Schlumberger Announces Full-Year and Fourth-Quarter 2018 Results

- Business Wire

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 Results

"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."

Other Events

During the quarter, Schlumberger repurchased 2.1 million shares of its common stock at an average price of $48.44 per share, for a total purchase price of $100 million.

On November 15, 2018, Shearwater GeoServices Holding AS completed the purchase of the WesternGeco marine seismic acquisition assets and operations. Schlumberger received cash consideration of $600 million plus a 15% post-closing equity interest in Shearwater GeoServices Holding AS.

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.

Consolidated Revenue by Area

$2,820

$3,189

$2,811

Fourth-quarter consolidated revenue of $8.2 billion decreased 4% sequentially, as North America revenue of $2.8 billion declined 12% while international revenue of $5.3 billion increased 1%.

North America

North America Area consolidated 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.

International

Consolidated revenue in the Latin America Area of $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 Area consolidated revenue of $1.8 billionincreased 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.

Consolidated revenue in the Middle East & Asia Area of $2.5 billion increased 2% sequentially, primarily from higher revenue in the Eastern Middle East GeoMarket, due to strong IDS project activity in Iraq, increased hydraulic fracturing activity in Oman, and higher Wireline and Testing Services exploration activity in the United Arab Emirates. Lump-sum turnkey (LSTK) project revenue in Saudi Arabia grew further with all 25 rigs now fully deployed. Revenue in the Far East Asia & Australia GeoMarket was higher sequentially due to increased drilling and well construction activity in China and increased sales of SIS software and WesternGeco multiclient seismic licenses across the GeoMarket. However, revenue decreased sequentially in the Northern Middle East GeoMarket from lower OneSurface revenue in Kuwait and Egypt and completed IDS projects. Cameron revenue in the Area was flat compared with the previous quarter as increased sales of Surface Systems in India were offset by reduced activity in Saudi Arabia and the Far East Asia & Australia GeoMarket.

Reservoir Characterization

Reservoir Characterization revenue of $1.7 billion, of which 79% came from the international markets, decreased 1% sequentially driven by the seasonal decline in Wireline activity in Russia, lower Wireline exploration activity offshore North America, and reduced OneSurface activity in the Middle East. These effects were partially offset by year-end sales of SIS software in China, Russia, India, Vietnam, and Norway as well as higher Testing Services activity in Qatar, United Arab Emirates, Oman, and Iraq. WesternGeco revenue was essentially flat sequentially as the decline in marine seismic acquisition activity, following the sale of the business in November, was fully offset by year-end sales of multiclient seismic licenses in Mozambique, Angola, Australia, and offshore North America.

Reservoir Characterization pretax operating margin of 22% was essentially flat compared with the previous quarter as the effect of high-margin SIS software and WesternGeco multiclient seismic license sales was offset by a seasonal decline in higher-margin Wireline revenue.

In the fourth quarter, Reservoir Characterization performance benefited from multiple contract awards, new multiclient seismic surveys, and the application of technology and domain expertise to improve operational efficiency.

In Mexico, BHP Billiton awarded Schlumberger a two-year contract with an optional one-year extension for exploration and appraisal services in the deepwater Trion project in the Gulf of Mexico. The scope of work includes the SonicScope* multipole sonic-while-drilling service, Quanta Geo* photorealistic reservoir geology service, Litho Scanner* high-definition spectroscopy service, and CLEANCUT* cuttings collection and transportation system.

In Australia, Schlumberger introduced Concert* well testing live performance technology for a customer to test the first development wells of a major offshore gas condensate field. Concert performance introduced a new level of efficiency for managing the testing spread required for the ultrahigh flow rate wells. The automated real-time data collection and communication enabled collaborative analysis that accelerated the understanding of the testing operation while significantly reducing field personnel.

In Indonesia, Integrated Services Management (ISM) used a combination of technologies in 21 geothermal wells for KS Orka to reduce operating costs in the Sorik Marapi Field. The reservoir is characterized by very hard volcanic rocks and high temperatures up to 250 degC. The technologies included PowerPak* steerable motors and the Xtreme* high-pressure, high-temperature well logging platform.

In Norway, Petoro AS awarded Schlumberger a two-year Software as a Service (SaaS) contract for the provision of the DELFI* cognitive E&P environment, as well as use of the ECLIPSE* industry-reference and INTERSECT* high- resolution reservoir simulators. These technologies will provide the company with deeper insights about its active licenses in order to rank and analyze them for maximum impact.

Dyas Norge AS awarded SIS a SaaS contract for use of the DELFI cognitive E&P environment in the Fogelberg gas discovery on the Norwegian Continental Shelf.

Offshore Sri Lanka, WesternGeco has begun a 5,020-km 2D multiclient survey for the Sri Lanka Petroleum Resources Development Secretariat and a major oil and gas company using a third-party seismic acquisition vessel. This is the largest survey ever conducted in Sri Lanka and is supported by industry prefunding.

Drilling

Drilling revenue of $2.5 billion, of which 73% came from the international markets, increased 1% sequentially driven by growth in Drilling & Measurements, M-I SWACO, and IDS as we continued to mobilize additional drilling rigs on integrated drilling projects in Norway, Saudi Arabia, India, Argentina, Ecuador, China, and Iraq. Drilling revenue remained resilient in North America land driven by our directional drilling business. These revenue increases, however, were partially offset by the seasonal decline in activity in the Northern Hemisphere, particularly in Russia.

Drilling pretax operating margin of 13% decreased 105 bps sequentially due to the seasonal activity decline in Russia and the increased cost of mobilizing additional resources as IDS project activity scaled up across international operations.

Drilling performance this quarter was underpinned by the deployment of several record-breaking drilling and drill bit technologies, GeoSphere* reservoir mapping-while-drilling service for optimizing recovery, and multiple contract awards.

In the New Mexico Delaware Basin, Drilling & Measurements used the PowerDrive Orbit* rotary steerable system for XTO Energy to drill the longest wells with the longest laterals. XTO Energy drilled the James Ranch Unit D12 #191H to a total depth of 26,150 ft, making this the longest horizontal well drilled in the Permian Basin. Additionally, XTO Energy drilled the longest lateral in the Permian of 16,426 ft on the LHS Ranch 4-40 4004BH. The PowerDrive Orbit system helped create access to additional reservoirs, enabling the customer to reduce operating costs and optimize acre utilization by providing access to valuable reservoir acreage that could have otherwise been inaccessible.

Eni Iraq B.V. awarded Schlumberger an IDS contract for a minimum of eight wells in the Zubair Field. The performance-based contract builds upon previous awards from Eni in the same field and includes the provision of technologies such as the DBOS* drillbit optimization system, i-DRILL* integrated dynamic system analysis service, and COLOSSUS* liner hanger systems.

Also in Iraq, IDS established a new well delivery record for Eni Iraq B.V. of 20 days from spud to total depth, a 13% improvement over the previous record. The turnkey project requires drilling of several well types with varying levels of complexity that require a broad range of technologies. Some of the drilling technologies included ROPO* rate of penetration optimization software, RigHour* multiwell drilling operational efficiency analysis, and StingBlade* conical diamond element bits.

In the West Texas Permian Basin, Drilling & Measurements used the PowerDrive Orbit rotary steerable system in drilling a well for Apache Corporation and saved 27 drilling hours in the Lower Spraberry Formation. PowerDrive Orbit system technology drilled a 7,600-ft lateral section in a single run in a little over 29 hours, which is nearly twice as fast as similar lateral sections in offset wells in this formation that averaged 56.1 on-bottom hours when using conventional motors.

In the Colorado Denver-Julesburg Basin, Bits & Drilling Tools introduced HyperBlade* hyperbolic diamond element bit technology to help a customer increase drilling efficiency in two wells. In one well, HyperBlade bit technology achieved a 50% improvement in the rate of penetration (ROP) in the vertical section, which saved the operator 7.5 hours of drilling time compared with offset wells using conventional bits. Another well was the fastest well drilled to total depth in this basin with an on-bottom ROP of 464.6 ft/h.

In Russia, Bits & Drilling Tools used a combination of technologies for Orenburgneft to reduce drilling time in a well by nearly 75 hours compared with offset wells in the conventional Zaykino-Zorinskoye Field. Technologies included the AxeBlade* ridged diamond element bit, StingBlade conical diamond element bit, and 3DC* three-dimensional cutter.

In the Schiehallion Field in the UK sector of the North Sea, Drilling & Measurements deployed the GeoSphere reservoir mapping-while-drilling service for BP, reducing the probability of geological sidetracks in two wells. The GeoSphere service mapped channel sands 20 m to 30 m from the wellbore, which improved the customer´s understanding of the formation, maximizing reservoir contact and recovery.

Apache North Sea UK Limited awarded Schlumberger a three-year contract with two optional one-year extensions for the provision of drilling and completion fluids for platform and subsea drilling projects in the UK North Sea. The new agreement was effective October 1, 2018 and operations began in December.

Production

Production revenue of $2.9 billion, of which 53% came from the international markets, declined 10% sequentially. OneStim revenue in North America land dropped 25% 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. Well Services revenue also declined internationally from lower hydraulic fracturing activity in Argentina. These revenue decreases were partially offset by higher revenue from Artificial Lift Solutions due to strong product sales and service activity in Russia, Continental Europe, Sub-Sahara Africa, the Middle East, and Ecuador.

Production pretax operating margin of 7% decreased 310 bps sequentially due to reduced pricing and activity in the OneStim business in North America land.

Production performance was supported by contract awards and the deployment of new cementing and hydraulic fracturing technologies that helped improve operational efficiency and well productivity. The Fulcrum* cement-conveyed frac performance technology provides superior well zonal isolation in hydraulically-fractured lateral sections. In addition, BroadBand Precision* integrated completion services ensure every fracture is stimulated and propped open from the tip of the fracture to the wellbore, and BroadBand Shield* fracture-geometry control services help limit the risk of communicating with neighboring wells (frac hits), which is particularly important for infill wells and multiwell pads.

Saudi Aramco awarded Schlumberger a three-year integrated production services contract for the provision of well stimulation and testing services for a conventional gas field in the South Area. The contract, which has an optional one-year extension, will include deployment of the BroadBand Sequence* fracturing and OpenPath* stimulation services.

In the Permian Basin, Well Services introduced Fulcrum cement-conveyed frac performance technology to overcome challenges in removing drilling fluid behind the casing that can compromise zonal isolation during hydraulic fracturing of horizontal wells. After cementing five horizontal wells with 10,000-ft laterals, the cement bond logs recorded, on average, a 55% improvement in the bond index, confirming superior zonal isolation compared with offset wells cemented with conventional methods. OneStim hydraulically fractured these five wells and early production was compared with public data from representative offset wells within a 10-mile radius that had been completed in the last two years using conventional stimulation methods. Normalized by lateral length, the mean three-month cumulative liquids production in the five wells treated with Fulcrum technology was 22% higher compared with the offset wells.

In Canada, OneStim deployed BroadBand Precision integrated completion service through coiled tubing, resulting in up to 160 fracturing stages per well in the Cardium Formation in Alberta. BroadBand Precision service reduced the transition time between fracturing stages to as low as four minutes. In addition, the optimized sleeve size enabled higher efficiency during installation, resulting in rig time savings of up to 16 hours per well.

In North Dakota, OneStim deployed a combination of technologies to stimulate a new infill well near an older horizontal well and saved the customer approximately $400,000 in costs by avoiding the need for a cleanout operation that would have required two weeks. OneStim specialists designed new stimulation treatments using the BroadBand Shield fracture-geometry control service to eliminate fracture hits. The treatments maintained the productivity of the older primary well by avoiding sanding up, while their success in eliminating fracture hits was confirmed by the WellWatcher Stim* stimulation monitoring service.

In the UK North Sea, Well Services used CemPRIME* engineered chemistry spacer technology to help BP reduce plug and abandonment operating costs in the Achmelvich Field. This technology enabled a switch from a two-spacer to a one-spacer fluid system due to improvements in fluid compatibility and a reduced impact on cement setting times.

Cameron

Cameron revenue of $1.3 billion, of which 55% came from the international markets, declined 3% sequentially as increased sales in Surface Systems were more than offset by lower revenue from the OneSubsea and Valves & Measurement product lines, while Drilling Systems revenue was flat. In addition, OneSubsea booked more than $600 million in new project orders during the quarter indicating that it is now close to the cycle trough of backlog-driven activity. Surface Systems sales were higher in India, Europe & Africa, the Middle East, and Latin America while Valves & Measurement revenue was lower due to the decline in North America land activity.

Cameron pretax operating margin of 10% declined 140 bps sequentially due to lower OneSubsea margins.

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.

Equinor awarded OneSubsea an engineering, procurement, and construction (EPC) contract for supply of the industry´s first all-electric actuated boosting system for the Vigdis Field in the Norwegian North Sea. The contract scope includes a pump station with a manifold foundation and protective structure, along with a pump module, topside equipment, umbilical, and all-electric controls with electric actuation. Work began in December 2018 and delivery is scheduled for the first quarter of 2020.

Esso Australia Pty. Ltd. awarded the Subsea Integration Alliance an integrated subsea engineering, procurement, construction, installation, and commissioning (EPCIC) contract for offshore Australia. This supplier-led integrated development solution combines subsea production systems (SPS) and subsea umbilicals, risers, and flowlines (SURF). The wells will be tied back to the Longford onshore gas plants. Offshore installation activities are scheduled for 2020.

Schlumberger subsea multiphase boosting system technology enabled the development of the longest tiebacks in the UK North Sea and the US Gulf of Mexico. In the Otter Field in the UK North Sea, the 18-mile tieback is part of an integrated solution providing production security for a late-life asset. In the Dalmatian Field in the US Gulf of Mexico, the 22-mile tieback is part of an enhanced oil recovery project. These projects were executed by the Subsea Integration Alliance.

Equinor and South Atlantic Holding B.V. signed a contract with Schlumberger for the Total Well Delivery on the Peregrino C platform, and an amendment to the Cameron EPC contract for the delivery of a Cameron drilling module. Located 85 km off the coast of Rio de Janeiro, the drilling module will be installed on platform C to support drilling of production and injection wells in reservoirs that are inaccessible from the current platforms A and B. Through the Total Well Delivery model, Schlumberger will provide the full scope of well construction services, drilling management services, and advanced digital technology solutions, including the DrillPlan* coherent well construction planning solution to drill 22 wells. This integrated model includes efficiency improvements to the drilling module, streamlined consecutive workflows, and optimized human resources at the wellsite by multiskilling crew members.

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