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SLB > SEC Filings for SLB > Form 10-Q on 24-Oct-2012All Recent SEC Filings

Show all filings for SCHLUMBERGER LTD /NV/

Form 10-Q for SCHLUMBERGER LTD /NV/


24-Oct-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

               Third Quarter 2012 Compared to Second Quarter 2012

                                 Product Groups



                                                                                        (Stated in millions)
                                         Third Quarter 2012                     Second Quarter 2012
                                                        Income                                 Income
                                                        Before                                 Before
                                       Revenue           Taxes         Revenue                 Taxes
Oilfield Services
Reservoir Characterization            $    2,910        $   838        $  2,778        $                  784
Drilling                                   4,048            733           4,001                           738
Production                                 3,675            548           3,738                           612
Eliminations & other                         (25 )           23             (69 )                         (35 )

                                          10,608          2,142          10,448                         2,099

Corporate & other                             -            (176 )            -                           (169 )
Interest income (1)                           -               8              -                              7
Interest expense (1)                          -             (85 )            -                            (76 )
Charges and credits                           -             (32 )            -                            (22 )

                                      $   10,608        $ 1,857        $ 10,448        $                1,839

                                Geographic Areas



                                                                     (Stated in millions)
                            Third Quarter 2012                 Second Quarter 2012
                                          Income                            Income
                                          Before                            Before
                            Revenue        Taxes       Revenue              Taxes
   Oilfield Services
   North America          $     3,290     $   610      $  3,367     $                  695
   Latin America                1,860         333         1,857                        354
   Europe/CIS/Africa            2,985         646         2,923                        592
   Middle East & Asia           2,352         570         2,200                        505
   Eliminations & other           121         (17 )         101                        (47 )

                               10,608       2,142        10,448                      2,099

   Corporate & other               -         (176 )          -                        (169 )
   Interest income (1)             -            8            -                           7
   Interest expense (1)            -          (85 )          -                         (76 )
   Charges and credits             -          (32 )          -                         (22 )

                          $    10,608     $ 1,857      $ 10,448     $                1,839

(1) Excludes interest included in the Product Group and Geographical Area results.

Pretax operating income represents the segments' income before taxes and noncontrolling interests. The pretax operating income excludes such items as corporate expenses and interest income and interest expense not allocated to the segments as well as the charges and credits described in detail in Note 2 to the Consolidated Financial Statements, interest on postretirement medical benefits, stock-based compensation costs and amortization expense associated with intangible assets recorded as a result of the acquisition of Smith International, Inc. ("Smith").


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OILFIELD SERVICES

Third-quarter revenue of $10.61 billion increased $160 million sequentially due to robust international activity. Sequentially, Reservoir Characterization Group revenue grew 5% to reach $2.9 billion while Drilling Group revenue of $4.0 billion was 1% higher. Production Group revenue declined 2% sequentially to $3.7 billion. Geographically, international revenue of $7.2 billion increased $217 million, or 3%, while North America revenue of $3.3 billion declined by $76 million, or 2%, sequentially.

Reservoir Characterization Group revenue increased sequentially due to higher WesternGeco marine vessel utilization in the North Sea and the Kara Sea and improved UniQ* land seismic productivity in the Middle East region. Testing Services revenue increased strongly in exploration and development projects in Europe, Africa and the Latin America Area. Drilling Group revenue increased on robust international and offshore demand for Drilling & Measurements services, mainly in the Middle East & Asia Area. Drilling Tools & Remedial Services also contributed to growth particularly through the addition of recently acquired CASING DRILLING™ and Radius services. The decline in Production Group revenue resulted primarily from Well Services in North America land where the oversupply of hydraulic horsepower continued to exert downward pricing pressure on sequentially flat activity. The lower revenue was partially offset by increased Well Intervention Services activity in the North Sea and Russia, and higher Completions product sales across the Areas, including the subsea project start-up in Russia.

Among the Areas, Middle East & Asia revenue of $2.4 billion grew 7% sequentially led by strong offshore activity in the Australasia GeoMarket; solid workover, development and exploration operations in the Saudi Arabia & Bahrain GeoMarket; robust seismic and drilling activity in the Brunei, Malaysia & Philippines GeoMarket; and higher drilling and stimulation work in the China, Japan & Korea GeoMarket. In Europe/CIS/Africa, revenue of $3.0 billion increased 2% from strong seismic acquisition services for WesternGeco in the North Sea and the Kara Sea, robust onshore activity in Western Siberia, and continued exploration growth in East Africa. These increases were partially offset by local delays and rig start-ups in North Africa. In Latin America, revenue of $1.9 billion was flat sequentially as the contribution of the Schlumberger Production Management project in Ecuador was offset by local operational delays, mobilization activities, and a shift in activity mix in other GeoMarkets. North America revenue of $3.3 billion decreased 2% due to the muted Canadian seasonal recovery, the drop in US land rig count, the continued pricing weakness in the US land hydraulic fracturing market, and the activity shut-down associated with Hurricane Isaac in the US Gulf of Mexico.

Third-quarter pretax operating income of $2.1 billion increased 2% sequentially. International pretax operating income of $1.5 billion increased 7% over the prior quarter while North America pretax operating income of $610 million declined 12% sequentially.

Pretax operating margin of 20.2% increased 11 basis points (bps) sequentially. International pretax operating margin of 21.5% expanded 73 bps sequentially due to strong results in the Middle East & Asia and Europe/CIS/Africa Areas. In North America, pretax operating margin of 18.6% decreased 209 bps sequentially from the lower US land rig count and from lower pricing due to excess pressure pumping capacity. In addition, cost inflation for raw materials also continued to impact margins. By segment, Reservoir Characterization Group pretax operating margin reached 28.8% while the pretax operating margins of the Drilling and Production Groups were 18.1% and 14.9%, respectively.

Reservoir Characterization Group

Third-quarter revenue of $2.91 billion increased $133 million or 5% sequentially. Pretax operating income of $838 million was 7% higher than the second quarter.

Sequentially, revenue increased from higher WesternGeco marine vessel utilization in the North Sea and the Kara Sea following the seasonal transits and dry-dockings of the second quarter, as well as from improved UniQ


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productivity in the Middle East region. Testing Services revenue growth was also strong on exploration and development projects in Europe, Africa and the Latin America Area. Wireline revenue was lower due to project delays in North Africa, operational interruptions in Norway and Colombia, and limited growth in the US Gulf of Mexico due to the activity shut-down associated with Hurricane Isaac. Schlumberger Information Solutions (SIS) software sales were also lower following strong results in the previous quarter.

Pretax operating margin of 28.8% increased 58 bps over the second quarter. Sequential margin expansion was primarily due to higher WesternGeco asset utilization, improved pricing and a favorable mix of multiclient data sales. Testing Services margins expanded through technology mix in exploration and development projects. These improvements were, however, subdued by lower Wireline margins as a result of local factors that delayed and interrupted activities.

Drilling Group

Third-quarter revenue of $4.0 billion increased $47 million or 1% sequentially. Pretax operating income of $733 million was 1% lower sequentially.

Sequentially, revenue grew on robust international and offshore demand for Drilling & Measurements services, mainly in the Middle East & Asia Area. Drilling Tools & Remedial Services also contributed to growth through the addition of CASING DRILLING and Radius services. Revenue for Bits & Advanced Technologies products and services grew due to the seasonal rebound of activity in Canada, while Integrated Project Management saw increased activity on unconventional gas projects in the Australasia GeoMarket. M-I SWACO revenue fell as growth in China and Malaysia was more than offset by delayed operations in the Caspian region and lower activity in Norway and Denmark.

Pretax operating margin of 18.1% decreased 34 bps sequentially. Among the Group Technologies, sequential margins expanded for Bits & Advanced Technologies through higher drillbit sales but this effect was not enough to offset decreased M-I SWACO margins from lower revenue, an adverse mix of activity, and project start-up delays.

Production Group

Third-quarter revenue of $3.7 billion declined $62 million or 2% sequentially. Pretax operating income of $548 million was 11% lower sequentially.

Sequentially, revenue decreased primarily due to Well Services in North America land where the oversupply of hydraulic horsepower continued to exert downward pricing pressure on flat activity as a seasonal recovery in Canada was offset by a decline on land in the US. This decline was partially offset by increases in Well Services revenue in the Middle East & Asia and Europe/CIS/Africa Areas, Well Intervention Services activity in the North Sea and Russia, and higher Completions product sales across all the Areas including the subsea project start-up in Russia.

Pretax operating margin decreased 148 bps sequentially to 14.9%. The sequential decline was largely attributable to the drop in US land rig count and consequent lower pricing due to excess pressure pumping capacity. In addition, cost inflation for raw materials continued to impact margins. This was partially offset, however, by increased Completions margins through improved asset utilization, as well as by better activity mix for Well Intervention Services technologies.


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               Third Quarter 2012 Compared to Third Quarter 2011

                                 Product Groups



                                                                                        (Stated in millions)
                                         Third Quarter 2012                      Third Quarter 2011
                                                        Income                                 Income
                                                        Before                                 Before
                                       Revenue           Taxes         Revenue                 Taxes
Oilfield Services
Reservoir Characterization            $    2,910        $   838        $  2,488        $                  610
Drilling                                   4,048            733           3,576                           604
Production                                 3,675            548           3,473                           716
Eliminations & other                         (25 )           23               9                             1

                                          10,608          2,142           9,546                         1,931

Corporate & other                             -            (176 )            -                           (158 )
Interest income (1)                           -               8              -                              9
Interest expense (1)                          -             (85 )            -                            (69 )
Charges and credits                           -             (32 )            -                            (26 )

                                      $   10,608        $ 1,857        $  9,546        $                1,687

                                Geographic Areas



                                                                     (Stated in millions)
                            Third Quarter 2012                 Third Quarter 2011
                                          Income                            Income
                                          Before                            Before
                            Revenue        Taxes       Revenue              Taxes
   Oilfield Services
   North America          $     3,290     $   610      $  3,316     $                  837
   Latin America                1,860         333         1,658                        271
   Europe/CIS/Africa            2,985         646         2,471                        402
   Middle East & Asia           2,352         570         2,011                        445
   Eliminations & other           121         (17 )          90                        (24 )

                               10,608       2,142         9,546                      1,931

   Corporate & other               -         (176 )          -                        (158 )
   Interest income (1)             -            8            -                           9
   Interest expense (1)            -          (85 )          -                         (69 )
   Charges and credits             -          (32 )          -                         (26 )

                          $    10,608     $ 1,857      $  9,546     $                1,687

(1) Excludes interest included in the Product Group and Geographical Area results.

OILFIELD SERVICES

Third-quarter 2012 revenue of $10.61 billion increased $1.1 billion or 11% from the same period last year largely due to robust international activity in Drilling & Measurements, WesternGeco, M-I SWACO and Wireline. Geographically, the increase was led by the Europe/CIS/Africa Area (up 21%), mainly in Russia and central Asia, and in the Nigeria & Gulf of Guinea, East Africa, North Sea and Angola GeoMarkets. Middle East & Asia


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revenue increased 17% on strong land and offshore activity in the Saudi Arabia & Bahrain; Australasia; China; and Brunei, Malaysia & Philippines GeoMarkets. Latin America revenue was 12% higher, mainly in the Mexico & Central America and Ecuador GeoMarkets driven by new Schlumberger Production Management and Integrated Project Management (IPM) projects. North America revenue was down 1% as the continued weakness in the hydraulic fracturing market was offset by the increase in offshore activity, particularly in the US Gulf of Mexico.

Third-quarter 2012 pretax operating income of $2.1 billion increased 11% year-on-year as international pretax operating income of $1.5 billion increased 39% while North America pretax operating income of $610 million declined 27% year-on-year.

Pretax operating margin remained essentially flat at 20.2% as international pretax operating margin increased 330 bps to reach 21.5% while North America pretax operating margin declined 669 bps to 18.6%. Europe/CIS/Africa posted a 534 bps improvement to reach 21.6% and similarly Middle East & Asia reported a 207 bps increase to reach 24.2%. The North America margin decrease was due to Well Services technologies, as a result of pricing pressure and cost inflation.

Reservoir Characterization Group

Third-quarter 2012 revenue of $2.91 billion was 17% higher than the same period last year across all Technologies, led by strong growth in WesternGeco marine services and multiclient data sales, namely in the North Sea and Russia & Central Asia; and robust activity in Wireline and Testing Services largely in the Middle East & Asia and Europe/CIS/Africa Areas.

Year-on-year, pretax operating margin increased 431 bps to 28.8% largely due to the higher-margin WesternGeco activity and exploration and development projects in Europe, Africa and the Latin America Area that benefited Testing Services.

Drilling Group

Third-quarter 2012 revenue of $4.05 billion was 13% higher than the previous year primarily due to the significantly improved exploration and development activities of Drilling & Measurements, M-I SWACO, and the other Smith-related products and services in North America offshore and in the international markets.

Year-on-year, pretax operating margin increased 121 bps to 18.1% primarily due to the increase in higher-margin activities of Drilling & Measurements, M-I SWACO, Bits & Advanced Technologies and Drilling Tools & Remedial technologies-all of which benefited from higher-margin exploration activities in North America offshore and in the international markets mainly in the Europe/CIS/Africa and the Middle East & Asia Areas.

Production Group

Third-quarter 2012 revenue of $3.67 billion increased 6% year-on-year, particularly in the international markets. Completions, Well Intervention Services and Artificial Lift Technologies posted strong growth while Well Services declined due to continued weakness in the North America hydraulic fracturing market.

Year-on-year, pretax operating margin decreased 572 bps to 14.9% mainly due to decline in margins for Well Services technologies, primarily in North America, as a result of pricing pressure and cost inflation.


Table of Contents

                 Nine Months 2012 Compared to Nine Months 2011

                                 Product Groups



                                                                       (Stated in millions)
                                Nine Months 2012                  Nine Months 2011
                                            Income                            Income
                                            Before                            Before
                              Revenue        Taxes       Revenue              Taxes
 Oilfield Services
 Reservoir Characterization   $  8,274      $ 2,295      $  7,142     $                1,672
 Drilling                       11,834        2,128        10,055                      1,604
 Production                     10,951        1,781         9,433                      1,862
 Eliminations & other              (85 )        (20 )          28                         (2 )

                                30,974        6,184        26,658                      5,136

 Corporate & other                  -          (516 )          -                        (436 )
 Interest income (1)                -            24            -                          28
 Interest expense (1)               -          (241 )          -                        (208 )
 Charges and credits                -           (68 )          -                        (141 )

                              $ 30,974      $ 5,383      $ 26,658     $                4,379

                                Geographic Areas



                                                                    (Stated in millions)
                             Nine Months 2012                  Nine Months 2011
                                         Income                            Income
                                         Before                            Before
                            Revenue       Taxes       Revenue              Taxes
    Oilfield Services
    North America          $  10,076     $ 2,082      $  8,789     $                2,103
    Latin America              5,483       1,010         4,628                        771
    Europe/CIS/Africa          8,485       1,666         7,003                      1,006
    Middle East & Asia         6,616       1,551         5,949                      1,367
    Eliminations & other         314        (125 )         289                       (111 )

                              30,974       6,184        26,658                      5,136

    Corporate & other             -         (516 )          -                        (436 )
    Interest income (1)           -           24            -                          28
    Interest expense (1)          -         (241 )          -                        (208 )
    Charges and credits           -          (68 )          -                        (141 )

                           $  30,974     $ 5,383      $ 26,658     $                4,379

(1) Excludes interest included in the Product Group and Geographical Area results.


Table of Contents

OILFIELD SERVICES

Nine-month 2012 revenue of $30.97 billion increased 16% versus the same period last year with North America Area 15% higher and international activity 17% higher. The increase in North America was due to strong growth in North America offshore, driven by robust deepwater and exploration activity that benefited the Reservoir Characterization and Drilling Groups Technologies. There was also an improvement in activity in North America land for the Production Group Technologies although the increase slowed towards the end of the period due to the weakness in the hydraulic fracturing market. Internationally, higher exploration and development activities in a number of GeoMarkets both offshore and in key land markets contributed to the increase. The increase was led by the Europe/CIS/Africa Area which increased 21%, mainly in Russia and in the Nigeria & Gulf of Guinea, Angola, the North Sea and East Africa GeoMarkets. Latin America was higher by 18%, mainly in the Mexico & Central America; Venezuela, Trinidad & Tobago; and Ecuador GeoMarkets driven by strong IPM activity on land and robust offshore activity for Wireline and Drilling Group services and products. Middle East & Asia increased 11% on strong results in the Saudi Arabia & Bahrain; Australasia; Brunei, Malaysia, & Philippines; and China GeoMarkets.

Nine-month 2012 pretax operating income of $6.2 billion increased 20% year-on-year as international pretax operating income of $4.2 billion increased 34% while North America pretax operating income of $2.1 billion declined by 1% year-on year.

Year-to-date pretax operating margin increased 70 bps to reach 20.0% as international pretax operating margin expanded 265 bps to 20.5% while North America pretax operating margin declined 327 bps to 20.7%. Europe/CIS/Africa posted a 527 bps improvement to reach 19.6% and similarly Latin America increased 175 bps to 18.4% and Middle East & Asia reported a 46 bps increase to 23.4%. North America margin decline was due to Well Services technologies, as a result of pricing pressure and cost inflation.

Reservoir Characterization Group

Nine-month 2012 revenue of $8.27 billion was 16% higher than the same period last year led by Wireline, Testing Services, WesternGeco and SIS Technologies driven by improved offshore exploration activities across all Areas, namely in North America offshore, Latin America, and in Europe/CIS/Africa.

Year-on-year, pretax operating margin increased 433 bps to 27.7% largely due to the higher-margin exploration activities that benefited Wireline and Testing Services, higher SIS software sales, and higher WesternGeco marine vessel utilization and improved UniQ land seismic productivity.

Drilling Group

Nine-months 2012 revenue of $11.83 billion was 18% higher than the previous year primarily due to the significantly improved exploration and development activities of M-I SWACO, Drilling & Measurements, and the other Drilling Group Technologies in North America offshore and in the international markets.

Year-on-year, pretax operating margin increased 203 bps to 18.0% primarily due to the increase in higher-margin activities of Drilling & Measurements, M-I SWACO and Drilling Tools & Remedial technologies-all of which benefited from higher-margin exploration activities in North America offshore and in the international markets-mainly in the Europe/CIS/Africa Area.

Production Group

Nine-month 2012 revenue of $10.95 billion increased 16% year-on-year, both in North America and the international markets. Well Services grew both in North America and internationally, with international growth led by Latin America and by Europe/CIS/Africa. Well Intervention, Artificial Lift and Completions Technologies posted strong growth across all Areas.


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Year-on-year, pretax operating margin decreased 347 bps to 16.3% mainly due to a decline in margins for Well Services technologies, primarily in North America, as a result of pricing pressure and cost inflation. This was mitigated by margin expansion for the other Production Group Technologies led by Well Intervention Services and Completions Technologies.

INTEREST & OTHER INCOME

Interest & other income consisted of the following for the third quarter and
nine months ended September 30, 2012 and 2011:



                                                                         (Stated in millions)
                                                     Third Quarter            Nine Months
                                                   2012         2011       2012        2011
 Equity in net earnings of affiliated companies   $    36       $  24     $   112     $    65
 Interest income                                        8          10          25          29

                                                  $    44       $  34     $   137     $    94

OTHER

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