Schlumberger Announces First-Quarter 2020 Results

• Worldwide revenue of $7.5 billion decreased 9% sequentially and 5% year-on-year
• International revenue of $5.1 billion decreased 10% sequentially, but increased 2% year-on-year
• North America revenue of $2.3 billion decreased 7% sequentially and 17% year-on-year
• GAAP loss per share, including charges of $5.57 per share, was $5.32
• EPS, excluding charges, was $0.25
• Cash flow from operations was $784 million and free cash flow was $179 million
• Board approved quarterly cash dividend of $0.125 per share

HOUSTON–(BUSINESS WIRE)–Schlumberger Limited (NYSE: SLB) today reported results for the first quarter of 2020.

Schlumberger CEO Olivier Le Peuch commented, “First-quarter revenue of $7.5 billion declined 9% sequentially and 5% year-on-year as the unprecedented global health and economic crisis sparked by the COVID-19 pandemic increasingly impacted industry activity during the quarter. The effect of this was amplified late in the quarter by a new battle for market share between the world’s largest oil producers. This double black swan event created simultaneous shocks in oil supply and demand resulting in the most challenging environment for the industry in many decades.

“Customer spending and drilling activity in North America declined as oil prices slipped early in the quarter before falling abruptly in March. This resulted in a 7% sequential decrease in North America revenue to $2.3 billion as we accelerated our land strategy to high-grade our portfolio and resized our operational footprint. International activity, expected to be seasonally lower sequentially, suffered from COVID-19-related activity disruptions and initial customer spending cuts in response to falling oil prices. International revenue of $5.1 billion declined 10% sequentially.

“The sequential international revenue decline was led by lower winter activity in the Europe/CIS/Africa area, particularly in the Russia & Central Asia and the United Kingdom & Continental Europe GeoMarkets. Latin America area revenue also decreased, mainly due to reduced WesternGeco^® multiclient seismic license sales. Middle East & Asia area revenue declined on lower product sales following strong year-end sales and a seasonal decline in activity. COVID-19-related activity disruptions during the quarter impacted our operations, particularly in China, Malaysia, Iraq, Italy, Romania, the United Kingdom, Gabon, Mozambique, Congo, Nigeria, Angola, and offshore North America.

“Looking beyond the sequential results for the quarter, our international business showed some resilience with year-on-year growth of 2% against the backdrop of an increasingly difficult operating environment. Growth was driven by six GeoMarkets—Russia & Central Asia, Saudi Arabia & Bahrain, Far East Asia & Australia, Northern Middle East, Latin America North, and Norway & Denmark. Despite the challenging environment, cash flow performance during the quarter was strong as we generated $784 million of cash flow from operations. This was more than double what we generated in the same quarter last year.

“By business segment, first-quarter revenue for Reservoir Characterization fell 20% sequentially, due to seasonally lower sales of software and multiclient seismic licenses and reduced winter activity in the Northern Hemisphere. Customers began to cut both discretionary spending and activity toward the end of the quarter, significantly reducing exploration activity in several GeoMarkets. Drilling revenue declined 6% sequentially, mostly due to seasonal effects in the Northern Hemisphere. Production revenue also declined 6% sequentially, driven by lower Well Services activity and weaker Artificial Lift Solutions sales in the international markets, while OneStim^® revenue grew 2% sequentially. Cameron revenue declined 10% sequentially, mostly due to lower revenue in Surface Systems and Valves & Process Systems from reduced North America land activity, while OneSubsea^® revenue decreased due to lower project deliveries following the strong year-end sales of the previous quarter.

“The first quarter results include an $8.5 billion pretax charge primarily relating to the impairment of goodwill, intangible assets, and other long-lived assets. This charge, which is almost entirely non-cash, was driven by the significant decline in market valuations during March 2020.

“The operating environment that has now emerged is characterized by simultaneous shocks to both supply and demand. The spread of COVID-19 has caused more than 50 countries to implement lockdown measures affecting three billion people. Worldwide economic activity is falling sharply, and oil demand destruction is leading to an unprecedented supply-demand imbalance in the range of 20–30 million bbl/d. This is translating to near term uncertainties in activity and budget projections.

“At this time, customer feedback and our analysis indicate global capex spend is expected to decline by about 20% in 2020, with the largest share of the reduction affecting North America, which is estimated to drop by about 40%. In contrast, international E&P capex is expected to decline by about 15%. As it relates to customers, Independents are expected to decrease their spending faster than IOCs, while NOCs have reduced the least to this point but might adjust following the recent OPEC+ agreement. FID sanctions are expected to fall back to trough levels of 2015, which would indicate project delays to 2021 and beyond.

“In this environment—the duration of which remains uncertain—we have planned for a range of scenarios and have taken a number of actions. To protect our workforce in the wake of COVID-19, we have taken the steps necessary to keep our people safe by supporting those affected, mandating that as many employees and contractors as possible work from home, and monitoring those who cannot do so and are required to be present at work. To reinforce our cost control and cash discipline, we are reducing our structural and variable costs, and restructuring our organization to match activity where necessary, including furloughing personnel, cutting salaries, lowering headcount, and closing facilities. In addition, our Board of Directors and executive officers have voluntarily agreed to reductions in their cash compensation. We have reduced our capital investment program by more than 30% and will allocate resources to the more resilient markets while remaining focused on capital stewardship and maintaining our commitment to a strong balance sheet.

“We are also leveraging three factors of our market differentiation. In North America, we have accelerated our land strategy to high-grade our portfolio and resize our operational footprint. Globally, we have emphasized our executional capability, operational resilience, and organizational agility. In new technology, we are using to the greatest extent the capabilities we have developed to support remote operations and are focusing on our digital strategy.

“In view of the uncertainty of the depth and extent of the contraction in oil demand due to the COVID-19 pandemic combined with the weaker commodity price environment, we have turned our strategic focus to cash conservation and protecting our balance sheet. We have therefore taken the prudent decision to reduce our dividend by 75%. The revised dividend supports Schlumberger’s value proposition through a balanced approach of shareholder distributions and organic investment, while providing the flexibility to weather the uncertain environment. This decision reflects our focus on our capital stewardship program as well as our commitment to maintain both a strong liquidity position and a strong investment grade credit rating that provides privileged access to the financial markets.

“The enormity of the task ahead will require levels of response and depths of resilience that have yet to be fully realized. Our immediate actions have been focused on those things we can control in protecting our business in an uncertain industry and global environment. We will continue to take the steps necessary to protect the safety and health of our people and pursue our desire to be the performance partner of choice for our customers. The future of our industry poses difficult challenges—for people and for the environment—but in challenge lies opportunity. Backed by the resilience and performance of our people, technology leadership, and financial strength, we believe we are well-placed to succeed as the industry recovers from this unprecedented downturn.”

Other Events

In January, Schlumberger completed the sale of its 49% interest in the Bandurria Sur Block in Argentina to Shell Argentina S.A. and Equinor. The net cash proceeds from this transaction, combined with the proceeds received from the divestiture of a smaller APS project, amounted to $298 million.

In February, Schlumberger issued EUR 400 million of 0.25% Notes due 2027 and EUR 400 million of 0.50% Notes due 2031. The notes were subsequently swapped into US dollars, with a weighted-average interest rate of 2.04%.

In April, Schlumberger’s Board of Directors determined that Mark G. Papa, its Chairman of the Board, is “independent” under the listing standards of the New York Stock Exchange and Schlumberger’s own director independence standards. The Board’s determination is effective as of April 1, following Mr. Papa’s retirement as chairman and chief executive officer of Centennial Resource Development, Inc.

In April, Schlumberger entered into a EUR 1.2 billion committed revolving credit facility. This one-year facility can be extended at Schlumberger’s option for up to an additional year. Schlumberger can potentially upsize this facility through syndication. No amounts have been drawn under this facility.

On April 16, 2020, Schlumberger’s Board of Directors approved a quarterly cash dividend of $0.125 per share of outstanding common stock, payable on July 9, 2020 to stockholders of record on June 3, 2020.

Consolidated Revenue by Area

First-quarter revenue of $7.5 billion decreased 9% sequentially. North America revenue of $2.3 billion decreased 7% while international revenue of $5.1 billion decreased 10%.

North America

North America area consolidated revenue of $2.3 billion was 7% lower sequentially. Customer spending and drilling activity were lower as oil prices slipped early in the quarter before falling abruptly in March. US land rig count was 6% lower sequentially including a 15% drop in the last two weeks of March. North America land revenue declined 4% sequentially as we accelerated our land strategy to high-grade our portfolio and resized our operational footprint. In addition, Artificial Lift Solutions sales were lower and APS revenue decreased. OneStim revenue grew 2% as its scale-to-fit strategy successfully generated higher fleet utilization, however activity fell sharply in mid-March as customers cut their spending. We began to stack more frac fleets in response and reduced our active fleets by 27% during March.

North America offshore revenue decreased by 14% due to reduced multiclient seismic license sales. Cameron revenue was lower due to lower Surface Systems and Valves & Process Systems sales.

International

Consolidated revenue in the Latin America area of $945 million decreased 8% sequentially. This was primarily due to lower WesternGeco multiclient seismic license sales in Mexico, partially offset by strong exploration offshore activity in the Mexico Bay of Campeche. Integrated project activity on Mexico land was flat with the previous quarter. Revenue in the Latin America South GeoMarket was flat as Brazil revenue was higher due to additional deepwater rigs and increased frac activity in Argentina offset by lower Cameron revenue from reduced Surface Systems sales in Argentina. Revenue in the Latin America North GeoMarket was flat sequentially as the revenue increase from higher production in APS projects in Ecuador was partially offset by lower Colombia revenue due to COVID-19-related lockdowns.

Europe/CIS/Africa area consolidated revenue of $1.7 billion decreased 13% sequentially, mainly due to the onset of winter in the Russia & Central Asia GeoMarket that impacted all Technologies. Revenue in the UK & Continental Europe and the Norway & Denmark GeoMarkets was seasonally lower due to reduced software and product sales, decreased drilling activity, extreme winter weather, and COVID-19-related disruptions particularly on offshore projects. Revenue in the Sub-Sahara Africa GeoMarket fell sequentially due to decreased product sales and lower exploration activity in Gabon, Angola, and West Africa from reduced IOC spending, exacerbated by COVID-19-related disruptions. Cameron revenue also declined due to the temporary closure of manufacturing facilities in Italy caused by COVID-19-related disruption that impacted Valves & Process Systems.

Consolidated revenue in the Middle East & Asia area of $2.4 billion decreased 9% sequentially, primarily from lower revenue in the Far East Asia & Australia GeoMarket due to winter weather in China. This was exacerbated by COVID-19-related disruptions that impacted land activity, while offshore operations were relatively unaffected. Revenue in Australia was higher from strong offshore activity, partially offset by reduced activity due to offshore cyclones and onshore bushfires. Eastern Middle East GeoMarket revenue was lower due to reduced software and product sales and decreased Well Construction Services (WCS) project activity in Iraq that was also impacted by COVID-19-related disruptions. WCS revenue from lump-sum turnkey (LSTK) projects in Saudi Arabia was lower following the strong activity and the delivery of additional wells in the fourth quarter. WCS revenue in India was also lower due to reduced drilling activity. Cameron revenue declined mostly in the North Middle East and South East Asia GeoMarkets. This was due to lower OneSubsea and Drilling Systems revenue, exacerbated by the temporary closure of manufacturing facilities in Malaysia caused by COVID-19-related disruption.

Reservoir Characterization

Reservoir Characterization revenue of $1.3 billion, 84% of which came from the international markets, decreased 20% sequentially. This was due mainly to seasonally lower sales of software and multiclient seismic licenses and reduced winter activity in the Northern Hemisphere, although customers began to cut both discretionary spend and activity toward the end of the quarter. This affected exploration activity in several GeoMarkets. Wireline revenue was lower due to the effects of the seasonal winter decline in the Russia & Central Asia GeoMarket and the North Sea. Offshore exploration was reduced in China, Mozambique, Gabon, Angola, and the US Gulf of Mexico with activity also affected by COVID-19-related disruptions. Multiclient seismic license sales in both the Mexico Bay of Campeche and the US Gulf of Mexico were also lower. Seasonally lower Software Integrated Solutions (SIS) software sales, mainly in the Europe/CIS/Africa and the Middle East & Asia areas, also contributed to the decline in revenue.

Reservoir Characterization pretax operating margin of 14% fell 839 bps sequentially due to seasonally lower revenue from Wireline in the Russia & Central Asia GeoMarket and the North Sea, and from decreased exploration activity in several GeoMarkets. Lower sales of SIS software and WesternGeco multiclient seismic licenses also contributed to the sequential margin contraction.

Drilling

Drilling revenue of $2.3 billion, 75% of which came from the international markets, decreased 6% sequentially due to seasonality effects in the Northern Hemisphere. US land rig count was 6% lower sequentially including a 15% drop in the last two weeks of March. Revenue was also lower, particularly in Bits & Drilling Tools, due to the divestiture of the businesses and associated assets of DRILCO, Thomas Tools, and Fishing & Remedial Services (Drilling Tools businesses) consistent with our capital stewardship strategy of high-grading the business portfolio. WCS revenue from LSTK projects in Saudi Arabia was lower following the strong activity and the delivery of additional wells in the fourth quarter. WCS revenue in India was also lower due to reduced drilling activity.

Drilling pretax operating margin of 12% was resilient, as it remained flat with the previous quarter despite the sequential revenue decline. Although margins were seasonally lower in Russia and the North Sea, they were offset by improved margins in the Americas. Improved profitability in Latin America and in North America land was boosted by the divestiture of the Drilling Tools businesses, which were previously dilutive to margins, while margins on WCS contracts in the Middle East and India combined, proved resilient.

Production

Production revenue of $2.7 billion, 61% of which came from the international markets, declined 6% sequentially. This was driven by lower Well Services activity and weaker Artificial Lift Solutions sales in the international markets. Revenue also declined as we accelerated our land strategy to high-grade our business portfolio in North America land, such as by exiting from the coiled tubing services business. OneStim revenue grew 2% as its scale-to-fit strategy successfully generated higher fleet utilization, however activity fell sharply in mid-March as customers cut their spending. We began to stack more frac fleets in response and have reduced our active fleets by 27% during March.

Production pretax operating margin of 8% contracted by 98 bps sequentially due to reduced profitability in North America while international margins were flat despite lower revenue. Although margins were seasonally lower in Russia and the North Sea, these were fully offset by improved margins in Latin America. In North America, APS margin contracted due to lower oil prices, but this was partially mitigated by our exit from the dilutive coiled tubing services business. OneStim margin was flat sequentially.

Cameron

Cameron revenue of $1.3 billion, 58% of which came from international markets, decreased 10% sequentially mostly due to lower revenue in North America from the short-cycle businesses of Surface Systems and Valves & Process Systems. OneSubsea revenue decreased due to lower project deliveries following the strong year-end sales of the previous quarter. International revenue declined 12% sequentially while North America revenue declined by 7% on weaker land activity. International revenue was lower due to the temporary closure of manufacturing facilities in Italy and Malaysia caused by COVID-19-related disruptions. These closures impacted OneSubsea, Surface Systems, and Valves & Process Systems activity.

Cameron pretax operating margin of 10% improved by 57 bps sequentially, despite the 10% drop in revenue. This was driven by this quarter’s favorable mix in the OneSubsea portfolio, which was partially offset by reduced profitability in Drilling Systems and Surface Systems.

Quarterly Highlights

Schlumberger is leading the development of Digital solutions to increase performance across the E&P value chain. Deploying these solutions in the current challenging industry environment can help customers maintain business continuity for their teams worldwide. Examples of this during the quarter included:

• The enterprise-wide deployment of the DELFI* cognitive E&P environment through a seven-year technology collaboration with Woodside Energy, announced in August 2019, has been accelerated to enable remote working during the COVID-19 pandemic. Deployment for a Woodside international asset team based in the UK that was scheduled for the end of 2020 was completed March 20th, taking less than a week to finalize via close collaboration between Woodside and Schlumberger teams.

• Schlumberger and the Egyptian Ministry of Petroleum together introduced the Egypt Upstream Gateway, a unique and innovative national project for digitizing subsurface information and delivering a Digital platform to keep Egypt’s subsurface data evergreen.

Contacts

Simon Farrant – Vice President of Investor Relations, Schlumberger Limited

Joy V. Domingo – Director of Investor Relations, Schlumberger Limited

Office +1 (713) 375-3535

[email protected]

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