Schlumberger 1998 Third Quarter Earnings.NEW YORK--(BUSINESS WIRE)--October 22--Schlumberger Limited reported today that 1998 third quarter operating revenue operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. of $2.93 billion was 1% below third quarter 1997. Before the third quarter charge discussed below, net income and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of were $351 million and $0.63, 9% and 7% 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 Directional drilling (sometimes known as slant drilling outside the oil industry) is the science of drilling non-vertical wells. Directional drilling can be broken down into three main groups: Oilfield Directional Drilling, Utility Installation Directional Drilling (commonly services, declined versus last year. A reduction in North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. activity was partly offset by increases in Europe, Africa and the Middle East. Measurement & Systems revenue decreased 3% compared with the same period last year. Revenue at Test & Transactions was flat, while Resource Management Services decreased 6%. 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% 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."
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
(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 Pooling of Interests An accounting method, used in mergers and acquisitions, where the balance sheet items of the two companies are simply added together. Notes: The opposite of pooling of interests is the purchase acquisition method. . (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 Cost of goods sold The total cost of buying raw materials, and paying for all the factors that go into producing finished goods. cost of goods sold and services.
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
(1) Restated to reflect the acquisition of Camco International Inc., which has been accounted for as a pooling of interests. BUSINESS REVIEW (Stated in millions) Oilfield Services Measurement & Systems Third Quarter 1998 1997 % change 1998 1997 % change Operating Revenue $ 2,229 $ 2,243 (1)% $ 704 $ 726 (3)% Operating Income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (1) $ 435 $ 474 (8)% $ - $ 29 (100)% Nine Months Operating Revenue $ 6,829 $ 6,251 9% $ 2,214 $ 2,137 4 % Operating Income(1) $ 1,374 $ 1,234 11% $ 72 $ 95 (24)% (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% in contract drilling and 8% in data services being offset by declines in other oilfield services. Europe and North Africa reported significant revenue growth, while revenue in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. decreased compared with last year. The worldwide rig count declined 21%. On October 21, Schlumberger and Smith International announced the signing of a memorandum of understanding A Memorandum of Understanding (MoU) is a legal document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action and may not imply a legal commitment. 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% lower than in the third quarter of 1997, representing 20% of consolidated revenue, while the number of drilling rigs fell 28%. Operating income decreased by 67%. Severe weather disruptions in the Gulf of Mexico Noun 1. Gulf of Mexico - an arm of the Atlantic to the south of the United States and to the east of Mexico Golfo de Mexico Atlantic, Atlantic Ocean - the 2nd largest ocean; separates North and South America on the west from Europe and Africa on the east also reduced revenue and earnings. Schlumberger and Burlington Resources Burlington Resources, is an American oil and gas company. Their headquarters are in Houston, Texas. Based in Houston, Texas, BR has major offices located in Calgary, London, Farmington, Midland and Fort Worth. have signed a five-year, $8-million services contract for GeoQuest PowerHouse* center-based exploration and production data management services and Finder* 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 In computer networking, IntServ or integrated services is an architecture that specifies the elements to guarantee quality of service (QoS) on networks. IntServ can for example be used to allow video and sound to reach the receiver without interruption. team performed the first successful coiled tubing-based reentry reentry n. taking back possession and going into real property which one owns, particularly when a tenant has failed to pay rent or has abandoned the property, or possession has been restored to the owner by judgment in an unlawful detainer lawsuit. 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 Coiled tubing refers to metal piping, normally 1" to 2" in diameter, used for interventions in oil and gas wells, which comes spooled on a large drum. The main benefits over wireline are the ability to pump chemicals through the coil and the ability to push it into hole rather than to cut a window in the side of the existing well, drill a new well and evaluate the reservoir using VIPER* and SlimAccess* technology. Outside North America In spite of a fall in rig count of 10%, revenue grew 7%, representing 57% of consolidated revenue, and operating income grew 14%. 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 West Africa A region of western Africa between the Sahara Desert and the Gulf of Guinea. It was largely controlled by colonial powers until the 20th century. West African adj. & n. 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 BOPD Barrels of Oil Per Day BOPD Bataan Ocean Petroleum Depot ). Camco Schlumberger completed the acquisition of Camco International Inc. on August 31, further enhancing the capability of Schlumberger Oilfield Services Schlumberger Oilfield Services, a division of Schlumberger Limited, is the world’s largest supplier of exploration and production (E&P) services, solutions and technology to the international petroleum industry. 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 A rotary steerable system is a new form of drilling technology used in directional drilling. It employs the use of specialized downhole equipment to replace conventional directional tools such as mud motors. ; * 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 IRO abbr. International Refugee Organization IRO n abbr (= International Refugee Organization) → O.I.R. f (= Organizzazione Internazionale per i Rifugiati) * 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% compared with the same quarter last year. Offshore rig utilization was higher than last year, with jackup utilization at 100%, and semisubmersible sem·i·sub·mers·i·ble n. A seagoing, self-propelled barge that rides at anchor, stands on partially submerged vertical legs on submerged pontoons, and serves as living quarters and a base of operations in offshore drilling. utilization at 95%. The utilization onshore was 91%, compared with 93% 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 Snubbing is a type of heavy well intervention performed on oil and gas wells. It involves running the BHA on a pipe string using a hydraulic workover rig. Unlike wireline or coiled tubing, the pipe is not spooled off a drum but made up and broken up while running in and pulling units. Additionally, there were minority joint venture interests in 2 jackups, 1 multipurpose mul·ti·pur·pose adj. Designed or used for several purposes: a multipurpose room; multipurpose software. multipurpose Adjective service vessel and 8 land rigs. Ten of the offshore rigs were under bareboat charter A bareboat charter is an arrangement for the hiring of a boat, whereby no crew or provisions are included as party of the agreement; instead, the people who rent the boat from the owner are responsible for taking care of such things. 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 See information visualization. in the oil and gas industry through the introduction of GeoViz* software and the Alternate Realities Corporation's VisionDome** 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 Wireline Logging consists of measuring and recording the physical properties of the rocks in oil wells. "Logging" consists of introducing sensors in a borehole via a "wireline", an electromechanical cable. 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 Seismic Analysis or Earthquake Engineering is a subset of structural analysis and is the calculation of the response of a building (or nonbuilding) structure to earthquakes. 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 American Champion Aircraft Corporation, located in Rochester, Wisconsin, is a manufacturer of general aviation aircraft. Founded in 1988 on the acquisition of the Citabria, Scout, and Decathlon, it has been producing replacement parts for these aircraft since that time; it has as ) successfully completed 10-streamer operations in the North Sea before joining Geco Topaz on a 7500-km2 [3000-mi2] project offshore West Africa West Africa A region of western Africa between the Sahara Desert and the Gulf of Guinea. It was largely controlled by colonial powers until the 20th century. West African adj. & n. . Among the notable innovations in Schlumberger drilling services, Schlumberger successfully ran the first RAPIDAccess* 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* 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* 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* 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 Equatorial Guinea (gĭn`ē), officially Republic of Equatorial Guinea, republic (2005 est. pop. 536,000), 10,830 sq mi (28,051 sq km), W central Africa. , 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 CTD 1 Connective tissue disease, see there 2 Cumulative trauma disorder, see there ) Group provides expertise to furnish oil & gas companies with enhanced and more fully integrated CTD solutions. During the quarter, the MaxPro* 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* 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 The operating speed of a road is the speed at which motor vehicles generally operate on that road. The precise definition of "operating speed", however, is open to debate. and smller, 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%. The growth in smart cards Example of widely used contactless smart cards are Hong Kong's Octopus card, Paris' Calypso/Navigo card and Lisbon' LisboaViva card, which predate the ISO/IEC 14443 standard. The following tables list smart cards used for public transportation and other electronic purse applications. was attributable to a sales increase of 22% for cellular phone SIM (subscriber identity module (telecommunications, wireless communications) Subscriber Identity Module - (SIM or "SIM card") A component, usually in the form of a miniature smart-card, that is theoretically tamper-proof and is used to associate a mobile subscriber with a mobile network subscription. ) cards and a 50% increase for banking and financial cards. Regionally, North American card sales improved 41%, while European and Asian sales both grew 8%. During the quarter, Schlumberger became the number one producer of smart cards. Compared with last year, Parking and Mass Transit mass transit, public transportation systems designed to move large numbers of passengers. Types and Advantages Mass transit refers to municipal or regional public shared transportation, such as buses, streetcars, and ferries, open to all on a Systems rose 25%, following the successful introduction of the new Stelio* parking system. Automated Test Equipment (ATE) revenue decreased 22% 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* flip-chip optical probe system. Consistent with the current business cycle, initiatives have been launched to reduce operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , 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% compared with the third quarter of 1997. Europe was down 4%, largely due to the lower activity in France caused by the ongoing shift from electromechanical The use of electricity to run moving parts. Disk drives, printers and motors are examples. Electromechanical systems must be designed for the eventual deterioration of moving components that wear over time. The first TVs were electromechanical systems (see video/TV history). to electronic products in the local electricity market, reduced purchases by domestic water utilities and a decline in export shipments to the CIS Cis (sĭs), same as Kish (1.) (1) (CompuServe Information Service) See CompuServe. (2) (Card Information S and Asia. Germany was down significantly due to a 60% drop in the industrial gas business, lower sales of gas pressure regulators and price reductions in the heat and water businesses. Asia fell 49% on lower shipments across all countries. North America dropped 6% due to a reduced electricity networking market and uncertainties related to electricity deregulation Deregulation The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. Notes: Traditional areas that have been deregulated are the telephone and airline industries. in the US. Orders decreased 11% against last year. Europe was negatively affected by a decline in UK activity. Asian orders fell 58% due to the shrinkage of local markets. North American orders were lower by 15%, reflecting the phaseout phase·out n. A gradual discontinuation. of the construction service business and the weakened market for major product lines. During the quarter, the new QUANTUM* Q1000 high-end electrical meter was introduced with initial shipments made to Electricite de France (EDF (algorithm) EDF - earliest deadline first. ). 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 South Australia, state (1991 pop. 1,236,623), 380,070 sq mi (984,381 sq km), S central Australia. It is bounded on the S by the Indian Ocean. Kangaroo Island and many smaller islands off the south coast are included in the state. water utility to meet their metering requirements. In South Africa South Africa, Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S 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 (1) (Record Management Services) A file management system used in VAXs. (2) (Root Mean Square) A method used to measure electrical output in volts and watts. 1. RMS - Record Management Services. 2. ) business signed agreements in Europe and North America with Itron, Inc. for the mutual licensing and distribution of Automatic Meter Reading Automatic meter reading, or AMR, is the technology of automatically collecting data from water meter or energy metering devices (water, gas, electric) and transferring that data to a central database for billing and/or analyzing. (AMR (1) (Adaptive Multi-Rate) A variable rate speech codec selected by the 3GPP for the 3G evolution of the GSM cellphone system (WCDMA). Using the Algebraic CELP (ACELP) compression technology, AMR provides toll quality sound at transmission rates from 4.75 to 12. ) 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:
(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
(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 Forex See: Foreign exchange semisubmersibles Drillstar and Sedco Explorer were sold to a newly formed venture in which Schlumberger has a 25% 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: http://www.slb.com/ *Mark of Schlumberger ** VisionDome is a mark of Alternate Realities Corporation (ARC) |
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