Schlumberger Announces Third-Quarter 2018 Results

- Business Wire

Schlumberger Limited (NYSE: SLB) today reported results for the third quarter of 2018.

Schlumberger Chairman and CEO Paal Kibsgaard commented, "Our third-quarter revenue of $8.5 billion grew 2% sequentially, driven by the International Areas where the broad-based activity recovery continued and where sequential revenue growth outpaced that of North America for the first time since the second quarter of 2014. In North America, sequential growth remained positive but slowed from the rates of previous quarters as takeaway constraints in the Permian impacted hydraulic fracturing activity.

"In North America, third-quarter revenue of $2.6 billion, excluding Cameron, increased 1% sequentially driven by Artificial Lift and Drilling as we continued to gain market share on the back of our leading technology portfolio. Service revenue from our OneStim^SM hydraulic fracturing business was increasingly impacted by softening activity and pricing over the course of the quarter. This was offset, however, by robust performance from our vertically integrated sand business, which in addition to serving OneStim now also competes in the third-party market. Offshore North America, drilling activity was impacted by scheduled platform maintenance and planned workover operations, the combination of which led to a less favorable activity mix for Schlumberger.

"In the International Areas, third-quarter revenue of $4.6 billion, excluding Cameron, grew 4% sequentially as we continued to see solid growth in all operating regions. Sequential performance, excluding Cameron, was driven by 7% growth in Latin America and 3% growth in the Middle East & Asia due to higher activity for both national oil companies and independents throughout both Areas. This resulted from the continued ramp-up of our lump-sum turnkey (LSTK) projects in Saudi Arabia and strong Integrated Drilling Services (IDS) activity in Iraq, India, and Mexico. However, this performance was partly offset by lower hydraulic fracturing activity as we completed and demobilized a major contract in the Middle East. In Europe, CIS, and Africa, our sequential growth was a solid 4% as strong activity in Russia and Sub-Saharan Africa more than offset the impact of labor disputes and scheduled summer maintenance in the North Sea.

"Turning to our technologies, our performance was led by Drilling with 9% sequential growth as we successfully mobilized an additional 19 drilling rigs for our integrated drilling projects where activity was strong, particularly in Russia, Mexico, Saudi Arabia, Iraq, and India. This supported solid sequential growth for our IDS, Drilling & Measurements, and M-I SWACO product lines. Reservoir Characterization grew 2% sequentially, driven by strong activity for our Wireline and Testing Services product lines in the international markets. Revenue from Production was largely unchanged from the previous quarter due to the softening hydraulic fracturing activity in North America land. Cameron revenue was flat sequentially as increased sales in Surface Systems and Drilling Systems were offset by lower revenue from our OneSubsea^TM and Valves & Measurement product lines.

"Looking at pricing and contracts, we continued to see improvements in terms and conditions and basic rates for selected contracts in the international markets. However, this has yet to make a significant impact on our results. Still, we expect to fully deploy our remaining excess international equipment capacity by the end of the year. As a result, we anticipate pricing discussions to accelerate in the coming quarters as the certainty of products and services supply will become more important for our customers.

"From a macro perspective, the oil market continued to tighten in the third quarter as seen by a further draw in global oil inventories and a significant increase in oil prices despite continued strong production from the US and increasing output from key OPEC countries. Global spare capacity is now less than 2%. The tightening supply and demand balance is driven by accelerating decline rates in the international production base and is further exacerbated by the ongoing reduction in Venezuelan and Iranian exports. Geopolitical events and their impact on supply are also becoming an increasing oil market consideration as the challenging security situation in several key countries could affect activity and production going forward. And while the current Permian takeaway constraints in North America should be addressed within the next 12 to 18 months, a series of reservoir- and production-related challenges is emerging in the US shale basins that could dampen the most optimistic production growth projections.

"With the outlook for global economic growth and oil demand remaining solid, we continue to see a need for a multiyear increase in international E&P investment, which is very good news for Schlumberger. Through the work we have done over the past four years to expand our external offering and modernize our internal execution platform, we are very well positioned to outgrow the market in the coming upcycle and to generate superior operating margins and cash returns for the benefit of our shareholders."

Other Events

During the quarter, Schlumberger repurchased 1.5 million shares of its common stock at an average price of $64.98 per share, for a total purchase price of $100 million.

On August 22, 2018, Schlumberger and Shearwater GeoServices Holding AS announced that they have entered into a definitive agreement for Shearwater to acquire the marine seismic acquisition assets and operations of WesternGeco, the geophysical services product line of Schlumberger. The transaction is subject to regulatory approvals and other customary closing conditions. The transaction is expected to close in the fourth quarter of 2018.

On October 18, 2018, Schlumberger's Board of Directors approved a quarterly cash dividend of $0.50 per share of outstanding common stock, payable on January 11, 2019 to stockholders of record on December 5, 2018.

Consolidated Revenue by Area

Third-quarter consolidated revenue of $8.5 billion increased 2% sequentially, with North America revenue of $3.2 billion growing 2% and international revenue of $5.2 billion increasing 3%.

North America

North America Area consolidated revenue of $3.2 billion increased 2% sequentially due to robust growth of Drilling products and services on land, which grew 5% sequentially outperforming the 3% increase in US land rig count. Growth was driven by the continued demand for rotary steerable systems in horizontal wells. Higher product sales of artificial lift systems also contributed to the Area's performance. Revenue from OneStim hydraulic fracturing, however, was increasingly impacted by softening activity and pricing over the course of the quarter. This impact was fully offset by robust performance from our vertically integrated sand business, which in addition to serving OneStim, now also competes in the third-party market. The dynamics of the pressure pumping market changed this quarter and activity will likely continue to decline until the Permian takeaway capacity is resolved. Accordingly, OneStim did not deploy additional hydraulic fracturing fleet capacity during the quarter. North America Offshore revenue decreased 1% as drilling activity was impacted by scheduled platform maintenance and planned workover operations, the combination of which led to a less favorable activity mix. Cameron revenue was higher sequentially as increased sales in Surface Systems were partially offset by lower revenue in OneSubsea and Valves & Measurement.

International

Consolidated revenue in the Latin America Area of $1.0 billion increased 6% sequentially primarily due to a strong performance in the Mexico & Central America GeoMarket as revenue climbed from higher multiclient seismic license sales and increased IDS activity following contract mobilizations in the previous quarter. Revenue in the Latin America North GeoMarket was up sequentially from higher activity in Colombia and higher production from Schlumberger Production Management (SPM) projects in Ecuador.

Europe/CIS/Africa Area consolidated revenue of $1.8 billionincreased 2% sequentially driven primarily by strong revenue growth in Russia due to peak summer drilling campaigns that benefited the Wireline, Drilling & Measurements, and Testing Services product lines. Revenue in the Sub-Sahara Africa GeoMarket increased following the start of projects in Ghana and Mozambique, higher drilling activity in Central & West Africa, and higher product and equipment sales in Nigeria, Angola, and Namibia. Revenue in the UK & Continental Europe and Norway & Denmark GeoMarkets declined sequentially due to the impact of labor disputes and scheduled summer maintenance in the North Sea as well as lower Cameron activity.

Consolidated revenue in the Middle East & Asia Area of $2.4 billion increased 2% sequentially, primarily from the continued ramp-up of LSTK projects in Saudi Arabia and strong IDS activity in Iraq and India. The growth in Saudi Arabia was partly offset by lower hydraulic fracturing following demobilization of a major contract. The South & East Asia GeoMarket posted sequential revenue growth from IDS offshore work in India, new Integrated Services Management (ISM) projects in Malaysia, and higher Cameron activity. Revenue in the Far East Asia & Australia GeoMarket was flat sequentially as increased drilling in Indonesia and a return to offshore exploration in Australia was offset by lower Cameron activity. Revenue in the Northern Middle East GeoMarket declined due to lower OneSurface^SM revenue in Kuwait.

Reservoir Characterization

Reservoir Characterization revenue of $1.7 billion, of which 79% came from the international markets, increased 2% sequentially due to peak summer activity in Russia that benefited the Wireline and Testing Services product lines. ISM revenue increased due to integrated services projects in Malaysia, India, Qatar, Ecuador, and Colombia. The increase in Reservoir Characterization revenue was partially offset by reduced OneSurface revenue in Kuwait following the end of the first phase of an integrated production system project. Software Integrated Solutions (SIS) software sales and WesternGeco revenue were flat sequentially. WesternGeco marine seismic acquisition activity continued to wind down, but the effect of this was offset by higher multiclient seismic license sales in Mexico.

Reservoir Characterization pretax operating margin of 22% was 88 basis points (bps) higher sequentially due to the recovery in higher-margin Wireline and Testing Services activity from the peak summer campaigns in Russia and higher multiclient seismic license sales in Mexico.

In the third quarter, Reservoir Characterization performance was strengthened by contract awards for ISM projects, seismic processing and interpretation, and virtual data room services. In addition, the application of technology and domain knowledge improved operational efficiency.

In Mozambique, Sasol awarded Schlumberger an ISM contract for its phase two development covering infill, development, remediation, workover, and exploration wells. This includes technologies from several product lines, such as the PowerDrive Archer* high build rate rotary steerable system, POLYSWELL* copolymer, Invizion* well integrity services, and Isolation Scanner* cement evaluation service.

Turkish Petroleum awarded Schlumberger an ISM contract valued at $15 million to drill the deepwater well Alanya-1 in the Eastern Mediterranean Sea. ISM will coordinate multiple product lines as well as provide project management services on Turkish Petroleum´s ultradeepwater drillship, Fatih.

In Malaysia, Wireline deployed the Saturn* 3D radial probe in a low-permeability reservoir for Repsol Oil & Gas Malaysia Ltd. to remove the ambiguity on reservoir fluid type between retrograde gas and volatile oil by fluid sampling. The 9-in Saturn probe along with the InSitu Fluid Analyzer* real-time downhole fluid analysis system conclusively identified the single-phase flowing fluid at a much lower pressure drop. Operations were done with a time limit of two hours per station where the customer had concerns of long stationary time, with the Saturn probe achieving first indication of reservoir fluid within 10 minutes of pumping out.

In Argentina, the Ministry of Energy & Mining awarded Schlumberger a virtual data room services contract for its Argentina Offshore Round 1. The contract scope features the preparation of a database for three offshore basins, including 2D and 3D seismic data and interpretation, well profiles, well logs, and geological studies carried out during exploration and production. The data room will provide national and international companies access to public information to support investment in the country's first offshore licensing round.

Schlumberger and TGS announced a new multiclient nodal seismic project in the US Gulf of Mexico supported by industry prefunding. The project, named "Amendment", will comprise acquisition of a 2,350-km2 multiclient seismic survey in the Mississippi Canyon and Atwater Valley protraction areas. This prolific area includes open acreage, existing producing assets, and new discoveries. Data acquisition using Fairfield Geotechnologies 4C nodal acquisition technology is expected to commence in the fourth quarter of 2018.

Eni SpA has adopted the WesternGeco Omega* geophysical data processing platform as its preferred time processing platform, citing access to more than 400 processing modules within the Omega suite as contributing to its superior results in tailoring the processing sequence throughout the E&P cycle.

Kuwait Oil Company awarded WesternGeco the prestack depth imaging of 2,600 km2 in the Greater Burgan Field over which WesternGeco previously acquired the data using the UniQ* land seismic acquisition platform. The seismic data will support mid-term production and development activities for the customer and underpin long-term reservoir management and development activities across multiple reservoirs.

Turkish Petroleum Corporation (Türkiye Petrolleri A.O.) awarded WesternGeco a multiyear contract to provide software and depth imaging consultancy services using the Omega geophysical data processing platform, along with infield geophysics services onboard its seismic vessel operating in the Black, Marmara, and Mediterranean Seas. This key development provides synergy between the field and processing center for Turkish Petroleum´s seismic operations.

Drilling

Drilling revenue of $2.4 billion, of which 72% came from the international markets, increased 9% sequentially driven by growth in IDS, M-I SWACO, and Drilling & Measurements. This performance was the result of strong international drilling activity as an additional 19 drilling rigs were mobilized for the IDS projects and where strong activity delivered sequential double-digit growth in Saudi Arabia, Russia, Iraq, India, and Mexico. Strong drilling revenue was also reported in North America land, driven mostly by the continued robust growth of our directional drilling business in the unconventional reservoir market. Higher Drilling & Measurements revenue also increased due to the peak summer drilling campaigns in Russia.

Drilling pretax operating margin of 14% increased 103 bps sequentially as profitability improved in several IDS projects that began in the previous quarter. The effect of this was partly offset by the increased cost of mobilizing additional resources as IDS activity scaled up across our international operations.

Drilling performance benefitted from IDS contract awards as well as the deployment of drilling technologies that help lower cost per barrel. This includes the latest addition to our 3D cutting element family, the HyperBlade* hyperbolic diamond element bit, which improves rate of penetration (ROP) in soft and plastic formations typically encountered in unconventional reservoirs.

In Saudi Arabia, IDS helped a major oil producer expedite drilling and completions operations by delivering a horizontal gas well 13 days ahead of plan. IDS managed drilling risks and deployed multiple technologies, including the AxeBlade* ridged diamond element bit and PowerDrive vorteX* powered rotary steerable system.

In Iraq, ExxonMobil Iraq Limited awarded Schlumberger a 42-month IDS contract for 30 wells in the West Qurna Field. The contract includes the provision of drilling rigs and multiple technologies and services, and the first well was spud in July.

In Kuwait, IDS introduced Direct XCD* drillable alloy casing bit technology for Kuwait Oil Company to overcome technical drilling challenges and reduce drilling time in the Sabriyah and Raudhatain Fields. Other technologies included the PowerDrive* rotary steerable systems, LiteCRETE* lightweight cement slurry, and Isolation Scanner cement evaluation service.

In Norway, MOL Norge AS awarded Schlumberger a performance-based IDS contract for one exploration well in the Oppdal/Driva project. Operations are expected to begin in the fourth quarter of 2018.

In Russia, Lukoil awarded Schlumberger a contract to drill three extended-reach wells with 8-km step-outs from the shore of the Baltic Sea. The technologies to be deployed include the GeoSphere* reservoir mapping-while-drilling service, PowerDrive Xceed* ruggedized rotary steerable system, and LiteCRETE HP* advanced high-pressure lightweight cement.

Offshore India, IDS used a combination of technologies in an exploration well to help an operator discover new resources in the Krishna Godavari Basin. Turnkey project execution included use of the EcoScope*^† multifunction logging-while-drilling service, Saturn 3D radial probe, StingBlade* conical diamond element bit, and VERTI-G* cuttings dryer.

In the Marcellus Formation in Pennsylvania, Bits & Drilling Tools used a combination of technologies for an E&P customer to achieve a new average ROP record of 415.1 ft/hr, representing a 62% improvement compared with offset runs using conventional PDC bits. The technologies included the HyperBlade bit and PowerDrive Orbit* rotary steerable system, which drilled 6,891 ft in 16.6 hours.

In Ohio, Drilling & Measurements used a PowerDrive Orbit system for Eclipse Resources to drill 18 super laterals in the Utica Shale Play. The average lateral length was 18,715 ft and the average ROP was 171 ft/h. The customer achieved a new drilling record for the longest lateral of 20,632 ft and the longest total horizontal well depth of 30,493 ft. The technologies included the PowerDrive Orbit system combined with customized Smith PDC bits.

Production

Production revenue of $3.3 billion, of which 47% came from the international markets, was flat sequentially. Service revenue from the OneStim hydraulic fracturing business was increasingly impacted by softening activity and pricing over the course of the quarter. However, this was fully offset by robust performance from our vertically integrated sand business which, in addition to serving OneStim, now also competes in the third-party market. Revenue from Artificial Lift Solutions increased sequentially due to strong product sales and service activity in North America and Latin America. This was offset, however, by lower international hydraulic fracturing activity as a major contract in the Middle East was completed and demobilized.

Production pretax operating margin of 10% was essentially flat sequentially as revenue remained unchanged from the previous quarter.

Production performance was underpinned by contract awards and the deployment of stimulation and completions technologies that helped reduce operating costs and improve well productivity.

Eni México awarded Schlumberger a five-year contract with two optional six-month extensions for the provision of completions technologies in 31 offshore wells. The technologies include the QUANTUM* gravel-pack packer and FORTRESS* premium isolation valve. Operations are expected to begin in the first quarter of 2019.

Offshore Angola, Sand Management Services deployed a combination of technologies for Total E&P Angola to save more than $100 million and gain an estimated 1 million BOE of incremental production in the Kaombo deepwater development. Combining the OptiPac* openhole Alternate Path^‡ gravel-pack service with OSMP* OptiPac service mechanical packers enabled the customer to achieve target production with six wells instead of the planned eight. This combination of technologies enabled effective zonal isolation of complex stacked reservoirs in one field, while in another field the water shutoff capability of the technology enabled accelerated production.

In West Texas, OneStim used ShalePrime* rock-fluid diagnostic service for Manti Tarka Permian to increase oil production by 70% and reduce stimulation cost by 25% in a well in the Wolfcamp Formation. The workflow, based on the Kinetix Shale* reservoir-centric stimulation-to-production software, was applied to an existing horizontal well to engineer an optimal perforation, completion, and stimulation design. In addition, the ShalePrime service was used to improve fracture cleanup and maximize production.

In Kuwait, Well Services used the OpenPath Sequence* diversion stimulation service in five high-pressure, high-temperature wells for Kuwait Oil Company to increase oil and gas production in the North Kuwait Field. Although this deep gas reservoir was producing from long perforation clusters, production was lower than expected. Post-treatment, gas production improved by 200% to 400% and oil production by 100%. This technology helped reduce operating costs by eliminating the need for a workover rig.

In Norway, Well Services used a combination of technologies for Aker BP to save $615,000 by overcoming lost circulation in an injector well in the Ivar Aasen Field. A combination of the Losseal Microfracture* lost circulation control treatment and CemNET* advanced loss-control fiber technology avoided the need for an extra run and for remedial work.

Cameron

Cameron revenue of $1.3 billion, of which 51% came from the international markets, was flat sequentially as increased sales in Surface Systems and Drilling Systems were offset by lower revenue from the OneSubsea and Valves & Measurement product lines. Surface Systems sales increased in North America, while increased Drilling Systems revenue was due to higher service activity in Europe and increased pressure control equipment sales in the Middle East. OneSubsea revenue continued to decline, while reduced Valves & Measurement revenue was due to lower project volumes in Europe and North America.

Cameron pretax operating margin of 11% declined 140 bps sequentially from the impact of lower OneSubsea margins.

Fieldwood Energy awarded a contract to the Subsea Integration Alliance—a global partnership between Subsea 7 and OneSubsea—for the deepwater Katmai Field development in the US Gulf of Mexico Green Canyon 40 Block. This supplier-led integrated subsea development solution combines subsea production systems and subsea umbilicals, risers, and flowlines systems (SURF) expertise. The OneSubsea contract scope includes provision of three trees with options for additional trees together with connectors, valves, topside controls, flying leads, and umbilical termination assemblies.

Cameron received an order from Seadrill Limited for pressure control equipment upgrades on the Sevan Louisiana rig in the Gulf of Mexico. These upgrades, which will be delivered in the fourth quarter of 2018, will ensure that the rig meets regulatory requirements.

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