HOUSTON--(BUSINESS WIRE)--Jan. 18, 2019-- Schlumberger Limited (NYSE: SLB) today reported results for full-year 2018 and the fourth quarter of 2018.
Schlumberger Chairman and CEO Paal Kibsgaard commented, "Full-year 2018 revenue of $32.8 billion increased 8% year-on-year and grew for the second successive year. Performance was driven by North America where revenue of $12.0 billion increased 26% due to the results of our OneStim® business, which grew by 41%. Full-year international revenue of $20.4 billion was essentially flat compared with 2017. However, excluding Cameron, international revenue for the second half of 2018 showed year-over-year growth of 3%, marking the beginning of a positive activity trend after three consecutive years of declining revenues.
"Production revenue of $12.4 billion increased 17%, while Drilling revenue of $9.3 billion improved 10%. Reservoir Characterization revenue of $6.5 billion declined 4%, mostly driven by the divestiture of the WesternGeco® marine seismic acquisition business. Cameron revenue of $5.2 billion declined 1% as a further decline in the long-cycle businesses of OneSubsea® and Drilling Systems was largely offset by growth in Surface Systems and Valves & Measurement.
"Full-year 2018 pretax operating income of $4.2 billion grew 7%. Pretax operating margin of 13% was essentially flat with the previous year, as the impact of higher revenue was offset by reactivation and mobilization costs associated with the ramp-up and strategic positioning for increased activity in both North America and internationally.
"Fourth-quarter revenue of $8.2 billion declined 4% sequentially driven by lower activity and pricing for most Production- and Cameron-related businesses in North America land. Lower revenue from OneSubsea also drove the decline, but we are now close to the cycle trough of backlog-driven activity as we booked more than $600 million in new project orders during the quarter.
"International activity remained resilient despite the oil price drop, with revenue increasing 1% sequentially. The seasonal slowdown in Russia was offset by increased revenue in the Middle East, Asia, and Africa. Revenue from Europe and Latin America was flat compared with the previous quarter.
"Sequential performance was heavily impacted by Production- and Cameron-related activity in North America land, as seen by the 12% sequential decrease in our consolidated North America revenue. OneStim revenue dropped 25% sequentially as we decided to warm-stack a number of our fleets during the latter part of the quarter, and as we focused on securing dedicated contracts for the first half of 2019 early in the fourth-quarter tendering cycle. Drilling revenue increased 1% sequentially as we continued to mobilize additional drilling rigs for our Integrated Drilling Services (IDS) projects in Norway, Saudi Arabia, India, Argentina, Ecuador, China, and Iraq. Reservoir Characterization revenue decreased 1% sequentially driven by lower Wireline and OneSurface® revenue and limited year-end sales of Software Integrated Solutions (SIS) software and WesternGeco multiclient seismic licenses. Cameron revenue declined 3% sequentially, mostly due to lower revenue from our OneSubsea and Valves & Measurement product lines.
"From a macro perspective, the dramatic fall in oil prices in the fourth quarter was largely driven by the US shale production surprising to the upside as a result of the surge in activity earlier in the year, and as geopolitics negatively impacted the global demand- and supply-balance sentiments. The combination of these factors, together with a large sell-off in the equity markets due to concerns around global growth and increasing US interest rates, created a near perfect storm to close out 2018.
"Looking forward to 2019, we expect a more positive supply- and demand-balance sentiment to lead to a gradual recovery in the price of oil over the course of the year, as the OPEC and Russia cuts take full effect; the effect of lower activity in North America land in the second half of 2018 impacts production growth; the dispensations from the Iran export sanctions expire and are not renewed; and as the US and China continue to work toward a solution to their ongoing trade dispute.
"In the meantime, the recent oil price volatility has introduced more uncertainty around the E&P spending outlook for 2019, with customers generally taking a more conservative approach at the start of the year. This will once again push out in time the broad-based recovery in E&P spending that we expected only three months ago.
"However, based on our recent discussions with customers, we are seeing clear signs that E&P investments are starting to normalize and reflect a more sustainable financial stewardship of the global resource base. For the North America land E&P operators, this means that future investments will likely be much closer to the level that can be covered by free cash flow. Conversely, in the international markets apart from the Middle East and Russia, after four years of underinvestment and a focus on maximizing cash flow, the NOCs and independents are starting to see the need to invest in their resource base simply to maintain production at current levels.
"For Schlumberger, this means that even with the current oil prices, we expect solid, single-digit growth in the international markets while in North America land, the increased cost of capital and focus on aligning investments closer to free cash flow has introduced more uncertainty to the outlook for both drilling and production activity.
"In this environment, we have built significant flexibility into our operating plan for 2019, which gives us the means and confidence to address any investment and activity scenario. Furthermore, the foundation for our 2019 plans is a clear commitment to generate sufficient cash flow to cover all our business needs, without increasing net debt. After a very strong free cash flow performance in the second half of 2018, we are confident in our ability to further improve our liquidity position in 2019, through our focus on top-line growth, incremental margins, capital discipline, and careful management of working capital."
On January 16, 2019, Schlumberger's Board of Directors approved a quarterly cash dividend of $0.50 per share of outstanding common stock, payable on April 12, 2019 to stockholders of record on February 13, 2019.
North America Areaconsolidated revenue of $2.8 billion decreased 12% sequentially driven by lower activity and pricing for most Production- and Cameron-related businesses in North America land. OneStim revenue dropped 25% sequentially as we decided to warm-stack a number of our fleets during the latter part of the quarter and as we focused on securing dedicated contracts for the first half of 2019 early in the fourth-quarter tendering cycle. The decline in Cameron land revenue was due to weaker activity in Valves & Measurement and Surface Systems. Offshore revenue declined slightly as growth in drilling activity on development projects and higher WesternGeco multiclient seismic license sales was more than offset by lower Cameron activity.
Consolidated revenue in the Latin America Areaof $1.0 billion was flat sequentially. In the Latin America South GeoMarket, revenue increased from new drilling projects and higher Cameron Surface Systems activity, but this was partially offset by reduced hydraulic fracturing operations in Argentina. In the Mexico & Central America GeoMarket, revenue declined due to lower WesternGeco multiclient seismic license sales following a strong performance in the previous quarter. Revenues in the Latin America North and Venezuela GeoMarkets were flat sequentially.
Europe/CIS/Africa Areaconsolidated revenue of $1.8 billion increased 1% sequentially despite the seasonal activity decline in Russia and the North Sea. The revenue increase was due to higher drilling activity in the Sub-Sahara Africa GeoMarket and additional WesternGeco multiclient seismic license sales in Mozambique and Angola. Higher revenue was also posted by the North Africa GeoMarket from increased hydraulic fracturing and drilling activity on new projects in Algeria and the start of a well intervention project in Libya. Cameron revenue was higher across the Area led by the Norway & Denmark GeoMarket.
In the fourth quarter, Cameron won several contracts for integrated subsea production systems and integrated drilling packages to be deployed in four of the world's major deepwater basins. Also, the Subsea Integration Alliance, a global partnership between OneSubsea and Subsea 7, executed record extended-length tieback installations in the US Gulf of Mexico and UK North Sea, reducing time to first production.
(1) See section titled "Charges & Credits" for details.
(1) "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's indebtedness by reflecting cash and investments that could be used to repay debt. Net Debt is a non-GAAP financial measure that should be considered in addition to, not as a substitute for or superior to, total debt.
(4) "Free cash flow" represents cash flow from operations less capital expenditures, SPM investments and multiclient seismic data costs capitalized. Management believes that free cash flow is an important liquidity measure for the company and that it is useful to investors and management as a measure of Schlumberger's ability to generate cash. Once business needs and obligations are met, this cash can be used to reinvest in the company for future growth or to return to shareholders through dividend payments or share repurchases. Free cash flow does not represent the residual cash flow available for discretionary expenditures. Free cash flow is a non-GAAP financial measure that should be considered in addition to, not as substitute for or superior to, cash flow from operations.
In addition to financial results determined in accordance with US generally accepted accounting principles (GAAP), this full-year and fourth-quarter 2018 earnings release also includes non-GAAP financial measures (as defined under the SEC's Regulation G). Net income, excluding charges & credits, as well as measures derived from it (including diluted EPS, excluding charges & credits; Schlumberger net income, excluding charges & credits; and effective tax rate, excluding charges & credits) are non-GAAP financial measures. Management believes that the exclusion of charges & credits from these financial measures enables it to evaluate more effectively Schlumberger's operations period over period and to identify operating trends that could otherwise be masked by the excluded items. These measures are also used by management as performance measures in determining certain incentive compensation. The foregoing non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP. The following is a reconciliation of these non-GAAP measures to the comparable GAAP measures.
What was included in "Interest and other income" for the fourth quarter of 2018?
"Interest and other income" for the fourth quarter of 2018 was $31 million. This amount consisted of earnings of equity method investments of $21 million and interest income of $10 million.
What is the difference between pretax operating income and Schlumberger's consolidated income before taxes?
Revenue and the related costs are recorded within the respective Schlumberger segment for services and products that each segment provides to Schlumberger's SPM projects. This revenue (which is based on arms-length pricing) and the related profit is then eliminated through an intercompany adjustment that is included within the "Eliminations & other" line (Note that the "Eliminations & other" line includes other items in addition to the SPM eliminations). The direct cost associated with providing Schlumberger services or products to SPM projects is then capitalized on the balance sheet.
What was the unamortized balance of Schlumberger's investment in SPM projects at December 31, 2018 and how did it change in terms of investment and amortization when compared to September 30, 2018?
What were the orders and backlog for Cameron's OneSubsea and Drilling Systems businesses?
Schlumberger will hold a conference call to discuss the earnings press release and business outlook on Friday, January 18, 2019. The call is scheduled to begin at 8:30 a.m. US Eastern Time. To access the call, which is open to the public, please contact the conference call operator at +1 (800) 288-8967 within North America, or +1 (612) 333-4911 outside North America, approximately 10 minutes prior to the call's scheduled start time. Ask for the "Schlumberger Earnings Conference Call." At the conclusion of the conference call, an audio replay will be available until February 18, 2019 by dialing +1 (800) 475-6701 within North America, or +1 (320) 365-3844 outside North America, and providing the access code 457252. The conference call will be webcast simultaneously at www.slb.com/irwebcast on a listen-only basis. A replay of the webcast will also be available at the same web site until February 28, 2018.
This full-year and fourth-quarter 2018 earnings release, as well as 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 its segments (and for specified products or geographic areas within each segment); oil and natural gas demand and production growth; oil and natural gas prices; improvements in operating procedures and technology, including our transformation program; capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger's customers; the effects of U.S. tax reform; our effective tax rate; Schlumberger's SPM projects, joint ventures and alliances; future global economic conditions; and future results of operations. These statements are subject to risks and uncertainties, including, but not limited to, global economic conditions; changes in exploration and production spending by Schlumberger's customers and changes in the level of oil and natural gas exploration and development; general economic, political and business conditions in key regions of the world; foreign currency risk; pricing pressure; weather and seasonal factors; operational modifications, delays or cancellations; production declines; changes in government regulations and regulatory requirements, including those related to offshore oil and gas exploration, radioactive sources, explosives, chemicals, hydraulic fracturing services and climate-related initiatives; the inability of technology to meet new challenges in exploration; and other risks and uncertainties detailed in this full-year and fourth-quarter 2018 earnings release and our most recent Forms 10-K, 10-Q, and 8-K filed with or furnished to the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of any such development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. Schlumberger disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.