Schlumberger Announces Fourth-Quarter and Full-Year 2020 Results
Schlumberger Announces Fourth-Quarter and Full-Year 2020 Results
Fourth-quarter worldwide revenue of $5.5 billion increased 5% sequentially
Fourth-quarter GAAP EPS, including charges and credits, was $0.27
Fourth-quarter EPS, excluding charges and credits, of $0.22 increased 37% sequentially
Fourth-quarter cash flow from operations was $878 million and free cash flow was $554 million
Quarterly cash dividend of $0.125 per share approved
Schlumberger CEO Olivier Le Peuch commented, "We concluded the year posting very strong fourth-quarter results, as we leveraged the industry recovery, which has now commenced. Fourth-quarter revenue grew 5% sequentially, driven by strong activity and solid execution both in North America and in the international markets. Despite seasonality, revenue grew sequentially in all four Divisions for the first time since the third quarter of 2019. I stand very proudly behind the performance of the entire Schlumberger team during the quarter, closing an exceptional year of operational resilience and performance for our customers.
"Sequentially, international revenue growth visibly outpaced rig count and was led by Latin America and a global rebound of activity in most offshore deepwater markets. In the Middle East & Asia, growth was mostly in China, India, and Oman while Saudi Arabia remained resilient. In Europe/CIS/Africa, activity increased significantly in the offshore markets of Africa and several countries in Europe offset by the seasonal winter slowdown in Russia. In North America, offshore activity in the US Gulf of Mexico grew, and on land, increased horizontal drilling and pressure pumping activity contributed to higher revenue.
n/m = not meaningful
"Digital & Integration revenue increased 13% sequentially driven by Asset Performance Solutions (APS) projects, increased multiclient seismic license sales, and higher digital solutions and software sales internationally. Reservoir Performance and Well Construction revenue increased 3% and 2%, respectively, due to higher activity in North America, Latin America, and in Middle East & Asia partially offset by the seasonal winter slowdown in Russia. Production Systems revenue increased 8% sequentially and grew in North America and internationally.
"Sequentially, fourth-quarter pretax operating income and adjusted EBITDA increased 14% and 9%, respectively. Pretax operating income margin and adjusted EBITDA margin expanded to reach 12% and 20%, respectively, achieving the same level as the fourth quarter of 2019 despite a 33% decline in revenue year-on-year. Sequentially, incremental EBITDA margin was 34%, demonstrating the ability of our new Divisions to enhance operating leverage, fully preparing us for the growth cycle ahead.
"Fourth-quarter cash flow from operations was $878 million and free cash flow was $554 million despite severance payments of $144 million. We are confident in our ability to further improve cash flow generation in 2021, which will allow for debt reduction.
"Regarding the macro outlook, oil prices have risen, buoyed by recent supply-led OPEC+ policy, the ongoing COVID-19 vaccine rollout, and multinational economic stimulus actions-driving optimism for an oil demand recovery throughout 2021. We believe this sets the stage for oil demand to recover to 2019 levels no later than 2023, or earlier as per recent industry analysts' reports, reinforcing a multiyear cycle recovery as the global economy strengthens. Absent a setback in these macro assumptions, this will translate to meaningful activity increases both in North America and internationally.
"In North America, spending and activity momentum will continue in the first half of 2021 towards maintenance levels, albeit moderated by capital discipline and industry consolidation. Internationally, following the seasonal effects of the first quarter of 2021, and as OPEC+ responds to strengthening oil demand, higher spending is expected from the second quarter of 2021 onwards. Accelerated activity will extend beyond the short-cycle markets and will be broad, including offshore, as witnessed during the fourth quarter.
"The quality of our results in the fourth quarter of 2020 validates the progress of our performance strategy and the reinvention of Schlumberger in this new chapter for the industry. Building from the swift execution and scale of our cost-out program, we exited the year with quarterly margins reset to 2019 levels as the upcycle begins. On the back of our high-graded and restructured business portfolio, we see a clear path to achieve double-digit margins in North America and visible international margin improvement in 2021. Given the depth, diversity, and executional capability of our international business, we are uniquely positioned to benefit as international spending accelerates in the near- and midterm.
"By leveraging our new Basin and Division structure, we are fully set to capitalize on the growth drivers of the future of our industry, particularly as we accelerate our digital growth ambition and lead in the production and recovery market. Finally, to meet our long-term ambition to bring lower carbon and carbon-neutral energy sources and technology to market, we are visibly expanding our New Energy portfolio, to contribute to the transformation of a more resilient, sustainable, and investable energy services industry."
On December 31, 2020, Schlumberger closed the contribution to Liberty Oilfield Services Inc. (Liberty) of OneStim®, Schlumberger's onshore hydraulic fracturing business in the United States and Canada, including its pressure pumping, pumpdown perforating, and Permian frac sand businesses, in exchange for a 37% equity interest in Liberty.
On January 21, 2021, Schlumberger's Board of Directors approved a quarterly cash dividend of $0.125 per share of outstanding common stock, payable on April 8, 2021 to stockholders of record on February 17, 2021.
North America area revenue of $1.2 billion increased 13% sequentially with strong growth both on land and offshore. Land revenue increased driven by Well Construction activity on higher rig count and OneStim activity through additional fleet redeployments. Offshore revenue grew due to higher sales of subsea production systems and year-end multiclient seismic licenses.
Revenue in the Latin America area of $969 million increased 17% sequentially with continued strength in Ecuador, Colombia, offshore Brazil, Guyana, and Argentina. Ecuador revenue increased on APS projects, higher sales of well production systems, increased intervention services, and a rebound in drilling activity. Revenue increased in Colombia from drilling project startups, in Brazil from the resumption of offshore drilling and sales of production systems, in Guyana from increased intervention and stimulation activity, and in Argentina from higher drilling activity.
Europe/CIS/Africa area revenue of $1.4 billion decreased 2% sequentially mainly due to the seasonal winter activity slowdown in Russia & Central Asia while activity increased significantly in Angola, Nigeria, Gabon, and several countries in Europe. Revenue increased in Angola from drilling project startups, in Scandinavia from increased sales of subsea and well production systems, in Gabon and Nigeria from new project startups, and in Mozambique from multiclient seismic license sales. Significant digital solutions and software sales were made in Russia, Scandinavia, Romania, Ukraine, and Turkey.
Revenue in the Middle East & Asia area of $2.0 billion increased 1% sequentially. Revenue growth was mainly in China, India, and Oman, partially offset by declines in Egypt, East Asia, and Kuwait. Revenue in China increased from sales of production systems and digital solutions and higher drilling and measurement activity. Production Systems sales drove growth in India and Oman but declined in Egypt, East Asia, and Kuwait. Revenue in Saudi Arabia was resilient as reduced stimulation, logging, and drilling activity was offset by higher sales of production systems. Qatar revenue was also resilient as reduced stimulation activity was offset by higher drilling activity.
Results by Division
Digital & Integration
Digital & Integration revenue of $833 million, 83% of which came from the international markets, increased 13% sequentially. International revenue increased by 14% and North America revenue increased by 6% sequentially. Digital & Integration revenue increased from APS projects, increased multiclient seismic license sales in Mozambique, US land, and the US Gulf of Mexico, and higher digital solutions and software sales internationally.
Digital & Integration pretax operating margin of 32% expanded by 507 bps sequentially. The margin expansion was primarily in the international markets and was driven by improved profitability across APS projects, digital solutions, and multiclient seismic license sales from higher activity.
Reservoir Performance revenue of $1.2 billion, 73% of which came from the international markets, increased 3% sequentially. International revenue declined 3% while North America revenue increased 23% sequentially. The revenue increase was driven by higher OneStim activity in North America, higher intervention services from project startups in Ecuador and Colombia, and increased intervention and stimulation activity in Guyana. This increase, however, was partially offset by seasonality in Russia and reduced stimulation, intervention, and evaluation activity in Saudi Arabia and Qatar.
Reservoir Performance pretax operating margin of 8% decreased 84 bps sequentially driven by seasonality in Russia despite improved North American activity.
Well Construction revenue of $1.9 billion, 84% of which came from the international markets, increased 2% sequentially. International and North America revenue increased 1% and 7%, respectively. The revenue increase was due to higher measurement, drilling, and fluids activity in North America, Latin America, and the Middle East & Asia, partially offset by seasonality in Russia. The North America revenue increase was driven by higher rig count on land while the Latin America revenue growth was due to the resumption of drilling in Ecuador, offshore Brazil, Guyana, and Argentina, and from project startups in Colombia. The revenue increase in Africa was a result of project startups in Angola, Gabon, and Nigeria, while the Middle East & Asia growth was driven by higher drilling activity in China and Qatar.
Sequentially, Well Construction pretax operating margin of 10% improved by 42 bps. North America margin improved due to higher drilling activity on land while international margin was essentially flat.
Production Systems revenue of $1.6 billion, 74% of which came from the international markets, increased 8% sequentially. International and North America revenue increased 7% and 11%, respectively, due to higher subsea, midstream, and surface production systems sales and services activity across all areas. Revenue increased in subsea production systems in North America, Scandinavia, Nigeria, Angola, China, and India. Revenue increased in surface production systems in North America, Argentina, Saudi Arabia, and Iraq. Midstream production systems sales increased in Brazil, Mexico, Saudi Arabia, Oman, and North Africa.
Production Systems pretax operating margin of 9% increased by 82 bps sequentially due to a higher contribution from the long-cycle business of subsea, and profitability improvement in well and surface production systems due to cost reduction measures and higher activity.
The recovery cycle has begun, digital adoption is accelerating, and sanctioned projects are commencing on land and offshore, while others are approaching FID. In this improving environment, Schlumberger continues to win multiyear contract awards, particularly internationally. Awards during the quarter include:
- Schlumberger and OMV have signed a five-year contract-valued at up to USD 160 million-to deploy AI and digital solutions, enabled by the DELFI* cognitive E&P environment, across OMV's entire enterprise. The OMV upstream subsurface team has already simulated 200 model realizations more than 70% faster using AI-enhanced workflows in the DELFI environment and planned eight wells in the time it would normally take to plan one using the DrillPlan* coherent well construction planning solution. Following this agreement, the two companies will collaborate to enhance efficiencies across OMV's global operations, leveraging precise reservoir knowledge to accelerate both well and field development planning.
- OneSubsea was awarded a contract by Petrobras to provide subsea production systems equipment, installation and commissioning, and intervention services for the Mero 3 project 180 km offshore Rio de Janeiro in the Libra Block. The Mero 3 subsea production systems scope encompasses 12 vertical subsea trees designed for Mero Field technical requirements and four subsea distribution units, spare parts, and related services. The subsea trees will be connected to an FPSO designed to produce 180,000 bbl/d.
- Kuwait Oil Company (KOC) awarded Schlumberger a large seven-year, performance-based contract, covering the installation of up to 1,650 electric submersible pumps (ESPs) over the period. This award comes as KOC seeks to improve long-term production from its maturing fields, for which ESP technology is ideally suited.
The new industry landscape demands increased discipline in capital investment and maximum efficiencies in production and recovery. Schlumberger creates and deploys technology and processes to help customers increase value from their existing assets by enhancing production and boosting recovery. Examples from the quarter include:
- In Libya, Schlumberger won an integrated 100-well project and has reactivated and enhanced production from the first group of 35 wells, helping Arabian Gulf Oil Company (AGOCO) achieve its production increase objectives. Teams spanning our portfolio are collaborating on the project, which includes front-end engineering, candidate selection, and intervention execution on shut-in wells. The group of wells delivered to AGOCO is now generating double the daily oil production and 45% less water compared with their performance prior to being shut in.
- In Indonesia, Schlumberger successfully deployed ACTive* real-time downhole coiled tubing services and CIRP* completion insertion and removal under pressure equipment for the first time in the country to perforate 800 ft of net interval in one trip for Pertamina EP Cepu. The rigless intervention solutions enabled an effective completion method with minimum intervention runs and accurate depth placement on high-rate gas wells. This is also the first Schlumberger worldwide application for ACTive DTS* distributed temperature measurement and inversion analysis on a live well flowing 60 MMscf/d of gas with 8,000 ppm H2S and 25% CO2. This project is considered a key milestone for the country and is expected to produce gas from Jambaran-Tiung Biru Field with average raw gas production of 315 MMscf/d from six wells by Q4 2021.
- In Libya, Schlumberger completed the conversion of 24 wells from gas lift to ESPs for Sirte Oil Company, enabling them to exceed 2020 production targets within budget. Prior to installing the ESPs, a combination of technology-including the RAZOR BACK* casing cleaning tool, MAGNOSTAR* high-capacity magnet, and the USI* ultrasonic imager-were used to prepare and inspect the casing. Continuous monitoring using Lift IQ* production life cycle management service minimized downtime, maximized production, and reduced total operating cost across all 24 wells, contributing to the completion of the project-which resulted in 20,000 bbl/d of incremental production-ahead of schedule.
Our fit-for-basin approach as part of our performance strategy is helping operators address their challenges and extend their technical limits. Through innovative technology adapted for local geological context, business models tailored to regional dynamics, and enhanced in-country value, Schlumberger is at the forefront of basin innovation to deliver a step change in performance for our customers. Examples from the quarter include:
- In Argentina, YPF S.A. worked closely with Schlumberger to drill the first pad of superlateral wells through the unconventional Vaca Muerta Formation. The addition of NeoSteer* at-bit steerable systems to comprehensive reservoir management and characterization led to the successful drilling of extended-reach laterals to lengths beyond 3,887 m, enabling access to a million-barrel oil reserve that would have otherwise been unmonetizable. The NeoSteer CL* curve and lateral at-bit steerable system delivered the longer, smoother laterals YPF required.
- In Malaysia, TruLink* definitive dynamic survey-while-drilling service technology was deployed in three wells for PETRONAS Carigali, offshore Sarawak. TruLink service technology incorporates continuous six-axis surveys-a cutting-edge replacement for conventional, static six-axis measurements while drilling. Using definitive dynamic surveying technology has enabled the PETRONAS drilling team to eliminate up to a day of rig time per well while delivering a step change in wellbore positional certainty.
As the industry continues to embrace digital transformation, we are working with customers and domain experts to develop and apply novel AI and machine learning solutions, made available on our digital platform, to create a step change in process efficiency.
- In the United Arab Emirates, Schlumberger, AIQ, and Group 42 (G42) have signed a strategic agreement to collaborate on the development and deployment of AI, machine learning, and data solutions for the global exploration and production (E&P) market. G42, a leading AI and cloud computing company in the region, have created a joint venture with the Abu Dhabi National Oil Company (ADNOC) to create AIQ. The three companies will leverage their combined domain knowledge in digital technology, high-performance computing, and cloud storage capabilities to accelerate digital transformation within the global energy industry and unlock new levels of efficiency.
A diverse range of customers continue to adopt Schlumberger digital technologies across several geographies and use cases, from increasing enterprisewide performance to advancing national energy strategy, with the aim to improve asset efficiency, operational cost, and performance.
- PETRONAS will work with Schlumberger to deploy an intelligent data platform and digital solutions enabled by the DELFI cognitive E&P environment. This deployment will enable users to rapidly assess multiple development scenarios at scale against diverse market conditions, driving down field development costs and improving investment decisions.
- In Brazil, Enauta, a leading domestic offshore exploration company, became one of a growing number of midsize companies to adopt the Schlumberger DELFI cognitive E&P environment for their digital journey. The scalable, open, and collaborative DELFI environment will enable Enauta to achieve improved efficiency, accuracy, and cross-domain integration.
The application of our digital solutions also extends beyond our core industry and will support customers actively participating in the energy transition.
- In the Netherlands, Energie Beheer Nederland (EBN B.V.), a company established by the Dutch Ministry of Economic Affairs and Climate Policy, has selected the DELFI cognitive E&P environment to support the implementation of the nation's energy transition strategy. The Netherlands intends to lead Continental Europe in carbon capture and storage while it continues to develop renewable and sustainable energy sources such as geothermal energy. The cloud-based DELFI environment and SaaS model will provide flexibility while being robust enough to manage the scale and complexity of the subsurface solutions required to achieve these objectives across a portfolio of energy sources.
Decarbonization is not only a necessity, but a tremendous opportunity for Schlumberger, where we can leverage our intellectual and business capital consistent with our commitment to being at the forefront of our industry's shift toward more sustainable energy production. Schlumberger New Energy focuses on low-carbon and carbon-neutral energy technologies. The portfolio build-out continues to gain momentum, accelerating throughout 2020.
- In the hydrogen domain, Schlumberger New Energy, the French Alternative Energies and Atomic Energy Commission (CEA) and partners obtained approval from the European Commission to form Genvia™, a clean hydrogen production technology venture. In a unique private-public partnership model, Genvia combines the expertise and experience of Schlumberger with CEA, and partners. The new venture will accelerate the development and the first industrial deployment of the CEA high-temperature reversible solid-oxide electrolyzer technology. The aim of the venture is to deliver the most efficient and cost-effective technology for producing clean hydrogen, a versatile energy carrier and key component of the energy transition.
- In the geo-energy domain, Celsius Energy, a Schlumberger New Energy venture, began heating the Schlumberger Technology Center in Clamart, France, with the first installation of its novel solution for heating and cooling buildings. CO2 footprint is reduced considerably while maintaining thermal comfort in the facility using geo-energy from the subsurface through a proprietary small footprint network of 10 shallow wells combined with a heat exchange system. An automated digital platform is set up to control temperature and optimize energy in this 3,000-square-meter building throughout the year.
Charges & Credits
In addition to financial results determined in accordance with US generally accepted accounting principles (GAAP), this fourth-quarter and full-year 2020 earnings release also includes non-GAAP financial measures (as defined under the SEC's Regulation G). In addition to the non-GAAP financial measures discussed under "Liquidity", net income (loss), excluding charges & credits, as well as measures derived from it (including diluted EPS, excluding charges & credits; Schlumberger net income (loss), excluding charges & credits; effective tax rate, excluding charges & credits; and adjusted EBITDA) are non-GAAP financial measures. Management believes that the exclusion of charges & credits from these financial measures enables it to evaluate more effectively Schlumberger's operations period over period and to identify operating trends that could otherwise be masked by the excluded items. These measures are also used by management as performance measures in determining certain incentive compensation. The foregoing non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP. The following is a reconciliation of certain of these non-GAAP measures to the comparable GAAP measures. For a reconciliation of adjusted EBITDA to the comparable GAAP measure, please refer to the section titled "Supplemental Information" (Item 12).
Schlumberger's adjusted EBITDA was $4.313 billion in full-year 2020 and $6.640 billion in full-year 2019, and was calculated as follows:
Adjusted EBITDA represents income before taxes excluding charges & credits, depreciation and amortization, interest expense, and interest income. Management believes that adjusted EBITDA is an important profitability measure for Schlumberger and that it allows investors and management to more efficiently evaluate Schlumberger's operations period over period and to identify operating trends that could otherwise be masked. Adjusted EBITDA is also used by management as a performance measure in determining certain incentive compensation. Adjusted EBITDA should be considered in addition to, not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP.
Schlumberger (SLB:NYSE) is a technology company that partners with customers to access energy. Our people, representing over 160 nationalities, are providing leading digital solutions and deploying innovative technologies to enable performance and sustainability for the global energy industry. With expertise in more than 120 countries, we collaborate to create technology that unlocks access to energy for the benefit of all.
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Schlumberger will hold a conference call to discuss the earnings press release and business outlook on Friday, January 22, 2021. The call is scheduled to begin at 8:30 a.m. US Eastern Time. To access the call, which is open to the public, please contact the conference call operator at +1 (844) 721-7241 within North America, or +1 (409) 207-6955 outside North America, approximately 10 minutes prior to the call's scheduled start time, and provide the access code 2660129. At the conclusion of the conference call, an audio replay will be available until February 22, 2021 by dialing +1 (866) 207-1041 within North America, or +1 (402) 970-0847 outside North America, and providing the access code 5881344. The conference call will be webcast simultaneously at www.slb.com/irwebcast on a listen-only basis. A replay of the webcast will also be available at the same website until February 22, 2021.
This fourth-quarter and full-year 2020 earnings release, as well as other statements we make, contain "forward-looking statements" within the meaning of the federal securities laws, which include any statements that are not historical facts, such as our forecasts or expectations regarding business outlook; growth for Schlumberger as a whole and for each of its Divisions (and for specified business lines or geographic areas within each Division); oil and natural gas demand and production growth; oil and natural gas prices; pricing; Schlumberger's response to, and preparedness for, the COVID-19 pandemic and other widespread health emergencies; improvements in operating procedures and technology; capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger, including digital and "fit for basin," as well as the strategies of Schlumberger's customers; Schlumberger's restructuring efforts and charges recorded as a result of such efforts; access to raw materials; our effective tax rate; Schlumberger's APS projects, joint ventures and other alliances; future global economic and geopolitical conditions; future liquidity; and future results of operations, such as margin levels. These statements are subject to risks and uncertainties, including, but not limited to, changing global economic conditions; changes in exploration and production spending by Schlumberger's customers, and changes in the level of oil and natural gas exploration and development; the results of operations and financial condition of Schlumberger's customers and suppliers, particularly during extended periods of low prices for crude oil and natural gas; Schlumberger's inability to achieve its financial and performance targets and other forecasts and expectations; Schlumberger's inability to sufficiently monetize assets; the extent of future charges; general economic, geopolitical, and business conditions in key regions of the world; foreign currency risk; pricing pressure; weather and seasonal factors; unfavorable effects of health pandemics; availability and cost of raw materials; operational modifications, delays, or cancellations; challenges in Schlumberger's supply chain; production declines; Schlumberger's inability to recognize intended benefits from its business strategies and initiatives, such as digital or Schlumberger New Energy; as well as its restructuring and structural cost reduction plans; changes in government regulations and regulatory requirements, including those related to offshore oil and gas exploration, radioactive sources, explosives, chemicals, hydraulic fracturing services, and climate-related initiatives; the inability of technology to meet new challenges in exploration; the competitiveness of alternative energy sources or product substitutes; and other risks and uncertainties detailed in this fourth-quarter and full-year 2020 earnings release and our most recent Forms 10-K, 10-Q, and 8-K filed with or furnished to the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of any such development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. Statements in this fourth-quarter and full-year 2020 earnings release are made as of the date of this release, and Schlumberger disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events, or otherwise.