UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No.: 1-4601
Schlumberger N.V. (Schlumberger Limited)
(Exact name of registrant as specified in its charter)
Curaçao
52-0684746
(State or other jurisdiction ofincorporation or organization)
(IRS EmployerIdentification No.)
42 rue Saint-Dominique
Paris, France
75007
5599 San Felipe
Houston, Texas, United States of America
77056
62 Buckingham Gate
London, United Kingdom
SW1E 6AJ
Parkstraat 83
The Hague, The Netherlands
2514 JG
(Addresses of principal executive offices)
(Zip Codes)
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:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
common stock, par value $0.01 per share
SLB
New York Stock Exchange
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 (§232.405 of this chapter) 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, a 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.
Large accelerated filer
☒
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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.
Class
Outstanding at September 30, 2023
COMMON STOCK, $0.01 PAR VALUE PER SHARE
1,423,420,641
SCHLUMBERGER LIMITED
Third Quarter 2023 Form 10-Q
Table of Contents
Page
PART I
Financial Information
Item 1.
Financial Statements
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
21
Item 4.
Controls and Procedures
PART II
Other Information
Legal Proceedings
22
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Item 6.
Exhibits
23
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SCHLUMBERGER LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Stated in millions, except per share amounts)
Third Quarter
Nine Months
2023
2022
Revenue
Services
$
5,719
5,153
16,616
14,109
Product sales
2,591
2,324
7,529
6,104
Total Revenue
8,310
7,477
24,145
20,213
Interest & other income
73
75
247
436
Expenses
Cost of services
4,360
3,975
12,777
11,082
Cost of sales
2,232
2,067
6,601
5,541
Research & engineering
186
160
524
456
General & administrative
81
94
268
277
Interest
129
122
373
369
Income before taxes
1,395
1,134
3,849
2,924
Tax expense
259
215
722
514
Net income
1,136
919
3,127
2,410
Net income attributable to noncontrolling interests
13
12
36
33
Net income attributable to SLB
1,123
907
3,091
2,377
Basic income per share of SLB
0.79
0.64
2.17
1.68
Diluted income per share of SLB
0.78
0.63
2.14
1.65
Average shares outstanding:
Basic
1,424
1,418
1,414
Assuming dilution
1,442
1,439
1,436
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Stated in millions)
Currency translation adjustments
Unrealized net change arising during the period
(46
)
(18
(123
92
Cash flow hedges
Net gain (loss) on cash flow hedges
24
45
96
(53
Reclassification to net income of net realized (gain) loss
(2
30
(16
103
Pension and other postretirement benefit plans
Amortization to net income of net actuarial (gain) loss
(6
46
Amortization to net income of net prior service credit
(17
Income taxes on pension and other postretirement benefit plans
2
1
5
Comprehensive income
1,106
987
3,066
2,584
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to SLB
1,093
975
3,030
2,551
4
CONSOLIDATED BALANCE SHEET
Sept. 30,
Dec. 31,
ASSETS
Current Assets
Cash
2,488
1,655
Short-term investments
1,247
1,239
Receivables less allowance for doubtful accounts (2023 - $347; 2022 - $340)
8,049
7,032
Inventories
4,305
3,999
Other current assets
949
1,078
17,038
15,003
Investments in Affiliated Companies
1,622
1,581
Fixed Assets less accumulated depreciation
6,875
6,607
Goodwill
13,111
12,982
Intangible Assets
2,912
2,992
Other Assets
4,255
3,970
45,813
43,135
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued liabilities
9,222
9,121
Estimated liability for taxes on income
935
1,002
Short-term borrowings and current portion of long-term debt
1,998
1,632
Dividends payable
263
12,528
12,018
Long-term Debt
11,147
10,594
Postretirement Benefits
166
165
Deferred Taxes
157
61
Other Liabilities
2,108
2,308
26,106
25,146
Equity
Common stock
11,182
11,837
Treasury stock
(621
(1,016
Retained earnings
12,742
10,719
Accumulated other comprehensive loss
(3,917
(3,855
SLB stockholders’ equity
19,386
17,685
Noncontrolling interests
321
304
19,707
17,989
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30,
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of Liberty shares
(36
(242
Gain on sale of real estate
-
(43
Depreciation and amortization (1)
1,703
1,598
Deferred taxes
Stock-based compensation expense
218
236
Earnings of equity method investments, less dividends received
(120
(52
Change in assets and liabilities: (2)
Increase in receivables
(1,003
(1,302
Increase in inventories
(334
(849
Decrease (increase) in other current assets
107
(144
Decrease (increase) in other assets
(40
(Decrease) increase in accounts payable and accrued liabilities
(10
475
(Decrease) increase in estimated liability for taxes on income
(113
6
Decrease in other liabilities
(65
Other
50
NET CASH PROVIDED BY OPERATING ACTIVITIES
3,615
2,106
Cash flows from investing activities:
Capital expenditures
(1,345
(1,046
APS investments
(391
(420
Exploration data costs capitalized
(121
(77
Business acquisitions and investments, net of cash acquired
(280
(45
Proceeds from sale of Liberty shares
137
513
Proceeds from sale of real estate
120
Purchase of short-term investments, net
(12
(55
(251
(106
NET CASH USED IN INVESTING ACTIVITIES
(2,263
(1,116
Cash flows from financing activities:
Dividends paid
(961
(600
Proceeds from employee stock purchase plan
191
142
Proceeds from exercise of stock options
85
29
Stock repurchase program
(594
Proceeds from issuance of long-term debt
992
Net decrease in short-term borrowings
(13
Taxes paid on net settled stock-based compensation awards
(162
(92
(11
(4
NET CASH USED IN FINANCING ACTIVITIES
(503
(538
Net increase in cash before translation effect
849
452
Translation effect on cash
(29
Cash, beginning of period
1,757
Cash, end of period
2,180
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Accumulated
Common Stock
Retained
Comprehensive
Noncontrolling
January 1, 2023 – September 30, 2023
Issued
In Treasury
Earnings
Loss
Interests
Total
Balance, January 1, 2023
$11,837
$(1,016)
$10,719
$(3,855)
$304
$17,989
(123)
Changes in fair value of cash flow hedges
80
(18)
Shares sold to optionees, less shares exchanged
(53)
138
Vesting of restricted stock, net of taxes withheld
(657)
495
(162)
Employee stock purchase plan
352
190
(594)
Dividends declared ($0.75 per share)
(1,068)
Dividends paid to noncontrolling interests
(20)
(1)
Balance, September 30, 2023
$11,182
$(621)
$12,742
$(3,917)
$321
$19,707
January 1, 2022 – September 30, 2022
Balance, January 1, 2022
$12,608
$(2,233)
$8,199
$(3,570)
$282
$15,286
32
(24)
53
(730)
638
(92)
(222)
364
Dividends declared ($0.475 per share)
(672)
Dividends paid to noncontrolling interest
(4)
Balance, September 30, 2022
$11,867
$(1,176)
$9,904
$(3,396)
$312
$17,511
July 1, 2023 – September 30, 2023
Balance, July 1, 2023
$11,270
$(750)
$11,974
$(3,886)
$326
$18,934
(46)
(6)
(22)
69
47
(84)
66
(39)
143
104
(151)
58
Dividends declared ($0.25 per share)
(355)
(373)
7
July 1, 2022– September 30, 2022
Balance, July 1, 2022
$11,981
$(1,436)
$9,244
$(3,464)
$300
$16,625
11
(72)
65
(7)
(118)
196
78
76
Dividends declared ($0.175 per share)
(248)
SHARES OF COMMON STOCK
Shares
Outstanding
1,434
(14
1,420
Vesting of restricted stock
Shares issued under employee stock purchase plan
1,423
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Schlumberger Limited and its subsidiaries (“SLB”) 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 SLB 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 nine-month period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023. The December 31, 2022 balance sheet information has been derived from the SLB 2022 audited financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto included in the SLB Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on January 25, 2023.
2. Charges and Credits
On December 31, 2020, SLB 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 2023, SLB sold all of its remaining approximately 9 million shares of Liberty and received net proceeds of $137 million. As a result, SLB recognized a pretax gain of $36 million ($28 million after-tax) which is classified in Interest & other income in the Consolidated Statement of Income.
SLB did not record any charges or credits during the third quarter of 2023.
SLB recorded the following credits during the first nine months of 2022, all of which are classified in Interest & other income in the Consolidated Statement of Income:
Pretax Credit
Tax Expense
Net
First quarter:
26
Second quarter:
216
203
43
41
285
19
266
During the first quarter of 2022, SLB sold 7.2 million of its shares of Liberty and received proceeds of $84 million. During the second quarter of 2022, SLB sold an additional 26.5 million of its shares in Liberty and received proceeds of $429 million. As a result of these transactions SLB recognized a gain of $26 million during the first quarter of 2022 and a gain of $216 million during the second quarter of 2022.
During the second quarter of 2022, SLB sold certain real estate and received proceeds of $120 million. As a result of this transaction, SLB recognized a gain of $43 million.
9
3. Earnings per Share
The following is a reconciliation from basic earnings per share of SLB to diluted earnings per share of SLB:
Net IncomeAttributableto SLB
Average SharesOutstanding
Earnings perShare
Assumed exercise of stock options
Unvested restricted stock
Diluted
The number of outstanding options to purchase shares of SLB 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:
Employee stock options
37
31
4. Inventories
A summary of inventories, which are stated at the lower of average cost or net realizable value, is as follows:
Raw materials & field materials
2,316
2,085
Work in progress
612
547
Finished goods
1,377
1,367
5. Fixed Assets
Fixed assets consist of the following:
Property, plant & equipment
28,946
28,386
Less: Accumulated depreciation
22,071
21,779
Depreciation expense was as follows:
10
365
343
1,065
1,021
6. Intangible Assets
Intangible assets consist of the following:
Sept. 30, 2023
Dec. 31, 2022
Gross
Net Book
Book Value
Amortization
Value
Customer relationships
1,708
687
1,680
631
1,049
Technology/technical know-how
1,304
742
562
1,280
676
604
Tradenames
795
256
539
767
222
545
1,727
937
790
1,657
863
794
5,534
2,622
5,384
2,392
Amortization expense was as follows:
231
226
Based on the carrying value of intangible assets at September 30, 2023, amortization expense for the subsequent five years is estimated to be: fourth quarter of 2023—$79 million; 2024—$301 million; 2025—$278 million; 2026—$272 million; 2027—$269 million; and 2028—$248 million.
7. Long-term Debt
Long-term Debt consists of the following:
3.90% Senior Notes due 2028
1,470
1,464
2.65% Senior Notes due 2030
1,250
1.375% Guaranteed Notes due 2026
1,054
1,061
2.00% Guaranteed Notes due 2032
1,047
1,055
0.25% Notes due 2027
948
955
0.50% Notes due 2031
947
954
4.30% Senior Notes due 2029
847
1.00% Guaranteed Notes due 2026
635
0.00% Notes due 2024
528
531
4.00% Senior Notes due 2025
523
522
1.40% Senior Notes due 2025
499
4.50% Senior Notes due 2028
497
4.85% Senior Notes due 2033
496
7.00% Notes due 2038
200
202
5.95% Notes due 2041
112
5.13% Notes due 2043
98
3.75% Senior Notes due 2024
355
3.70% Notes due 2024
54
During the second quarter of 2023 SLB issued $500 million of 4.50% Senior Notes due 2028 and $500 million of 4.85% Senior Notes due 2033.
The estimated fair value of SLB’s Long-term Debt, based on quoted market prices at September 30, 2023 and December 31, 2022, was $10.0 billion and $9.4 billion, respectively.
At September 30, 2023, SLB had committed credit facility agreements aggregating $5.75 billion with commercial banks. 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. SLB also has a €750 million three-year committed revolving credit facility maturing in June 2024. At September 30, 2023 no amounts had been drawn under these facilities. 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 September 30, 2023 and December 31, 2022, respectively.
Schlumberger Limited fully and unconditionally guarantees the securities issued by certain of its subsidiaries, including securities issued by Schlumberger Investment S.A. and Schlumberger Finance Canada Ltd., both indirect wholly-owned subsidiaries of Schlumberger Limited.
8. Derivative Instruments and Hedging Activities
SLB’s functional currency is primarily the US dollar. However, outside the United States, a significant portion of SLB’s expenses is incurred in foreign currencies. Therefore, when the US dollar weakens (strengthens) in relation to the foreign currencies of the countries in which SLB conducts business, the US dollar-reported expenses will increase (decrease).
SLB is exposed to risks on future cash flows relating to its fixed rate debt denominated in currencies other than the functional currency. SLB uses cross-currency interest rate swaps to provide a hedge against these risks. These contracts are accounted for as cash flow hedges, with the fair value of the derivative 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.
Details regarding SLB’s outstanding cross-currency interest rate swaps as of September 30, 2023, were as follows:
A summary of the amounts included in the Consolidated Balance Sheet relating to cross currency interest rate swaps was as follows:
241
326
The fair values were determined using a model with inputs that are observable in the market or can be derived or corroborated by observable data.
SLB has entered into derivative contracts that hedge the price of oil related to approximately 75% of the projected oil production for the fourth quarter of 2023 and the first half of 2024; approximately 50% for the third quarter of 2024; and 25% for the fourth quarter of 2024 for one of its Asset Performance Solutions ("APS") projects. These contracts are accounted for as cash flow hedges, with changes in the
fair value of the hedge recorded 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.
SLB 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. SLB 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.
SLB is also exposed to changes in the fair value of assets and liabilities denominated in currencies other than the functional currency. While SLB 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 derivative 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.
Foreign currency forward contracts were outstanding for the US dollar equivalent of $2.3 billion and $2.1 billion in various foreign currencies as of September 30, 2023 and December 31, 2022, respectively.
Other than the previously mentioned cross-currency interest rate swaps, the fair value of the other outstanding derivatives was not material as of September 30, 2023 and December 31, 2022.
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:
Gain (Loss) Recognized in Income
Consolidated Statement of Income Classification
Derivatives designated as cash flow hedges:
Cross-currency interest rate swaps
(159
(362
(27
(653
Cost of services/sales
(22
(66
Interest expense
Commodity contracts
(5
(20
(85
Foreign exchange contracts
14
(179
(392
(755
Derivatives not designated as hedges:
(21
(30
9. Contingencies
SLB 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
Third Quarter 2023
Third Quarter 2022
Income
Before Taxes
Digital & Integration
982
314
900
305
Reservoir Performance
344
1,456
244
Well Construction
3,430
759
3,084
664
Production Systems
2,367
319
2,150
224
Eliminations & other
(149
(37
Pretax segment operating income
1,683
1,400
Corporate & other (1)
(182
(155
Interest income (2)
20
Interest expense (3)
(126
(119
Nine Months 2023
Nine Months 2022
2,822
901
2,713
976
4,826
892
598
10,052
2,162
8,168
1,522
6,888
802
5,647
509
(443
(102
(314
(151
4,655
3,454
(536
(468
57
(363
(360
Charges and credits (4)
Revenue by geographic area was as follows:
North America
1,643
1,543
5,086
4,362
Latin America
1,681
1,508
4,923
4,042
Europe & Africa (1)
2,091
2,039
6,095
5,134
Middle East & Asia
2,842
2,334
7,877
6,525
164
150
North America and International revenue disaggregated by segment was as follows:
North
America
International
242
737
125
1,554
663
2,707
60
626
1,740
(124
6,614
229
671
119
1,335
621
2,406
578
1,569
(100
(9
5,881
727
375
4,446
2,095
7,782
175
1,931
4,943
(42
(367
(34
18,895
781
1,928
333
3,661
1,659
6,354
155
1,601
4,037
(279
(23
15,701
Revenue in excess of billings related to contracts where revenue is recognized over time was $0.2 billion at September 30, 2023 and $0.3 billion at December 31, 2022. Such amounts are included within Receivables less allowance for doubtful accounts in the Consolidated Balance Sheet.
Due to the nature of its business, SLB does not have significant backlog. Total backlog was $3.2 billion at September 30, 2023, of which approximately 60% is expected to be recognized as revenue over the next 12 months.
Billings and cash collections in excess of revenue was $1.3 billion at September 30, 2023 and $1.2 billion at December 31, 2022. Such amounts are included within Accounts payable and accrued liabilities in the Consolidated Balance Sheet.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This section of the Form 10-Q discusses third-quarter 2023 results of operations with comparisons to the second-quarter 2023, as well as the first nine months of 2023 results of operations with comparisons to the first nine months of 2022. Detailed financial information with respect to second-quarter 2023 can be found in Part I, Item 1, “Financial Statements” of SLB’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023.
Third Quarter 2023 Compared to Second Quarter 2023
Second Quarter 2023
Income Before
Taxes
322
306
3,362
731
2,313
278
(166
(56
(183
8,099
1,293
SLB’s third-quarter 2023 results continue to reflect strong year-to-date performance with revenue growth of 19%. These results were driven by sustained growth in the international markets, where SLB reported its ninth consecutive quarter of double-digit year-on-year revenue growth.
Compared to the same quarter a year ago, international revenue grew 12%, outpacing North America, which increased 6%. Year on year, global third-quarter revenue grew 11% and pretax segment operating margin expanded 153 basis points (bps) to 20%.
Third-quarter 2023 revenue increased 3% sequentially—by more than $200 million—driven by the Middle East & Asia, which increased 8% in the quarter and continues to demonstrate positive investment momentum. Our strong quarterly performance was propelled by broad-based growth across Saudi Arabia, the United Arab Emirates, Indonesia, China, Malaysia, Kuwait, and Oman.
Third-quarter 2023 pretax segment operating margin expanded 73 bps sequentially.
Looking ahead, SLB believes the market fundamentals remain very compelling for its business. The oil and gas industry continues to benefit from a multiyear growth cycle that has shifted to the international and offshore markets where we are the clear leader. Concurrently, upstream spending is accelerating as operators continue to invest in long-cycle developments, production capacity expansions, exploration and appraisal, and enhanced gas production. The long-term nature of these global investments underscores the breadth, durability, and resilience of this cycle, and SLB expects these market dynamics to continue to drive profitable growth in the years ahead.
Digital & Integration revenue of $982 million increased 4% sequentially due to increased Asset Performance Solutions ("APS") revenue in Ecuador and increased digital revenue, which includes higher exploration data sales in Angola, the US Gulf of Mexico, and Malaysia.
Digital & Integration pretax operating margin of 32% contracted 200 bps sequentially due to lower profitability in APS, more than offsetting improved digital margins.
Reservoir Performance revenue of $1.68 billion grew 2% sequentially primarily due to increased evaluation and stimulation activity internationally. More than 70% of the revenue growth came from Europe & Africa, mainly in offshore Angola, Namibia, and the United Kingdom. Strong growth was also achieved in Saudi Arabia from robust stimulation activity.
Reservoir Performance pretax operating margin of 20% expanded 190 bps sequentially. This increase was primarily driven by higher activity, pricing, and improved operating leverage across evaluation and stimulation.
Well Construction revenue of $3.43 billion increased 2% sequentially led by strong growth in the Middle East & Asia, which was partially offset by lower revenue in North America, which declined 8%.
Well Construction pretax operating margin of 22% expanded 38 bps sequentially driven by the international markets, mainly in Europe & Africa and the Middle East & Asia.
Production Systems revenue of $2.37 billion increased 2% sequentially primarily driven by strong sales of completions, artificial lift, and surface production systems. Strong international sequential revenue growth of 7% was led by the Middle East & Asia, with double-digit growth, followed by Latin America. North America revenue declined 8% due to lower subsea activity.
Production Systems pretax operating margin expanded 147 bps sequentially to 13%. The expansion was driven primarily by higher sales of completions, artificial lift, and surface production systems.
Nine Months 2023 Compared to Nine Months 2022
Before
Nine-month 2023 revenue of $24.15 billion increased 19% year on year led by Well Construction and Production Systems. On a geographic basis, year-on-year revenue growth was broad-based with North America revenue increasing 17% due to strong land and offshore drilling and higher sales of production systems, while international revenue grew 20%. International growth was widespread across all areas, led by the Middle East & Asia, which grew 21% due to higher drilling and intervention activity. Europe & Africa grew 19% primarily from higher sales of production systems in Europe and increased activity in offshore Africa, while Latin America revenue increased 22% due to robust drilling activity and higher sale of production systems.
Nine-month 2023 pretax segment operating margin of 19% expanded by 219 bps as compared to the same period last year driven by higher activity, improved pricing, and a more favorable activity mix.
Nine-month 2023 revenue of $2.82 billion increased 4% year on year, as strong growth in digital sales were largely offset by lower revenue in APS projects and decreased exploration data licensing sales. The APS revenue decline resulted primarily from a temporary production interruption in the projects in Ecuador during the first quarter of 2023 due to a pipeline disruption and lower commodity prices that impacted
17
the project in Canada. The lower exploration data licensing sales were driven by the absence of the $95 million of transfer fees recorded in the second quarter of 2022.
Year on year, pretax segment operating margin contracted 405 bps to 32% primarily due to the lower revenue from exploration data licenses and reduced profitability from APS projects.
Nine-month 2023 revenue of $4.83 billion increased 21% year on year due primarily to increased activity internationally.
Year on year, pretax segment operating margin expanded 352 bps to 18% primarily due to higher activity levels and improved pricing.
Nine-month 2023 revenue of $10.05 billion increased 23% year on year with double-digit growth across all areas. North America grew 26% while international revenue increased 22% This growth was driven by drilling fluids and measurements—both on higher land and offshore activity—along with improved pricing.
Year on year, pretax segment operating margin expanded 286 bps to 22% with profitability improving across all geographic areas driven by the higher activity and improved pricing.
Nine-month 2023 revenue of $6.89 billion increased 22% driven by strong growth across all areas led by Latin America and the Middle East & Asia.
Year on year, pretax segment operating margin expanded 263 bps to 12% mainly driven by higher artificial lift, surface production system, and subsea production system sales, improved pricing, and the easing of supply chain constraints.
Interest and Other Income
Interest & other income consisted of the following:
Second Quarter
Earnings of equity method investments
51
63
152
Interest income
59
82
Earnings of equity method investments for the first nine months of 2023 increased $67 million as compared to the same period of 2022 driven primarily by increased profitability of certain seismic-related investments.
Research & engineering and General & administrative expenses, as a percentage of Revenue, for the third quarter and second quarter of 2023 and the first nine months of 2023 and 2022 were as follows:
Third
Second
Quarter
2.2
%
2.0
2.3
1.0
1.2
1.1
1.4
The effective tax rate was 19.0% for both the third and second quarters of 2023.
The effective tax rate for the first nine months of 2023 was 19%, as compared to 18% for the same period of 2022. The increase in the effective tax rate was primarily due to the credits described in Note 2 to the Consolidated Financial Statements, which lowered the effective tax rate during the first nine months of 2022 by one percentage point.
Charges and Credits
On December 31, 2020, SLB 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 in exchange for an equity interest in Liberty. During the first
18
quarter of 2023, SLB sold all of its remaining approximately 9 million shares of Liberty and received net proceeds of $137 million. As a result, SLB recognized a pretax gain of $36 million ($28 million after-tax) which is classified in Interest & other income in the Consolidated Statement of Income.
SLB recorded the following credits during the first nine months of 2022, all of which are classified in Interest & other income in the Consolidated Statement of Income.
Liquidity and Capital Resources
Details of the components of liquidity as well as changes in liquidity are as follows:
Components of Liquidity:
1,429
(1,998
(899
(1,632
Long-term debt
(11,147
(12,452
(10,594
Net debt (1)
(9,410
(9,742
(9,332
Nine Months Ended Sept. 30,
Changes in Liquidity:
Depreciation and amortization (2)
Increase in working capital
(1,353
(1,814
Cash flow from operations
Free cash flow (3)
1,758
563
Proceeds from employee stock plans
Proceeds from stock options
(272
(118
(Increase) decrease in net debt before impact of changes in foreign exchange rates
(98
512
Impact of changes in foreign exchange rates on net debt
(Increase) decrease in net debt
(78
1,314
Net debt, beginning of period (1)
(11,056
Net debt, end of period (1)
Key liquidity events during the first nine months of 2023 and 2022 included:
As of September 30, 2023, SLB had $3.74 billion of cash and short-term investments on hand and committed debt facility agreements with commercial banks aggregating $6.54 billion, all of which was available and unused. SLB believes these amounts are sufficient to meet future business requirements for at least the next 12 months and beyond.
There were no borrowings under SLB's commercial paper programs at September 30, 2023.
SLB has a global footprint in more than 100 countries. As of September 30, 2023, only four of those countries individually accounted for greater than 5% of SLB’s net receivable balance. Two of these countries, the United States and Mexico, each represented greater than 10% of such receivables.
Included in Receivables, less allowance for doubtful accounts in the Consolidated Balance Sheet as of September 30, 2023 was approximately $1.2 billion of receivables relating to Mexico. SLB’s receivables from its primary customer in Mexico are not in dispute and SLB has not historically had any material write-offs due to uncollectible accounts receivable relating to this customer.
Additional Information
On October 2, 2023, SLB, Aker Solutions and Subsea7 closed their previously announced joint venture. The new business, OneSubsea, will drive innovation and efficiency in subsea production by helping customers unlock reserves and reduce cycle time. OneSubsea now comprises SLB’s and Aker Solution’s subsea businesses, which include an extensive complementary subsea production and processing technology portfolio, world-class manufacturing scale and capacity, access to industry-leading reservoir and digital domain expertise, unique pore-to-process integration capabilities, and strengthened research and development capabilities.
In addition to contributing its subsea business to the joint venture, at closing SLB issued to Aker Solutions 5.1 million shares of SLB common stock valued at $306.5 million. Concurrently, Subsea7 purchased its 10% interest in exchange for $306.5 million in cash to Aker Solutions. The joint venture also issued a promissory note to Aker Solutions for $87.5 million. SLB owns 70% of the joint venture, and will consolidate it for financial reporting purposes, while Aker Solutions owns 20% and Subsea7 owns 10%.
Aker Solutions reported revenue for its subsea business of approximately $1.5 billion for the year ended December 31, 2022 and $0.9 billion for the six months ended June 30, 2023. As this transaction closed subsequent to the end of the third quarter of 2023, the Consolidated Financial Statements do not reflect any amounts relating to the acquired Aker Solutions subsea business. Additionally, because this transaction just recently closed, the initial purchase accounting has not yet been completed.
In March 2022, SLB decided to immediately suspend new investment and technology deployment to its Russia operations. In July 2023, SLB announced that it was halting shipments of products and technology into Russia from all SLB facilities worldwide in response to the continued expansion of international sanctions. This follows SLB’s previous ban on shipments from SLB facilities in the United States, United Kingdom, the European Union and Canada into Russia. Russia represented approximately 5% of SLB’s worldwide revenue during the first nine months of 2023. The carrying value of SLB’s net assets in Russia was approximately $0.7 billion as of September 30, 2023. This consisted of $0.2 billion of receivables, $0.3 billion of fixed assets, $0.5 billion of other assets and $0.3 billion of current liabilities.
SLB continues to actively monitor the dynamic situation in Ukraine and applicable laws, sanctions, and trade control restrictions resulting from the conflict. The extent to which SLB’s operations and financial results 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 laws, sanctions, and trade control restrictions on SLB’s business, the global economy and global supply chains; and the impact of fluctuations in the exchange rate of the ruble. Continuation or escalation of the conflict may also aggravate the risk factors that SLB identified in its Annual Report on Form 10-K for the year ended December 31, 2022, including cybersecurity, regulatory, and reputational risks.
FORWARD-LOOKING STATEMENTS
This third-quarter 2023 Form 10-Q, as well as other statements we make, contains “forward-looking statements” within the meaning of the federal securities laws, which include any statements that are not historical facts. Such statements often contain words such as “expect,” “may,” “can,” “believe,” “predict,” “plan,” “potential,” “projected,” “projections,” “precursor,” “forecast,” “outlook,” “expectations,” “estimate,” “intend,” “anticipate,” “ambition,” “goal,” “target,” “scheduled,” “think,” “should,” “could,” “would,” “will,” “see,” “likely,” and other similar words. Forward-looking statements address matters that are, to varying degrees, uncertain, such as statements about SLB’s financial and performance targets and other forecasts or expectations regarding, or dependent on, its business outlook; growth for SLB as a whole and for each of its Divisions (and for specified business lines, geographic areas or technologies within each Division); oil and natural gas demand and production growth; oil and natural gas prices; forecasts or expectations regarding energy transition and global climate change; improvements in operating procedures and technology; capital expenditures by SLB and the oil and gas industry; the business strategies of SLB, including digital and “fit for basin,” as well as the strategies of SLB’s customers; SLB’s capital allocation plans, including dividend plans and share repurchase programs; SLB’s APS projects, joint ventures, and other alliances; the impact of the ongoing conflict in Ukraine on global energy supply; access to raw materials; future global economic and geopolitical conditions; future liquidity, including free cash flow; 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 and geopolitical conditions; changes in exploration and production spending by SLB’s customers and changes in the level of oil and natural gas exploration and development; the results of operations and financial condition of SLB’s customers and suppliers; SLB’s inability to achieve its financial and performance targets and other forecasts and expectations; SLB’s inability to achieve net-zero carbon emissions goals or interim emissions reduction goals; general economic, geopolitical and business conditions in key regions of the world; the ongoing conflict in Ukraine; foreign currency risk; inflation; changes in monetary policy by governments; pricing pressure; weather and seasonal factors; unfavorable effects of health pandemics; availability and cost of raw materials; operational modifications, delays or cancellations; challenges in SLB’s supply chain; production declines; the extent of future charges; SLB’s inability to recognize efficiencies and other intended benefits from its business strategies and initiatives, such as digital or new energy, as well as its cost reduction strategies; changes in government regulations and regulatory requirements, including those related to offshore oil and gas exploration, radioactive sources, explosives, chemicals 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 Form 10-Q and our most recent Form 10-K and Forms 8-K filed with or furnished to the SEC. 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 results or outcomes may vary materially from those reflected in our forward-looking statements. Forward-looking and other statements in this Form 10-Q regarding our environmental, social, and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking environmental, social, and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. Statements in this Form 10-Q are made as of October 25, 2023, and SLB disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
For quantitative and qualitative disclosures about market risk affecting SLB, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” of the SLB Annual Report on Form 10-K for the fiscal year ended December 31, 2022. SLB’s exposure to market risk has not changed materially since December 31, 2022.
Item 4. Controls and Procedures.
SLB has carried out an evaluation under the supervision and with the participation of SLB’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of SLB’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the CEO and the CFO have concluded that, as of the end of the period covered by this report, SLB’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that SLB files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. SLB’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to its management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure. There was no change in SLB’s internal control over financial reporting during the quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, SLB’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The information with respect to this Item 1 is set forth under Note 9—Contingencies, in the accompanying Consolidated Financial Statements.
Item 1A. Risk Factors.
As of the date of this filing, there have been no material changes from the risk factors disclosed in Part 1, Item 1A, of SLB’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
None.
Issuer Repurchases of Equity Securities
On January 21, 2016, the SLB Board of Directors approved a $10 billion share repurchase program for SLB common stock. As of September 30, 2023, SLB had repurchased $1.6 billion of SLB common stock under this program.
SLB's common stock repurchase activity for the three months ended September 30, 2023 was as follows:
(Stated in thousands, except per share amounts)
Total numberof sharespurchased
Average pricepaid per share
Total numberof sharespurchased aspart of publiclyannounced plans or programs
Maximumvalue of sharesthat may yet bepurchasedunder the plansor programs
July 2023
930.2
54.61
8,478,147
August 2023
999.7
57.97
8,420,189
September 2023
691.1
57.46
8,378,332
2,621.0
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Our mining operations are subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this report.
Item 5. Other Information.
In 2013, SLB completed the wind down of its service operations in Iran. Prior to this, certain non-US subsidiaries provided oilfield services to the National Iranian Oil Company and certain of its affiliates (“NIOC”).
SLB’s residual transactions or dealings with the government of Iran during the third quarter of 2023 consisted of payments of taxes and other typical governmental charges. Certain non-US subsidiaries of SLB maintain depository accounts at the Dubai branch of Bank Saderat Iran (“Saderat”), and at Bank Tejarat (“Tejarat”) in Tehran and in Kish for the deposit by NIOC of amounts owed to non-US subsidiaries of SLB for prior services rendered in Iran and for the maintenance of such amounts previously received. One non-US subsidiary also maintained an account at Tejarat for payment of local expenses such as taxes. SLB anticipates that it will discontinue dealings with Saderat and Tejarat following the receipt of all amounts owed to SLB for prior services rendered in Iran.
Item 6. Exhibits.
Exhibit 3.1—Articles of Incorporation of Schlumberger Limited (Schlumberger N.V.) (incorporated by reference to Exhibit 3.1 to SLB’s Current Report on Form 8-K filed on April 6, 2016)
Exhibit 3.2—Amended and Restated By-Laws of Schlumberger Limited (Schlumberger N.V.) (incorporated by reference to Exhibit 3 to SLB’s Current Report on Form 8-K filed on April 21, 2023)
* (+) Exhibit 10.1—Schlumberger Limited Supplementary Benefit Plan, as established effective June 1, 1995 and conformed to include amendments through January 1, 2023
* (+) Exhibit 10.2—Schlumberger Limited Restoration Savings Plan, as established effective June 1, 1995 and conformed to include amendments through January 1, 2023
* Exhibit 22—Issuers of Registered Guaranteed Debt Securities
* Exhibit 31.1—Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
* Exhibit 31.2—Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
** Exhibit 32.1—Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
** Exhibit 32.2—Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Exhibit 95—Mine Safety Disclosures
* Exhibit 101.INS—Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document
* Exhibit 101.SCH—Inline XBRL Taxonomy Extension Schema Document
* Exhibit 101.CAL—Inline XBRL Taxonomy Extension Calculation Linkbase Document
* Exhibit 101.DEF—Inline XBRL Taxonomy Extension Definition Linkbase Document
* Exhibit 101.LAB—Inline XBRL Taxonomy Extension Label Linkbase Document
* Exhibit 101.PRE—Inline XBRL Taxonomy Extension Presentation Linkbase Document
* Exhibit 104—Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed with this Form 10-Q.
** Furnished with this Form 10-Q.
(+) Management contracts or compensatory plans or arrangements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date:
October 25, 2023
/s/ Howard Guild
Howard Guild
Chief Accounting Officer and Duly Authorized Signatory