10-QPeriod: Q2 FY2016

SLB LIMITED/NV Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 27, 2016For Securities:SLB

Summary

Schlumberger (SLB) reported a net loss of $2.16 billion for the second quarter of 2016, a significant downturn from a net income of $1.12 billion in the same period last year. This loss was largely driven by substantial impairment and restructuring charges totaling $2.9 billion, primarily due to unfavorable industry conditions, as well as integration costs related to the acquisition of Cameron International Corporation. Revenue for the quarter was $7.2 billion, a decrease of 21% year-over-year, impacted by declining oil and gas activity, pricing pressures, and the company's decision to scale back operations in Venezuela. Despite the reported net loss, the company's strategic acquisition of Cameron closed on April 1, 2016, for approximately $12.8 billion. This acquisition is expected to enhance SLB's technological capabilities and service offerings across the oil and gas value chain. Management highlighted that excluding the Cameron acquisition and associated charges, the core business experienced sequential revenue growth, indicating resilience in challenging market conditions. The company's cash flow from operations remained positive, though lower than the previous year, underscoring ongoing operational challenges but also the ability to generate cash amidst a downturn.

Financial Highlights

49 data points
Beta

Revenue

$7.16B

70.2% Gross Margin

Net Income

-$2.16B

-30.2% Net Margin

EPS (Diluted)

$-1.56

Total Assets

$81.17B

Cash & Equivalents

$2.95B

Free Cash Flow

$1.18B

Financial Statements
Beta
Revenue$7.16B
Cost of Revenue$2.13B
Gross Profit$5.03B
R&D Expenses$257.00M
Operating Income$747.00M
Interest Expense$149.00M
Net Income-$2.16B
EPS (Basic)$-1.56
EPS (Diluted)$-1.56
Shares Outstanding (Basic)1.39B
Shares Outstanding (Diluted)1.39B

Key Highlights

  • 1Reported a net loss of $2.16 billion for Q2 2016, compared to a net income of $1.12 billion in Q2 2015, primarily due to significant impairment and restructuring charges.
  • 2Total revenue for Q2 2016 was $7.2 billion, down 21% year-over-year, reflecting industry-wide challenges and customer budget cuts.
  • 3The acquisition of Cameron International Corporation was completed on April 1, 2016, for approximately $12.8 billion, aiming to create technology-driven growth and expand service offerings.
  • 4Significant charges of $2.9 billion were recorded in Q2 2016 related to impairments (assets, inventory, seismic data) and workforce reductions due to persistent unfavorable market conditions.
  • 5The company experienced substantial revenue declines across all segments year-over-year, particularly in the Drilling Group (-41%) and Reservoir Characterization Group (-37%), due to lower exploration and development spending.
  • 6Despite the loss and revenue decline, cash flow from operating activities was $2.84 billion for the first six months of 2016, demonstrating continued cash generation capabilities.
  • 7The company initiated a scaled-back operational approach in Venezuela due to delayed payments, impacting its international revenue.

Frequently Asked Questions

The substantial net loss of $2.16 billion was primarily driven by significant impairment and restructuring charges totaling $2.9 billion. These charges were necessary due to the continued deterioration of industry market conditions, including impairments of assets, inventory write-downs, and workforce reductions. Additionally, merger and integration-related costs associated with the acquisition of Cameron International Corporation also contributed to the loss.

The acquisition of Cameron, completed on April 1, 2016, for approximately $12.8 billion, is a strategic move expected to enhance Schlumberger's technology portfolio and market reach. While the acquisition itself is viewed positively for long-term growth, it did result in merger and integration-related charges ($335 million) in the second quarter. Cameron's operations contributed $1.5 billion in revenue in the second quarter, offsetting some of the decline in the legacy Schlumberger business, but also added to the overall complexity and expenses during the integration period.

The oil and gas industry faced severe challenges in the first half of 2016, leading to significant revenue declines for Schlumberger. Second-quarter revenue decreased 21% year-over-year, with even steeper drops when excluding the Cameron acquisition (-38%). Declining customer E&P budgets, pricing pressures, and reduced rig counts across North America and international markets continue to weigh on revenue. The company's decision to scale back operations in Venezuela due to payment issues also impacted international revenue. While management is focused on technology and integration to drive future growth, the short-to-medium term revenue outlook remains challenging, dependent on oil price recovery and customer spending.

Schlumberger's net debt increased significantly in the first six months of 2016, reaching $(10.05) billion from $(5.60) billion at the end of 2015. This increase is largely due to the cash paid for the Cameron acquisition and the assumption of Cameron's debt. Despite the increased debt, the company maintains a strong liquidity position with $11.2 billion in cash and short-term investments as of June 30, 2016, and has access to committed debt facilities. Capital expenditures have been reduced, and the company continues its share repurchase program, albeit at a slower pace than in the prior year.