UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2015

Commission file No.: 1-4601

 

SCHLUMBERGER N.V.

(SCHLUMBERGER LIMITED)

(Exact name of registrant as specified in its charter)

 

 

Registrant’s telephone number in the United States, including area code, is:

(713) 513-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

 

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SCHLUMBERGER LIMITED

First Quarter 2015 Form 10-Q

Table of Contents

 

 

 

 

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PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

 

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

 

    

See Notes to Consolidated Financial Statements

 

 

 

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SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

 

 

See Notes to Consolidated Financial Statements

 

 

 

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SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

 

See Notes to Consolidated Financial Statements

 

 

 

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SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

 

See Notes to Consolidated Financial Statements

 

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SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

 

SHARES OF COMMON STOCK

(Unaudited)

 

See Notes to Consolidated Financial Statements

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SCHLUMBERGER LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.    Basis of Presentation

The accompanying unaudited consolidated financial statements of Schlumberger Limited and its subsidiaries (“Schlumberger”) have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of Schlumberger management, all adjustments considered necessary for a fair statement have been included in the accompanying unaudited financial statements.  All intercompany transactions and balances have been eliminated in consolidation.  Operating results for the three-month period ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015.  The December 31, 2014 balance sheet information has been derived from the Schlumberger 2014 audited financial statements.  For further information, refer to the Consolidated Financial Statements and notes thereto included in the Schlumberger Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on January 29, 2015.

New Accounting Pronouncement

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers.  This ASU amends the existing accounting standards for revenue recognition and is based on the principle that revenue should be recognized to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services.  Schlumberger is required to adopt this ASU on January 1, 2017 and does not expect this ASU to have a material impact on its consolidated financial statements.

 

 

2.   Charges and Credits

Schlumberger recorded the following charges and credits in continuing operations during the first quarter of 2015:

 

Although the functional currency of Schlumberger’s operations in Venezuela is the US dollar, a portion of the transactions are denominated in local currency.  Prior to December 31, 2014, Schlumberger had historically applied the official exchange rate to remeasure local currency transactions and balances into US dollars.

Effective December 31, 2014, Schlumberger concluded that it was appropriate to apply the SICAD II exchange rate as it believed this rate best represented the economics of Schlumberger’s business activity in Venezuela.  As a result, Schlumberger recorded a $472 million devaluation charge during the fourth quarter of 2014.

In February 2015, the Venezuelan government replaced SICAD II with a new foreign exchange market system known as SIMADI.  The SIMADI exchange rate was approximately 192 Venezuela Bolivares to the US dollar as of March 31, 2015.  As a result, Schlumberger recorded a $49 million devaluation charge during the first quarter of 2015, reflecting the adoption of the SIMADI exchange rate.  

These changes result in a reduction in the US dollar reported amount of local currency denominated revenues, expenses and, consequently, income before taxes and net income in Venezuela.  For example, if Schlumberger had applied an exchange rate of 192 Venezuelan Bolivares to the US dollar throughout 2014, it would have reduced Schlumberger earnings by approximately $0.09 per share.

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The following is a summary of these charges:

 There were no charges or credits recorded during the first quarter of 2014.

 

3.   Earnings Per Share

The following is a reconciliation from basic earnings per share of Schlumberger to diluted earnings per share of Schlumberger:

 

    

The number of outstanding options to purchase shares of Schlumberger common stock which were not included in the computation of diluted earnings per share, because to do so would have had an antidilutive effect, was as follows:

 

 

 

 

4.   Inventories

A summary of inventories follows:  

 

 

 

5.   Fixed Assets

A summary of fixed assets follows:

 

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Depreciation expense relating to fixed assets was $827 million and $793 million in the first quarter of 2015 and 2014, respectively.

 

 

6.   Multiclient Seismic Data

The change in the carrying amount of multiclient seismic data for the three months ended March 31, 2015 was as follows:

 

 

 

7.   Goodwill

The changes in the carrying amount of goodwill by reporting unit for the three months ended March 31, 2015 were as follows:

 

 

 

8.   Intangible Assets

The gross book value, accumulated amortization and net book value of intangible assets were as follows:

 

 

Amortization expense charged to income was $88 million during the first quarter of 2015 and $86 million during the first quarter of 2014.

  

Based on the net book value of intangible assets at March 31, 2015, amortization charged to income for the subsequent five years is estimated to be: remaining three quarters of 2015—$270 million; 2016—$351 million; 2017—$342 million; 2018—$331 million; 2019—$323 million; and 2020—$302 million.

 

 

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9.   Long-term Debt

A summary of Long-term Debt follows:

 

 

The estimated fair value of Schlumberger’s Long-term Debt at March 31, 2015 and December 31, 2014, based on quoted market prices, was $9.2 billion and $10.7 billion, respectively.

Borrowings under the commercial paper program at March 31, 2015 were $2.0 billion, of which $1.6 billion is classified within Long-term debt – current portion in the Consolidated Balance Sheet.  At December 31, 2014, borrowings under the commercial paper program were $1.5 billion, all of which were classified within Long-term debt in the Consolidated Balance Sheet.  

 

10.   Derivative Instruments and Hedging Activities

Schlumberger is exposed to market risks related to fluctuations in foreign currency exchange rates and interest rates.  To mitigate these risks, Schlumberger utilizes derivative instruments.  Schlumberger does not enter into derivative transactions for speculative purposes.

Interest Rate Risk

Schlumberger is subject to interest rate risk on its debt and its investment portfolio.  Schlumberger maintains an interest rate risk management strategy that uses a mix of variable and fixed rate debt combined with its investment portfolio and occasionally interest rate swaps to mitigate the exposure to changes in interest rates.

During the fourth quarter of 2013, Schlumberger entered into a cross currency swap for a notional amount of €0.5 billion in order to hedge changes in the fair value of Schlumberger’s €0.5 billion 1.50% Guaranteed Notes due 2019.  Under the terms of this swap, Schlumberger will receive interest at a fixed rate of 1.50% on the euro notional amount and pay interest at a floating rate of three-month LIBOR plus approximately 64 basis points on the US dollar notional amount.

This cross currency swap is designated as a fair value hedge of the underlying debt.  This derivative instrument is marked to market with gains and losses recognized in income to largely offset the respective gains and losses recognized on changes in the fair value of the hedged debt.  

At March 31, 2015, Schlumberger had fixed rate debt aggregating $8.9 billion and variable rate debt aggregating $3.8 billion, after taking into account the effect of the swap.

Short-term investments and Fixed income investments, held to maturity, totaled $5.1 billion at March 31, 2015.  The carrying value of these investments approximated fair value, which was estimated using quoted market prices for those or similar investments.

Foreign Currency Exchange Rate Risk

As a multinational company, Schlumberger conducts its business in approximately 85 countries. Schlumberger’s functional currency is primarily the US dollar.  However, outside the United States, a significant portion of Schlumberger’s expenses is incurred in foreign currencies.  Therefore, when the US dollar weakens (strengthens) in relation to the foreign currencies of the countries in which Schlumberger conducts business, the US dollar–reported expenses will increase (decrease).  

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Schlumberger is exposed to risks on future cash flows to the extent that the local currency is not the functional currency and expenses denominated in local currency are not equal to revenues denominated in local currency.  Schlumberger is also exposed to risks on future cash flows relating to certain of its fixed rate debt which is denominated in currencies other than the functional currency. Schlumberger uses foreign currency forward contracts and foreign currency options to provide a hedge against a portion of these cash flow risks.  These contracts are accounted for as cash flow hedges, with the effective portion of changes in the fair value of the hedge recorded on the Consolidated Balance Sheet and in Accumulated Other Comprehensive Loss.  Amounts recorded in Accumulated Other Comprehensive Loss are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of hedging instruments, if any, is recorded directly to earnings.

At March 31, 2015, Schlumberger recognized a cumulative net $130 million loss in Accumulated other comprehensive loss relating to revaluation of foreign currency forward contracts and foreign currency options designated as cash flow hedges, the majority of which is expected to be reclassified into earnings within the next 12 months.

Schlumberger is exposed to changes in the fair value of assets and liabilities which are denominated in currencies other than the functional currency.  While Schlumberger uses foreign currency forward contracts and foreign currency options to economically hedge this exposure as it relates to certain currencies, these contracts are not designated as hedges for accounting purposes.  Instead the fair value of the contracts is recorded on the Consolidated Balance Sheet and changes in the fair value are recognized in the Consolidated Statement of Income as are changes in fair value of the hedged item.

At March 31, 2015, contracts were outstanding for the US dollar equivalent of $6.3 billion in various foreign currencies, of which $2.5 billion relate to hedges of debt denominated in currencies other than the functional currency.

The fair values of outstanding derivative instruments were as follows:

 

 

The fair value of all outstanding derivatives was determined using a model with inputs that are observable in the market or that can be derived from or corroborated by observable data.

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The effect of derivative instruments designated as fair value hedges and those not designated as hedges on the Consolidated Statement of Income was as follows:

 

 

 

11.   Income Taxes

Income before taxes subject to US and non-US income taxes was as follows:

 

Schlumberger recorded pretax charges of $439 million during the three months ended March 31, 2015 ($93 million of charges in the US and $346 million of charges outside the US). See Note 2 – Charges and Credits.

The components of net deferred tax assets (liabilities) were as follows:

 

The above deferred tax balances at March 31, 2015 and December 31, 2014 were net of valuation allowances relating to net operating losses in certain countries of $172 million and $190 million, respectively.

The components of consolidated Taxes on income were as follows:

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A reconciliation of the US statutory federal tax rate of 35% to the consolidated effective income tax rate follows:

 

 

 

12.   Contingencies

On March 25, 2015, Schlumberger resolved a previously disclosed investigation by the U.S. Department of Justice into past violations of US sanctions regarding its historical operations in Iran and Sudan that occurred between 2004 and 2010.  A non-US subsidiary of Schlumberger has agreed to plead guilty to one criminal count of conspiracy to violate the International Emergency Economic Powers Act.  Under the terms of the plea agreement, Schlumberger will pay a total amount of approximately $233 million in fines, penalties and assessments.  This amount, which has been previously accrued for, is expected to be paid during the second quarter of 2015 and will be reflected within Cash flow used in discontinued operations – operating activities in Schlumberger’s Consolidated Statement of Cash Flows when paid.  All terms of the plea agreement are subject to judicial approval.

Schlumberger and its subsidiaries are party to various other legal proceedings from time to time.  A liability is accrued when a loss is both probable and can be reasonably estimated. Management believes that the probability of a material loss with respect to these other legal proceedings is remote.  However, litigation is inherently uncertain and it is not possible to predict the ultimate disposition of any of these proceedings.  

 

13.   Segment Information

 

 

⁽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⁾   Interest income excludes amounts which are included in the segments’ income ($5 million in 2015; $5 million in 2014).

⁽³⁾   Interest expense excludes amounts which are included in the segments’ income ($6 million in 2015; $6 million in 2014).

⁽⁴⁾ Charges and credits recorded during the first quarter of 2015 are described in detail in Note 2 to the Consolidated Financial Statements.  

 

  

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14.   Pension and Other Postretirement Benefit Plans

Net pension cost for the Schlumberger pension plans included the following components:

 

 

The net periodic benefit cost for the Schlumberger US postretirement medical plan included the following components:

 

 

 

15. Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss consists of the following:

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

First Quarter 2015 Compared to Fourth Quarter 2014

Product Groups

 

 

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Geographic Areas

 

 

⁽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⁾   Interest income excludes amounts which are included in the segments’ income ($5 million in the first quarter 2015; $5 million in the fourth quarter in 2014).

⁽³⁾   Interest expense excludes amounts which are included in the segments’ income ($6 million in the first quarter 2015; $7 million in the fourth quarter 2014).

⁽⁴⁾   Charges and credits recorded during the first quarter of 2015 are described in detail in Note 2 to the Consolidated Financial Statements.  Refer to Note 3 to the Consolidated Financial Statements included in the Schlumberger Annual Report on Form 10-K for the year ended December 31, 2014 for details regarding charges and credits during the fourth quarter of 2014.

 

First-quarter 2015 revenue of $10.2 billion was 19% lower sequentially while pretax operating income of $2.0 billion was lower by 28% sequentially.  Pretax operating margin decreased 255 basis points (bps) to 19.4%.  

North America first-quarter revenue of $3.2 billion decreased 25% sequentially. In the US and Western Canada, revenue fell on lower pressure pumping activity and increased pricing pressure, which was precipitated by the sharp drop in the land rig count and the early onset of the Canadian spring break-up. In the US Gulf of Mexico, activity was flat but revenue declined mainly due to lower multiclient sales.

 

North America pretax operating margin declined 670 bps sequentially to 12.9% on decreased pressure pumping activity and pricing weakness in North America land. North America offshore operating margin declined due to an unfavorable revenue mix resulting from a shift from exploration to development activity and reduced high-margin multiclient sales.  

Revenue for the International Areas of $6.9 billion decreased 16% sequentially. Middle East & Asia Area revenue of $2.7 billion declined 13% sequentially due mainly to double-digit drops in China, Asia-Pacific and Australia.  The Middle East GeoMarkets remained robust on new projects and higher activity, but revenue declined on reduced product and software sales following the year-end highs of the previous quarter.  India GeoMarket revenue grew sequentially, while activity in Iraq continued to be muted. Europe/CIS/Africa Area revenue of $2.5 billion fell 17% sequentially due mainly to continued weakness in the Russian ruble and the seasonal activity decline in Russia.  Revenue in the Latin America Area of $1.6 billion dropped 20% due to the exchange rate change in Venezuela and lower activity in Mexico, Brazil and Colombia due to customer budget cuts. These effects, however, were partially offset by slight but steady activity increases in Argentina, Venezuela, Trinidad and the Caribbean.

International Area pretax operating margin of 24.1% was essentially flat sequentially.  Middle East & Asia pretax operating margin increased slightly by 30 bps to 28.6%, Latin America increased 59 bps to 21.5%, and Europe/CIS/Africa fell 133 bps to 21.0%. Despite the severity of the sequential revenue decline and an increasingly unfavorable revenue mix, the impact on margins was minimized by focused execution and prompt action on variable costs.

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Reservoir Characterization Group

Sequentially, Reservoir Characterization Group revenue of $2.6 billion declined 21%, primarily due to the overall cut in discretionary and exploration spending and lower multiclient and Schlumberger Information Solutions (SIS) software sales following the year-end highs of the previous quarter.  Wireline revenue decreased on lower exploration activity in the international markets and currency declines in Europe, Norway and Russia.

Pretax operating margin of 25.7% was 447 bps lower sequentially as a result of seasonally lower multiclient and SIS software sales and an unfavorable overall revenue mix reflecting the decline in high-margin exploration activity.

 

Drilling Group

Sequentially, Drilling Group revenue of $4.0 billion decreased 15% primarily due to the severe drop in rig count in North America and the unfavorable currency effects in Russia and Venezuela, as well as the seasonal activity declines in Russia that mainly affected Drilling & Measurements and M-I SWACO Technologies.  More than 30% of the sequential decline was in North America land due to lower activity and pricing.  Reduced Integrated Project Management (IPM) work in Australia, Mexico and Iraq also contributed to the decrease.

Pretax operating margin of 19.9% declined 80 bps sequentially.  Despite the revenue decline, prompt action on cost management, and the benefit of our local cost structure which minimized the impact of the unfavorable currency effects on pretax operating income, helped limit the sequential pretax operating margin decline.

 

Production Group

Production Group revenue of $3.8 billion decreased 22% sequentially as a result of lower pressure pumping activity and increased pricing pressure precipitated by the severe drop in land rig count in North America.  More than half of the sequential decrease was attributable to North America land.  Lower Artificial Lift and Completions product sales and unfavorable currency effects also contributed to the sequential decrease.

Pretax operating margin of 14.6% declined 389 bps sequentially as lower activity and increasing pricing pressure took hold during the first quarter of 2015, particularly in the North America land market.  Despite the severe revenue decline, prompt cost management actions, including alignment of resources with activity, limited the sequential pretax operating margin decline.

First Quarter 2015 Compared to First Quarter 2014

Product Groups

 

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Geographic Areas

 

⁽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⁾   Interest income excludes amounts which are included in the segments’ income ($5 million in 2015; $5 million in 2014).

⁽³⁾   Interest expense excludes amounts which are included in the segments’ income ($6 million in 2015; $6 million in 2014).

⁽⁴⁾   Charges and credits recorded during the first quarter of 2015 are described in detail in Note 2 to the Consolidated Financial Statements.

    

First-quarter 2015 revenue of $10.2 billion was 9% lower year-on-year. International revenue of $6.9 billion decreased 8% while North America Area revenue of $3.2 billion decreased 13%.

International Area activity was lower as customers cut budgets in response to lower commodity prices and revenue declined due to the fall of certain local currencies against the US dollar. The decrease was most significant in the Europe/CIS/Africa Area where revenue of $2.5 billion was down 12%, mainly due to the weakness in the Russian ruble as well as the deceleration of exploration related customer spending.  In North Africa, work has progressed with slow signs of increasing activity while Libya was limited to offshore locations as onshore operations were largely shutdown for the quarter.  In Latin America, revenue of $1.6 billion decreased 6% due to lower activity in Mexico, as a result of customer budget cuts, and due to the devaluation of the Venezuela bolivar. These effects were partially offset by slight activity increases in Argentina, Ecuador and Venezuela.  In Middle East & Asia, revenue of $2.7 billion decreased 5% due to a double-digit drop in revenue in the Asia-Pacific region including Australia.  This decline was partially offset by robust activity in the Gulf Cooperation Council countries in the Middle East, although Iraq activity continue to be muted. In North America, revenue of $3.2 billion decreased 13% due mainly to land while offshore was flat year-on-year.  The decrease in land was driven by declines in both activity and pricing, as spending by customers was cut and the land rig count declined 30%.  Offshore activity in the US Gulf of Mexico remained resilient despite a steady change in service mix from exploration towards development driven by customer budget cuts.

First-quarter 2015 pretax operating income of $2.0 billion decreased 16% versus the same period last year. International pretax operating income of $1.7 billion decreased 3%, while North America Area pretax operating income of $0.4 billion decreased 39%.

First-quarter 2015 pretax operating margin of 19.4% decreased 162 bps versus the same period last year, as International pretax operating margin expanded 131 bps to 24.1% and the North America Area pretax operating margin contracted 561 bps to 12.9%.  Despite the severity of the revenue decline and an increasingly unfavorable shift in revenue mix, the impact on margins was minimized by focused execution and prompt action on all variable cost categories.  The North America margin contraction was due to the severe declines in both activity and pricing.

Reservoir Characterization Group

First-quarter 2015 revenue of $2.6 billion was 14% lower year-on-year due to customer cuts in discretionary and exploration spending which resulted in weaker wireline activity and lower software and multiclient sales.  Revenue was also impacted by currency declines in Europe, Norway and Russia.

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Year-on-year, pretax operating margin decreased by 89 bps to 25.7% due to reduced higher-margin multiclient and software sales and an unfavorable overall revenue mix reflecting the decline in high-margin exploration activity.

Drilling Group

First-quarter 2015 revenue of $4.0 billion was 8% lower than the previous year primarily due to the severe drop in rig count in North America land and unfavorable currency effects in Russia and Venezuela that mainly affected Drilling & Measurements and M-I SWACO Technologies.  Reduced IPM work in Australia, Mexico and Iraq also contributed to the decrease.

Year-on-year, pretax operating margin decreased 41 bps to 19.9%.  Despite the revenue decline, prompt action on cost management, and the benefit of our local cost structure, which minimized the impact of the unfavorable currency effects on pretax operating income, helped limit the pretax operating margin decline.

Production Group

First-quarter 2015 revenue of $3.8 billion decreased 6% year-on-year mostly from Well Services pressure pumping technologies driven by activity and pricing declines in all basins in North America land.  This decline, was partially offset by growth in completions and the expanding artificial lift business.

Year-on-year, pretax operating margin decreased 359 bps to 14.6% as a result of lower activity and the impact of pricing pressure, particularly in the North America land market.  

 

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Interest and Other Income

Interest & other income consisted of the following:

 

 

Other

Research & engineering and General & administrative expenses, as a percentage of Revenue, for the first quarter ended March 31, 2015 and 2014 were as follows:

 

 

The effective tax rate for the first quarter of 2015 was 23.6% compared to 22.6% for the same period of the prior year.  The effective tax rate for the first quarter of 2015 was significantly impacted by the charges and credits described in Note 2 to the Consolidated Financial Statements.  Excluding the impact of the charges and credits, the effective tax rate for the first quarter of 2015 was 20.9%.  The decrease in the effective tax rate, excluding the impact of charges and credits, was primarily attributable to the geographic mix of earnings, as Schlumberger generated a smaller portion of its pretax earnings in North America during the first quarter of 2015 as compared to the same period last year.  

Charges and Credits

Schlumberger recorded significant charges and credits in continuing operations during the first quarter of 2015.  These charges and credits, which are summarized below, are more fully described in Note 2 to the Consolidated Financial Statements.

The following is a summary of the first quarter 2015 charges and credits:

There were no charges or credits recorded during the first quarter of 2014.  

 

 

 

 

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Net Debt

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 indebtedness by reflecting cash and investments that could be used to repay debt.

Details of Net Debt follow:

 

 

Key liquidity events during the first three months of 2015 and 2014 included:

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The following table summarizes the activity under this share repurchase program:

At times in recent years, Schlumberger has experienced delays in payments from its national oil company customer in Venezuela. Schlumberger operates in more than 85 countries.  At March 31, 2015, only four of those countries (including Venezuela) individually accounted for greater than 5% of Schlumberger’s accounts receivable balance, of which only one (the United States), represented greater than 10%.  

On January 20, 2015, Schlumberger announced that it has entered into an agreement to acquire a minority ownership of approximately 46% in Eurasia Drilling Company Limited, the largest provider of onshore drilling services in Russia.  The total cost of this transaction, including an option which will allow Schlumberger, at its election, to purchase the remaining shares during a two-year period commencing on the third anniversary of the closing of the transaction, is approximately $1.7 billion in cash.  This transaction is expected to close during the second quarter of 2015.

As disclosed in Note 12 to the Consolidated Financial Statements, Schlumberger expects to make a $233 million payment to the Department of Justice during the second quarter of 2015.

As of March 31, 2015, Schlumberger had $6.8 billion of cash and short-term investments on hand.  Schlumberger had separate committed debt facility agreements aggregating $3.8 billion with commercial banks, of which $1.8 billion was available and unused as of March 31, 2015.  The $3.8 billion of committed debt facility agreements included $3.5 billion of committed facilities that support commercial paper programs.  Schlumberger believes that these amounts are sufficient to meet future business requirements for at least the next 12 months.

Borrowings under the commercial paper programs at March 31, 2015 were $2.0 billion.

Other Matters

As previously disclosed, during the second quarter of 2013, Schlumberger completed the wind down of its service operations in Iran.  Prior to this, certain non-U.S. subsidiaries of Schlumberger provided oilfield services to the National Iranian Oil Company and certain of its affiliates (“NIOC”).  The results of this business were classified as a discontinued operations.

Schlumberger’s residual transactions or dealings with the government of Iran in the quarter consisted of payments of taxes and other typical governmental charges.  Two non-U.S. subsidiaries of Schlumberger have depository accounts at the Dubai branch of Bank Saderat Iran (“Saderat”) and at Bank Tejarat (“Tejarat”) in Tehran for the deposit by NIOC of amounts owed to non-US subsidiaries of Schlumberger for prior services rendered in Iran.  One non-U.S. subsidiary also maintains an account at Tejarat for payment of local expenses such as taxes and utilities.  Schlumberger anticipates that it will discontinue its dealings with Saderat and Tejarat following the receipt of all amounts owed to Schlumberger for prior services rendered in Iran.

FORWARD-LOOKING STATEMENTS

This Form 10-Q and other statements we make, contain “forward-looking statements” within the meaning of the federal securities laws, which include any statements that are not historical facts, such as our forecasts or expectations regarding business outlook; growth for Schlumberger as a whole and for each of its segments (and for specified products or geographic areas within each segment); oil and natural gas demand and production growth; oil and natural gas prices; improvements in operating procedures and technology; capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger’s customers; the success of Schlumberger’s joint ventures and alliances; future global economic conditions; and future results of operations. These statements are subject to risks and uncertainties, including, but not limited to, global economic conditions; changes in exploration and production spending by Schlumberger’s customers and changes in the level of oil and natural gas exploration and development; general economic, political and business conditions in key regions of the world, including in Russia and the Ukraine; pricing erosion; weather and seasonal factors; operational delays; production declines; changes in government regulations and regulatory requirements, including those related to offshore oil and gas exploration, radioactive sources, explosives, chemicals, hydraulic fracturing services and climate-related initiatives; the inability of technology to meet new challenges in exploration; and other risks and uncertainties detailed in our

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first-quarter 2015 earnings release, our most recent Form 10-K and other filings that we make with the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of any such development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. Schlumberger disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

For quantitative and qualitative disclosures about market risk affecting Schlumberger, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” of the Schlumberger Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Schlumberger’s exposure to market risk has not changed materially since December 31, 2014.

 

Item 4. Controls and Procedures.

Schlumberger has carried out an evaluation under the supervision and with the participation of Schlumberger’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of Schlumberger’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the CEO and the CFO have concluded that, as of the end of the period covered by this report, Schlumberger’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that Schlumberger files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Schlumberger’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to its management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in Schlumberger’s internal control over financial reporting that occurred during the quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, Schlumberger’s internal control over financial reporting.

 

 

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

The information with respect to this Item 1 is set forth under Note 12—Contingencies, in the Consolidated Financial Statements.

 

Item 1A. Risk Factors.

As of the date of this filing, there have been no material changes from the risk factors previously disclosed in Part 1, Item 1A, of Schlumberger’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

None.

Issuer Repurchases of Equity Securities

On July 18, 2013, the Schlumberger Board of Directors approved a $10 billion share repurchase program for shares of Schlumberger common stock, to be completed at the latest by June 30, 2018.  

Schlumberger’s common stock repurchase program activity for the three months ended March 31, 2015 was as follows:

 

 

In connection with the exercise of stock options under Schlumberger’s incentive compensation plans, Schlumberger routinely receives shares of its common stock from optionholders in consideration of the exercise price of the stock options. Schlumberger does not view these transactions as requiring disclosure under this Item as the number of shares of Schlumberger common stock received from optionholders is not material.

 

Item 3. Defaults Upon Senior Securities.

None.

 

Item 4. Mine Safety Disclosures.

The barite and bentonite mining operations of M-I LLC, an indirect wholly-owned subsidiary, are subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this report.

 

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit 3.1—Articles of Incorporation of Schlumberger Limited (Schlumberger N.V.) (incorporated by reference to Exhibit 3 to Schlumberger’s Current Report on Form 8-K filed on April 7, 2011)

Exhibit 3.2—Amended and Restated By-laws of Schlumberger Limited (Schlumberger N.V.) (incorporated by reference to Exhibit 3.1 to Schlumberger’s Current Report on Form 8-K filed on July 20, 2012)

* Exhibit 31.1—Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

* Exhibit 31.2—Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

** Exhibit 32.1—Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

** Exhibit 32.2—Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Exhibit 95—Mine Safety Disclosures

* Exhibit 101—The following materials from Schlumberger Limited’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statement of Income; (ii) Consolidated Statement of Comprehensive Income; (iii) Consolidated Balance Sheet; (iv) Consolidated Statement of Cash Flows; (v) Consolidated Statement of Equity and (vi) Notes to Consolidated Financial Statements.

* Filed with this Form 10-Q.

** Furnished with this Form 10-Q.

 

 

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and in his capacity as Chief Accounting Officer.

 

 

 

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