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| SLB > SEC Filings for SLB > Form 10-K on 31-Jan-2013 | All Recent SEC Filings |
31-Jan-2013
Annual Report
The following discussion and analysis contains forward-looking statements, including, without limitation, statements relating to our plans, strategies, objectives, expectations, intentions and resources. Such forward-looking statements should be read in conjunction with our disclosures under "Item 1A. Risk Factors" of this Form 10-K.
Executive Overview
Schlumberger revenue reached a new high of $42.15 billion in 2012 - an increase of 14% over 2011 - driven by robust exploration and development both offshore and in key land markets. Outside North America, revenue grew 16%, while North America revenue grew 9%, with strong offshore activity in the US Gulf of Mexico outweighing a challenging land market.
Global demand for oil recorded annual growth of some 0.8 million barrels per day for the second year running following the exceptionally strong recovery of 2010. Lower demand in the OECD countries through energy efficiency gains tempered stronger growth in the non-OECD economies and in China in particular. Oil supply grew by more than one million barrels per day in North America as light tight oil production accelerated although this was partially offset by decline in a number of non-OPEC countries. Within OPEC, production in Libya continued to recover leading to a slight increase in spare capacity, which remained relatively slim. This, together with ongoing geopolitical tension and the associated risk of supply disruption, continued to support oil prices.
For natural gas, the three main markets continued to behave independently. In North America, storage levels remained at record highs throughout the year as a result of growing domestic production and mild weather that pushed spot prices to 10-year lows in April. Toward the end of the year, however, storage levels returned closer to historical averages. In Asia, natural gas prices remained close to oil parity, supported by sustained high demand in Japan following the 2011 nuclear incident and by strong demand in China. In Europe, lower demand was offset by declining domestic supply and the effect of demand in Asia.
In this environment, Schlumberger achieved a record high for revenue, with strong contributions from all Areas. International performance was led by the Europe/CIS/Africa Area, where revenue was up 18%, mainly from strength in Russia and in the Nigeria & Gulf of Guinea, Angola, East Africa and North Sea GeoMarkets. In Latin America, revenue grew by 17%, driven by Integrated Project Management contracts on land, and activity for Wireline services and Drilling Group product and services offshore - mainly in the Mexico & Central America; Venezuela, Trinidad & Tobago; and Ecuador GeoMarkets. Revenue in the Middle East & Asia Area increased by 13% on strong results in the Saudi Arabia & Bahrain, Australasia, Brunei, Malaysia & Philippines, and China GeoMarkets. And in North America, revenue grew by $1.2 billion to reach $13.5 billion, driven by a robust 38% increase in demand for deepwater and exploration services offshore, particularly in the US Gulf of Mexico. Revenue from North America land also improved a modest 4% on strong demand for Production Group technology, although this was tempered by weakness in the hydraulic fracturing market.
All Product Groups recorded double-digit revenue growth. Reservoir Characterization revenue of $11.4 billion increased by 15%, with all Technologies also posting double-digit growth driven by offshore exploration activity across the Areas. Drilling Group revenue increased 15% to $16.0 billion, led by strong growth in M-I SWACO, Drilling & Measurements, and Drilling Tools & Remedial technologies. Production Group revenue of $14.9 billion increased 13%, with double-digit growth in Well Intervention, Completions and Artificial Lift Technologies. Well Services revenue also increased, primarily from offshore activity.
Entering 2013, the world macroeconomic environment remains uncertain with the GDP growth outlook unchanged. However, global oil demand is expected to grow at similar levels to those seen in 2012 and 2011 and supply will see further growth in North America as light tight oil production increases. Other non-OPEC production, however, can be expected to continue to face delays and decline challenges. As a result, global spare capacity should remain largely unchanged absent any unexpected macroeconomic or geopolitical events, and this will support oil prices within the band we have seen since 2011. For natural gas, little change is expected in the behavior of the main geographical markets in 2013.
Fourth Quarter 2012 Results
Product Groups
(Stated in millions)
Fourth Quarter 2012 Third Quarter 2012
Income Income
before before
Revenue taxes Revenue taxes
Oilfield Services
Reservoir Characterization $ 3,150 $ 917 $ 2,910 $ 838
Drilling 4,137 696 4,048 733
Production 3,924 590 3,675 548
Eliminations & other (37 ) (39 ) (25 ) 23
11,174 2,164 10,608 2,142
Corporate & other (1) - (180 ) - (176 )
Interest income (2) - 6 - 8
Interest expense (3) - (90 ) - (85 )
Charges & credits (4) - (93 ) - (32 )
$ 11,174 $ 1,807 $ 10,608 $ 1,857
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Geographic Areas
(Stated in millions)
Fourth Quarter 2012 Third Quarter 2012
Income Income
before before
Revenue taxes Revenue taxes
Oilfield Services
North America $ 3,409 $ 655 $ 3,290 $ 610
Latin America 2,071 377 1,860 333
Europe/CIS/Africa 2,958 579 2,985 646
Middle East & Asia 2,577 601 2,352 570
Eliminations & other 159 (48 ) 121 (17 )
11,174 2,164 10,608 2,142
Corporate & other (1) - (180 ) - (176 )
Interest income (2) - 6 - 8
Interest expense (3) - (90 ) - (85 )
Charges & credits (4) - (93 ) - (32 )
$ 11,174 $ 1,807 $ 10,608 $ 1,857
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(1) Comprised principally of corporate expenses not allocated to the segments, interest on postretirement medical benefits, stock-based compensation costs, amortization expense associated with intangible assets recorded as a result of the 2010 acquisition of Smith International, Inc. ("Smith") and certain other nonoperating items.
(2) Excludes interest income included in the segments' income (fourth quarter 2012 - $- million; third quarter 2012 - $- million).
(3) Excludes interest expense included in the segments' income (fourth quarter 2012-$3 million; third quarter 2012 - $3 million).
(4) Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements.
Oilfield Services
Fourth-quarter revenue of $11.17 billion increased $567 million or 5% sequentially, on robust international activity. Of the revenue increase, approximately 36% came from the typical year-end surge in product and software sales, and 12% came from the increase in WesternGeco multiclient sales. Reservoir Characterization Group revenue grew 8% to reach $3.2 billion, while Drilling Group revenue of $4.1 billion was 2% higher. Production Group revenue increased 7% to $3.9 billion. Geographically, International revenue of $7.6 billion increased $409 million or 6% sequentially, while North America revenue of $3.4 billion grew by $118 million or 4% sequentially.
Among the Areas, Middle East & Asia revenue of $2.6 billion grew 10% sequentially led by the start of new IPM turnkey projects in Iraq; higher Testing, Well Intervention and Drilling Group services in addition to year-end product sales in the Saudi Arabia & Bahrain GeoMarket; the start of the Jurassic seismic project as well as strong product and year-end software sales in Kuwait; and the increase in IPM onshore projects and strong drilling activity in the Australasia GeoMarket. In Latin America, revenue of $2.1 billion increased 11% sequentially led by robust year-end software and product sales, strong PetroTechnical Services consulting activity, unconventional fracturing and well intervention stimulation activity in the Mexico & Central America GeoMarket. Higher WesternGeco vessel utilization for new seismic acquisition surveys in Brazil, Trinidad and Uruguay, coupled with the start of an IPM project in Argentina, also contributed to the increase. In Europe/CIS/Africa, revenue of $3.0 billion declined 1% mainly due to lower WesternGeco vessel utilization following the seasonal transit of vessels out of the North Sea. Completed IPM projects and service contract delays in North Africa and the completion of the WesternGeco survey in the Kara Sea in Russia also contributed to the decline. The sequential decrease, however, was partially offset by increased activity in Angola and higher product and software sales in the Russia and Central Asia region and the Continental Europe GeoMarket. North America revenue of $3.4 billion increased 4% sequentially-mainly from offshore which rose by 24%, while land fell by 2%. The increase in offshore revenue resulted from both higher drilling activity as the number of deepwater drilling rigs increased and stronger year-end WesternGeco multiclient sales. The decline in land revenue was mainly due to continued pricing weakness for Well Services hydraulic fracturing activities. A seasonal decline in deviated and horizontal land drilling activity paired with pricing weakness also affected the Drilling Group segment in North America.
On a worldwide basis, fourth-quarter pretax operating income of $2.2 billion increased 1% sequentially. International pretax operating income of $1.6 billion grew 1%, while North America pretax operating income of $655 million increased 7%.
Pretax operating margin of 19.4% declined 83 basis points (bps) sequentially. International pretax operating margin of 20.5% declined 104 bps, which stemmed from a higher-than-usual seasonal slowdown and contractual delays in the Europe/CIS/Africa Area that traditionally attract higher margins. In North America, pretax operating margin of 19.2% increased 65 bps sequentially due to the increased contribution of high-margin offshore services, particularly in the US Gulf of Mexico, which more than offset margin decline in Drilling Group and Well Services activities on land. By segment, Reservoir Characterization Group pretax operating margin reached 29.1% while the pretax operating margins of the Drilling and Production Groups were 16.8% and 15.0%, respectively.
Reservoir Characterization Group
Fourth-quarter revenue of $3.15 billion increased $240 million or 8% sequentially. Pretax operating income of $917 million was 9% higher sequentially.
Revenue increased mainly through robust international end-of-year SIS software sales while Testing Services grew for the third successive quarter from higher activity in the Saudi Arabia & Bahrain and Mexico & Central America
Pretax operating margin of 29.1% increased 31 bps sequentially. Margin expansion was primarily due to traditionally strong end-of-year sales of Schlumberger Information Services (SIS) software and WesternGeco multiclient licenses. Testing Services, Wireline and PetroTechnical Services margins also expanded on a more favorable technology mix in exploration and development projects. These improvements were, however, subdued by lower WesternGeco Marine margin as a result of lower vessel utilization.
Drilling Group
Fourth-quarter revenue of $4.1 billion increased $88 million or 2% sequentially. Pretax operating income of $696 million was 5% lower sequentially.
Revenue increased on international and offshore demand for Drilling & Measurements and M-I SWACO products and services. Drilling Tools & Remedial Services activity also contributed to growth with a full-quarter of revenue for Radius services. IPM revenue grew slightly, as increased projects in Australia and new start-ups in Iraq and Argentina were partly offset by project completions in North Africa. The overall revenue increase was tempered by a decline in drilling-related services, mainly in North America land, due to a seasonal decline in deviated and horizontal drilling activity coupled with pricing weakness.
Pretax operating margin of 16.8% decreased 128 bps sequentially. Among the Group Technologies, sequential margins in Drilling & Measurements and Drilling Tools & Remedial Services were flat, while margin contractions were recorded at M-I SWACO and IPM due to geographical mix and operational and start-up delays.
Production Group
Fourth-quarter revenue of $3.9 billion increased $249 million or 7% sequentially. Pretax operating income of $590 million was 8% higher sequentially.
The increase in revenue resulted primarily from stronger Completions and Artificial Lift product year-end sales coupled with new Framo subsea projects in the US Gulf of Mexico and in the North Sea and Angola GeoMarkets. Well Intervention Services revenue increased on higher activity in the Mexico & Central America and Saudi Arabia & Bahrain GeoMarkets. Well Services revenue grew mainly due to higher activity in the international and the North America offshore markets. International activities were strong from stimulation vessel operations in Brazil, unconventional fracturing activity in Mexico, and new projects in Kuwait and Iraq. Well Services stage count in North America land also grew but land revenue declined on continued pricing weakness from the oversupply of hydraulic horsepower.
Pretax operating margin increased 13 bps sequentially to 15%. The increase was largely attributable to the favorable impact of year-end Completions and Artificial Lift product sales coupled with improved profitability from new Framo subsea projects. This margin increase was largely offset by continued Well Services pricing weakness.
Full-Year 2012 Results
Product Groups
(Stated in millions)
2012 2011
Income Income
before before
Revenue taxes Revenue taxes
Oilfield Services
Reservoir Characterization $ 11,424 $ 3,212 $ 9,929 $ 2,449
Drilling (1) 15,971 2,824 13,860 2,254
Production (1) 14,875 2,371 13,136 2,637
Eliminations & other (121 ) (60 ) 34 (35 )
42,149 8,347 36,959 7,305
Corporate & other (2) - (694 ) - (590 )
Interest income (3) - 30 - 37
Interest expense (4) - (331 ) - (290 )
Charges & credits (5) - (161 ) - (223 )
$ 42,149 $ 7,191 $ 36,959 $ 6,239
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Geographic Areas
(Stated in millions)
2012 2011
Income Income
before before
Revenue taxes Revenue taxes
Oilfield Services
North America $ 13,485 $ 2,736 $ 12,323 $ 3,052
Latin America 7,554 1,387 6,467 1,074
Europe/CIS/Africa 11,443 2,245 9,676 1,477
Middle East & Asia 9,194 2,152 8,102 1,874
Eliminations & other 473 (173 ) 391 (172 )
42,149 8,347 36,959 7,305
Corporate & other (2) - (694 ) - (590 )
Interest income (3) - 30 - 37
Interest expense (4) - (331 ) - (290 )
Charges & credits (5) - (161 ) - (223 )
$ 42,149 $ 7,191 $ 36,959 $ 6,239
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(1) Effective January 1, 2012, a component of the Drilling Group was reallocated to the Production Group. Historical information has been reclassified to conform to this presentation.
(2) Comprised principally of corporate expenses not allocated to the segments, interest on postretirement medical benefits, stock-based compensation costs, amortization expense associated with intangible assets recorded as a result of the acquisition of Smith and certain other nonoperating items.
(3) Excludes interest income included in the segments' income (2012 - $- million; 2011 - $3 million).
(4) Excludes interest expense included in the segments' income (2012 - $8 million; 2011 - $8 million).
(5) Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements.
Oilfield Services
Full-year 2012 revenue of $42.15 billion increased 14% versus the same period last year with North America Area 9% higher and international activity 16% higher. Internationally, higher exploration and development activities in a
Full-year 2012 pretax operating income of $8.3 billion increased 14% year-on-year as international pretax operating income of $5.8 billion increased 31% while North America pretax operating income of $2.7 billion declined by 10% year-on-year.
Pretax operating margin was essentially flat at 19.8% as international pretax operating margin expanded 226 bps to 20.5% while North America pretax operating margin declined 448 bps to 20.3%. Europe/CIS/Africa posted a 435 bps improvement to reach 19.6% and Latin America increased 175 bps to 18.4% and Middle East & Asia reported a 27 bps increase to 23.4%. North America margin decline was due to Well Services production technologies, as a result of pricing pressure and cost inflation.
Reservoir Characterization Group
Full-year revenue of $11.42 billion was 15% 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 Pretax operating margin increased 345 bps to 28.1% largely due to the higher-margin exploration activities that benefited Wireline and Testing Services, higher SIS software sales, higher WesternGeco marine vessel utilization and improved UniQ land seismic productivity.
Drilling Group
Full-year revenue of $15.97 billion was 15% 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.
Pretax operating margin increased 142 bps to 17.7% 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 exploration activities in North America offshore and in the international markets - mainly in the Europe/CIS/Africa Area.
Production Group
Full-year revenue of $14.88 billion increased 13% year-on-year, both in North America and the international markets. Well Intervention, Artificial Lift and Completions Technologies posted strong growth across all Areas. Well Services grew both in North America and internationally, with international growth led by Latin America and by Europe/CIS/Africa.
Pretax operating margin decreased 414 bps to 15.9% mainly due to a decline in margins for Well Services production 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.
Full-Year 2011 Results
Product Groups
(Stated in millions)
2011 2010
Income Income
before before
Revenue taxes Revenue taxes
Oilfield Services
Reservoir Characterization $ 9,929 $ 2,449 $ 9,321 $ 2,321
Drilling (1) 13,860 2,254 7,917 1,313
Production (1) 13,136 2,637 9,366 1,389
Eliminations & other 34 (35 ) 68 48
36,959 7,305 26,672 5,071
Corporate & other (2) - (590 ) - (405 )
Interest income (3) - 37 - 43
Interest expense (4) - (290 ) - (202 )
Charges & credits (5) - (223 ) - 625
$ 36,959 $ 6,239 $ 26,672 $ 5,132
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Geographic Areas
(Stated in millions)
2011 2010
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