SCHLUMBERGER NET LOSS $2.16 BLN
Schlumberger Second-Quarter 2016 Results
Revenue of $7.2 billion increased 10% sequentially
- Acquisition of Cameron contributed revenue of $1.5 billion
- GAAP loss per share of $1.56
- Excluding charges and credits, EPS of $0.23
- Asset impairment, workforce reduction, and merger and integration charges totaled $1.79 per share
- Cash Flow:
- Cash flow from operations of $1.6 billion
- Free cash flow of $0.9 billion
- Quarterly cash dividend of $0.50 per share approved
|(Stated in millions, except per share amounts)|
|Three Months Ended||Change|
|Jun. 30, 2016||Mar. 31, 2016||Jun. 30, 2015||Sequential||Year-on-year|
|Pretax operating income||$747||$901||$1,708||-17%||-56%|
|Pretax operating margin||10.4%||13.8%||19.0%||-340 bps||-854 bps|
|Net income (loss) (GAAP basis)||$(2,160)||$501||$1,124||-531%||-292%|
|Net income, excluding charges and credits*||$316||$501||$1,124||-37%||-72%|
|Diluted EPS (loss per share) (GAAP basis)||$(1.56)||$0.40||$0.88||-490%||-278%|
|Diluted EPS, excluding charges and credits*||$0.23||$0.40||$0.88||-43%||-74%|
|*These are non-GAAP financial measures. See section entitled "Charges & Credits" for details.
**Total revenue excluding the effects of the Cameron acquisition, which closed on April 1, 2016, declined 14% sequentially and 38% year-on-year.
Schlumberger Chairman and CEO Paal Kibsgaard commented, "In the second quarter market conditions worsened further in most parts of our global operations, but in spite of the continuing headwinds we now appear to have reached the bottom of the cycle. As we continued to navigate this challenging environment, we again delivered robust pretax operating income, operating margin, and free cash flow. This performance came as a result of our strong execution and, in some cases, at the expense of revenue as we began shifting focus onto recovering our pricing concessions and high-grading our contract portfolio.
"Our second-quarter revenue increased 10% sequentially, reflecting a full quarter of activity from the acquired Cameron businesses that contributed $1.5 billion in revenue. On a pro forma basis, revenue decreased 12% sequentially with North America falling 20% due to the Canadian spring break-up and a 25% drop in the US land rig count, while international revenue decreased 9% due to weaker activity, continued pricing pressure, and a large-scale cutback in our operations in Venezuela. However, our wide geographical footprint and broad technology portfolio continued to offer unique advantages that helped to mitigate these effects.
"Among the business segments, second-quarter revenues from the Reservoir Characterization and Production Groups declined sequentially by 9% and 11%, respectively, on continued lower demand for exploration- and development-related products and services as E&P budgets were further reduced. Drilling Group revenue fell by 18%, impacted by the steep drop in rig count, particularly in North and Latin America. Cameron Group revenue decreased 6% sequentially on a pro forma basis due to declining project backlog and a further slowdown in activity in US land that impacted the short-cycle businesses.
"Pretax operating margin was maintained above 10% after a sequential drop of 340 basis points due to lower activity, pricing headwinds, an unfavorable activity mix and the significant reduction of our operations in Venezuela. Decremental operating margin on a sequential pro forma basis was limited to 38% as a result of solid cost and resource management while we continued to maintain our long-term capability. The margin decrease has been highest in the Drilling Group, where margin contracted by 649 bps to 8%. Sequentially, Production Group pretax operating margin fell 459 bps to 4%, Reservoir Characterization Group decreased 228 bps to 17%, and the Cameron Group posted a margin of 16%. Diluted earnings per share of $0.23, excluding charges and credits, was 43% lower sequentially.
"As a result of the weakness in activity that will persist through 2016 as expected, we have made another significant adjustment to our cost and resource base, including the release of more than 16,000 employees during the first half of 2016 and a further streamlining of our overhead, infrastructure, and asset base. This has led to $646 million in restructuring charges in the second quarter for the reduction in our workforce, as well as a non-cash $1.9 billion impairment charge for fixed assets, inventory, and multiclient seismic data. We also recognized $335 million in merger and integration charges relating to the Cameron acquisition.
"As the downturn has developed, we have changed our focus from managing decremental margins to further strengthening market share where we have seen a significant increase in our tender wins. As oil prices have nearly doubled from their lows of January 2016, we are now shifting our focus to recover the temporary pricing concessions that have been made, and to renegotiate contracts with limited promise of longer-term financial viability.
"At the same time, the effects of the cuts that we have seen in E&P spending are now clearly visible in falling oil production, and with demand remaining strong, we are heading more rapidly towards an increasing negative gap between global supply and demand for oil. This will require significant capability and capacity to reverse, and without pricing recovery the service industry will be challenged to deliver.
"As we have navigated this downturn, we have made a series of moves that position us well for the inevitable market recovery. Our balance sheet remains strong in spite of the investments we have made in our business and the cash that we have returned to our shareholders. We have expanded our technology portfolio, not only by the major acquisition of Cameron International, but also by a series of smaller acquisitions that are enabling the development of new integrated drilling and production technologies that will further lower cost per barrel. And we have leveraged the opportunities of transformation to create significant competitive advantage and steadily improve our intrinsic performance.
"Whatever shape the recovery takes, service pricing must rise while respecting the need for operators to control their costs in what will likely be a medium-for-longer oil price environment. This provides an opportunity to share the additional value that can be mutually created through collaboration and integration. We will therefore continue to develop the way in which we operate as a company as well as the nature of the work that we undertake, making sure we remain at the forefront of an industry that increasingly needs fundamental change."
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IMF - Within the next few years, the U.S. economy is expected to enter its longest expansion in recorded history. The Tax Cuts and Jobs Act and the approved increase in spending are providing a significant boost to the economy. We forecast growth of close to 3 percent this year but falling from that level over the medium-term. In my discussions with Secretary Mnuchin he was clear that he regards our medium-term outlook as too pessimistic. Frankly, I hope he is right. That would be good for both the U.S. and the world economy.
IMF - The near-term outlook for the U.S. economy is one of strong growth and job creation. Unemployment is already near levels not seen since the late 1960s and growth is set to accelerate, aided by a near-term fiscal stimulus, a welcome recovery of private investment, and supportive financial conditions. These positive outturns have supported, and been reinforced by, a favorable external environment with a broad-based pick up in global activity. Next year, the U.S. economy is expected to mark the longest expansion in its recorded history. The balance of evidence suggests that the U.S. economy is beyond full employment.
U.S. FRB - Industrial production edged down 0.1 percent in May after rising 0.9 percent in April. Manufacturing production fell 0.7 percent in May, largely because truck assemblies were disrupted by a major fire at a parts supplier. Excluding motor vehicles and parts, factory output moved down 0.2 percent. The index for mining rose 1.8 percent, its fourth consecutive month of growth; the output of utilities moved up 1.1 percent. At 107.3 percent of its 2012 average, total industrial production was 3.5 percent higher in May than it was a year earlier. Capacity utilization for the industrial sector decreased 0.2 percentage point in May to 77.9 percent, a rate that is 1.9 percentage points below its long-run (1972–2017) average.
IMF - South Africa’s potential is significant, yet growth over the past five years has not benefitted from the global recovery. The economy is globally positioned, sophisticated, and diversified, and several sectors—agribusiness, mining, manufacturing, and services—have capacity for expansion. Combined with strong institutions and a young workforce, opportunities are vast. However, several constraints have held growth back. Policy uncertainty and a regulatory environment not conducive to private investment have resulted in GDP growth rates that have not kept up with those of population growth, reducing income per capita, and hurting disproportionately the poor.