01—Abstract
Summary
Summary of the 10-K filed January 24, 2018. Cited figures are marked; the original filing is the authoritative source.
Schlumberger (SLB) reported full-year 2017 revenue of $30.4 billiona, up 9% year-on-year, driven largely by a full year of Cameron (acquired April 2016) and a strong recovery in North American land activity, where revenue rose over 80%.
However, the company posted a net loss attributable to Schlumberger of $1.505 billionb (diluted EPS of -$1.08), compared with a loss of $1.687 billion in 2016. The loss was driven by $3.764 billion of pretax charges and credits, the largest being a $1.114 billion WesternGeco seismic restructuring charge tied to the decision to exit marine and land seismic acquisition, a $938 million Venezuela write-down, and a $247 million headcount reduction charge, along with a $76 million net charge from US tax reform. Excluding these items, the company's performance was materially better, with the pretax operating margin expanding 111 basis points to 13%.
Balance sheet and cash flow metrics show continued pressure but improving direction. Cash flow from operations fell to $5.7 billionc from $6.3 billion, and free cash flow declined to $1.7 billion from $2.5 billion, which did not fully cover the $2.8 billion in dividends paid. Net debt widened to $13.1 billion from $10.1 billion, largely because of dividends and acquisitions, while total debt declined modestly to $18.2 billion.
Management expects 2018 capital expenditures of about $2.1 billiond, anticipates a 15-20% increase in North American E&P spending and roughly 5% international growth, and projects that the US tax reform will lower the 2018 effective tax rate by 2 to 3 percentage points. For investors, the key questions are whether the seismic exit and Venezuela write-downs mark the end of large one-time charges, whether the cyclical recovery can lift cash generation enough to sustain the $2.00 annual dividend, and how quickly leverage can be managed. The filing points to a constructive outlook for 2018 while highlighting ongoing risks from oil price volatility, international political exposure (about 74% of 2017 revenue came from outside the US), and tight cash flow coverage of dividends.
02—Key points
Key Highlights
- Revenue rose 9% to $30.4 billion in 2017, supported by a full year of Cameron and a more than 80% increase in North American land revenue.
- Net loss attributable to Schlumberger was $1.5 billion (-$1.08 per diluted share), an improvement from the $1.7 billion loss in 2016, but still driven by $3.8 billion of pretax charges.
- Major charges included a $1.1 billion WesternGeco seismic restructuring charge (exit from marine and land seismic acquisition), a $938 million Venezuela investment write-down, and a $247 million workforce reduction charge.
- Pretax operating margin expanded 111 basis points to 13%, reflecting North American profitability gains in the Production and Drilling Groups, partly offset by declines in Reservoir Characterization and Cameron.
- Free cash flow fell to $1.7 billion from $2.5 billion, while dividends of $2.8 billion were not covered by free cash flow; net debt rose to $13.1 billion from $10.1 billion.
- Management guides to 2018 capital expenditures of about $2.1 billion, with expected North American E&P spending growth of 15-20% and international spending growth of about 5%.
- Backlog declined: WesternGeco backlog fell to $0.4 billion from $0.8 billion, and OneSubsea/Drilling Systems backlog fell to $2.5 billion from $3.1 billion.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2017, SLB lost $0.05.
- Revenue$30.44B100.0%
- Cost of revenue−$8.34B27.4%
- Gross profit$22.10B72.6%
- Operating costs−$18.18B59.7%
- Operating income$3.92B12.9%
- Interest, other & tax−$5.43B17.8%
- Net income−$1.50B4.9%
Where FY2017 revenue went
$30.44B- Other operating costs: $17.39B, 57% of revenue
- Cost of revenue: $8.34B, 27% of revenue
- Operating income: $3.92B, 13% of revenue
- R&D: $787.0M, 2.6% of revenue
Kept 13% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed January 24, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $30.44B$27.81B | +9.5% |
| Cost of Revenue | $8.34B$7.06B | +18.1% |
| Gross Profit | $22.10B$20.75B | +6.5% |
| R&D Expenses | $787.00M$1.01B | −22.2% |
| Operating Income | $3.92B$3.27B | +19.8% |
| Interest Expense | $566.00M$570.00M | −0.7% |
| Net Income | -$1.50B-$1.69B | +10.8% |
| EPS (Basic) | $-1.08$-1.24 | +12.9% |
| EPS (Diluted) | $-1.08$-1.24 | +12.9% |
| Shares Outstanding (Basic) | 1.39B1.36B | +2.3% |
| Shares Outstanding (Diluted) | 1.39B1.36B | +2.3% |
05—Questions
Frequently Asked Questions
Why did Schlumberger report a net loss in 2017 despite revenue growth?
The net loss of $1.5 billion reflected $3.8 billion of pretax charges and credits, mainly the $1.1 billion WesternGeco seismic restructuring charge, a $938 million Venezuela write-down, workforce reduction costs, and a $76 million net tax reform charge. Core operating profitability improved, with pretax operating margin rising to 13%.
What drove the revenue increase in 2017?
Revenue grew 9% to $30.4 billion. A full year of Cameron activity (versus nine months in 2016) contributed significantly. Excluding Cameron, revenue rose 7%, primarily from North American land activity, where the land rig count rose more than 80% and pressure pumping grew 44%.
Is Schlumberger's dividend supported by its cash flow?
Not fully in 2017. Free cash flow was $1.7 billion against $2.8 billion of dividends paid. Cash flow from operations of $5.7 billion covered capital spending and dividends only with the help of asset sales and debt-related financing, and net debt increased. Management expects cash generation to improve as activity recovers.
What is the company's outlook for 2018?
Management is positive. It expects North American E&P spending to rise 15-20% and international spending to grow about 5%, the first international growth in four years. Capital expenditures are expected to be about $2.1 billion, and US tax reform is expected to reduce the effective tax rate by 2 to 3 percentage points. Oil prices, customer spending decisions, and political risk remain key uncertainties.
What are the main risks to investors from the filing?
Key risks include dependence on volatile oil and gas prices and customer spending, roughly 74% of 2017 revenue generated outside the US with exposure to political and sanctions risk (including Venezuela, where receivables were largely written off), rising net debt, possible further impairments and restructuring charges, and environmental and hydraulic fracturing regulation that could reduce demand for services.
06—Continue