SERVICE SECTOR / Schlumberger 1998 Third Quarter Earnings
NYSE SYMBOL: SLB
OCTOBER 22, 1998
NEW YORK, NEW YORK--Schlumberger Limited reported today that 1998
third quarter operating revenue of $2.93 billion was 1 percent
below third quarter 1997. Before the third quarter charge
discussed below, net income and diluted earnings per share were
$351 million and $0.63, 9 percent and 7 percent lower,
respectively, than the same period last year.
Oilfield Services revenue was flat with third quarter 1997.
Contract drilling results remained strong, while seismic services
and rig activity related businesses, including pressure pumping,
wireline and directional drilling services, declined versus last
year. A reduction in North American activity was partly offset by
increases in Europe, Africa and the Middle East.
Measurement & Systems revenue decreased 3 percent compared with
the same period last year. Revenue at Test & Transactions was
flat, while Resource Management Services decreased 6 percent.
An after-tax charge of $380 million ($0.68 per share) was taken
this quarter. This charge relates to merger costs and the costs of
actions taken to adjust operations in light of the current and
expected levels of activity.
Chairman and Chief Executive Officer Euan Baird commented:
"Oilfield revenue in the quarter was flat despite a 21 percent
decrease in the number of active drilling rigs worldwide compared
to last year. Until the full effect of the economic slowdown on
oil and gas demand can be evaluated, we anticipate that our
customers will delay some of their exploration and production
expenditures. The charge this quarter of $380 million reflects the
costs of adjusting our operations to the softer business
environment. We expect that the 1999 operating cost base will be
at least $300 million lower than 1998."
/T/
CONSOLIDATED STATEMENT OF INCOME(1) (Unaudited)
(Stated in thousands except per share amounts)
Third Quarter Nine Months
For Periods Ended September 30 1998 1997 1998 1997
Revenue
Operating $ 2,932,447 $ 2,970,708 $ 9,040,053 $ 8,388,076
Interest and other income 48,562 35,675 120,989 76,490
2,981,009 3,006,383 9,161,042 8,464,566
Expenses
Cost of goods sold
and services (2) 2,581,356 2,138,441 6,956,899 6,103,449
Research & engineering 137,392 129,093 430,884 380,763
Marketing 119,966 105,637 349,081 313,750
General 112,782 102,342 341,439 316,321
Interest 41,665 25,822 92,854 66,836
2,993,161 2,501,335 8,171,157 7,181,119
Income(Loss) before taxes (12,152) 505,048 989,885 1,283,447
Taxes on income 17,323 121,456 253,532 297,824
Net Income(Loss)(2) $ (29,475) $ 383,592 $ 736,353 $ 985,623
Basic Earnings (Loss)
Per Share $ (0.05) $ 0.71 $ 1.36 $ 1.83
Diluted Earnings (Loss)
Per Share(2) $ (0.05) $ 0.68 $ 1.31 $ 1.76
Avg. shares outstanding 545,110 539,934 543,800 538,433
Average shares outstanding
assuming dilution 560,773 562,659 563,137 557,739
Depreciation and amortization
included in expenses $ 288,479 $ 261,109 $ 845,088 $ 761,400
/T/
(1) All prior periods have been restated to reflect the
acquisition of Camco International Inc., which has been accounted
for as a pooling of interests.
(2) The 1998 third quarter results include an after-tax charge of
$380 million ($0.68 per share) consisting of the following:
- A charge of $268 million related to Oilfield Services, including
severance costs of $64 million (5600 employees, of which 2700 have
been released in the quarter); facilities closure/relocation costs
of $40 million; operating asset write-offs of $114 million; and
$39 million of customer receivable reserves where collection is
considered doubtful due to the customers' financial condition
and/or country risk. This charge results from the slowdown in
business.
- A charge of $63 million for merger-related costs in connection
with the acquisition of Camco.
- A charge of $43 million related to Measurement & Systems,
consisting primarily of employee severance, facilities'
rationalizations, and environmental costs resulting from a
reassessment of ongoing future monitoring and maintenance
requirements at locations no longer in operation.
The pretax charge of $444 million is classified in cost of goods
sold and services.
/T/
CONDENSED BALANCE SHEET (Unaudited)
(Stated in thousands)
Assets Sept. 30, 1998 Dec. 31, 1997(1)
Current Assets
Cash and short-term investments $ 3,867,241 $ 1,818,332
Other current assets 5,122,401 4,759,389
8,989,642 6,577,721
Long-term investments, held to maturity 791,012 742,751
Fixed assets 4,514,129 4,121,951
Excess of investment over net assets
of companies purchased 1,366,522 1,379,412
Deferred taxes on income,
and other assets 499,608 364,046
$ 16,160,913 $ 13,185,881
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and
accrued liabilities $ 2,608,139 $ 2,514,220
Estimated liability for taxes on income 509,024 425,318
Bank loans and current portion
of long-term debt 784,518 854,660
Dividend payable 102,811 93,821
4,004,492 3,888,019
Long-term debt 3,433,288 1,179,356
Postretirement benefits 435,331 414,432
Other liabilities 336,070 322,905
8,209,181 5,804,712
Stockholders' Equity 7,951,732 7,381,169
$ 16,160,913 $ 13,185,881
/T/
(1) Restated to reflect the acquisition of Camco International
Inc., which has been accounted for as a pooling of interests.
/T/
BUSINESS REVIEW
(Stated in millions)
Oilfield Services Measurement & Systems
Third Quarter 1998 1997 percent change 1998 1997 percent change
Operating Revenue $ 2,229 $ 2,243 (1) percent $ 704 $726 (3) percent
Operating Income(1) $ 435 $ 474 (8) percent $ - $ 29 (100) percent
Nine Months
Operating Revenue $ 6,829 $ 6,251 9 percent $ 2,214 $2,137 4 percent
Operating Income(1) $ 1,374 $ 1,234 11 percent $ 72 $ 95 (24) percent
/T/
(1) Operating income represents income before income taxes,
excluding interest expense, interest and other income, and the
third-quarter 1998 charge.
OILFIELD SERVICES
Oilfield Services operating revenue was flat during the third
quarter, with increases of 22 percent in contract drilling and 8
percent in data services being offset by declines in other
oilfield services. Europe and North Africa reported significant
revenue growth, while revenue in North America decreased compared
with last year. The worldwide rig count declined 21 percent.
On October 21, Schlumberger and Smith International announced the
signing of a memorandum of understanding for the creation of a
drilling fluids joint venture, which will be the world leader in
drilling and completions fluids products and services. The joint
venture will enhance Schlumberger participation in the Integrated
Fluids Engineering process, which improves drilling efficiency,
and maximize reservoir performance while lowering total well
costs. Schlumberger will also broaden its integrated solutions
offerings through participation in the solids control and waste
remediation business.
North America
Revenue was 18 percent lower than in the third quarter of 1997,
representing 20 percent of consolidated revenue, while the number
of drilling rigs fell 28 percent. Operating income decreased by 67
percent. Severe weather disruptions in the Gulf of Mexico also
reduced revenue and earnings.
Schlumberger and Burlington Resources have signed a five-year,
$8-million services contract for GeoQuest PowerHouse(x)
center-based exploration and production data management services
and Finder(x) data management software. The PowerHouse service
provides a seamless data environment enabling the reduction of
project cycle time, improved data quality and increased
productivity of professional staff.
An integrated services team performed the first successful coiled
tubing-based reentry operation in the Gulf of Mexico,
demonstrating cost effective well construction and evaluation
without involving a conventional drilling rig. Operating from a
vessel in more than 100 feet of water, the team deployed coiled
tubing to cut a window in the side of the existing well, drill a
new well and evaluate the reservoir using VIPER(x) and
SlimAccess(x) technology.
Outside North America
In spite of a fall in rig count of 10 percent, revenue grew 7
percent, representing 57 percent of consolidated revenue, and
operating income grew 14 percent.
A major gas producer in Indonesia contracted Schlumberger data
management services to assess its production data handling
environment. The Schlumberger team, including engineers,
geoscientists and information technology specialists, is involved
in defining the optimal requirements for replacement of computer
hardware and software and assessing Year 2000 implications.
Schlumberger production enhancement engineers assigned to the
customer office-a first for the West African
GeoMarket-collaborated with the customer to design a coiled tubing
treatment program that optimized return on investment for the
project, boosting field performance by 12,000 barrels of oil per
day (BOPD).
Camco
Schlumberger completed the acquisition of Camco International Inc.
on August 31, further enhancing the capability of Schlumberger
Oilfield Services to offer premium reservoir optimization
solutions and systems. Examples of important synergies between the
main divisions of Camco and Schlumberger Oilfield services
include:
- The Camco Drilling Group and Schlumberger drilling services
complement each other in the areas of drilling performance
improvement and rotary steerable systems;
- Production Operators provides additional competencies for
production maximization;
- Camco Products and Services and Reda strengthen the Schlumberger
offering in completions and reservoir optimization.
An Advanced Technology Group has been created to accelerate the
development of innovative completion solutions as part of the
IRO(x) Integrated Reservoir Optimization initiative. The Group
will initially focus on multilateral completions and services,
advanced instrumented completion systems and sandface completions
and service support.
Contract Drilling Activity
Revenue from contract drilling operations grew 22 percent compared
with the same quarter last year. Offshore rig utilization was
higher than last year, with jackup utilization at 100 percent, and
semisubmersible utilization at 95 percent. The utilization onshore
was 91 percent, compared with 93 percent a year ago. At the end of
the quarter, the offshore fleet included 26 semisubmersible rigs,
2 drillships, 16 jackups, 1 lake barge and 4 tenders. Onshore, the
land fleet consists of 27 land rigs, 7 swamp barge rigs, 12
workover units and 5 snubbing units. Additionally, there were
minority joint venture interests in 2 jackups, 1 multipurpose
service vessel and 8 land rigs. Ten of the offshore rigs were
under bareboat charter or management contract.
Technology Highlights
Aimed at enhancing value through improving productivity and
efficiency and reducing overall costs, Schlumberger introduced
several notable technological developments during the quarter.
In September, Schlumberger advanced the use of high-performance 3D
data visualization in the oil and gas industry through the
introduction of GeoViz(x) software and the Alternate Realities
Corporation's VisionDome(x)(x) system, for which Schlumberger is
the exclusive licensed reseller to the industry. This combination
provides geoscientists and engineers with the first fully
immersive, portable, virtual-reality environment for constructing
3D models of subsurface reservoirs, selecting drilling targets and
designing well trajectories to maximize oil and gas recovery.
Schlumberger seismic services created the first time-lapse
3D-called 4D-seismic volume map designed to show reservoir changes
over the lifetime of an offshore oil field in the UK North Sea. In
this case, the type of production facilities ruled out
conventional reservoir monitoring techniques using time-lapse
wireline logging of downhole production and water saturation.
Hydrophones were installed in the seabed over the reservoir in
1995, and both seabed and surface seismic surveys were run.
Repeating the surveys over the same area using the already
embedded hydrophones provided two pairs of time-lapse 3D data sets
to be evaluated by the oil company. Aided by direct hydrocarbon
indicator processing, 4D seismic analysis using repeated 3D
surveys has proved effective in monitoring fluid movements in the
reservoir following production. Also during the quarter, the
recently converted Geco Triton (formerly American Champion)
successfully completed 10-streamer operations in the North Sea
before joining Geco Topaz on a 7500-km2 [3000-mi2] project
offshore West Africa.
Among the notable innovations in Schlumberger drilling services,
Schlumberger successfully ran the first RAPIDAccess(x)
multilateral completion system for an oil company in North
America. The installation of this novel completion allowed the
customer to double the reservoir penetration. In West Africa, the
new AIM(x) At-bit Inclination Measurement technology was used to
keep a well within a one-foot target window, providing unsurpassed
accuracy in well placement.
During the quarter, two fluid technologies for maximizing drilling
and production efficiencies were introduced. The DeepCRETE(x)
cementing system, designed to address the challenges associated
with well construction in deep water, helped customers improve
performance and reduce overall costs in Norway, Gabon, Congo and
Nigeria. The new STARDRILL(x) drill-in fluid, used while drilling
through the reservoir, improved hydrocarbon production rates by
limiting damage to the reservoir from the drilling process in
wells in Equatorial Guinea, Norway and Gabon.
Service Initiatives
Schlumberger has created two additional groups that extend
integrated solutions capabilities beyond the traditional project
management function. The Support Center Group renders technical
and commercial support on production management, field development
and Integrated Reservoir Optimization project evaluation. The
Coiled Tubing Drilling (CTD) Group provides expertise to furnish
oil & gas companies with enhanced and more fully integrated CTD
solutions.
During the quarter, the MaxPro(x) initiative was launched to
maximize the productivity of oil and gas wells. The MaxPro
initiative, involving a new organization and new technology,
offers solutions spanning an entire range of production services,
including perforating, cement evaluation, reservoir monitoring,
completion services, corrosion monitoring, well repair, production
monitoring and diagnosis. To date, five major MaxPro locations
have been set up in Asia, Europe and North America.
The latest in a series of new MaxPro technologies was also
introduced in the third quarter - the breakthrough PS PLATFORM(x)
wireline production logging tool that provides monitoring and
diagnosis of fluid flow in producing oil and gas wells. The PS
PLATFORM service enables oil and gas companies to benefit from
more accurate measurements and greatly enhanced operational
efficiency through real-time answers, faster operating speed and
smaller, lighter and more rugged tools. PS PLATFORM technology
provides the measurements for more accurate well diagnoses and is
one of the vehicles for future developments critical to optimal
management of the reservoir.
MEASUREMENT & SYSTEMS
Test & Transactions revenue was flat compared with the third
quarter of last year. Orders decreased 24 percent. The growth in
smart cards was attributable to a sales increase of 22 percent for
cellular phone SIM (subscriber identity module) cards and a 50
percent increase for banking and financial cards. Regionally,
North American card sales improved 41 percent, while European and
Asian sales both grew 8 percent. During the quarter, Schlumberger
became the number one producer of smart cards. Compared with last
year, Parking and Mass Transit Systems rose 25 percent, following
the successful introduction of the new Stelio(x) parking system.
Automated Test Equipment (ATE) revenue decreased 22 percent versus
last year. Semiconductor Test and Automated Handling Systems
activity in North America and Asia declined during the quarter.
Diagnostic Systems experienced an increase in revenue, resulting
from sales of the newly launched IDS 2000(x) flip-chip optical
probe system. Consistent with the current business cycle,
initiatives have been launched to reduce operating expenses, while
maintaining investment in new product development. Our Retail
Petroleum Systems activities were sold to Tokheim Corporation on
October 1.
Resource Management Services revenue fell 6 percent compared with
the third quarter of 1997. Europe was down 4 percent, largely due
to the lower activity in France caused by the ongoing shift from
electromechanical to electronic products in the local electricity
market, reduced purchases by domestic water utilities and a
decline in export shipments to the CIS and Asia. Germany was down
significantly due to a 60 percent drop in the industrial gas
business, lower sales of gas pressure regulators and price
reductions in the heat and water businesses. Asia fell 49 percent
on lower shipments across all countries. North America dropped 6
percent due to a reduced electricity networking market and
uncertainties related to electricity deregulation in the US.
Orders decreased 11 percent against last year. Europe was
negatively affected by a decline in UK activity. Asian orders fell
58 percent due to the shrinkage of local markets. North American
orders were lower by 15 percent, reflecting the phaseout of the
construction service business and the weakened market for major
product lines.
During the quarter, the new QUANTUM(x) Q1000 high-end electrical
meter was introduced with initial shipments made to Electricite de
France (EDF). Delivery of long-life, single-phase
electromechanical electricity meters also commenced to Shanghai
Power from the Mecoindo manufacturing facility in Indonesia. A
six-year contract was signed with the South Australia water
utility to meet their metering requirements. In South Africa, a
five-year contract was signed to manage and maintain a prepayment
electricity system on a shared-benefit basis for an area where
850,000 people live. The Resource Management Services (RMS)
business signed agreements in Europe and North America with Itron,
Inc. for the mutual licensing and distribution of Automatic Meter
Reading (AMR) technology.
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)
Nine Months 1998 1997(1)
Funds provided by:
Net income after
1998 third-quarter charge $ 736 $ 986
Third-quarter charge 380 -
Depreciation and amortization 845 761
Employee stock option plan 61 76
Employee stock purchase plan 70 50
Net proceeds on sale
of drilling rigs(2) -- 174
Funds used for:
Fixed asset additions (1,342) (1,067)
Businesses acquired (30) (12)
Dividends paid (286) (283)
Working capital and other (521) (376)
Change in liquidity (87) 309
Liquidity, beginning of period 527 170
Liquidity, end of period $ 440 $ 479
/T/
(1) Restated to reflect the acquisition of Camco International
Inc., which has been accounted for as a pooling of interests.
(2) In September 1997, 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 are operated by
Sedco Forex under bareboat charters. The gain on sale was deferred
and is being amortized over a six-year period. This transaction
had no effect on 1997 third quarter results and has no significant
impact on future results of operations.
This press release is available on the Schlumberger World Wide Web
site at: slb.com
(x)Mark of Schlumberger
(x)(x) VisionDome is a mark of Alternate Realities Corporation
(ARC)
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