SLB 10-Q 2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2021

OR

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

Securities registered pursuant to Section 12(b) of the Act:

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☒

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

SCHLUMBERGER LIMITED

Third Quarter 2021 Form 10-Q

Table of Contents

PART I. FINANCIAL INFORMATION

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (LOSS)

(Unaudited)

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

See Notes to Consolidated Financial Statements

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

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This section of the Form 10-Q discusses third-quarter 2021 results of operations and comparisons to second-quarter 2021, as well as the first nine months of 2021 results of operations and comparisons to the first nine months of 2020. Detailed financial information with respect to second-quarter 2021 can be found in Part I, Item 1, “Financial Statements” of Schlumberger’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2021.

Third Quarter 2021 Compared to Second Quarter 2021

Third-quarter revenue grew 4% sequentially led by Well Construction and Reservoir Performance. The revenue growth in these Divisions more than offset the impact of transitory global supply and logistics constraints in Production Systems.

Geographically, international revenue of $4.68 billion grew 4% sequentially and 11% year-on-year and is on track to meet our double-digit revenue growth ambition for the second half of 2021 compared to the same period last year. The international sequential revenue increase was led by double-digit growth in Latin America complemented by sustained activity in the Europe/CIS/Africa and Middle East & Asia areas. In North America, revenue of $1.13 billion grew 4% sequentially mainly driven by a strong seasonal rebound in land drilling, higher Asset Performance Solutions (“APS”) revenue in Canada, and an increase in drilling revenue in North America offshore.

Among the Divisions, Well Construction continued its growth momentum, with revenue increasing 8% sequentially due to higher international and North America drilling activity both on land and offshore. Similarly, Reservoir Performance revenue increased 7% sequentially from higher exploration and appraisal activity across the international markets. Revenue from Digital & Integration and Production Systems was essentially flat.

Sequentially, third-quarter pretax segment operating margin expanded by 120 basis points (“bps”) to 16%, representing its highest level since 2015 and a fifth consecutive quarter of margin expansion. This growth was driven by the Well Construction and Reservoir Performance Divisions.

Looking ahead, the fourth quarter of 2021 is anticipated to be another quarter of growth, and Schlumberger expects to close 2021 with strong momentum that will set the foundation for an exceptional growth cycle.

The industry macro fundamentals have visibly strengthened this year, particularly in recent weeks—with demand recovery, oil and gas commodity prices at recent highs, low inventory levels, and encouraging trends in pandemic containment efforts. Absent a recession or pandemic-related setback, these favorable conditions are expected to materially drive investment over the next few years— particularly internationally—and result in exceptional multiyear capital spending growth globally, both on land and offshore.

Digital & Integration

Digital & Integration revenue of $812 million declined 1% sequentially as higher APS project revenue was offset by lower digital solutions revenue following strong software sales in the second quarter. Revenue grew in North America, Latin America, and Middle East & Asia, offset by lower revenue in Europe/CIS/Africa.

Digital & Integration pretax operating margin of 35% expanded 154 bps sequentially, primarily due to increased profitability from APS projects.

Reservoir Performance

Reservoir Performance revenue of $1.19 billion increased 7% sequentially due to higher exploration and appraisal programs across the international markets.

Reservoir Performance pretax operating margin of 16% expanded 202 bps sequentially. Profitability was boosted by higher offshore and exploration activity and a favorable technology mix, particularly in Latin America and Africa.

Well Construction

Well Construction revenue of $2.27 billion increased 8% sequentially due to higher land and offshore drilling across the international markets and increased rig activity in North America. North America revenue growth was driven by strong seasonal rebound on land drilling in Canada and higher offshore drilling in the Gulf of Mexico, notwithstanding the hurricane effects during the quarter. International revenue was driven by double-digit growth in Latin America, Africa, and Russia & Central Asia from the combination of increased offshore exploration activity and the peak of summer land drilling campaigns.

Well Construction pretax operating margin of 15% improved sequentially by 230 bps due to higher drilling revenue, boosted by the favorable mix of activity and new technology.

Production Systems

Production Systems revenue of $1.67 billion was essentially flat sequentially, as revenue increases in subsea and well production systems were offset by a revenue decline in midstream production systems. Revenue was partially impacted by transitory global supply and logistics constraints.

Production Systems pretax operating margin of 10% was essentially flat sequentially.

Nine Months 2021 Compared to Nine Months 2020

Nine-month 2021 revenue of $16.7 billion decreased 8% year-on-year. Revenue declined particularly in North America, following the divestitures of the OneStim® pressure pumping business and the low-flow artificial lift business during the fourth quarter 2020. These divestitures were consistent with Schlumberger’s strategy to focus on high-grading and rationalizing its business portfolio to expand margins, minimize earnings volatility, and focus on more capital efficient businesses. Excluding the impact of these divestitures, which generated $1.1 billion of revenue (all of which was in North America) during the first nine months of 2020, global revenue declined 2% year-on-year, reflecting the significant fall in activity following the historic demand destruction driven by the COVID-19 pandemic that commenced in early 2020.

In North America revenue declined 26% year-on-year; however, excluding the impact of the previously described divestitures, nine-month revenue only declined 2%. International revenue also declined 2% driven by significant activity decreases in Europe/CIS/Africa and the Middle East & Asia, partially offset by an increase in revenue in Latin America.

Nine-month 2021 pretax operating margin of 14% was 458 bps higher compared to the same period last year despite the 8% decline in revenue, due to the divestiture of certain businesses in North America, which were previously dilutive to margins, combined with reduced depreciation and amortization expense following the asset impairment charges recorded during 2020 and the effects of cost reduction measures.

Digital & Integration

Nine-month 2021 revenue of $2.4 billion increased 7% year-on-year, primarily driven by higher APS project revenue from higher production and improved oil prices, as well as the absence of production interruptions in the APS projects in Ecuador that were caused by a major land slide in the second quarter of 2020.

Year-on-year, pretax operating margin increased 13 percentage points to 34%. Operating margin increased due to improved profitability from APS projects as a result of higher oil prices and reduced amortization following the asset impairment charges that were recorded during the first nine months of 2020 relating to certain APS investments in North America and Latin America.

Reservoir Performance

Nine-month 2021 revenue of $3.3 billion decreased 24% year-on-year largely reflecting the effects of the OneStim divestiture, which generated $959 million of revenue during the first nine months of 2020. Excluding the impact of the OneStim divestiture, revenue declined 2% year-on-year, largely due to the effects of the pandemic.

Year-on-year, pretax operating margin increased by 760 bps to 14% despite the significant drop in revenue, primarily due to the divestiture of the OneStim business, which was previously dilutive to margins.

Well Construction

Nine-month 2021 revenue of $6.3 billion decreased 6% year-on-year due to the drop in rig count in North America and internationally due to the effects of the pandemic.

Year-on-year, pretax operating margin increased 291 bps to 13% despite the drop in revenue. Margin expanded largely as a result of the implementation of cost control measures.

Production Systems

Nine-month 2021 revenue of $4.9 billion decreased 1% year-on-year, primarily driven by the North America short-cycle business due to the significant decline in completions activity as a result of the pandemic.

Year-on-year, pretax operating margin increased 25 bps to 10% due to improved profitability in surface and midstream production systems.

Interest and Other Income

Interest & other income consisted of the following:

The decrease in earnings of equity method investments is primarily attributable to Schlumberger’s share of net losses associated with Schlumberger’s equity investment in Liberty Oilfield Services, Inc. (“Liberty”). On December 31, 2020, Schlumberger contributed its onshore hydraulic fracturing business in the United States and Canada to Liberty in exchange for a 37% equity interest in Liberty. Schlumberger records its share of Liberty’s net income or loss on a one-quarter lag.

Other

Research & engineering and General & administrative expenses, as a percentage of Revenue, for the third quarter and second quarter of 2021 and nine months ended September 30, 2021 and 2020 were as follows:

The effective tax rate for the third quarter of 2021 was 19%, as compared to 18% for the second quarter of 2021.

The effective tax rate for the first nine months of 2021 was 19%, as compared to 8% for the same period of 2020. The increase in the effective tax rate was primarily due to the charges and credits described in Note 2 to the Consolidated Financial Statements*.* These charges and credits reduced the effective tax rate for the first nine months of 2020 by 11 percentage points as a significant portion of these charges were not tax-effective.

Charges and Credits

During the third quarter of 2021, a start-up company that Schlumberger previously invested in was acquired. As a result of this transaction, Schlumberger’s ownership interest was converted into shares of a publicly traded company. Schlumberger recognized an unrealized pretax gain of $47 million ($36 million after-tax) to increase the carrying value of this investment to its estimated fair value of approximately $55 million. This unrealized gain is reflected in Interest & other income in the Consolidated Statement of Income (Loss).

During the first nine months of 2020 Schlumberger recorded the following charges and credits, which are fully described in Note 2 to the Consolidated Financial Statements:

Liquidity and Capital Resources

Details of the components of liquidity as well as changes in liquidity follow:

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 at the time, in April 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 reflected 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.

Key liquidity events during the first nine months of 2021 and 2020 included:

As of September 30, 2021, Schlumberger had $2.94 billion of cash and short-term investments on hand. Schlumberger had committed debt facility agreements aggregating $6.63 billion, all of which was available and unused. Schlumberger believes these amounts are sufficient to meet future business requirements for at least the next 12 months.

There were no borrowings under the commercial paper programs at September 30, 2021.

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.

Schlumberger generates revenue in more than 120 countries. As of September 30, 2021, only five of those countries individually accounted for greater than 5% of Schlumberger’s net receivable balance, of which only two (the United States and Mexico) accounted for greater than 10% of such receivables.

At times in recent periods, Schlumberger has experienced delays in payments from its primary customer in Mexico. Included in Receivables, less allowance for doubtful accounts in the Consolidated Balance Sheet as of September 30, 2021 is approximately $0.7 billion of receivables relating to Mexico. Schlumberger’s receivables from its primary customer in Mexico are not in dispute and Schlumberger has not historically had any material write-offs due to uncollectible accounts receivable relating to this customer.

FORWARD-LOOKING STATEMENTS

This third-quarter 2021 Form 10-Q, as well as other statements we make, contains “forward-looking statements” within the meaning of the federal securities laws, which include any statements that are not historical facts. Such statements often contain words such as “expect,” “may,” “can,” “believe,” “predict,” “plan,” “potential,” “projected,” “projections,” “forecast,” “estimate,” “intend,” “anticipate,” “ambition,” “goal,” “target,” “think,” “should,” “could,” “would,” “will,” “see,” “likely,” and other similar words. Forward-looking statements address matters that are, to varying degrees, uncertain, such as statements about Schlumberger’s financial and performance targets and other forecasts or expectations regarding, or dependent on, its business outlook; growth for Schlumberger as a whole and for each of its Divisions (and for specified business lines, geographic areas or technologies within each Division); oil and natural gas demand and production growth; oil and natural gas prices; forecasts or expectations regarding the energy transition and global climate change; improvements in operating procedures and technology; capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger, including digital and “fit for basin,” as well as the strategies of Schlumberger’s customers; Schlumberger’s effective tax rate; Schlumberger’s APS projects, joint ventures, and other alliances; Schlumberger’s response to the COVID-19 pandemic and its preparedness for other widespread health emergencies; access to raw materials; future global economic and geopolitical conditions; future liquidity; and future results of operations, such as margin levels. These statements are subject to risks and uncertainties, including, but not limited to, changing 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; the results of operations and financial condition of Schlumberger’s customers and suppliers; Schlumberger’s inability to achieve its financial and performance targets and other forecasts and expectations; Schlumberger’s inability to achieve net-zero carbon emissions goals or interim emissions reduction goals; general economic, geopolitical and business conditions in key regions of the world; foreign currency risk; pricing pressure; inflation; weather and seasonal factors; unfavorable effects of health pandemics; availability and cost of raw materials; operational modifications, delays or cancellations; challenges in Schlumberger’s supply chain; production declines; Schlumberger’s inability to recognize efficiencies and other intended benefits from its business strategies and initiatives, such as digital or new energy, as well as its restructuring and structural cost reduction plans; changes in government regulations and regulatory requirements, including those related to offshore oil and gas exploration, radioactive sources, explosives, chemicals and climate-related initiatives; the inability of technology to meet new challenges in exploration; the competitiveness of alternative energy sources or product substitutes; and other risks and uncertainties detailed in this Form 10-Q and our most recent Form 10-K and Forms 8-K filed with or furnished to the SEC. 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. Statements in this third-quarter 2021 Form 10-Q are made as of October 27, 2021, and Schlumberger disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.

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, 2020. Schlumberger’s exposure to market risk has not changed materially since December 31, 2020.

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 was no change in Schlumberger’s internal control over financial reporting 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The information with respect to this Item 1 is set forth under Note 9—Contingencies, in the accompanying Consolidated Financial Statements.

As of the date of this filing, there have been no material changes from the risk factors disclosed in Part 1, Item 1A, of Schlumberger’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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

Unregistered Sales of Equity Securities

None.

Issuer Repurchases of Equity Securities

As of September 30, 2021, Schlumberger had repurchased $1.0 billion of Schlumberger common stock under its $10 billion share repurchase program. Schlumberger did not repurchase any of its common stock during the first nine months of 2021.

Item 3. Defaults Upon Senior Securities.

None**.**

Item 4. Mine Safety Disclosures.

Our mining operations 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.

In 2013, Schlumberger completed the wind down of its service operations in Iran. Prior to this, certain non-US subsidiaries provided oilfield services to the National Iranian Oil Company and certain of its affiliates (“NIOC”).

Schlumberger’s residual transactions or dealings with the government of Iran during the third quarter of 2021 consisted of payments of taxes and other typical governmental charges. Certain non-US subsidiaries of Schlumberger maintain depository accounts at the Dubai branch of Bank Saderat Iran (“Saderat”), and at Bank Tejarat (“Tejarat”) in Tehran and in Kish for the deposit by NIOC of amounts owed to non-US subsidiaries of Schlumberger for prior services rendered in Iran and for the maintenance of such amounts previously received. One non-US subsidiary also maintained an account at Tejarat for payment of local expenses such as taxes. Schlumberger anticipates that it will discontinue dealings with Saderat and Tejarat following the receipt of all amounts owed to Schlumberger for prior services rendered in Iran.

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.