SRVICE SECTOR / Schlumberger 1998 Second Quarter Earnings
NYSE SYMBOL: SLB
JULY 20, 1998
NEW YORK, NEW YORK--Schlumberger Limited reported today that 1998
second quarter net income of $359 million and diluted earnings per
share of $0.69, were 17 percent 15 percent higher, respectively,
than the same period last year. Operating revenue of $2.9 billion
was 10 percent above second quarter 1997.
Oilfield Services revenue increased 11 percent, while rig count
decreased 8 percent. Operating income grew 16 percent. Contract
drilling, marine seismic and pressure pumping and cementing
services contributed strongly to the results. North and South
America and Asia reported significant regional oilfield services
revenue increases.
Measurement and Systems revenue grew 6 percent. Significant
growth at Smart Cards and Terminals was offset by the decline in
Metering activities and unfavorable currency exchange rates.
Chairman and Chief Executive Officer Euan Baird commented: "The
oilfield results remained strong despite the anticipated slowdown
in the growth of exploration and production expenditures
experienced during the quarter. The uncertainty surrounding the
demand for oil will keep our customers cautious about upstream
spending, and we are adjusting our operations accordingly. At the
same time, the acquisition of Camco, which should be completed
before the end of the third quarter, will greatly accelerate our
internal growth in the important production markets."
/T/
Consolidated Statement of Income (Unaudited)
(Stated in thousands except per share amounts)
Second Quarter Six Months
For Periods Ended
June 30 1998 1997 1998 1997
Revenue
Operating $ 2,853,302 $ 2,601,679 $ 5,653,436 $ 5,003,739
Interest
and other
income 35,779 20,738 69,978 38,843
2,889,081 2,622,417 5,723,414 5,042,582
Expenses
Cost of
goods sold
and
services 2,080,692 1,929,324 4,116,154 3,712,112
Research and
engineering 141,148 118,897 276,981 236,850
Marketing 82,518 76,745 164,027 151,378
General 103,275 93,568 204,326 181,349
Interest 22,598 19,317 45,844 37,136
Taxes on income 99,495 78,060 205,995 157,308
2,529,726 2,315,911 5,013,327 4,476,133
Net Income $ 359,355 $ 306,506 $ 710,087 $ 566,449
Basic Earnings Per
Share $ 0.72 $ 0.62 $ 1.42 $ 1.15
Diluted Earnings
Per Share $ 0.69 $ 0.60 $ 1.37 $ 1.11
Average shares
outstanding 498,853 493,863 498,563 493,644
Average shares
outstanding
assuming
dilution 519,065 510,961 518,754 510,091
Depreciation and
amortization
included in
expenses $ 263,561 $ 237,905 $ 521,133 $ 469,847
CONDENSED BALANCE SHEET (Unaudited)
(Stated in thousands)
Assets June 30, 1998 Dec. 31, 1997
Current Assets
Cash and short-term
investments $ 1,781,252 $ 1,761,077
Other current assets 4,738,828 4,310,143
6,520,080 6,071,220
Long-term investments,
held to maturity 679,978 742,751
Fixed assets 4,007,987 3,768,639
Excess of investment
over net assets
of companies purchased 1,146,923 1,167,624
Deferred taxes on income,
and other assets 370,523 346,497
$12,725,491 $12,096,731
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and
accrued liabilities $ 2,337,198 $ 2,297,370
Estimated liability
for taxes on income 436,281 384,167
Bank loans and current
portion of long-term debt 804,916 854,540
Dividend payable 94,043 93,821
3,672,438 3,629,898
Long-term debt 1,137,778 1,069,056
Postretirement benefits 409,173 396,559
Other liabilities 260,054 306,294
5,479,443 5,401,807
Stockholders' Equity 7,246,048 6,694,924
$12,725,491 $12,096,731
BUSINESS REVIEW
(Stated in millions)
Oilfield Services Measurement and Systems
Second Quarter 1998 1997 percent change 1998 1997 percent change
Operating
Revenue $ 2,075 $ 1,871 11 percent $ 779 $733 6 percent
Operating
Income(1) $ 423 $ 364 16 percent $ 40 $ 40 - percent
Six Months 1998 1997 percent change 1998 1997 percent change
Operating
Revenue $ 4,146 $ 3,595 15 percent $ 1,509 $1,413 7 percent
Operating
Income(1) $ 848 $ 689 23 percent $ 72 $ 65 11 percent
/T/
(1) Operating income represents income before income taxes,
excluding interest expense and interest and other income.
OILFIELD SERVICES
Oilfield Services operating revenue grew 11 percent during the
second quarter, led by contract drilling, up 25 percent, pumping
and cementing, up 11 percent, and marine seismic services, up 28
percent. North and South America and Asia reported significant
revenue increases.
Schlumberger and Camco announced the signing of a definitive
merger agreement on June 19. This transaction further builds our
capability to offer an unmatched array of premium reservoir
optimization related solutions and systems to our customers
through the combined excellence of Schlumberger and Camco people
and the technical, product and service delivery strengths of the
companies.
North America Oilfield Services revenue was 13 percent higher than
in the same period last year, representing 19 percent of
consolidated revenue, despite a 13 percent fall in the number of
drilling rigs. Operating income grew 9 percent. The largest
increases in revenue were recorded in pressure pumping and
cementing, up 21 percent, and seismic acquisition services, up 24
percent. Activity in gas-related markets remained buoyant, while
oil-related operations were negatively affected as oil prices
continued to decline.
Wireline services successfully completed the deepest logging job
ever performed in the Gulf of Mexico. Advanced wireline tools were
deployed on drillpipe to acquire formation evaluation data down to
a total vertical depth of 25,772 ft. Innovative packaging and
design techniques were used to overcome the high-temperature and
high-pressure well conditions.
Also in the Gulf of Mexico, a Schlumberger Oilfield Services team
won a contract for a 15-month exclusive production enhancement
project involving 160 wells.
Schlumberger and Marathon Oil Company signed a drilling contract
covering five years for the third Sedco Express(a) new-generation
deepwater semisubmersible rig, scheduled to start operating in the
Gulf of Mexico in the third quarter of the year 2000.
Outside North America
Outside North America, revenue increased 10 percent, representing
53 percent of consolidated revenue. Operating income grew 18
percent, while the rig count fell 2 percent. Strong revenue
growth was recorded in Asia, up 22 percent, and Latin America, up
22 percent. The benefits of our newly introduced organizational
structure have been seen in North Africa, where Schlumberger was
awarded two innovative field-optimization projects incorporating a
capped risk-and-reward agreement linked to production enhancement
results.
In Saudi Arabia, Schlumberger completed a well construction
contract for the first phase development of the giant Shaybah
field. The project is now entering its next phase, aimed at
maintaining production at the current level.
In Russia, the preparatory phases of the strategic alliances with
YUKOS and Sibneft are proceeding on schedule. Oilfield service
operations and integrated project management are expected to
commence on selected fields in early 1999.
Schlumberger was awarded a contract covering five years for the
construction and operation of an advanced jackup drilling unit,
expected to be deployed in the Caspian Sea in the third quarter of
2000. The rig will have the capability to drill high-pressure
wells as deep as 25,000 ft. in water depths up to 350 ft.
Contract Drilling Activity
Revenue from contract drilling operations grew 25 percent over the
same quarter last year, reflecting higher dayrates for
semisubmersibles and jackups in the North Sea, Africa, Asia and
the Middle East. Total offshore rig utilization was marginally
higher at 94 percent, with jackup utilization remaining at 100
percent, and semisubmersible utilization at 97 percent. Onshore
rig utilization was 97 percent, compared with 87 percent a year
ago. The fleet numbered 83 at the end of the quarter, with 51
offshore rigs and 32 land rigs, including 12 offshore units under
bareboat charter or management contract.
Technology
Schlumberger continued to introduce superior technology that
improves the productivity of oilfield services operations. In
marine seismic acquisition, the implementation of the efficient,
ultra-slim NESSIE(a)4 seismic streamer continued, with a major
upgrade of the Geco Resolution to eight-streamer capacity. The
rapid growth in demand for multicomponent seismic acquisition led
to the major conversion of the Geco Angler to operate as a
dedicated, multicomponent 3D survey vessel.
To improve the ability to characterize the reservoir and its
behavior over time, a specialized team has been established, which
will provide advanced processing and analysis of multicomponent
and time-lapse (4D) seismic data. In addition, unique reservoir
simulation capability was added to the GeoQuest ECLIPSE(a) range
of software products with the acquisition of Technical Software
Consultants A.S. Their state-of-the-art FRONTSIM(a) flow simulator
software provides enhanced tools for evaluating geological models
and validating geological assumptions with dynamic data. It runs
up to 100 times faster than conventional simulators, thus
shortening interpretation cycle time as well as reducing
uncertainty.
Innovative interpretation techniques, developed for advanced
technology measurements, are improving production through optimal
well completion. In particular, the images acquired by the RAB(a)
Resistivity-at-the-Bit LWD tool now identify the highest potential
formations during the drilling process resulting in greater
cost-effectiveness for the client.
With the aim of improving hydrocarbon production, the
revolutionary SCALE BLASTER(a) application has recently been
tested, and proved successful at removing scale on downhole
piping. In oil and gas wells, the buildup of inorganic scale can
restrict, and even prevent, the flow of hydrocarbons to the
surface. SCALE BLASTER technology, deployed on coiled tubing, has
provided clients with a highly effective and valuable way of
improving production without a rig intervention. Furthermore, to
better measure multiphase production, Schlumberger and FRAMO
Engineering A.S. of Norway signed a joint venture agreement to
provide surface and subsea flow meters to measure oil, gas and
water flow in producing wells. A joint technology center called
3-Phase Measurement A.S., to be located in Bergen, Norway, will
design and manufacture products and provide marketing and
technical support.
MEASUREMENT AND SYSTEMS
Measurement and Systems revenue increased 6 percent, versus the
second quarter of 1997, despite adverse exchange rate effects.
Operating income was flat. Smart Cards and Terminals experienced
a significant rise in revenue, while almost tripling its operating
income. During the quarter, Schlumberger signed an agreement to
sell the Retail Petroleum Systems activities to the Tokheim
Corporation. The sale is expected to close in the third quarter of
this year. The Metering business rationalization plan is
progressing and should be completed by year end. As a result, many
activities have been streamlined, with 13 site closings.
Compared with last year's second quarter, Smart Cards and
Terminals revenue rose 37 percent, primarily due to higher smart
card shipments. Revenue for smart cards grew 40 percent over
last year, propelled by a 75 percent increase in SIM (subscriber
identity module) cards and a doubling of growth for bank cards.
Regionally, card sales for Europe, North America and Asia
increased 42 percent, 41 percent and 30 percent, respectively.
Revenue for point-of-sale terminals more than doubled from last
year, following the introduction of the new MagIC(a) 9000 portable
terminal. Orders for Smart Cards and Terminals were up 12 percent
for the quarter. The Automated Test Equipment (ATE) business
exhibited a 17 percent increase in revenue; however, market
conditions began to soften during the quarter. The rise in revenue
was primarily due to the demand for high-end 400-Mhz logic test
systems. This demand is driven by the market's continued desire
for faster microprocessor speeds, along with the growth of the
multimedia segment. Test Systems activity was particularly strong
in the Asia region, while Telecom products contributed
significantly to the growth in the North America region.
Consistent with the current industry trends, ATE orders declined
66 percent during the quarter.
In the Metering business, revenue was down 8 percent from last
year. The most significant shortfall in Europe was in France, down
13 percent, as the electricity business was severely impacted by
the ongoing technology shift toward electronic products, with
lower market volumes and reduced prices. Activity in the UK fell
15 percent, reflecting the sharp decline in demand of U6
residential gas meters from BG Plc and reduced installation work
by Maclean and Nuttall. Italy also experienced a significant
decrease on a 36 percent price drop in the electricity market.
Orders decreased by 12 percent compared with the second quarter of
1997. North American orders dropped by 21 percent due to reduced
electricity meter changeouts pending industry deregulation. In
Europe, a 14 percent decline in orders in France due to a weaker
local market was offset by the catch-up of orders by ENEL, the
national utility in Italy, and stronger bookings in The
Netherlands, Portugal and Scandinavia.
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:
/T/
(Stated in millions)
Six Months 1998 1997
Funds provided by:
Net income $ 710 $ 566
Depreciation and amortization 521 470
Employee stock option plan 29 31
Employee stock purchase plan 50 33
Funds used for:
Fixed asset additions (784) (591)
Dividends paid (187) (185)
Working capital and other (400) (325)
Change in liquidity (61) (1)
Liquidity, beginning of period 580 232
Liquidity, end of period $ 519 $ 231
/T/
(a) Mark of Schlumberger
This press release is available on the Schlumberger World Wide Web
site at: slb.com
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