SCHLUMBERGER LIMITED/NV - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2022

OR

Commission file No.: 1-4601

SCHLUMBERGER N.V.

(SCHLUMBERGER LIMITED)

(Exact name of registrant as specified in its charter)

Registrant’s telephone number in the United States, including area code, is:  (713) 513-2000

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

SCHLUMBERGER LIMITED

First Quarter 2022 Form 10-Q

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

See Notes to Consolidated Financial Statements

3

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

See Notes to Consolidated Financial Statements

4

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

See Notes to Consolidated Financial Statements

5

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

See Notes to Consolidated Financial Statements

6

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

SHARES OF COMMON STOCK

(Unaudited)

See Notes to Consolidated Financial Statements

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SCHLUMBERGER LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.   Basis of Presentation

The accompanying unaudited consolidated financial statements of Schlumberger Limited and its subsidiaries (“Schlumberger”) have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of Schlumberger management, all adjustments considered necessary for a fair statement have been included in the accompanying unaudited financial statements.  All intercompany transactions and balances have been eliminated in consolidation.  Operating results for the three-month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.  The December 31, 2021 balance sheet information has been derived from the Schlumberger 2021 audited financial statements.  For further information, refer to the Consolidated Financial Statements and notes thereto included in the Schlumberger Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on January 26, 2022.

2.   Charges and Credits

On December 31, 2020, Schlumberger contributed its onshore hydraulic fracturing business in the United States and Canada, including its pressure pumping, pumpdown perforating and Permian frac sand business to Liberty Energy Inc. (“Liberty”) in exchange for an equity interest in Liberty. During the first quarter of 2022, Schlumberger sold 7.2 million of its shares of Liberty and received proceeds of $84 million.  As a result of this transaction Schlumberger recognized a gain of $26 million. This gain is classified in Interest & other income in the Consolidated Statement of Income.  As of March 31, 2022, Schlumberger had a 27% equity interest in Liberty.

Schlumberger did not record any charges or credits during the first quarter of 2021.

3.   Earnings per Share

The following is a reconciliation from basic income per share of Schlumberger to diluted income per share of Schlumberger:

The number of outstanding options to purchase shares of Schlumberger common stock that were not included in the computation of diluted income per share, because to do so would have had an antidilutive effect, was as follows:

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4.   Inventories

A summary of inventories, which are stated at the lower of average cost or net realizable value, is as follows:  

5.   Fixed Assets

A summary of fixed assets follows:

Depreciation expense relating to fixed assets was $338 million and $355 million in the first quarter of 2022 and 2021, respectively.

6.   Intangible Assets

The gross book value, accumulated amortization and net book value of intangible assets were as follows:

Amortization expense charged to income was $75 million during the first quarter of 2022 and $76 million during the first quarter of 2021.

Based on the net book value of intangible assets at March 31, 2022, amortization expense for the subsequent five years is estimated to be: remaining three quarters of 2022—$227 million; 2023—$291 million; 2024—$279 million; 2025—$261 million; 2026—$256 million; and 2027—$252 million.

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7.   Long-term Debt

A summary of Long-term Debt follows:

The estimated fair value of Schlumberger’s Long-term Debt, based on quoted market prices at March 31, 2022 and December 31, 2021, was $13.0 billion and $13.9 billion, respectively.

Schlumberger has a €750 million three-year committed revolving credit facility maturing in June 2024.  At March 31, 2022 no amounts had been drawn under this facility.

In addition to the revolving credit facility described above, at March 31, 2022, Schlumberger had separate committed credit facility agreements aggregating $5.75 billion with commercial banks, all of which was available and unused.  These committed facilities support commercial paper programs in the United States and Europe, of which $0.75 billion matures in February 2024, $2.0 billion matures in February 2025, $1.0 billion matures in July 2026 and $2.0 billion matures in February 2027.  Interest rates and other terms of borrowing under these lines of credit vary by facility.

There were no borrowings under the commercial paper programs at March 31, 2022 and December 31, 2021.   

Schlumberger Limited fully and unconditionally guarantees the securities issued by certain of its subsidiaries, including securities issued by Schlumberger Investment SA and Schlumberger Finance Canada Ltd., both wholly-owned subsidiaries of Schlumberger.

8.   Derivative Instruments and Hedging Activities

As a multinational company, Schlumberger conducts its business in over 120 countries.  Schlumberger’s functional currency is primarily the US dollar.  

Schlumberger is exposed to risks on future cash flows to the extent that the local currency is not the functional currency and expenses denominated in local currency are not equal to revenues denominated in local currency.  Schlumberger uses foreign currency forward contracts to provide a hedge against a portion of these cash flow risks.  These contracts are accounted for as cash flow hedges, with the changes in the fair value of the hedge recorded on the Consolidated Balance Sheet and in Accumulated Other Comprehensive Loss.  Amounts recorded in Accumulated Other Comprehensive Loss are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings. 

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Schlumberger is also exposed to risks on future cash flows relating to certain of its fixed rate debt denominated in currencies other than the functional currency.  Schlumberger uses cross-currency swaps to provide a hedge against these cash flow risks.  Included in Other Assets was $71 million at March 31, 2022 ($66 million at December 31, 2021) and included in Other Liabilities was $86 million at March 31, 2022 ($78 million at December 31, 2021) relating to the fair value of outstanding cross-currency swap derivatives.  The fair value was determined using a model with inputs that are observable in the market or can be derived or corroborated by observable data.

During 2019, a US-dollar functional currency subsidiary of Schlumberger issued €1.5 billion of Euro-denominated debt.  Schlumberger entered into cross-currency swaps for an aggregate notional amount of €1.5 billion in order to hedge changes in the fair value of its €0.5 billion 0.00% Notes due 2024, €0.5 billion 0.25% Notes due 2027 and €0.5 billion 0.50% Notes due 2031.  These cross-currency swaps effectively convert the Euro-denominated notes to US-dollar denominated debt with fixed annual interest rates of 2.29%, 2.51% and 2.76%, respectively.

During 2020, a US-dollar functional currency subsidiary of Schlumberger issued €0.8 billion of Euro-denominated debt.  Schlumberger entered into cross-currency swaps for an aggregate notional amount of €0.8 billion in order to hedge changes in the fair value of its €0.4 billion of 0.25% Notes due 2027 and €0.4 billion of 0.50% Notes due 2031.  These cross-currency swaps effectively convert the Euro-denominated notes to US-dollar denominated debt with fixed annual interest rates of 1.87% and 2.20%, respectively.

During 2020, a US-dollar functional currency subsidiary of Schlumberger issued €2.0 billion of Euro-denominated debt.  Schlumberger entered into cross-currency swaps for an aggregate notional amount of €2.0 billion in order to hedge changes in the fair value of its €1.0 billion of 1.375% Guaranteed Notes due 2026 and €1.0 billion of 2.00% Guaranteed Notes due 2032.  These cross-currency swaps effectively convert the swapped portion of the Euro-denominated notes to US-dollar denominated debt with fixed annual interest rates of 2.77% and 3.49%, respectively. 

During 2020, a Canadian dollar functional currency subsidiary of Schlumberger issued $0.5 billion of US dollar denominated debt.  Schlumberger entered into cross-currency swaps for an aggregate notional amount of $0.5 billion in order to hedge changes in the fair value of its $0.5 billion 1.40% Senior Notes due 2025.  These cross-currency swaps effectively convert the US dollar notes to Canadian dollar denominated debt with a fixed annual interest rate of 1.73%.

During the fourth quarter of 2021 and the first quarter of 2022, Schlumberger entered into derivative contracts that hedge the price of oil relating to approximately 75% of the projected oil production for all of 2022 and the first quarter of 2023 of one its Asset Performance Solutions (“APS”) projects. These contracts are accounted for as cash flow hedges, with the changes in fair value of the hedge recorded in the Consolidated Balance Sheet and in Accumulated Other Comprehensive Loss. Amounts recorded in Accumulated Other Comprehensive Loss are reclassified to earnings in the same period or periods that the hedged item is recognized in earnings. Included in Accounts payable and accrued liabilities was $94 million at March 31, 2022 relating to the fair value of the outstanding commodity hedges.

Schlumberger is exposed to changes in the fair value of assets and liabilities denominated in currencies other than the functional currency.  While Schlumberger uses foreign currency forward contracts to economically hedge this exposure as it relates to certain currencies, these contracts are not designated as hedges for accounting purposes.  Instead, the fair value of the contracts is recorded on the Consolidated Balance Sheet and changes in the fair value are recognized in the Consolidated Statement of Income, as are changes in the fair value of the hedged item.     

At March 31, 2022, contracts were outstanding for the US dollar equivalent of $7.6 billion in various foreign currencies, of which $5.8 billion relates to hedges of debt denominated in currencies other than the functional currency.

Other than the previously mentioned cross-currency swaps and commodity hedges, the fair value of the other outstanding derivatives was not material at March 31, 2022 and December 31, 2021.

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The effect of derivative instruments designated as cash flow hedges, and those not designated as hedges, on the Consolidated Statement of Income was as follows:

9.   Contingencies

Schlumberger is party to various legal proceedings from time to time.  A liability is accrued when a loss is both probable and can be reasonably estimated.  Management believes that the probability of a material loss with respect to any currently pending legal proceeding is remote.  However, litigation is inherently uncertain and it is not possible to predict the ultimate disposition of any of these proceedings.  

10.   Segment Information

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Revenue by geographic area was as follows:

North America and International revenue disaggregated by segment was as follows:

Revenue in excess of billings related to contracts where revenue is recognized over time was $0.3 billion at both March 31, 2022 and December 31, 2021.  Such amounts are included within Receivables less allowance for doubtful accounts in the Consolidated Balance Sheet.

Due to the nature of its business, Schlumberger does not have significant backlog.  Total backlog was $3.0 billion at March 31, 2022, of which approximately 56% is expected to be recognized as revenue over the next 12 months.

Billings and cash collections in excess of revenue was $1.0 billion at both March 31, 2022 and December 31, 2021.  Such amounts are included within Accounts payable and accrued liabilities in the Consolidated Balance Sheet.  

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The conflict in Ukraine that began in late February 2022 continues as of the date of this quarterly report. Schlumberger is deeply focused on the safety and security of its employees and their families in Ukraine, Russia and throughout the affected region.

Schlumberger’s executive leadership established local and global crisis management teams which began meeting regularly in February 2022 to respond to the crisis and its effect on Schlumberger’s employees, business and operations, including impacts related to increased economic sanctions and export controls. In March 2022, Schlumberger decided to immediately suspend new investment and technology deployment to its Russia operations. 

Russia represented approximately 5% of Schlumberger’s worldwide revenue during the first quarter of 2022. The carrying value of Schlumberger’s net assets in Russia was approximately $0.8 billion as of March 31, 2022. This consisted of $0.2 billion of receivables, $0.2 billion of inventories, $0.3 billion of other current assets, $0.3 billion of fixed assets, $0.1 billion of other non-current assets and $0.3 billion of current liabilities.

Schlumberger continues to actively monitor this dynamic situation and comply with applicable international laws and sanctions. The extent to which Schlumberger’s operations and financial results (including the need to potentially write-down the carrying value of certain assets) may be affected by the ongoing conflict in Ukraine will depend on various factors, including the extent and duration of the conflict; the effects of the conflict on regional and global economic and geopolitical conditions; the effect of further international sanctions and trade control restrictions on Schlumberger’s business, the global economy and global supply chains; and the impact of further devaluation of the ruble. Continuation or escalation of the conflict may also aggravate the risk factors that Schlumberger identified in its Annual Report on Form 10-K for the year ended December 31, 2021.

First Quarter 2022 Compared to Fourth Quarter 2021