sharp decrease in activity coupled with heavy pricing pressure. Canada revenue was down due to the weakening of the Canadian dollar against the US dollar as well as low winter drilling activity and an early spring breakup. The US Gulf of Mexico revenue decreased on weak shelf drilling activity and consequent pricing pressure.
Year-on-year, pretax operating margin decreased 11.9 percentage points to 13.7% primarily due to the impact of the lower activity in US Land, Canada and US Gulf and associated pricing erosion.
Latin America
First-quarter 2009 revenue of $1.03 billion was 12% above the same period last year primarily as result of increased IPM project activity in Mexico/Central America and growth in offshore activity in Brazil. These increases were partially offset by the impact of the weakening of local currencies against the US dollar as well as lower demand for SIS, Drilling & Measurements and Wireline services and reduced IPM activity in Venezuela/Trinidad & Tobago.
Year-on-year, pretax operating margin was steady at 19.7% as the impact of the lower activity in Venezuela/Trinidad & Tobago was offset by a favorable mix of higher-margin exploration activity in Brazil.
Europe/CIS/Africa
First-quarter 2009 revenue of $1.80 billion was 5% lower year-on-year primarily due to the weakening of local currencies against the US dollar, particularly in the North Sea, Continental Europe and Russia. Additionally, Russia experienced a significant reduction in activity from lower customer spending and pricing pressure. However, these decreases were partially offset by higher revenue in Libya due to strong demand for Well Testing and Drilling & Measurements services in offshore activities and for Artificial Lift systems; growth in West & South Africa from higher Completion systems sales and strong exploration-related activity which resulted in strong demand for Wireline and Testing technologies; and increased revenue in Continental Europe due to demand for Drilling & Measurements services and SIS products.
Year-on-year, pretax operating margin decreased only 41 bps to 25.9% as a more favorable revenue mix in Continental Europe and the North Sea offset the impact of the significantly lower activity in Russia.
Middle East & Asia
First-quarter 2009 revenue of $1.38 billion was 4% higher than the same period last year on strong demand for Well Services and Well Testing technologies coupled with strong sales of Completion and Artificial Lift systems in the GeoMarkets in the Middle East.
Year-on-year, pretax operating margin decreased 174 bps to 33.1% primarily due to a less favorable revenue mix across most of the Area.
First-quarter 2009 revenue of $551 million decreased 18% year-on-year. Multiclient revenue was down significantly, mostly in North America, as customers reduced discretionary spending. Land revenue was lower primarily due to the completion of projects in Latin America. Marine revenue decreased on reduced vessel utilization.
Year-on-year, pretax operating margin decreased 19.1 percentage points to 9.9% primarily due to the impact of the lower Multiclient and Marine revenue.
Interest & Other Income
Interest & other income consisted of the following for the first quarters of
2009 and 2008:
First Quarter
2009 2008
(Stated in millions)
Interest income $ 18 $ 37
Equity in net earnings of affiliated companies 59 65
$ 77 $ 102
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The decrease in interest income is attributable to the significant decline in interest rates experienced during the first quarter of 2009 as compared to the first quarter of 2008.
The decrease in equity in net earnings of affiliated companies was primarily due to the results of the MI-SWACO drilling fluids joint venture that Schlumberger operates with Smith International, Inc.
Other
Gross margin was 25.2% and 30.7% in the first quarter of 2009 and 2008, respectively. The decrease in gross margin was primarily driven by the drop in activity and pricing pressure in North America in Oilfield Services and the sharp decrease in Multiclient revenue at WesternGeco.
As a percentage of Revenue, Research & engineering, Marketing and General & administrative expenses for the first quarter of 2009 and 2008 were as follows:
First Quarter
2009 2008
Research & engineering 3.2 % 3.0 %
Marketing 0.4 % 0.4 %
General & administrative 2.2 % 2.2 %
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Research and engineering expenditures, by business segment, for the first quarters of 2009 and 2008 were as follows:
First Quarter
2009 2008
(Stated in millions)
Oilfield Services $ 158 $ 159
WesternGeco 27 28
Other 5 4
$ 190 $ 191
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The effective tax rate for the first quarter of 2009 was 21.1% compared to 19.1% for the same period in 2008. This increase was primarily attributable to a reduction in Oilfield Services being more than offset by an increase in WesternGeco, both of which are attributable to the geographic mix of earnings.
CASH FLOW
Net Debt represents gross debt less cash, short-term investments and fixed
income investments, held to maturity. Management believes that Net Debt provides
useful information regarding the level of Schlumberger indebtedness by
reflecting cash and investments that could be used to repay debt. Details of Net
Debt follow:
Mar. 31 Mar. 31
2009 2008
(Stated in millions)
Net Debt, beginning of period $ (1,129 ) $ (1,857 )
Net income attributable to Schlumberger 938 1,338
Depreciation and amortization (1) 609 517
Excess of equity income over dividends received (55 ) (57 )
Stock-based compensation expense 47 41
Increase in working capital requirements (904 ) (547 )
Capital expenditure (748 ) (752 )
Multiclient seismic data capitalized (48 ) (81 )
Dividends paid (251 ) (209 )
Proceeds from employee stock plans 15 79
Business acquisitions (12 ) (24 )
Pension plan funding (273 ) (24 )
Stock repurchase program - (564 )
Conversion of debentures - 47
Other 259 (38 )
Translation effect on Net Debt 25 (25 )
Net Debt, end of period $ (1,527 ) $ (2,156 )
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(1) Includes Multiclient seismic data costs.
Mar. 31 Mar. 31 Dec. 31
Components of Net Debt 2009 2008 2008
(Stated in millions)
Cash $ 192 $ 145 $ 189
Short-term investments 3,994 3,008 3,503
Fixed income investments, held to maturity 453 424 470
Bank loans and current portion of long-term debt (1,591 ) (1,273 ) (1,598 )
Convertible debentures (321 ) (722 ) (321 )
Other long-term debt (4,254 ) (3,738 ) (3,372 )
$ (1,527 ) $ (2,156 ) $ (1,129 )
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Key liquidity events during the first three months of 2009 and 2008 included:
• During the first quarter of 2009, Schlumberger entered into a €3.0 billion Euro Medium Term Note program which is guaranteed by Schlumberger Limited. This program provides for the issuance of various types of debt instruments such as fixed or floating rate notes in Euro, US dollar or other currencies.
In March 2009, Schlumberger issued €1.0 billion 4.50% Guaranteed Notes due 2014 under this program. Schlumberger entered into agreements to swap these Euro notes for US dollars on the date of issue until maturity, effectively making this a US dollar denominated debt on which Schlumberger will pay interest in US dollars at a rate of 4.95%. The proceeds from these notes will be used to refinance existing debt obligations and for general corporate purposes and will increase Schlumberger's financial flexibility.
• On April 20, 2006, the Board of Directors of Schlumberger approved a share repurchase program of up to 40 million shares of its common stock to be acquired in the open market before April 2010, subject to market conditions. This program was completed during the second quarter of 2008. On April 17, 2008, the Board of Directors of Schlumberger approved an $8 billion share repurchase program for shares of its common stock to be acquired in the open market before December 31, 2011, of which $934 million have been repurchased as of March 31, 2009. Given the current economic environment, Schlumberger has temporarily suspended the share repurchase program and did not repurchase any shares during the first quarter of 2009. The following table summarizes the activity under the April 20, 2006 share repurchase program during the first quarter of 2008:
Total cost Total number Average
of shares of shares price paid
purchased purchased per share
(Stated in thousands, except per share amounts)
First quarter of 2008 $ 564,302 6,953.0 $ 81.16
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• Schlumberger contributed $273 million to its deferred benefit pension plans during the first quarter of 2009 compared to $24 million during the first quarter of 2008.
• Cash flow provided by operations was $551 million in the first quarter of 2009 compared to $1.1 billion in the first quarter of 2008. This deterioration was primarily driven by the net income decrease experienced in the first quarter of 2009 as compared to the first quarter of 2008, and the significant pension plan contribution made in the first quarter of 2009.
• Capital expenditures were $748 million in the first quarter of 2009 compared to $752 million during the first quarter of 2008. Capital expenditures are expected to approach $2.6 billion for the full year 2009.
The reduction in cash flows being experienced by our customers resulting from declines in commodity prices, together with the reduced availability of credit and increased costs of borrowing due to the tightening of the credit markets, could have significant adverse effects on the financial condition of some of our customers. This
could result in, among other things, delay in, or nonpayment of, amounts that are owed Schlumberger, which could have a material adverse effect on Schlumberger's results of operations and cash flows. In particular, Schlumberger has experienced an increased delay in payment from one of its larger national oil company customers. Schlumberger operates in approximately 80 countries. As of March 31, 2009, only three of those countries individually accounted for greater than 5% of Schlumberger's accounts receivable balance and no single country represented greater than 10%.
As of March 31, 2009, Schlumberger had approximately $4.6 billion of cash and investments on hand. Wholly-owned subsidiaries of Schlumberger had separate committed debt facility agreements aggregating $3.8 billion with commercial banks, of which $2.2 billion was available and unused as of March 31, 2009. Schlumberger believes that these amounts are sufficient to meet future business requirements for at least the next twelve months.
Schlumberger's total outstanding debt at March 31, 2009 was $6.2 billion and included approximately $0.7 billion of commercial paper borrowings. The total outstanding debt increased approximately $0.9 billion as compared to December 31, 2008. This increase was primarily attributable to the €1 billion of 4.5% Guaranteed Notes due 2014 that were issued during the first quarter, partially offset by the repayment of $0.4 billion of commercial paper borrowings.
FORWARD-LOOKING STATEMENTS
This Report and other statements we make contain "forward-looking statements" within the meaning of the federal securities laws, which include any statements that are not historical facts, such as our forecasts or expectations regarding business outlook; growth for Schlumberger as a whole and for each of Oilfield Services and WesternGeco (and for specified products or geographic areas within each segment); oil and natural gas demand and production growth; operating margins; capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger customers; the Schlumberger effective tax rate; and future results of operations. These statements are subject to risks and uncertainties, including, but not limited to, the current global economic . . .
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