SERVICE SECTOR / Schlumberger 1997 Results
NYSE SYMBOL: SLB
JANUARY 22, 1998
NEW YORK, NEW YORK--Schlumberger Limited reported net income for
1997 of $1.3 billion and basic earnings per share of $2.62, 51
percent higher than in 1996. Operating revenue of $10.65 billion
represented a 19 percent increase over the previous year and a
record level for the company.
FOURTH QUARTER RESULTS
Fourth quarter net income of $373 million and basic earnings per
share of $0.75, were 46 percent and 44 percent higher,
respectively, than in the fourth quarter of 1996. Operating
revenue of $2.91 billion was 16 percent above the same period last
year.
Oilfield Services made substantial gains with a revenue increase
of 19 percent, while rig count rose 15 percent. These results
were driven by our ability to deliver leading-edge technologies
along with cost-effective solutions which help our clients to
continuously decrease the cost of finding and producing
hydrocarbons.
Measurement & Systems revenue grew 7 percent, as strong growth at
Automated Test Equipment and Electronic Transactions more than
compensated for declines at metering.
Chairman and Chief Executive Officer Euan Baird commented: "The
strength of the results for 1997 speak for themselves as our
oilfield revenue increased much faster than the average E&P
spending of the oil companies. Our clients have budgeted a
further increase in E&P spending of 10 percent in 1998. However,
their plans may be modified when the impact of the economic
problems in Asia on oil demand can be evaluated. Overall results
of Measurement & Systems should improve in 1998, led by growth of
the smart card systems and services markets and continuous growth
of Automated Test Equipment."
/T/
CONSOLIDATED STATEMENT OF INCOME
(Stated in thousands except per share amounts)
Twelve Months Fourth Quarter(Unaudited)
For Periods Ended
December 31 1997 1996 1997 1996
----------- --------- ---------- ----------
Revenue
Operating $10,647,590 $ 8,956,150 $ 2,907,701 $ 2,515,693
Interest and
other
income 106,823 69,515 34,074 17,972
------------ --------- ---------- ----------
10,754,413 9,025,665 2,941,775 2,533,665
------------ --------- ---------- ----------
Expenses
Cost of goods sold
and services 7,836,952 6,835,444 2,123,854 1,902,105
Research &
engineering 486,205 452,608 129,225 115,851
Marketing 307,036 301,304 83,135 81,989
General 369,030 355,392 97,671 92,674
Interest 86,843 72,020 26,769 18,015
Unusual items - 333,091 - -
Taxes on income 372,650 (175,677) 108,442 67,968
----------- --------- ---------- ----------
9,458,716 8,174,182 2,569,096 2,278,602
----------- --------- ---------- ----------
Net Income $ 1,295,697 $ 851,483 $ 372,679 $ 255,063
----------- --------- ---------- ----------
Basic Earnings
Per Share(1) $ 2.62 $ 1.74 $ 0.75 $ 0.52
Diluted Earnings
Per Share(1)(2)$ 2.52 $ 1.70 $ 0.72 $ 0.50
----------- --------- ---------- ----------
Average shares
outstanding(1) 495,215 490,041 497,732 492,647
Average shares
outstanding
assuming
dilution(1)(2) 514,345 500,498 520,149 506,783
Depreciation and
amortization included
in expenses $ 972,539 $ 885,198 $ 257,525 $ 224,497
----------- --------- ---------- ----------
(1) Adjusted for two-for-one stock split on June 2, 1997.
(2) The calculation of diluted earnings per share assumes that
all stock options and warrants are exercised at the beginning of
the period and the proceeds used to purchase shares at the
average market price for the period.
NOTE: In September 1996, the Company recorded three unusual items
which largely offset one another:
- With increasing profitability and strong outlook in the US, the
Company recognized a portion of the US income tax benefit related
to its US subsidiary's tax loss carryforwards and all temporary
differences. This resulted in a credit of $360 million.
- A charge of $300 million after tax related primarily to them
Electricity and Gas Management and Geco-Prakla Land and
Transition Zone businesses.
- A charge of $58 million after tax, including a loss on them
divestiture of the remaining defense-related activity, certain
asset impairments and other charges.
CONDENSED BALANCE SHEET
(Stated in thousands)
Assets Dec. 31, 1997 Dec. 31, 1996
------------ -------------
Current Assets
Cash and short-term investments $ 1,761,077 $ 1,358,948
Other current assets 4,310,143 3,683,669
------------ ------------
6,071,220 5,042,617
Long-term investments,
held to maturity 742,751 323,717
Fixed assets 3,768,639 3,358,581
Excess of investment over net assets
of companies purchased 1,167,624 1,225,335
Deferred taxes on income,
and other assets 346,497 374,801
------------ ------------
$ 12,096,731 $ 10,325,051
------------ ------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and
accrued liabilities $ 2,297,370 $ 2,200,161
Estimated liability
for taxes on income 384,167 367,562
Bank loans and current portion
of long-term debt 854,540 813,845
Dividend payable 93,821 92,842
------------ ------------
3,629,898 3,474,410
Long-term debt 1,069,056 637,203
Post retirement benefits 396,559 383,129
Other liabilities 306,294 203,929
------------ ------------
5,401,807 4,698,671
Stockholders' Equity 6,694,924 5,626,380
------------ ------------
$ 12,096,731 $ 10,325,051
------------ ------------
BUSINESS REVIEW
(Stated in millions)
Oilfield Services Measurement & Systems
Fourth Quarter 1997 1996 Percent 1997 1996 Percent
change change
------ ----- ------ ----- ---- -------
Operating Revenue $ 2,060 $ 1,726 19 $ 848 $ 793 7
------- ------ Percent ----- ----Percent
Operating Income(1)
$ 437 $ 305 43 $ 54 $ 41 32
------- ------ Percent ----- ----Percent
Twelve Months
Operating
Revenue $ 7,663 $ 6,129 25 $ 2,986 $ 2,834 5
------- ------ Percent ----- ----Percent
Operating
Income(1) $ 1,557 $ 986 58 $ 149 $ 124 20
------- ------ Percent ----- ----Percent
(1) Operating income represents income before income taxes,
excluding interest expense, interest and other income, and the
1996 unusual items.
OILFIELD SERVICES
During the quarter, Oilfield Services operating revenue grew 19
percent mover the same quarter last year with strong sustained
activity from all businesses. Operating income rose 43 percent.
North America
In North America, revenue increased 25 percent, representing 20
percent of consolidated revenue. The rig count climbed 24
percent. Operating income jumped 60 percent. Activity increased
most significantly in the Gulf of Mexico, Alaska and Canada. The
greatest contributions were from Wireline & Testing, up 28
percent, Dowell, up 21 percent, and Geco-Prakla, with a 21
percent increase. IPM grew more than fivefold due to the
Hibernia project.
Outside North America
Outside North America, revenue grew 18 percent, representing 52
percent of consolidated revenue. The rig count grew 1 percent.
Operating income rose 40 percent. All businesses experienced
continued revenue growth, most prominently Sedco Forex, Wireline
& Testing and Geco-Prakla, up 35 percent, 9 percent and 18
percent respectively. Activity was strong in all areas.
Highlights
During the quarter, Schlumberger continued to deliver customized
solutions to our clients, with the following benefits:
-- Reduced time to first oil and accelerated cashflow generation
for the clients. Time is a critical element in oilfield
projects, particularly offshore, given the current rig day rates.
PLATFORM EXPRESS(a) technology continues to gain momentum at
premium prices with 260 active tools worldwide at year end. The
PLATFORM EXPRESS tool reduces logging time through increased
efficiency and multiple tool combinations. In the North Sea,
during a horizontal logging operation, PLATFORM EXPRESS service
has been combined with the MDT(a) Modular Formation Dynamics
Tester to measure important reservoir parameters more efficiently
than ever before. This combination has saved an average of 10
hours of rig time and over $150,000. The new FIV(a) Formation
Isolation Valve proved successful in allowing safe perforating of
a long horizontal well in a single trip without inhibiting the
flow of the well. The client realized total savings of over
$400,000 per well. In the Gulf of Mexico, Dowell PERFPAC(a)
service continued to be in high demand as it combines perforating
and gravel packing service in a single trip and saves clients as
much as $300,000 in rig time per completion. Geco-Prakla
installed a second Sun Microsystems Enterprise(TM) 10000 in the
Houston processing center. With these cost-effective machines,
computing power has increased dramatically, and productivity per
person improved almost 50 percent. A combination of advanced
technologies from Anadrill (PowerPak(a) steerable motors,
SHARP(a) slim MWD technology and short-radius drilling) permitted
a land operator to drill five wells ahead of schedule with
significantly improved production. Performance incentives
doubled Anadrill's resulting revenue.
-- Increased hydrocarbon reserves. New technology creates
opportunities, such as the discovery of bypassed or untapped oil.
In November in the North Sea, CMR(a) Combinable Magnetic
Resonance technology was used to log an exploration well. The
target sands held water, but higher uphole the CMR log analysis
indicated some unanticipated oil in an interval that conventional
log analysis would have missed. Subsequent testing confirmed the
presence of oil. The oil company is now evaluating options,
reviewing the seismic data and contemplating a sidetrack. As a
consequence of its success using CMR service, the oil company
decided to run the application in Alaska, Angola and Norway the
following month. Overall, activity for CMR technology worldwide
doubled in comparison with the same period last year.
-- Increased production from existing fields. The new
Vision475(a) slimhole, full-logging-suite MWD/LWD service
continued to contribute to growth. In previous wells,
geosteering using only resistivity permitted an operator to stay
within a broad pay zone. The unique Vision475 azimuthal porosity
data has allowed the operator to keep a new wellbore within the
most productive part of this pay zone for 91 percent of the
interval. The resulting production was 12,000 barrels of oil per
day (BOPD), compared with 5,000 BOPD in previous wells. The
Vision475 system also significantly lowered the total well cost,
with a smaller wellbore and shorter lateral, while maximizing
production.
-- Higher levels of efficiency. Improved efficiencies are
another result of effective applications of new technology. A
PLATFORM EXPRESS-CMR combination tool string was run in a gas
well to evaluate producibility over a 1000-foot sand/shale
sequence. The combined technology provided reservoir parameters,
such as water cut, permeability and bed thicknesses, which were
then used to estimate a potential flow rate. The analysis
predicted a gas rate of 5,300 thousand cubic feet per day
(Mcf/day), close to the actual production of 4,500 Mcf/day. This
successful application is now being used on subsequent wells to
determine which zones to produce to optimize the well's rate of
return. In November, GeoQuest announced the commercial release
of the next-generation GeoFrame(a) 3.0 integrated reservoir
characterization system. The integrated capabilities of GeoFrame
3.0 let each member of a multidisciplinary team simultaneously
view, edit and interpret data and results through all phases of a
project and rapidly create an accurate reservoir model, thereby
improving productivity.
As announced during the quarter, Sedco Forex has received
long-term contracts to build two new-generation Sedco Express(a)
semisubmersible drilling rigs, one for Elf Aquitaine in West
Africa, and one for Texaco in the Gulf of Mexico. The Sedco
Express is a fully integrated drilling unit which is expected to
reduce well construction time by approximately 30 percent,
compared to a conventional fourth-generation unit. In September,
Sedco Forex acquired the remaining 50 percent interest in the
semisubmersible drilling rig Sedneth 701 and the jackup Sedneth
202. At quarter end, there were 84 drilling units. The total
offshore rig utilization was 93.8 percent, compared with 94.3
percent in the same quarter last year. The industry-wide average
offshore rig utilization was 95.4 percent.
In addition to our client-focused enhancements, Schlumberger
continues to improve its own internal efficiency and
productivity. A new business data management tool, BASIS(a)
(Business Application Solutions In Schlumberger), has been
successfully implemented across all Oilfield Services finance,
logistics and human resources activities in all our US and Canada
sites and is currently being used by more than 3,000 trained
employees and managers. This enterprise-wide software solution,
based on the SAP R3 platform, seamlessly replaces dozens of
existing discrete applications, thereby improving significantly
our efficiency internally through increased sharing of data,
tools and processes, and externally through increased
understanding of our customers' needs and improved service
delivery, particularly for multiservice projects. For example,
upon completion of a project, all business data generated at the
wellsite is automatically captured and transmitted to create an
invoice, update the tool maintenance schedule and generate a tool
service quality report. The success of the North American
implementation is the first step of the worldwide deployment of
BASIS.
MEASUREMENT & SYSTEMS
Measurement & Systems revenue rose 7 percent compared with the
fourth quarter of 1996, despite the adverse effect of exchange
rate fluctuations. Continued growth at Automated Test Equipment
(ATE) and Electronic Transactions and strong activity in Asia
were the main contributors. Operating income increased 32
percent.
In the fourth quarter, revenue increased 63 percent for ATE and
17 percent for Electronic Transactions, including previously
announced acquisitions.
The substantial growth at ATE was driven by higher sales of
200-MHz and 400-MHz high-end logic testers. Shipments of such
systems increased over 200 percent compared to last year, and
contributed to a 117 percent gain at Test Systems. Diagnostics
Systems revenue rose 67 percent, highlighted by the first
shipments of the IDS3000(a) systems. Our Asia region and Japan
were strong, accompanied by a doubling of revenue for North
America. ATE orders rose 31 percent over the prior year, due
mainly to an increase in demand for high-end logic products,
solid gains at Diagnostic Systems and significant activity in the
Asia region. Electronic Transactions growth was spurred by
continued demand for subscriber identity module (SIM) cards in
China, the Netherlands, and the US, and improved shipments of
microprocessor cards for banking and pay television applications.
Retail Petroleum Systems declined 6 percent as the effect of
unfavorable exchange rates more than offset stronger Centurion(a)
dispenser sales in the US and improved turnkey station
construction activity in parts of Eastern Europe. Including
previously announced acquisitions, orders improved 31 percent,
led by strong card demand, customer acceptance of the MagIC(a)
suite of terminals and the signing of a significant telecom
contract in South America.
In the metering business, revenue decreased 11 percent compared
with 1996, most of which was due to the adverse exchange rate
effect. The most significant decline was in Europe. The UK
business was impacted by a sharp drop in gas meter sales, while
the Electricity business was affected in Germany by the reduced
volume and price of polyphase meters and in Italy by a global
suspension of electricity meter orders from ENEL, the national
utility. Deliveries to ENEL should resume in January 1998.
North America also declined slightly, mainly due to the cyclical
falloff in electricity export sales, coupled with low demand for
residential networking products. These shortfalls were partially
compensated for by South America which improved mostly due to
growth in the Gas business, with the penetration of the Gallus
2000(a) meters in both Argentinean and Chilean markets. Orders
declined 16 percent, half of which was due to the adverse
exchange rate impact, when compared to the fourth quarter of
1996.
CHANGE IN LIQUIDITY
Liquidity represents cash plus short-term and long-term
investments less debt. A summary of the major components of the
change in liquidity follows:
(Stated in millions)
Twelve Months 1997 1996
------ -----
Funds provided by:
Net income $ 1,296 $ 851
Depreciation and
amortization 973 885
Employee stock option plan 95 141
Employee stock purchase plan 50 39
Net proceeds on sale
of drilling rigs(1) 174 -
Funds used for:
Fixed asset additions (1,496) (1,158)
Businesses acquired (17) (139)
Dividends paid (371) (367)
Working capital and other (356) (208)
------ -------
Change in liquidity 348 44
Liquidity, beginning of period 232 188
------ -------
Liquidity, end of period $ 580 $ 232
------ -------
/T/
(1) In September, the Sedco Forex semisubmersibles Drillstar and
Sedco Explorer were sold to a newly formed venture in which
Schlumberger has a 25 percent interest. The rigs will be operated
by Sedco Forex under bareboat charters. The gain on sale has been
deferred and will be amortized over a six-year period. This
transaction had no effect on 1997 results and will have no
significant impact on future results of operations.
(a) Mark of Schlumberger
The full text of this press release is available on the
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