Business Wire India
Schlumberger Limited (NYSE:SLB) today reported results for the second quarter of 2015.
| (Stated in millions, except per share amounts) | ||||||||||||||||||
| Three Months Ended | Change | |||||||||||||||||
| Jun. 30, 2015 | Mar. 31, 2015 | Jun. 30, 2014 | Sequential | Year-on-year | ||||||||||||||
| Revenue | $ | 9,010 | $ | 10,248 | $ | 12,054 | -12 | % | -25 | % | ||||||||
| Pretax operating income | 1,708 | 1,993 | 2,621 | -14 | % | -35 | % | |||||||||||
| SLB income from continuing operations, excluding charges and credits* | 1,124 | 1,358 | 1,800 | -17 | % | -38 | % | |||||||||||
| Diluted EPS from continuing operations, excluding charges and credits* | $ | 0.88 | $ | 1.06 | $ | 1.37 | -17 | % | -36 | % | ||||||||
| Pretax operating margin | 19.0 | % | 19.4 | % | 21.7 | % | -49 bps | -278 bps | ||||||||||
| North America revenue | $ | 2,361 | $ | 3,222 | $ | 3,888 | -27 | % | -39 | % | ||||||||
| North America pretax operating income | 242 | 416 | 700 | -42 | % | -65 | % | |||||||||||
| North America pretax operating margin | 10.2 | % | 12.9 | % | 18.0 | % | -268 bps | -777 bps | ||||||||||
| International revenue | $ | 6,525 | $ | 6,889 | $ | 8,087 | -5 | % | -19 | % | ||||||||
| International pretax operating income | 1,595 | 1,661 | 1,942 | -4 | % | -18 | % | |||||||||||
| International pretax operating margin | 24.5 | % | 24.1 | % | 24.0 | % | +35 bps | +44 bps | ||||||||||
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*Schlumberger income from continuing operations, including charges and credits, was $975 million in the first quarter of 2015 and $1.8 billion in the second quarter of 2014. Diluted EPS from continuing operations, including charges and credits, was $0.76 in the first quarter of 2015 and $1.37 in the second quarter of 2014. There were no charges or credits recorded during the second quarter of 2015 or the first six months of 2014. See section entitled "Charges & Credits" for details. |
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Schlumberger Chairman and CEO Paal Kibsgaard commented, “Schlumberger second-quarter revenue decreased 12% sequentially, driven by the dramatic decline in North American land activity as the rig count dropped by a further 40% and as pricing erosion continued in both North America and the International Areas. North America revenue fell 27% sequentially, while International revenue was 5% lower as customer budget cuts and pricing concessions impacted results for a full quarter.
“Despite the much more challenging market conditions, overall pretax operating margins were maintained at levels well above the previous downturns as we continued to proactively manage costs and resources, carefully navigate the commercial landscape, and further accelerate our transformation program. The success of our efforts can be seen in pretax operating margins of 10.2% in North America and 24.5% internationally while generating $1.5 billion in free cash flow, representing 132% of earnings.
“In the first half of 2015, year-on-year revenue dropped 26% in North America and 14% internationally. In spite of these declines being more severe than those of the 2009 downturn, we delivered first-half decremental margins of 37% in North America and 18% internationally. These results represent a marked improvement over the equivalent figures that were both in excess of 70% for the same period in 2009.
“Among the business segments, Production Group revenue declined 18% sequentially driven by the unprecedented drop in both activity and pricing for pressure pumping services on land in North America. Drilling Group and Reservoir Characterization Group revenues fell by 11% and 5%, respectively, as the declines in development drilling activity and exploration-related services moderated.
“As we enter the second half of the year, our visibility still remains limited. In terms of oil supply, the first signs of flattening North America production have appeared while OPEC marketed supply has been increased once again. Non-NAM, non-OPEC production weakened in the first half of the year driven by falls in Brazil and Mexico, with further softening expected as lower investment levels start to take full effect. The latest supply data together with a strong outlook for global oil demand point to a tightening of the global supply-demand balance even with additional supply from Iran.
“E&P investment in North America is now expected to fall by more than 35% in 2015 driven by lower land activity and increased pricing pressure. We believe that the North American rig count may now be touching the bottom, and that a slow increase in both land drilling and completion activity could occur in the second half of the year.
“In the international market, E&P spending is now expected to drop more than 15%. We do not expect any upward adjustment to existing 2015 budgets but see a continuation of first-half trends with low exploration activity, tight management of development-related spend, and continued pricing pressure.
“In this challenging market, we remain focused on the things we can control, which include our cost and resource base, the effective deployment of our technology and expertise, and the quality and integrity of the products and services we provide to our customers. The success of this approach can be seen in our strong international margins despite the drop in revenue and in our ability to maximize our performance in North America.
“We remain very confident in our capacity to continue to weather the current downturn better than our surroundings, and better than in previous downturns. Our global strength, our technology differentiation, and our accelerated corporate transformation are creating a great platform for us to increase revenue market share, deliver lower reductions in earnings per share than our peers, and continue to reduce working capital and capex intensity while generating higher levels of free cash flow.”
Other Events
During the quarter, Schlumberger repurchased 5.8 million shares of its common stock at an average price of $90.01 per share for a total purchase price of $520 million.
North America
North America second-quarter revenue of $2.4 billion decreased 27% sequentially. In the US and Western Canada, revenue fell on lower pressure pumping activity and persistent pricing pressure as the land rig count dropped 40%, exacerbated by the early onset of the Canadian spring break-up. In the US Gulf of Mexico, revenue declined as the deepwater rig count decreased and activity shifted from exploration to development and completion.
North America pretax operating margin declined 268 basis points (bps) sequentially to 10.2% on decreased pressure pumping activity and pricing weakness on land. Offshore operating margin declined due to the unfavorable revenue mix resulting from the shift from high-margin deepwater exploration work to development and completion activity. Despite the severity of the revenue decline in North America, focused execution and prompt action on cost management limited the sequential decremental margin to 20%.
On land, pricing has fallen to unsustainable levels in some basins, leading to pressure pumping equipment being stacked and crews reassigned. In other basins, hydraulic fracturing fleet deployment was maintained in pursuit of market share and new technology opportunities.
In the first half of 2015, year-on-year revenue dropped 26% in North America, which is more severe than the 24% decline of the same period during the 2009 downturn. In spite of this, the decremental margin was 37% which represents a marked improvement over the 72% posted for the same period in the previous downturn. Pretax operating margin in the first half of 2015 declined by 648 bps year-on-year, less than half of the 1,487 bps fall reported for the first half of 2009. The strength of this performance was underpinned by prompt cost and resource management, the growing effects of the transformation program, strong new technology sales, and efficient supply chain management.
During the second quarter, new Schlumberger technologies helped increase production and operational efficiency in North America.
In Southeast New Mexico, Well Services used a low viscosity composite fluid from the BroadBand* family of unconventional reservoir completion services for Endeavor Energy Resources, LP to stimulate a new well in the Permian Basin with a plug-and-perf completion. In comparison to the six closest offset wells completed using slickwater and similar proppant amounts, the new well’s total oil production after 120 days outperformed all the offset wells by more than 33%.
In South Texas, Well Services used BroadBand Sequence* fracturing service for Encana to accelerate production and increase recovery in older wells in the Eagle Ford and Haynesville shale plays. In an Eagle Ford Shale well for example, refracturing operations increased oil production from 50 bbl/d to 650 bbl/d and flowing pressure from 250 psi to 5,000 psi. And in a Haynesville Shale gas well, production increased from 100 Mscf/d to 5,000 Mscf/d while flowing pressure increased from 1,500 psi to 6,000 psi.
In North Dakota, Drilling & Measurements deployed PowerDrive Orbit* rotary steerable system technology for WPX Energy to drill three extended-reach lateral well sections in the Middle Bakken formation. Given its unique pad actuation design and push-the-bit technology, the PowerDrive Orbit system overcame the trajectory control challenges experienced by conventional drilling assemblies and efficiently delivered three high-quality, in-zone laterals. Similar performance was repeated on a 14,717-ft extended-reach lateral, which represents the longest rotary-steerable-drilled horizontal section in the area.
In South Texas, M-I SWACO used SCREEN PULSE* fluids and cuttings separator technology for Statoil to help maintain optimal well drilling conditions and minimize the costs of disposal and mud loss in a high-rate-of-penetration drilling environment in the Eagle Ford Shale. Previously, large amounts of cuttings transported significant volumes of synthetic-base mud (SBM) over the shaker screen surface with lower recovery potential. SCREEN PULSE technology helped the customer achieve net savings of $68,000 for the first two wells drilled by decreasing the average per-foot SBM cost by 30% and disposal costs by 13%.
In California, Wireline deployed RSTPro* reservoir saturation technology for a major oil and gas customer in the Kern River Field. RSTPro service uses full spectral analysis to measure elemental concentrations, including the salinity-independent carbon/oxygen ratio. Combined with Schlumberger Petrotechnical Services’ interpretation solutions, use of the technology enabled the characterization of heavy oil saturation and has given new life to this brownfield project. The Kern River reservoir monitoring project completed 20 years of saturation surveillance this year and cumulative field production is now over 2 billion barrels of oil.
In the US Gulf of Mexico, Wireline MDT* modular formation dynamics tester together with Quicksilver Probe* technology and an InSitu Fluid Analyzer* system were used for Chevron to obtain reservoir measurements in the deepwater Guadalupe and Anchor discoveries. The combination of Schlumberger technologies helped acquire low contamination samples and perform real-time downhole fluids analysis with the results used to determine reservoir connectivity and improve understanding of sealing properties and fluid charging behavior. The use of Schlumberger downhole fluid analysis technology confirmed the value of real-time decision-making in characterizing reservoirs.
In Atlantic Canada, Schlumberger Integrated Project Management (IPM) completed the construction and evaluation of the first well drilled for Statoil in a challenging deepwater environment off the coast of Newfoundland. The work was completed within the framework of a four-year integrated contract covering the full suite of services for the Flemish Pass exploration and appraisal project. Despite weather-related challenges, the efficiency of the integrated services offering has enabled the project to match the customer’s internal targets. New Schlumberger technologies, such as Wireline Quanta Geo* photorealistic reservoir geology service, helped reduce sub-surface risk and characterize the complex formations. Also, Drilling & Measurements PowerDrive* rotary steerable, Smith Bits Stinger* conical diamond element, and Geoservices FLAIR* fluid logging and analysis technologies helped boost performance through improving drilling efficiency, assuring wellbore integrity, and optimizing well placement. Aided by Schlumberger technologies and the integrated approach, several of the well sections were recognized by Statoil to be among their top drilling performances worldwide.
International Areas
Revenue for the International Areas of $6.5 billion decreased 5% sequentially driven by customer budget cuts and continued pricing concessions.
Middle East & Asia Area revenue of $2.6 billion declined 5% sequentially mainly due to lower activity in Asia-Pacific and Australia from customer exploration budget cuts. Activity in India declined on project delays while activities in Iraq and China remained muted. The Middle East GeoMarkets remained robust on higher activity, particularly in Saudi Arabia, the United Arab Emirates and Kuwait, but revenue in the region declined slightly as pricing concessions affected results for a full quarter.
Europe/CIS/Africa Area revenue of $2.4 billion decreased 5% sequentially, primarily due to Sub-Saharan Africa as exploration decreased and offshore rigs demobilized. Customer budget pressure in Angola and delays in Nigeria also affected results. Russia rebounded on a seasonal increase in conventional land activity while the Russian ruble recovered somewhat. North Sea revenue declined on lower rig count, pricing pressure and a continued shift from exploration to development activity. North Africa activity increased slightly while work in Libya continued to be limited as the security situation remained unchanged.
Revenue in the Latin America Area of $1.5 billion dropped 7% on lower activity in Mexico, Brazil and Colombia due to sustained cu
