SCHLUMBERGER LIMITED The following discussion and analysis contains forward-looking statements, including, without limitation, statements relating to our plans, strategies, objectives, expectations, intentions and resources. Such forward-looking statements should be read in conjunction with our disclosures under "Item 1A. Risk Factors" of this Form 10-K.
2020 Executive Overview
Global demand for oil dropped precipitously from January through April of 2020, in parallel with the expansion of the COVID-19 coronavirus outbreak, as governments around the world responded with lockdowns and travel decreased significantly. Global stocks of crude and refined products increased as oil supply could not respond quickly enough to balance the market.
As a result, Brent crude oil experienced its highest price of the year-$70 per barrel-in January, with a low of$9 per barrel in mid-April. Collaboration betweenOPEC and non-OPEC suppliers, includingRussia , led to extraordinary supply intervention, resulting in the removal of more than eight million barrels per day ("bbl/d") of oil supply from the markets between April and June. This eased pressure on oil storage capacity and allowed the Brent price to stabilize in the$40 range until gaining strength in December, where it closed at$52 per barrel. TheOPEC -led supply alliance maintained production within an agreed quota and helped to maintain a relatively stable oil price, despite oil demand in the second half of 2020 being more than five million bbl/d lower than same period of 2019. Demand for refined products, other than jet fuel, returned to within two million bbl/d of pre-crisis levels by end of 2020. Oil price volatility in the first half of the year, compounded by uncertainty over the pace of COVID-19 recovery, caused producers to lay down more than 40% of the world's drilling rigs in just six months. This suggests that$40 oil is insufficient to stimulate meaningful drilling activity growth. However, even with massive demand reduction, the drilling activity necessary to maintain supply is still significant. In the US, operators laid down nearly 70% of active rigs between the first and third quarters of 2020, before adding a modest number of rigs in the fourth quarter. As a result, US crude production fell by nearly two million bbl/d by the end of 2020. However, the remaining rigs continued to drill in the highest quality reservoirs, which resulted in supply remaining flat over the second half of the year. Though global gas demand also suffered in response to the pandemic's effect on economic activity, its use for power generation, heating, and as a chemical feedstock made it more resilient than oil demand as the pandemic spread. Gas demand for 2020 was down only approximately 5% as compared to 2019. USHenry Hub natural gas price averaged$2.03 per million British thermal units ("mmbtu") for the year, having also fallen in the first half of 2020. Prices recovered in the second half on decreased tight-oil associated production in line with the reduction of active rigs. International gas hub prices were more volatile. Against this backdrop, Schlumberger's full-year 2020 revenue of$23.6 billion declined 28% year-on-year. North American revenue fell sharply by 48% to$5.5 billion . This decrease was largely driven by weakness in the land market as operators reacted to oversupplied markets by making deep cuts to activity.North America operators dropped drilling and pressure pumping activity quickly in the first quarter due to the effects of the pandemic on demand, adding a modest volume of completion activity toward the end of the year. International revenue was more resilient, declining only 19% year-on-year. This decline was most prominent inLatin America ,Europe , andAfrica due to downward revisions to customer budgets and COVID-19 disruptions. Additionally, during the fourth quarter of 2020, Schlumberger completed two transactions: the contribution of its OneStim business inNorth America to Liberty Oilfield Services ("Liberty") in exchange for a 37% stake in Liberty, and the divestiture of theNorth America low-flow rod-lift business in a cash transaction. These businesses accounted for approximately 25% of Schlumberger'sNorth America revenue in 2020. Consequently, the percentage of Schlumberger's revenue that it generates in the international markets will increase significantly going forward. The combination of Schlumberger's fit-for-basin strategy, digital technology innovation, and scale puts the company in the best position to leverage the anticipated shift of spending growth toward the international markets. From a macro perspective, oil prices have risen, buoyed by recent supply-led OPEC+ policy, the ongoing COVID-19 vaccine rollout, and multinational economic stimulus actions-driving optimism for a meaningful oil demand recovery throughout 2021. We believe that this sets the stage for oil demand to recover to 2019 levels no later than 2023, or earlier as per recent industry analysts' reports, reinforcing a multiyear cycle recovery as the global economy strengthens. Absent a change to these macro assumptions, this will translate into meaningful activity increases both inNorth America and internationally. InNorth America , spending and activity momentum is expected to continue in the first half of 2021 towards maintenance levels, albeit moderated by capital discipline and industry consolidation. Internationally, following the seasonal effects of the first quarter of 2021, and as OPEC+ responds to strengthening oil demand, higher spending is expected from the second quarter onwards. Accelerated 17 --------------------------------------------------------------------------------
activity is not expected to extend beyond the short-cycle markets and will be broad, including offshore, as witnessed during the fourth quarter.
The quality of Schlumberger's results in the fourth quarter of 2020 validates the progress of our performance strategy and the reinvention of Schlumberger in this new chapter for the industry. Building from the swift execution and scale of our cost-out program, we exited the year with quarterly margins reset to 2019 levels as the upcycle begins. Leveraging our high-graded and restructured business portfolio, we see a clear path to achieve double-digit margins inNorth America and visible international margin improvement in 2021. Given the depth, diversity, and executional capability of our international business, we believe we are uniquely positioned to benefit as international spending accelerates in the near- and mid-term. By leveraging our new structure, Schlumberger is fully prepared to capitalize on the growth drivers of the future of our industry, particularly as we accelerate our digital growth ambition and lead in the production and recovery market. Finally, to meet our long-term ambition to bring lower carbon and carbon-neutral energy sources and technology to market, we are visibly expanding our New Energy portfolio, to contribute to the transformation of a more resilient, sustainable, and investable energy services industry. Fourth Quarter 2020 Results (Stated in millions) Fourth Quarter 2020 Third Quarter 2020 Income Income (Loss) Before Before Revenue Taxes Revenue Taxes
Digital & Integration$ 833 $ 270 $ 740 $ 202 Reservoir Performance 1,247 95 1,215 103 Well Construction 1,866 183 1,835 172 Production Systems 1,649 155 1,532 132 Eliminations & other (63 ) (49 ) (64 ) (34 ) 654 575 Corporate & other (1) (132 ) (151 ) Interest income (2) 5 3 Interest expense (3) (137 ) (131 ) Charges & credits (4) 81 (350 )$ 5,532 $ 471 $ 5,258 $ (54 )
(1) Comprised principally of certain corporate expenses not allocated to the
segments, stock-based compensation costs, amortization expense associated
with certain intangible assets, certain centrally managed initiatives and
other nonoperating items.
(2) Excludes interest income included in the segments' income (fourth quarter
2020: $- million; third quarter 2020: $- million).
(3) Excludes interest expense included in the segments' income (fourth quarter
2020:
(4) Charges and credits are described in detail in Note 3 to the Consolidated
Financial Statements.
Fourth-quarter revenue grew 5% sequentially, driven by strong activity and solid execution both inNorth America and in the international markets. International revenue of$4.3 billion grew 3% whileNorth America revenue of$1.2 billion increased 13%. Despite seasonality, revenue grew sequentially in all four Divisions for the first time since the third quarter of 2019. Sequentially, international revenue growth outpaced rig count and was led byLatin America and by a global rebound of activity in most offshore deepwater markets. In theMiddle East &Asia , growth was mostly inChina ,India , andOman whileSaudi Arabia remained resilient. InEurope /CIS/Africa , activity increased significantly in the offshore markets ofAfrica and several countries inEurope , offset by the seasonal winter slowdown inRussia . InNorth America , offshore activity in the USGulf of Mexico grew, and on land, increased horizontal drilling and pressure pumping activity contributed to the higher revenue.
Digital & Integration
Fourth-quarter revenue of$833 million , 83% of which came from the international markets, increased 13% sequentially. International revenue increased by 14% andNorth America revenue increased by 6% sequentially. The Digital & Integration revenue increase was primarily driven by APS projects. 18 --------------------------------------------------------------------------------
Digital & Integration pretax operating margin of 32% expanded by 507 basis points ("bps") sequentially. The margin expansion was primarily in the international markets and was largely driven by improved profitability across APS projects.
Reservoir Performance Fourth-quarter revenue of$1.2 billion , 73% of which came from the international markets, increased 3% sequentially. International revenue declined 3% whileNorth America revenue increased 23% sequentially. The revenue increase was primarily driven by higher OneStim activity inNorth America . OneStim fourth-quarter revenue of$274 million increased 25% sequentially. This increase, however, was partially offset by seasonality inRussia and reduced activity in theMiddle East &Asia .
Reservoir Performance pretax operating margin of 8% decreased 84 bps
sequentially driven by seasonality in
Well Construction Fourth-quarter revenue of$1.9 billion , 84% of which came from the international markets, increased 2% sequentially. International andNorth America revenue increased 1% and 7%, respectively. The revenue increase was due to higher activity inNorth America ,Latin America , and theMiddle East &Asia , partially offset by seasonality inRussia .
Production Systems
Fourth-quarter revenue of
Production Systems pretax operating margin of 9% increased by 82 bps sequentially due to a higher contribution from the long-cycle business of subsea, and improved profitability in surface production systems due to cost reduction measures and higher activity.
Full-Year 2020 Results
(Stated in millions)
2020 2019
Income Income
(Loss) (Loss)
Before Before
Revenue Taxes Revenue Taxes
Digital & Integration
353 9,299 992
Well Construction 8,605 866 11,880 1,429
Production Systems 6,650 623 8,167 847
Eliminations & other (332 ) (172 ) (574 ) (172 )
2,401 3,978
Corporate & other (1) (681 ) (957 )
Interest income (2) 31 33
Interest expense (3) (534 ) (571 )
Charges & credits (4) (12,515 ) (12,901 )$ 23,601 $ (11,298 ) $ 32,917 $ (10,418 )
(1) Comprised principally of certain corporate expenses not allocated to the
segments, stock-based compensation costs, amortization expense associated
with certain intangible assets, certain centrally managed initiatives and
other nonoperating items.
(2) Excludes interest income included in the segments' income (2020:
2019:
(3) Excludes interest expense included in the segments' income (2020:
million; 2019:
(4) Charges and credits are described in detail in Note 3 to the Consolidated
Financial Statements.
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Full-year 2020 revenue of
Digital & Integration
Full-year 2020 revenue of$3.1 billion decreased 26% year-on-year primarily due to lower multiclient and software sales as customers reduced activity due to COVID-19 and cut discretionary spending. Year-on-year pretax operating margin increased 249 bps to 24% largely due to improved APS margins as a result of reduced amortization expense following the asset impairment charges that were recorded in the second quarter of 2020 and the effects of cost cutting efforts.
Reservoir Performance
Full-year 2020 revenue of$5.6 billion decreased 40% year-on-year. A little more than half of this revenue decrease was attributable to the sharp drop in OneStim pressure pumping activity inNorth America land. The remaining portion of the revenue decline resulted from COVID-19 disruptions that caused international activity to be cancelled or suspended.
Year-on-year pretax operating margin decreased 435 bps to 6% due to the steep revenue decline.
Well Construction Full-year 2020 revenue of$8.6 billion decreased 28% year-on-year primarily due to the activity decline in US land as the rig count decreased significantly, while COVID-19 disruptions caused drilling activities to be cancelled or suspended in several international markets.
Year-on-year pretax operating margin only decreased 196 bps to 10% as the effects of the revenue decline were partially mitigated by prompt cost cutting measures.
Production Systems
Full-year 2020 revenue of
Year-on-year pretax operating margin decreased 101 bps to 9% due to the revenue
decline.
Full-Year 2019 Results
(Stated in millions)
2019 2018
Income
(Loss) Income
Before Before
Revenue Taxes Revenue Taxes
Digital & Integration
992 10,050 1,169
847 8,168 843
Eliminations & other (574 ) (172 ) (533 ) (172 )
3,978 4,187
Corporate & other (1) (957 ) (937 )
Interest income (2) 33 52
Interest expense (3) (571 ) (537 )
Charges & credits (4) (12,901 ) (141 )$ 32,917 $ (10,418 ) $ 32,815 $ 2,624 20
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(1) Comprised principally of certain corporate expenses not allocated to the
segments, stock-based compensation costs, amortization expense associated
with certain intangible assets, certain centrally managed initiatives and
other nonoperating items.
(2) Excludes interest income included in the segments' income (2019:
2018:
(3) Excludes interest expense included in the segments' income (2019:
million; 2018:
(4) Charges and credits are described in detail in Note 3 to the Consolidated
Financial Statements.
Full-year 2019 revenue of$32.9 billion was essentially flat year-on-year withNorth America revenue decreasing 11% and international revenue increasing 7%. The international results were underpinned by increased investment levels. In contrast, theNorth America result reflected a slowing production growth rate on land as operators maintained capital discipline and reduced drilling and hydraulic fracturing activity.
Digital & Integration
Full-year 2019 revenue of
Year-on-year pretax operating margin decreased 181 bps to 21% primarily as a result of a less favorable revenue mix.
Reservoir Performance
Full-year 2019 revenue of
Year-on-year pretax operating margin decreased 97 bps to 11% primarily due to
reduced profitability in OneStim in
Full-year 2019 revenue of
Year-on-year pretax operating margin decreased 93 bps to 12% despite higher revenue as margins were affected by competitive pricing and higher costs associated with a number of integrated drilling contracts internationally.
Production Systems
Full-year 2019 revenue of
Year-on-year pretax operating margin was essentially unchanged at 10.4%.
Interest and Other Income
Interest & other income consisted of the following:
(Stated in millions)
2020 2019 2018
Earnings of equity method investments $ 91 $ 45 $ 89
Interest income 33 41
60
Unrealized gain on marketable securities 39 - -
$ 163 $ 86 $ 149
The increase in earnings of equity method investments in 2020 as compared to
2019 is primarily related to higher income associated with Schlumberger's equity
investments in rig- and seismic-related businesses, while the decrease in 2019
as compared to 2018 was primarily related to lower income from those same
businesses.
The decrease in interest income in 2019 compared to 2018 is primarily attributable to lower cash and short-term investment balances.
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The unrealized gain on marketable securities in 2020 relates to an investment in
a start-up company that Schlumberger previously invested in that completed an
initial public offering during the fourth quarter of 2020. As a result,
Schlumberger recognized an unrealized gain of $39 million to increase the
carrying value of this investment to its fair value of $43 million as of
December 31, 2020 . See Note 3 to the Consolidated Financial Statements.
Interest Expense
Interest expense of$563 million in 2020 decreased$46 million compared to 2019. This decrease was primarily due to certain debt being refinanced with lower interest rate debt. Interest expense of$609 million in 2019 increased$34 million compared to 2018. This increase is primarily due to an increase in the weighted average debt balance during 2019 as compared to 2018.
Other
Research & engineering and General & administrative expenses, as a percentage of Revenue, were as follows:
2020 2019 2018
Research & engineering 2.5 % 2.2 % 2.1 % General & administrative 1.5 % 1.4 % 1.4 %
Income Taxes
The Schlumberger effective tax rate is sensitive to the geographic mix of
earnings. When the percentage of pretax earnings generated outside of
The Schlumberger effective tax rate was 7% in 2020 as compared to 3% in
2019. The charges and credits described in Note 3 to the Consolidated Financial
Statements, reduced the effective tax rate by approximately 12 and 13 points in
2020 and 2019, respectively, as a significant portion of these charges were not
tax effective. Changes in the geographic mix of pretax earnings accounted for
the remaining increase in the effective tax rate in 2020 as compared to 2019.
The Schlumberger effective tax rate was 3% in 2019 as compared to 17% in
2018. The lower effective tax rate was almost entirely due to the 2019 charges
and credits described in Note 3 to the Consolidated Financial Statements, which
primarily related to non-deductible goodwill.
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Charges and Credits
Schlumberger recorded significant charges and credits during 2020, 2019 and 2018. These charges and credits, which are summarized below, are more fully described in Note 3 to the Consolidated Financial Statements.
The following is a summary of the 2020 charges and credits.
(Stated in millions)
Pretax Tax Net
First quarter:
Goodwill $ 3,070 $ - $ 3,070
Intangible assets impairments 3,321 815 2,506
Asset Performance Solutions investments 1,264 (4 )
1,268
North America pressure pumping impairment 587 133 454 Workforce reductions 202 7 195 Other 79 9 70 Valuation allowance - (164 ) 164 Second quarter: Workforce reductions 1,021 71 950 Asset Performance Solutions investments 730 15 715 Fixed asset impairments 666 52 614 Inventory write-downs 603 49 554 Right-of-use asset impairments 311 67
244
Costs associated with exiting certain activities 205 (25 )
230
Multiclient seismic data impairment 156 2
154
Repurchase of bonds 40 2
38
Postretirement benefits curtailment gain (69 ) (16 ) (53 )
Other 60 4 56
Third quarter:
Facility exit charges 254 39 215
Workforce reductions 63 - 63
Other 33 1 32
Fourth quarter:
Gain on sale of OneStim (104 ) (11 ) (93 )
Unrealized gain on marketable securities (39 ) (9 ) (30 )
Other 62 4 58
$ 12,515 $ 1,041 $ 11,474
As a result of the first quarter 2020 impairment charges, commencing with the
second quarter of 2020, depreciation and amortization expense was reduced by
approximately $95 million on a quarterly basis. Approximately $33 million of
this quarterly reduction is reflected in the Digital & Integration Division and
$12 million is reflected in the Reservoir Performance Division. The remaining
$50 million is reflected in the "Corporate & other" line item.
As a result of the second quarter 2020 restructuring and impairment charges,
commencing with the third quarter of 2020, depreciation and amortization expense
was reduced by approximately $80 million and lease expense was reduced by $25
million on a quarterly basis. Approximately $51 million of this quarterly
reduction is reflected in the Digital & Integration Division and $31 million is
reflected in the Reservoir Performance Division, with the remaining $23 million
reflected among the Well Construction Division and Production Systems Division.
As a result of the third quarter 2020 restructuring charges, commencing with the
fourth quarter of 2020, depreciation and lease expense was reduced by $15
million on a quarterly basis. This quarterly reduction is reflected among all of
the Divisions.
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The following is a summary of the 2019 charges and credits.
(Stated in millions)
Pretax Tax Net
Third quarter:
Goodwill impairment $ 8,828 $ 43 $ 8,785
Intangible assets impairment 1,085 248 837
North America pressure pumping 1,575 344 1,231
Other North America-related 310 53 257
Argentina 127 - 127
Equity-method investments 231 12 219
Asset Performance Solutions investments 294 - 294
Other 242 13 229
Fourth quarter:
North America restructuring 225 51 174
Other restructuring 104 (33 ) 137
Workforce reductions 68 8 60
Pension settlement accounting 37 8 29
Repurchase of bonds 22 5 17
Gain on formation of
$ 12,901 $ 710 $ 12,191 A significant portion of the third-quarter impairment charges were recorded effectiveAugust 31, 2019 . Accordingly, the 2019 results reflect a$108 million reduction in depreciation and amortization expense for the last four months of 2019. Approximately$64 million of this amount is reflected in the Reservoir Performance Division and$20 million is reflected in the Production Systems Division. The remaining$24 million is reflected in the "Corporate & other" line item. The following is a summary of the 2018 charges and credits. The$215 million gain on the sale of the marine seismic acquisition business is classified in Gains on sale of businesses in the Consolidated Statement of Income (Loss), while the$356 million of charges are classified in Impairments & other. (Stated in millions) Pretax Tax Net Gain on sale of marine seismic acquisition business$ (215 ) $ (19 ) $ (196 ) Workforce reductions 184 20 164 Asset impairments 172 16 156$ 141 $ 17 $ 124
Liquidity and Capital Resources
The effects of the COVID-19 pandemic have resulted in a significant and swift reduction in international and US economic activity. These effects have adversely affected the demand for oil and natural gas, as well as for Schlumberger's products and services, and caused significant volatility and disruption of the financial markets. This period of extreme economic disruption, low oil prices and reduced demand for Schlumberger's products and services has had, and is likely to continue to have, a material adverse impact on Schlumberger's business, results of operations, financial condition and, at times, access to sources of liquidity. 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, Schlumberger turned its strategic focus to cash conservation and protecting its balance sheet. As a result, inApril 2020 Schlumberger announced a 75% reduction to its quarterly cash dividend. The revised dividend supports Schlumberger's value proposition through a balanced approach of shareholder distributions and organic investment, while providing flexibility to address the uncertain environment. This decision reflects the Company's focus on its capital stewardship program as well as its commitment to maintain both a strong liquidity position and a strong investment grade credit rating that provides privileged access to the financial markets. 24 -------------------------------------------------------------------------------- Details of the components of liquidity as well as changes in liquidity follow: (Stated in millions) Dec. 31, Dec. 31, Dec. 31, Components of Liquidity: 2020 2019 2018 Cash$ 844 $ 1,137 $ 1,433 Short-term investments 2,162 1,030 1,344 Short-term borrowings and current portion of long-term debt (850 ) (524 ) (1,407 ) Long-term debt (16,036 ) (14,770 ) (14,644 ) Net debt (1)$ (13,880 ) $ (13,127 ) $ (13,274 ) Changes in Liquidity: 2020 2019 2018 Net income (loss)$ (10,486 ) $ (10,107 ) $ 2,177 Impairments and other charges and credits 12,515 12,901
141
Depreciation and amortization (2) 2,566 3,589
3,556
Deferred taxes (1,248 ) (1,011 ) (245 ) Earnings of equity method investments, less dividends received (28 ) 6 (48 ) Stock-based compensation expense 397 405
345
Pension and other postretirement benefits funding (16 ) (25 ) (83 ) Increase in working capital and other (3) (756 ) (327 ) (130 ) Cash flow from operations 2,944 5,431 5,713 Capital expenditures (1,116 ) (1,724 ) (2,160 ) APS investments (303 ) (781 ) (981 ) Multiclient seismic data capitalized (101 ) (231 ) (100 ) Free cash flow (4) 1,424 2,695 2,472 Dividends paid (1,734 ) (2,769 ) (2,770 ) Stock repurchase program (26 ) (278 ) (400 ) Proceeds from employee stock plans 146 219
261
Net proceeds from divestitures 434 348
-
Proceeds from formation ofSensia joint venture - 238
-
Proceeds from sale ofWesternGeco marine seismic business, net of cash divested - -
579
Business acquisitions and investments, net of cash acquired plus debt assumed (33 ) (23 ) (292 ) Repayment of finance lease obligations (188 ) -
-
Other (181 ) (204 ) (93 ) Change in net debt before impact of changes in foreign exchange rates on net debt (158 ) 226 (243 ) Impact of changes in foreign exchange rates on net debt (595 ) (79 )
79
(Increase) decrease in Net Debt (753 ) 147 (164 ) Net Debt, Beginning of period (13,127 ) (13,274 ) (13,110 ) Net Debt, End of period$ (13,880 ) $ (13,127 ) $ (13,274 )
(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.
(2) Includes depreciation of property, plant and equipment and amortization of
intangible assets, multiclient seismic data costs and APS investments.
(3) Includes severance payments of approximately
(4) "Free cash flow" represents cash flow from operations less capital
expenditures, APS 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
the ability of our business 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.
25
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Key liquidity events during 2020, 2019 and 2018 included:
• Cash flow from operations was
compared to 2019 was driven by the sharp reduction in earnings excluding
non-cash charges and credits and depreciation and amortization expense as a
result of the challenging business conditions in 2020.
• On
billion share repurchase program for Schlumberger common stock. Schlumberger
had repurchased
as of
The following table summarizes the activity under this share repurchase program during 2020, 2019 and 2018:
(Stated in thousands, except per share amounts)
Total Cost Total Number Average Price
of Shares of Shares Paid per
Purchased Purchased Share
2020 $ 26,244 776.2 $ 33.81
2019 $ 278,162 6,968.3 $ 39.92
2018 $ 399,786 6,495.1 $ 61.55
• Dividends paid during 2020, 2019 and 2018 were
and
• Capital investments (consisting of capital expenditures, APS investments and
multiclient seismic data capitalized) were $1.5 billion in 2020, $2.7
billion in 2019 and $3.2 billion in 2018. Capital investments during 2021
are expected to be between $1.5 billion and $1.7 billion .
• During the fourth quarter of 2020, Schlumberger repaid certain finance lease
obligations totaling
• During the third quarter of 2020, Schlumberger issued
Senior Notes due 2025 and
• During the second quarter of 2020, Schlumberger issued €1.0 billion of
1.375% Guaranteed Notes due 2026, $900 million of 2.650% Senior Notes due
2030 and €1.0 billion of 2.00% Guaranteed Notes due 2032.
• During the second quarter of 2020, Schlumberger repurchased all
of its 4.20% Senior Notes due 2021 and
Notes due 2021. Schlumberger paid a premium of approximately
connection with these repurchases. This premium was classified in
Impairments & other in the Consolidated Statement of Income (Loss). See
Note 3 - Charges and Credits.
• During the second quarter of 2020, Schlumberger established a €5.0 billion
Guaranteed Euro Medium Term Note program that provides for the issuance of
various types of debt instruments such as fixed or floating rate notes in
euro, US dollar or other currencies. Schlumberger has not issued any debt
under this program.
• During the first quarter of 2020, Schlumberger issued €400 million of 0.25%
Notes due 2027 and €400 million of 0.50% Notes due 2031.
• During the first quarter of 2020, Schlumberger completed the sale of its 49%
interest in the Bandurria Sur Block in
from this transaction, combined with the proceeds received from the
divestiture of a smaller APS project, amounted to $298 million .
• During the fourth quarter of 2019, Schlumberger repurchased the remaining
Senior Notes due 2021;
• During the fourth quarter of 2019, Schlumberger completed the sale of the
businesses and associated assets of DRILCO,
Remedial Services and received net cash proceeds of
businesses represented less than 1% of Schlumberger's consolidated 2019
revenue.
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• During the fourth quarter of 2019, Schlumberger and Rockwell Automation
closed their
venture and Schlumberger owns 47%. At closing, Rockwell Automation made a
$238 million cash payment, net of working capital adjustments, to Schlumberger.
• During the third quarter of 2019, Schlumberger issued €500 million of 0.00%
Notes due 2024, €500 million of 0.25% Notes due 2027 and €500 million of
0.50% Notes due 2031.
• During the third quarter of 2019, Schlumberger repurchased
its 3.00% Senior Notes due 2020 and
due 2022.
• During the second quarter of 2019, Schlumberger completed a debt exchange
offer, pursuant to which it issued
Notes due 2028 in exchange for
Notes due 2025.
• During the first quarter of 2019, Schlumberger issued
Senior Notes due 2024 and
• During the fourth quarter of 2018, Schlumberger issued €600 million of 1.00%
Guaranteed Notes due 2026.
• During the fourth quarter of 2018, Schlumberger completed the divestiture of
its marine seismic acquisition business for net proceeds of
(after considering
Schlumberger expects to receive an income tax refund of approximately
Schlumberger has a provision of$0.5 billion relating to severance recorded in its Consolidated Balance Sheet as ofDecember 31, 2020 . The majority of this balance is expected to be paid during the first half of 2021. As ofDecember 31, 2020 , Schlumberger had$3.0 billion of cash and short-term investments on hand. Schlumberger had committed credit facility agreements with commercial banks aggregating$6.3 billion that support commercial paper programs, of which$5.9 billion was available and unused as ofDecember 31, 2020 . Schlumberger also has a €1.54 billion committed revolving credit facility that expires in the second quarter of 2021 but can be extended at Schlumberger's option for up to an additional year. AtDecember 31, 2020 , no amounts have been drawn under this facility. Schlumberger believes these amounts are sufficient to meet future business requirements for at least the next 12 months.
The total outstanding commercial paper borrowings were
Summary of Contractual Obligations
(Stated in millions)
Payment Period
Total 2021 2022-2023 2024-2025 After 2025
Debt (1) $ 16,886 $ 850 $ 3,761 $ 2,940 $ 9,335
Interest on fixed rate debt
obligations (2) 3,202 486 874 655 1,187
Operating leases 1,154 256 360 220 318
Purchase obligations (3) 3,014 2,693 199 75 47
$ 24,256 $ 4,285 $ 5,194 $ 3,890 $ 10,887 (1) Excludes future payments for interest.
(2) Excludes interest on
average interest rate of 1.0% as of
(3) Represents an estimate of contractual obligations in the ordinary course of
business. Although these contractual obligations are considered enforceable
and legally binding, the terms generally allow Schlumberger the option to
reschedule and adjust its requirements based on business needs prior to the
delivery of goods.
Refer to Note 17, Pension and Other Benefit Plans, of the Consolidated Financial
Statements for details regarding Schlumberger's pension and other postretirement
benefit obligations.
27
-------------------------------------------------------------------------------- As discussed in Note 13, Income Taxes, of the Consolidated Financial Statements, included in the Schlumberger Consolidated Balance Sheet atDecember 31, 2020 is approximately$1.3 billion of liabilities associated with uncertain tax positions in the over 100 tax jurisdictions in which Schlumberger conducts business. Due to the uncertain and complex application of tax regulations, combined with the difficulty in predicting when tax audits throughout the world may be concluded, Schlumberger cannot make reliable estimates of the timing of cash outflows relating to these liabilities. Schlumberger has outstanding letters of credit/guarantees that relate to business performance bonds, custom/excise tax commitments, facility lease/rental obligations, etc. These were entered into in the ordinary course of business and are customary practices in the various countries where Schlumberger operates.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States requires Schlumberger to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. The following accounting policies involve "critical accounting estimates" because they are particularly dependent on estimates and assumptions made by Schlumberger about matters that are inherently uncertain. Schlumberger bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Allowance for Doubtful Accounts
Schlumberger maintains an allowance for doubtful accounts in order to record accounts receivable at their net realizable value. Judgment is involved in recording and making adjustments to this reserve. Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices. Adjustments to the allowance may be required in future periods depending on how such potential issues are resolved, or if the financial condition of Schlumberger's customers were to deteriorate resulting in an impairment of their ability to make payments. As a large multinational company with a long history of operating in a cyclical industry, Schlumberger has extensive experience in working with its customers during difficult times to manage its accounts receivable. During weak economic environments or when there is an extended period of weakness in oil and gas prices, Schlumberger typically experiences delays in the payment of its receivables. However, except for a$469 million accounts receivable write-off during the fourth quarter of 2017 as a result of the political and economic condition inVenezuela , Schlumberger has not had material write-offs due to uncollectible accounts receivable over the recent industry downturn. Schlumberger generates revenue in more than 120 countries. As ofDecember 31, 2020 , only five of those countries individually accounted for greater than 5% of Schlumberger's net accounts receivable balance, of which only one (Mexico ) accounted for greater than 10% of such receivables.
Schlumberger records the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as goodwill. The goodwill relating to each of Schlumberger's reporting units is tested for impairment annually as well as when an event, or change in circumstances, indicates an impairment may have occurred. Under generally accepted accounting principles, Schlumberger has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one or more of its reporting units is greater than its carrying amount. If, after assessing the totality of events or circumstances, Schlumberger determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if Schlumberger concludes otherwise, then it is required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded based on that difference.
Schlumberger has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test.
During 2020 and 2019, Schlumberger recorded goodwill impairment charges of$3.1 billion and$8.8 billion , respectively. Refer to Note 3 to the Consolidated Financial Statements for details regarding the facts and circumstances that led to this impairment and how the fair value of each reporting unit was estimated, including the significant assumptions used and other details. Long-lived assets, including fixed assets, intangible assets and investments in APS projects, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual 28
-------------------------------------------------------------------------------- disposition. If such cash flows are not sufficient to support the asset's recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows as well as the estimated fair value of long-lived assets involves significant estimates on the part of management. If there is a material change in economic conditions or other circumstances influencing the estimate of future cash flows or fair value, Schlumberger could be required to recognize impairment charges in the future. Income Taxes Schlumberger conducts business in more than 100 tax jurisdictions, a number of which have tax laws that are not fully defined and are evolving. Schlumberger's tax filings are subject to regular audits by the tax authorities. These audits may result in assessments for additional taxes that are resolved with the authorities or, potentially, through the courts. Schlumberger recognizes the impact of a tax position in its financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Tax liabilities are recorded based on estimates of additional taxes that will be due upon the conclusion of these audits. Estimates of these tax liabilities are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of tax regulations, the ultimate resolution of audits may result in liabilities that could be materially different from these estimates. In such an event, Schlumberger will record additional tax expense or tax benefit in the period in which such resolution occurs.
Revenue Recognition for
Schlumberger recognizes revenue for certain long-term construction-type contracts over time. These contracts involve significant design and engineering efforts in order to satisfy custom designs for customer-specific applications. Under this method, revenue is recognized as work progresses on each contract. Progress is measured by the ratio of actual costs incurred to date on the project in relation to total estimated project costs. Approximately 5% of Schlumberger's revenue in each of 2020, 2019 and 2018, respectively, was recognized under this method. The estimate of total project costs has a significant impact on both the amount of revenue recognized as well as the related profit on a project. Revenue and profits on contracts can also be significantly affected by change orders and claims. Profits are recognized based on the estimated project profit multiplied by the percentage complete. Due to the nature of these projects, adjustments to estimates of contract revenue and total contract costs are often required as work progresses. Any expected losses on a project are recorded in full in the period in which they become probable.
Multiclient Seismic Data
Schlumberger capitalizes the costs associated with obtaining multiclient seismic data. The carrying value of the multiclient seismic data library atDecember 31, 2020 and 2019 was$317 million and$568 million , respectively. Such costs are charged to Cost of services based on the percentage of the total costs to the estimated total revenue that Schlumberger expects to receive from the sales of such data. However, an individual survey generally will not carry a net book value greater than a 4-year, straight-line amortized value. The carrying value of surveys is reviewed for impairment annually as well as when an event or change in circumstance indicates an impairment may have occurred. Adjustments to the carrying value are recorded when it is determined that estimated future revenues, which involve significant judgment on the part of Schlumberger, would not be sufficient to recover the carrying value of the surveys. Significant adverse changes in Schlumberger's estimated future cash flows could result in impairment charges in a future period. For purposes of performing the annual impairment test of the multiclient library, surveys are primarily analyzed for impairment on a survey-by-survey basis. 29 --------------------------------------------------------------------------------
Pension and Postretirement Benefits
Schlumberger's pension and postretirement benefit obligations are described in detail in Note 17 to the Consolidated Financial Statements. The obligations and related costs are calculated using actuarial concepts, which include critical assumptions related to the discount rate, expected rate of return on plan assets and medical cost trend rates. These assumptions are important elements of expense and/or liability measurement and are updated on an annual basis, or upon the occurrence of significant events. The discount rate that Schlumberger uses reflects the prevailing market rate of a portfolio of high-quality debt instruments with maturities matching the expected timing of payment of the related benefit obligations. The following summarizes the discount rates utilized by Schlumberger for its various pension and postretirement benefit plans:
• The discount rate utilized to determine the liability for Schlumberger's
United States pension plans and postretirement medical plan was 2.60% atDecember 31, 2020 and 3.30% atDecember 31, 2019 .
• The weighted-average discount rate utilized to determine the liability for
Schlumberger's international pension plans was 2.38% at December 31, 2020
and 3.27% at December 31, 2019 .
• The weighted-average discount rate utilized to determine expense for
Schlumberger's United States pension plans and postretirement medical plan
decreased from 4.30% in 2019 to 3.30% in 2020.
• The weighted-average discount rate utilized to determine expense for
Schlumberger's international pension plans decreased from 4.00% in 2019 to
3.27% in 2020.
The expected rate of return for Schlumberger's retirement benefit plans represents the average rate of return expected to be earned on plan assets over the period that benefits included in the benefit obligation are expected to be paid, with consideration given to the distribution of investments by asset class and historical rates of return for each individual asset class. The weighted average expected rate of return on plan assets forthe United States pension plans was 6.60% in both 2020 and 2019. The weighted average expected rate of return on plan assets for the international pension plans was 6.71% in 2020 and 7.22% in 2019. A lower expected rate of return would increase pension expense. Schlumberger's medical cost trend rate assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. The overall medical cost trend rate assumption utilized to determine the 2020 postretirement medical expense and the postretirement medical liability atDecember 31, 2020 was 7.25%, graded to 4.5% over the next eleven years. The following illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for Schlumberger'sUnited States and international pension plans: (Stated in millions) Effect on Effect on 2020 Dec. 31, 2020 Change in Assumption Pretax Expense Liability 25 basis point decrease in discount rate+$42 +$664 25 basis point increase in discount rate -$40 -$625 25 basis point decrease in expected return on plan assets+$31 - 25 basis point increase in expected return on plan assets -$31 -
The following illustrates the sensitivity to changes in certain assumptions,
holding all other assumptions constant, for Schlumberger's
(Stated in millions)
Effect on
Effect on 2020 Dec. 31, 2020
Change in Assumption Pretax Expense Liability
25 basis point decrease in discount rate - +$46
25 basis point increase in discount rate - -$42
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