XMEX:SLB N Schlumberger NV Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2012

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 of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

42 RUE SAINT-DOMINIQUE  
PARIS, FRANCE   75007
5599 SAN FELIPE, 17th FLOOR  
HOUSTON, TEXAS, U.S.A.   77056
PARKSTRAAT 83  
THE HAGUE,  
THE NETHERLANDS   2514 JG
(Addresses of principal executive offices)   (Zip Codes)

Registrant’s telephone number: (713) 375-3400

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  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

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 June 30, 2012

COMMON STOCK, $0.01 PAR VALUE PER SHARE   1,327,028,158


Table of Contents

SCHLUMBERGER LIMITED

Second Quarter 2012 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

     19   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     28   

Item 4.

  

Controls and Procedures

     28   

PART II

  

Other Information

  

Item 1.

  

Legal Proceedings

     29   

Item 1A.

  

Risk Factors

     29   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     29   

Item 3.

  

Defaults Upon Senior Securities

     29   

Item 4.

  

Mine Safety Disclosures

     29   

Item 5.

  

Other Information

     29   

Item 6.

  

Exhibits

     30   
  

Certifications

  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

 

(Stated in millions, except per share amounts)  
     Second Quarter      Six Months  
     2012      2011      2012      2011  

Revenue

   $ 10,448       $ 8,990       $ 20,366       $ 17,112   

Interest & other income

     45         29         92         60   

Expenses

           

Cost of revenue

     8,162         7,023         15,973         13,507   

Research & engineering

     291         281         566         535   

General & administrative

     101         139         199         231   

Merger & integration

     22         32         37         65   

Interest

     78         69         158         142   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before taxes

     1,839         1,475         3,525         2,692   

Taxes on income

     445         366         845         653   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from continuing operations

     1,394         1,109         2,680         2,039   

Income from discontinued operations

     21         233         40         245   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     1,415         1,342         2,720         2,284   

Net income attributable to noncontrolling interests

     12         3         17         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to Schlumberger

   $ 1,403       $ 1,339       $ 2,703       $ 2,283   
  

 

 

    

 

 

    

 

 

    

 

 

 

Schlumberger amounts attributable to:

           

Income from continuing operations

   $ 1,382       $ 1,106       $ 2,663       $ 2,038   

Income from discontinued operations

     21         233         40         245   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 1,403       $ 1,339       $ 2,703       $ 2,283   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share of Schlumberger:

           

Income from continuing operations

   $ 1.04       $ 0.82       $ 2.00       $ 1.50   

Income from discontinued operations

     0.02         0.17         0.03         0.18   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (1)

   $ 1.05       $ 0.99       $ 2.03       $ 1.68   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share of Schlumberger:

           

Income from continuing operations

   $ 1.03       $ 0.81       $ 1.99       $ 1.49   

Income from discontinued operations

     0.02         0.17         0.03         0.18   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 1.05       $ 0.98       $ 2.02       $ 1.67   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average shares outstanding:

           

Basic

     1,331         1,352         1,333         1,356   

Assuming dilution

     1,339         1,366         1,341         1,370   

 

(1) 

Amounts may not add due to rounding

See Notes to Consolidated Financial Statements

 

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SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

 

     (Stated in millions)  
     Second Quarter     Six Months  
     2012     2011     2012     2011  

Net income

   $ 1,415      $ 1,342      $ 2,720      $ 2,284   

Currency translation adjustments

        

Unrealized net change arising during the period

     (204     (32     (93     97   

Derivatives

        

Net derivatives (loss) gain on hedge transactions

     (331     104        (177     296   

Reclassification to net income of net realized loss (gain)

     260        (95     150        (322

Pension and other postretirement benefit plans

        

Actuarial gain (loss)

        

Actuarial gain (loss) arising during the period

     6        (10     (21     (21

Amortization to net income of net actuarial loss

     43        33        86        66   

Prior service cost

        

Prior service credit arising during the period

     —          —          —          1   

Amortization to net income of net prior service cost

     31        30        62        61   

Income taxes on pension and other postretirement benefit plans

     (13     19        (23     (4
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     1,207        1,391        2,704        2,458   

Comprehensive income attributable to noncontrolling interests

     12        3        17        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Schlumberger

   $ 1,195      $ 1,388      $ 2,687      $ 2,457   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

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Table of Contents

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

 

           (Stated in millions)  
     Jun. 30, 2012
(Unaudited)
    Dec. 31, 2011  

ASSETS

    

Current Assets

    

Cash

   $ 1,521      $ 1,705   

Short-term investments

     1,972        3,122   

Receivables less allowance for doubtful accounts (2012 - $169; 2011 - $177)

     10,802        9,500   

Inventories

     4,762        4,700   

Deferred taxes

     458        456   

Other current assets

     1,525        1,056   
  

 

 

   

 

 

 
     21,040        20,539   

Fixed Income Investments, held to maturity

     261        256   

Investments in Affiliated Companies

     1,264        1,266   

Fixed Assets less accumulated depreciation

     13,689        12,993   

Multiclient Seismic Data

     478        425   

Goodwill

     14,540        14,154   

Intangible Assets

     4,980        4,882   

Other Assets

     761        686   
  

 

 

   

 

 

 
   $ 57,013      $ 55,201   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current Liabilities

    

Accounts payable and accrued liabilities

   $ 7,422      $ 7,579   

Long-term debt - current portion

     2,023        1,041   

Liability for taxes on income

     1,214        1,245   

Short-term borrowings

     498        336   

Dividends payable

     369        337   
  

 

 

   

 

 

 
     11,526        10,538   

Long-term Debt

     7,953        8,556   

Deferred Taxes

     1,800        1,731   

Postretirement Benefits

     1,490        1,732   

Other Liabilities

     1,277        1,252   
  

 

 

   

 

 

 
     24,046        23,809   
  

 

 

   

 

 

 

Equity

    

Common stock

     11,761        11,639   

Treasury stock

     (6,209     (5,679

Retained earnings

     30,830        28,860   

Accumulated other comprehensive loss

     (3,572     (3,557
  

 

 

   

 

 

 

Schlumberger stockholders’ equity

     32,810        31,263   

Noncontrolling interests

     157        129   
  

 

 

   

 

 

 
     32,967        31,392   
  

 

 

   

 

 

 
   $ 57,013      $ 55,201   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

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Table of Contents

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

     (Stated in millions)  
     Six Months Ended Jun. 30,  
     2012     2011  

Cash flows from operating activities:

    

Net income

   $ 2,720      $ 2,284   

Less: Income from discontinued operations

     (40     (245

Adjustments to reconcile net income to cash provided by operating activities:

    

Depreciation and amortization (1)

     1,706        1,589   

Earnings of companies carried at equity, less dividends received

     (77     (41

Deferred income taxes

     (29     (24

Stock-based compensation expense

     167        132   

Pension and other postretirement benefits expense

     193        184   

Pension and other postretirement benefits funding

     (338     (122

Change in assets and liabilities: (2)

    

Increase in receivables

     (1,615     (1,025

Increase in inventories

     (669     (487

Increase in other current assets

     (268     (168

(Decrease) increase in accounts payable and accrued liabilities

     (41     264   

Decrease in liability for taxes on income

     (116     (560

(Decrease) increase in other liabilities

     (55     103   

Other - net

     (48     183   
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

     1,490        2,067   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures

     (2,081     (1,716

Multiclient seismic data capitalized

     (183     (131

Business acquisitions, net of cash acquired

     (682     (123

Sale (purchase) of investments, net

     1,146        (123

Other

     (126     215   
  

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (1,926     (1,878
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Dividends paid

     (701     (631

Proceeds from employee stock purchase plan

     115        89   

Proceeds from exercise of stock options

     117        172   

Tax benefit on stock options

     15        —     

Stock repurchase program

     (823     (1,551

Proceeds from issuance of long-term debt

     781        3,568   

Repayment of long-term debt

     (243     (2,243

Net increase (decrease) in short-term borrowings

     164        (387
  

 

 

   

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

     (575     (983
  

 

 

   

 

 

 

Cash flows from discontinued operations - operating activities

     (75     19   

Cash flows from discontinued operations - investing activities

     904        381   
  

 

 

   

 

 

 

Cash flows from discontinued operations

     829        400   
  

 

 

   

 

 

 

Net decrease in cash before translation effect

     (182     (394

Translation effect on cash

     (2     8   

Cash, beginning of period

     1,705        1,764   
  

 

 

   

 

 

 

Cash, end of period

   $ 1,521      $ 1,378   
  

 

 

   

 

 

 

 

(1)

Includes multiclient seismic data costs.

(2)

Net of the effect of business acquisitions and divestitures.

See Notes to Consolidated Financial Statements

 

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Table of Contents

SCHLUMBERGER LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

                             (Stated in millions)  
                       Accumulated
Other
              
     Common Stock     Retained
Earnings
    Comprehensive
Loss
    Noncontrolling
Interests
     Total  

January 1, 2012 - June 30, 2012

   Issued     In Treasury           

Balance, January 1, 2012

   $ 11,639      $ (5,679   $ 28,860      $ (3,557   $ 129       $ 31,392   

Net income

         2,703          17         2,720   

Currency translation adjustments

           (93        (93

Changes in fair value of derivatives

           (27        (27

Deferred employee benefits liabilities

           104           104   

Shares sold to optionees, less shares exchanged

     (58     176               118   

Shares granted to Directors

       1               1   

Vesting of restricted stock

     (12     12               —     

Shares issued under employee stock purchase plan

     11        104               115   

Stock repurchase program

       (823            (823

Stock-based compensation expense

     167                 167   

Dividends declared ($0.55 per share)

  

      (733          (733

Tax benefits on stock options

     15                 15   

Other

     (1         1        11         11   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, June 30, 2012

   $ 11,761      $ (6,209   $ 30,830      $ (3,572   $ 157       $ 32,967   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

                            

(Stated in millions)

 
     Common Stock     Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    Noncontrolling
Interests
    Total  

January 1, 2011 - June 30, 2011

   Issued     In Treasury          

Balance, January 1, 2011

   $ 11,920      $ (3,136   $ 25,210      $ (2,768   $ 218      $ 31,444   

Net income

         2,283          1        2,284   

Currency translation adjustments

           97          97   

Changes in fair value of derivatives

           (26       (26

Deferred employee benefits liabilities

  

        103          103   

Shares sold to optionees, less shares exchanged

     (11     183              172   

Shares granted to Directors

     1                1   

Vesting of restricted stock

     (12     12              —     

Shares issued under employee stock purchase plan

     14        75              89   

Stock repurchase program

       (1,551           (1,551

Stock-based compensation expense

     132                132   

Dividends declared ($0.50 per share)

  

      (678         (678

Other

             (5     (5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011

   $ 12,044      $ (4,417   $ 26,815      $ (2,594   $ 214      $ 32,062   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

SHARES OF COMMON STOCK

(Unaudited)

 

                  (Stated in millions)  
     Issued      In Treasury     Shares
Outstanding
 

Balance, January 1, 2012

     1,434         (100     1,334   

Shares sold to optionees, less shares exchanged

     —           3        3   

Shares issued under employee stock purchase plan

     —           2        2   

Stock repurchase program

     —           (12     (12
  

 

 

    

 

 

   

 

 

 

Balance, June 30, 2012

     1,434         (107     1,327   
  

 

 

    

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

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Table of Contents

SCHLUMBERGER LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Schlumberger Limited and its subsidiaries (“Schlumberger”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Schlumberger management, all adjustments considered necessary for a fair statement have been included in the accompanying unaudited financial statements. All intercompany transactions and balances have been eliminated in consolidation. Operating results for the six-month period ended June 30, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012. The December 31, 2011 balance sheet information has been derived from the Schlumberger 2011 financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto, included in the Schlumberger Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on February 1, 2012.

2. Charges and Credits

Schlumberger recorded the following charges and credits during the first six months of 2012 and 2011:

2012

Second quarter 2012:

 

   

Schlumberger recorded $22 million of pretax merger and integration-related charges ($21 million after-tax) primarily relating to its August 27, 2010 acquisition of Smith International, Inc. (“Smith”). This amount is classified in Merger & integration in the Consolidated Statement of Income.

First quarter 2012:

 

   

Schlumberger recorded $15 million of pretax merger and integration-related charges ($13 million after-tax) in connection with the acquisition of Smith. This amount is classified in Merger & integration in the Consolidated Statement of Income.

2011

Second quarter 2011:

 

   

Schlumberger made a $50 million grant to the Schlumberger Foundation to support the Foundation’s Faculty for the Future program. This program supports talented women scientists from the developing world by helping them pursue advanced graduate studies in scientific disciplines at leading universities worldwide. This $50 million charge ($40 million after-tax) is classified in General & administrative in the Consolidated Statement of Income.

 

   

Schlumberger recorded $32 million of pretax merger and integration-related charges ($24 million after-tax) in connection with the acquisitions of Smith and Geoservices. This amount is classified in Merger & integration in the Consolidated Statement of Income.

First quarter 2011

 

   

Schlumberger recorded $33 million of pretax merger and integration-related charges ($28 million after-tax) in connection with the acquisitions of Smith and Geoservices. This amount is classified in Merger & integration in the Consolidated Statement of Income.

 

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Table of Contents

The following is a summary of these 2011 charges:

 

    

(Stated in millions)

      
     Pretax      Tax      Net      Consolidated Statement
of Income  Classification

Merger-related integration costs

   $ 65       $ 13       $ 52       Merger & integration

Donation to the Schlumberger Foundation

     50         10         40       General & administrative
  

 

 

    

 

 

    

 

 

    
   $ 115       $ 23       $ 92      
  

 

 

    

 

 

    

 

 

    

3. Earnings Per Share

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

 

                          (Stated in millions, except per share amounts)  
     2012      2011  
     Schlumberger
Income from
Continuing
Operations
     Average
Shares
Outstanding
     Earnings per
Share from
Continuing
Operations
     Schlumberger
Income from
Continuing
Operations
     Average Shares
Outstanding
     Earnings per
Share from
Continuing
Operations
 

Second Quarter

                 

Basic

   $ 1,382         1,331       $ 1.04       $ 1,106         1,352       $ 0.82   
        

 

 

          

 

 

 

Assumed exercise of stock options

     —           5            —           11      

Unvested restricted stock

     —           3            —           3      
  

 

 

    

 

 

       

 

 

    

 

 

    

Diluted

   $ 1,382         1,339       $ 1.03       $ 1,106         1,366       $ 0.81   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Schlumberger
Income from
Continuing
Operations
     Average
Shares
Outstanding
     Earnings per
Share from
Continuing
Operations
     Schlumberger
Income from
Continuing
Operations
     Average Shares
Outstanding
     Earnings per
Share from
Continuing
Operations
 

Six Months

                 

Basic

   $ 2,663         1,333       $ 2.00       $ 2,038         1,356       $ 1.50   
        

 

 

          

 

 

 

Assumed exercise of stock options

     —           5            —           11      

Unvested restricted stock

     —           3            —           3      
  

 

 

    

 

 

       

 

 

    

 

 

    

Diluted

   $ 2,663         1,341       $ 1.99       $ 2,038         1,370       $ 1.49   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     (Stated in millions)  
     2012      2011  

Second Quarter

     28         2   

Six Months

     21         2   

 

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Table of Contents

4. Inventories

A summary of inventories follows:

 

    

(Stated in millions)

 
     Jun. 30,
2012
     Dec. 31,
2011
 

Raw materials & field materials

   $ 2,492       $ 2,066   

Work in process

     384         364   

Finished goods

     1,886         2,270   
  

 

 

    

 

 

 
   $ 4,762       $ 4,700   
  

 

 

    

 

 

 

5. Fixed Assets

A summary of fixed assets follows:

 

    

(Stated in millions)

 
     Jun. 30,
2012
     Dec. 31,
2011
 

Property, plant & equipment

   $ 31,024       $ 29,551   

Less: Accumulated depreciation

     17,335         16,558   
  

 

 

    

 

 

 
   $ 13,689       $ 12,993   
  

 

 

    

 

 

 

Depreciation expense relating to fixed assets was as follows:

 

     (Stated in millions)  
     2012      2011  

Second Quarter

   $ 714       $ 667   

Six Months

   $ 1,415       $ 1,327   

6. Multiclient Seismic Data

The change in the carrying amount of multiclient seismic data for the six months ended June 30, 2012 was as follows:

 

     (Stated in millions)  

Balance at December 31, 2011

   $ 425   

Capitalized in period

     183   

Charged to expense

     (130
  

 

 

 

Balance at June 30, 2012

   $ 478   
  

 

 

 

7. Goodwill

The changes in the carrying amount of goodwill by reporting unit for the six months ended June 30, 2012 were as follows:

 

                       (Stated in millions)  
     Reservoir
Characterization
    Drilling     Production     Distribution     Total  

Balance at January 1, 2012

   $ 3,360      $ 8,362      $ 2,356      $ 76      $ 14,154   

Acquisitions

     347        155        —          —          502   

Reallocation

     —          (125     125        —          —     

Divestiture

     —          —          —          (76     (76

Impact of changes in exchange rates

     (16     (11     (13     —          (40
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 3,691      $ 8,381      $ 2,468      $ —        $ 14,540   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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8. Intangible Assets

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

 

                                 (Stated in millions)  
     Jun. 30, 2012      Dec. 31, 2011  
     Gross
Book Value
     Accumulated
Amortization
     Net Book
Value
     Gross
Book Value
     Accumulated
Amortization
     Net Book
Value
 

Technology/Technical Know-How

   $ 1,872       $ 405       $ 1,467       $ 1,875       $ 341       $ 1,534   

Tradenames

     1,646         153         1,493         1,677         131         1,546   

Customer Relationships

     2,150         255         1,895         1,954         209         1,745   

Other

     436         311         125         356         299         57   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 6,104       $ 1,124       $ 4,980       $ 5,862       $ 980       $ 4,882   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Amortization expense charged to income was as follows:

 

     (Stated in millions)  
     2012      2011  

Second Quarter

   $ 80       $ 79   

Six Months

   $ 161       $ 163   

The weighted average amortization period for all intangible assets is approximately 20 years.

Based on the net book value of intangible assets at June 30, 2012, amortization charged to income for the subsequent five years is estimated to be: remainder of 2012 - $172 million; 2013 - $328 million; 2014 - $322 million; 2015 - $310 million; 2016 - $289 million; and 2017 - $282 million.

9. Long-term Debt

A summary of Long-term Debt follows:

 

     (Stated in millions)  
     Jun. 30,      Dec. 31,  
     2012      2011  

3.300% Senior Notes due 2021

   $ 1,595       $ 1,595   

4.50% Guaranteed Notes due 2014

     1,244         1,297   

2.75% Guranteed Notes due 2015

     1,238         1,290   

1.950% Senior Notes due 2016

     1,099         1,099   

4.200% Senior Notes due 2021

     1,099         1,099   

5.25% Guaranteed Notes due 2013

     622         649   

2.650% Senior Notes due 2016

     498         498   

3.00% Guaranteed Notes due 2013

     —           450   

Floating Rate Senior Notes due 2014

     300         300   

Other variable rate debt

     258         271   
  

 

 

    

 

 

 
     7,953         8,548   

Fair value adjustment - hedging (1)

     —           8   
  

 

 

    

 

 

 
   $ 7,953       $ 8,556   
  

 

 

    

 

 

 

 

(1) 

Represents changes in the fair value of the portion of Schlumberger’s fixed rate debt that is hedged through the use of interest rate swaps.

During the first quarter of 2011, Schlumberger issued $1.1 billion of 4.200% Senior Notes due 2021.

During the first quarter of 2011, Schlumberger issued $500 million of 2.650% Senior Notes due 2016. Schlumberger entered into agreements to swap these dollar notes for euros on the date of issue until maturity, effectively making this a euro denominated debt on which Schlumberger will pay interest in euros at a rate of 2.39%.

During the first quarter of 2011, Schlumberger repurchased all of the outstanding 9.75% Senior Notes due 2019, the 8.625% Senior Notes due 2014 and the 6.00% Senior Notes due 2016 for approximately $1.26 billion. These transactions did not result in any significant gains or losses.

 

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The estimated fair value of Schlumberger’s Long-term Debt at June 30, 2012 and December 31, 2011, based on quoted market prices, was $8.4 billion and $8.9 billion, respectively.

10. Derivative Instruments and Hedging Activities

Schlumberger is exposed to market risks related to fluctuations in foreign currency exchange rates, commodity prices and interest rates. To mitigate these risks, Schlumberger utilizes derivative instruments. Schlumberger does not enter into derivative transactions for speculative purposes.

Foreign Currency Exchange Rate Risk

As a multinational company, Schlumberger conducts business in approximately 85 countries. Schlumberger’s functional currency is primarily the US dollar, which is consistent with the oil and gas industry. However, outside the United States, a significant portion of Schlumberger’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 Schlumberger conducts business, the US dollar–reported expenses will increase (decrease).

Schlumberger is exposed to risks on future cash flows to the extent that local currency expenses exceed revenues denominated in local currency that are other than the functional currency. Schlumberger uses foreign currency forward contracts and foreign currency options to provide a hedge against a portion of these cash flow risks. These contracts are accounted for as cash flow hedges, with the effective portion of changes in the fair value of the hedge recorded on the Consolidated Balance Sheet and in Accumulated Other Comprehensive Loss. Amounts recorded in Accumulated Other Comprehensive Loss are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of hedging instruments, if any, is recorded directly to earnings.

At June 30, 2012, Schlumberger recognized a cumulative net $52 million loss in Equity relating to revaluation of foreign currency forward contracts and foreign currency options designated as cash flow hedges, the majority of which is expected to be reclassified into earnings within the next twelve months.

Schlumberger is also exposed to changes in the fair value of assets and liabilities, including certain of its long-term debt, which are denominated in currencies other than the functional currency. Schlumberger uses foreign currency forward contracts and foreign currency options to hedge this exposure as it relates to certain currencies. These contracts are accounted for as fair value hedges with the fair value of the contracts recorded on the Consolidated Balance Sheet and changes in the fair value recognized in the Consolidated Statement of Income along with the change in fair value of the hedged item.

At June 30, 2012, contracts were outstanding for the US dollar equivalent of $6.9 billion in various foreign currencies, of which $3.9 billion relate to hedges of debt denominated in currencies other than the functional currency.

Commodity Price Risk

Schlumberger is exposed to the impact of market fluctuations in the price of certain commodities, such as metals and fuel. Schlumberger utilizes forward contracts to manage a small percentage of the price risk associated with forecasted metal purchases. The objective of these contracts is to reduce the variability of cash flows associated with the forecasted purchase of those commodities. These contracts do not qualify for hedge accounting treatment and therefore, changes in the fair value of the forward contracts are recorded directly to earnings.

The notional amount of outstanding commodity forward contracts was $23 million at June 30, 2012.

Interest Rate Risk

Schlumberger is subject to interest rate risk on its debt and its investment portfolio. Schlumberger maintains an interest rate risk management strategy that uses a mix of variable and fixed rate debt combined with its investment portfolio and occasionally interest rate swaps to mitigate the exposure to changes in interest rates.

Schlumberger has an outstanding interest rate swap for a notional amount of $450 million in order to hedge changes in the fair value of its $450 million 3.00% Notes due 2013. Under the terms of this swap, Schlumberger receives interest at a fixed rate of 3.0% annually and will pay interest quarterly at a floating rate of three-month LIBOR plus a spread of 0.765%. This interest rate swap is designated as a fair value hedge of the underlying debt. This derivative instrument is marked to market with gains and losses recognized currently in income to offset the respective losses and gains recognized on changes in the fair value of the hedged debt. This results in no net gain or loss being recognized in the Consolidated Statement of Income.

 

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Table of Contents

At June 30, 2012, Schlumberger had fixed rate debt aggregating $7.4 billion and variable rate debt aggregating $3.1 billion, after taking into account the effects of the interest rate swaps.

Short-term investments and Fixed income investments, held to maturity, totaled $2.2 billion at June 30, 2012, and were comprised primarily of money market funds, eurodollar time deposits, certificates of deposit, commercial paper, euro notes and Eurobonds, and were substantially all denominated in US dollars. The carrying value of these investments approximated fair value, which was estimated using quoted market prices for those or similar investments.

The fair values of outstanding derivative instruments are summarized as follows:

 

     (Stated in millions)       
     Fair Value of Derivatives     

Consolidated Balance Sheet Classification

     Jun. 30,
2012
     Dec. 31,
2011
      

Derivative Assets

        

Derivatives designated as hedges:

        

Foreign exchange contracts

   $ 1       $ 2       Other current assets

Foreign exchange contracts

     37         4       Other Assets

Interest rate swaps

     7         —         Other current assets

Interest rate swaps

     —           9       Other Assets
  

 

 

    

 

 

    
   $ 45       $ 15      
  

 

 

    

 

 

    

Derivatives not designated as hedges:

        

Foreign exchange contracts

   $ 8       $ 8       Other current assets

Foreign exchange contracts

     12         9       Other Assets
  

 

 

    

 

 

    
   $ 20       $ 17      
  

 

 

    

 

 

    
   $ 65       $ 32      
  

 

 

    

 

 

    

Derivative Liabilities

        

Derivatives designated as hedges:

        

Foreign exchange contracts

   $ 36       $ 47       Accounts payable and accrued liabilities

Foreign exchange contracts

     217         130       Other Liabilities
  

 

 

    

 

 

    
   $ 253       $ 177      
  

 

 

    

 

 

    

Derivatives not designated as hedges:

        

Foreign exchange contracts

   $ 4       $ 9       Accounts payable and accrued liabilities

Commodity contacts

     1         3       Accounts payable and accrued liabilities
  

 

 

    

 

 

    
   $ 5       $ 12      
  

 

 

    

 

 

    
   $ 258       $ 189      
  

 

 

    

 

 

    

The fair value of all outstanding derivatives was determined using a model with inputs that are observable in the market or can be derived from or corroborated by observable data.

 

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Table of Contents

The effect on the Consolidated Statement of Income of derivative instruments designated as fair value hedges and those not designated as hedges was as follows:

 

     (Stated in millions)      
     Gain (Loss) Recognized in
Income
     
     Second Quarter     Six Months    

Consolidated Statement

of Income Classification

     2012     2011     2012      2011    

Derivatives designated as fair value hedges:

           

Foreign exchange contracts

   $ —        $ 5      $ —         $ 7      Cost of revenue

Interest rate swaps

     —          5        1         5      Interest expense
  

 

 

   

 

 

   

 

 

    

 

 

   
   $ —        $ 10      $ 1       $ 12     
  

 

 

   

 

 

   

 

 

    

 

 

   

Derivatives not designated as hedges:

           

Foreign exchange contracts

   $ 59      $ 36      $ 32       $ 15      Cost of revenue

Commodity contracts

     (2     (3     —           (2   Cost of revenue
  

 

 

   

 

 

   

 

 

    

 

 

   
   $ 57      $ 33      $ 32       $ 13     
  

 

 

   

 

 

   

 

 

    

 

 

   

The effect of derivative instruments in cash flow hedging relationships on income and other comprehensive income (OCI) was as follows:

 

     (Stated in millions)       
     Gain (Loss) Reclassified from
Accumulated OCI into Income
      
     Second Quarter      Six Months     

Consolidated Statement

of Income Classification

     2012     2011      2012     2011     

Foreign exchange contracts

   $ (257   $ 89       $ (145   $ 314       Cost of revenue

Foreign exchange contracts

     (3     6         (5     8       Research & engineering
  

 

 

   

 

 

    

 

 

   

 

 

    
   $ (260   $ 95       $ (150   $ 322      
  

 

 

   

 

 

    

 

 

   

 

 

    

 

     (Stated in millions)  
     Gain (Loss) Recognized in OCI  
     Second Quarter      Six Months  
     2012     2011      2012     2011  

Foreign exchange contracts

   $ (331   $ 104       $ (177   $ 296   
  

 

 

   

 

 

    

 

 

   

 

 

 

11. Income Tax

Income before taxes which was subject to US and non-US income taxes was as follows:

 

     (Stated in millions)  
     Second Quarter      Six Months  
     2012      2011      2012      2011  

United States

   $ 553       $ 539       $ 1,123       $ 888   

Outside United States

     1,286         936         2,402         1,804   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,839       $ 1,475       $ 3,525       $ 2,692   
  

 

 

    

 

 

    

 

 

    

 

 

 

Schlumberger recorded pretax charges of $22 million ($11 million in the US and $11 million outside of the US) during the second quarter of 2012 and pretax charges of $82 million during the second quarter of 2011 ($44 million in the US and $38 million outside of the US).

Schlumberger recorded pretax charges of $37 million during the six months ended June 30, 2012 ($22 million in the US and $15 million outside of the US) and pretax charges of $115 million during the six months ended June 30, 2011 ($67 million in the US and $48 million outside of the US).

These charges are included in the table above and are more fully described in Note 2 – Charges and credits.

 

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Table of Contents

The components of net deferred tax assets (liabilities) were as follows:

 

     (Stated in millions)  
     Jun. 30,     Dec. 31,  
     2012     2011  

Postretirement benefits, net

   $ 385      $ 440   

Intangible assets

     (1,496     (1,498

Investments in non-US subsidiaries

     (348     (349

Other, net

     117        132   
  

 

 

   

 

 

 
   $ (1,342   $ (1,275
  

 

 

   

 

 

 

The above deferred tax balances at June 30, 2012 and December 31, 2011 were net of valuation allowances relating to net operating losses in certain countries of $249 million and $239 million, respectively.

The components of consolidated Taxes on income were as follows:

 

     (Stated in millions)  
     Second Quarter     Six Months  
     2012     2011     2012     2011  

Current:

        

United States - Federal

   $ 171      $ 288      $ 361      $ 436   

United States - State

     18        (4     35        11   

Outside United States

     269        168        478        230   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 458      $ 452      $ 874      $ 677   
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred:

        

United States - Federal

   $ 9      $ (95   $ (24   $ (123

United States - State

     1        (13     (2     (10

Outside United States

     (27     20        (7     114   

Valuation allowance

     4        2        4        (5
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (13   $ (86   $ (29   $ (24
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 445      $ 366      $ 845      $ 653   
  

 

 

   

 

 

   

 

 

   

 

 

 

A reconciliation of the US statutory federal tax rate of 35% to the consolidated effective income tax rate follows:

 

     Second Quarter     Six Months  
     2012     2011     2012     2011  

US federal statutory rate

     35     35     35     35

US state income taxes

     —          (1     1        —     

Non-US income taxed at different rates

     (11     (10     (11     (11

Other

     —          1        (1     .   
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective income tax rate

     24     25     24     24
  

 

 

   

 

 

   

 

 

   

 

 

 

12. Contingencies

In 2007, Schlumberger received an inquiry from the United States Department of Justice (“DOJ”) related to the DOJ’s investigation of whether certain freight forwarding and customs clearance services of Panalpina, Inc., and other companies provided to oil and oilfield service companies, including Schlumberger, violated the Foreign Corrupt Practices Act. Schlumberger is cooperating with the governmental authorities.

In 2009, Schlumberger learned that United States officials began a grand jury investigation and an associated regulatory inquiry, both related to certain Schlumberger operations in specified countries that are subject to United States trade and economic sanctions. Also in 2009, prior to being acquired by Schlumberger, Smith received an administrative subpoena with respect to its historical business practices in certain countries that are subject to United States trade and economic sanctions. Schlumberger is cooperating with the governmental authorities.

 

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Table of Contents

On April 20, 2010, a fire and explosion occurred onboard the semisubmersible drilling rig Deepwater Horizon, owned by Transocean Ltd. and under contract to a subsidiary of BP plc. Pursuant to a contract between M-I SWACO and BP, M-I SWACO provided certain services under the direction of BP. A number of legal actions, certain of which name an M-I SWACO entity as a defendant, have been filed in connection with the Deepwater Horizon incident, and additional legal actions may be filed in the future. Based on information currently known, the amount of any potential loss attributable to M-I SWACO with respect to potential liabilities related to the incident would not be material to Schlumberger’s consolidated financial statements.

Schlumberger and its subsidiaries are party to various other 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 is remote. However, litigation is inherently uncertain and it is not possible to predict the ultimate disposition of these proceedings.

13. Segment Information

 

                 (Stated in millions)  
     Second Quarter 2012     Second Quarter 2011  
     Revenue     Income
before
taxes
    Revenue      Income
before
taxes
 

Oilfield Services

         

Reservoir Characterization

   $ 2,778      $ 784      $ 2,461       $ 602   

Drilling (1)

     4,001        738        3,367         535   

Production (1)

     3,738        612        3,152         615   

Eliminations & other

     (69     (35     10         (2
  

 

 

   

 

 

   

 

 

    

 

 

 
     10,448        2,099        8,990         1,750   

Corporate & other

     —          (169     —           (134

Interest income

     —          7        —           10   

Interest expense (2)

     —          (76     —           (69

Charges and credits (see Note 2)

     —          (22     —           (82
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ 10,448      $ 1,839      $ 8,990       $ 1,475   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) 

Effective January 1, 2012, a component of the Drilling Group has been reallocated to the Production Group. Historical segment information has been reclassified to conform to this new presentation.

(2)

Excludes interest expense included in the segment results ($2 million in 2012; $- million in 2011).

 

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Table of Contents
                 (Stated in millions)  
     Six Months 2012     Six Months 2011  
     Revenue     Income
before
taxes
    Revenue      Income
before
taxes
 

Oilfield Services

         

Reservoir Characterization

   $ 5,364      $ 1,457      $ 4,654       $ 1,062   

Drilling (1)

     7,786        1,395        6,479         1,000   

Production (1)

     7,276        1,233        5,960         1,146   

Eliminations & other

     (60     (44     19         (3
  

 

 

   

 

 

   

 

 

    

 

 

 
     20,366        4,041        17,112         3,205   

Corporate & other

     —          (339     —           (277

Interest income

     —          16        —           19   

Interest expense (2)

     —          (156     —           (140

Charges and credits (see Note 2)

     —          (37     —           (115
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ 20,366      $ 3,525      $ 17,112       $ 2,692   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) 

Effective January 1, 2012, a component of the Drilling Group has been reallocated to the Production Group. Historical segment information has been reclassified to conform to this new presentation.

(2)

Excludes interest expense included in the segment results ($2 million in 2012; $2 million in 2011).

14. Pension and Other Postretirement Benefits

Net pension cost for the Schlumberger pension plans included the following components:

 

     (Stated in millions)  
     Second Quarter     Six Months  
     2012     2011     2012     2011  
     US     Int’l     US     Int’l     US     Int’l     US     Int’l  

Service cost - benefits earned during period

   $ 17      $ 21      $ 14      $ 17      $ 34      $ 42      $ 30      $ 34   

Interest cost on projected benefit obligation

     38        58        37        57        76        116        75        113   

Expected return on plan assets

     (47     (80     (42     (71     (93     (160     (85     (141

Amortization of prior service cost

     3        30        3        30        6        60        6        61   

Amortization of net loss

     23        15        22        8        46        30        44        16   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 34      $ 44      $ 34      $ 41      $ 69      $ 88      $ 70      $ 83   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The net periodic benefit cost for the Schlumberger US postretirement medical plan included the following components:

 

     (Stated in millions)  
     Second Quarter     Six Months  
     2012     2011     2012     2011  

Service cost - benefits earned during period

   $ 7      $ 5      $ 14      $ 12   

Interest cost on accumulated postretirement benefit obligation

     15        15        30        29   

Expected return on plan assets

     (7     (5     (14     (10

Amortization of prior service cost

     (2     (3     (4     (6

Amortization of net loss

     5        3        10        6   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 18      $ 15      $ 36      $ 31   
  

 

 

   

 

 

   

 

 

   

 

 

 

15. Discontinued Operations

During the second quarter of 2012, Schlumberger sold its Wilson distribution business to National Oilwell Varco Inc. (“NOV”) for $906 million in cash. A pretax gain of $137 million ($16 million after-tax) was recognized in connection with this transaction.

During July 2012, Schlumberger completed the sale of its 56% interest in CE Franklin Ltd. to NOV for $122 million in cash.

As Wilson and CE Franklin comprised Schlumberger’s Distribution segment, the results of this entire segment have been classified as discontinued operations in the Consolidated Statement of Income.

During the second quarter of 2011, Schlumberger completed the divestiture of its Global Connectivity Services business for approximately $385 million in cash. An after-tax gain of $220 million was recognized in connection with this transaction, and is classified in Income from discontinued operations in the Consolidated Statement of Income. The historical results of this business were not significant to Schlumberger’s consolidated financial statements and, as such, have not been reclassified to discontinued operations.

The following table summarizes the results of these discontinued operations (in millions):

 

     Second Quarter     Six Months  
     2012     2011     2012     2011  

Revenue

   $ 289      $ 631      $ 982      $ 1,225   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

   $ 9      $ 22      $ 43      $ 43   

Tax expense

     (3     (8     (14     (16

Net income attributable to noncontrolling interests

     (1     (1     (5     (2

Gain on divestiture, net of tax

     16        220        16        220   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

   $ 21      $ 233      $ 40      $ 245   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Second Quarter 2012 Compared to First Quarter 2012

Product Groups

 

                 (Stated in millions)  
     Second Quarter 2012     First Quarter 2012  
     Revenue     Income
Before
Taxes
    Revenue      Income
Before
Taxes
 

Oilfield Services

         

Reservoir Characterization

   $ 2,778      $ 784      $ 2,586       $ 672   

Drilling (1)

     4,001        738        3,785         657   

Production (1)

     3,738        612        3,539         621   

Eliminations & other

     (69     (35     8         (7
  

 

 

   

 

 

   

 

 

    

 

 

 
     10,448        2,099        9,918         1,943   

Corporate & other

     —          (169     —           (171

Interest income (2)

     —          7        —           10   

Interest expense (2)

     —          (76     —           (80

Charges and credits

     —          (22     —           (15
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ 10,448      $ 1,839      $ 9,918       $ 1,687   
  

 

 

   

 

 

   

 

 

    

 

 

 

Geographic Areas

 

                  (Stated in millions)  
     Second Quarter 2012     First Quarter 2012  
     Revenue      Income
Before
Taxes
    Revenue      Income
Before
Taxes
 

Oilfield Services

          

North America

   $ 3 ,346       $ 695      $ 3,403       $ 777   

Latin America

     1,844         351        1,754         321   

Europe/CIS/Africa

     2,967         596        2,614         432   

Middle East & Asia

     2,193         506        2,058         478   

Eliminations & other

     98         (49     89         (65
  

 

 

    

 

 

   

 

 

    

 

 

 
     10,448         2,099        9,918         1,943   

Corporate & other

     —           (169     —           (171

Interest income (2)

     —           7        —           10   

Interest expense (2)

     —           (76     —           (80

Charges and credits

     —           (22     —           (15
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 10,448       $ 1,839      $ 9,918       $ 1,687   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Effective January 1, 2012, a component of the Drilling Group has been reallocated to the Production Group. Historical segment information has been reclassified to conform to this new presentation.

(2)

Excludes interest included in the Product Group and Geographical Area results.

Pretax operating income represents the segments’ income before taxes and noncontrolling interests. The pretax operating income excludes such items as corporate expenses and interest income and interest expense not allocated to the segments as well as the charges and credits described in detail in Note 2 to the Consolidated Financial Statements, interest on postretirement medical benefits, stock-based compensation costs and amortization expense associated with intangible assets recorded as a result of the acquisition of Smith International, Inc. (“Smith”).

 

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Table of Contents

OILFIELD SERVICES

Second-quarter revenue of $10.45 billion increased 5% sequentially. Revenue increased in all Groups as higher exploration offshore and in key land markets, together with strong deepwater activities, continued to benefit the Reservoir Characterization and Drilling Groups. Higher sales of Artificial Lift and Completions products combined with increased Schlumberger Production Management (SPM) project activity helped the Production Group post a sequential increase despite lower Well Services revenue in North America land. All Geographical Areas grew sequentially with the exception of North America as a result of the seasonal spring break-up in Western Canada and continued pricing pressure in the US land hydraulic fracturing market. Excluding Western Canada, North America grew sequentially on increased offshore activity, particularly in the US Gulf of Mexico. Internationally, revenue grew sequentially by 9% following a seasonal rebound of activity in Russia, the North Sea and China; more project-related revenues, robust product sales and higher offshore activity in the Mexico & Central America GeoMarket*; the commencement of an SPM project in the Ecuador GeoMarket; and increased offshore rig activity in the Australia & Papua New Guinea GeoMarket.

Increased Reservoir Characterization Group revenue was driven primarily by a rebound in Schlumberger Information Solutions (SIS) software sales together with strong Testing Services and Wireline activity on deepwater exploration projects in Africa, and in the North Sea and Australia & Papua New Guinea GeoMarkets. WesternGeco grew slightly as higher UniQ* land seismic productivity in the Saudi Arabia & Bahrain GeoMarket more than offset lower Marine vessel utilization from planned transits and dry-docks during the quarter. Drilling Group revenue expanded on robust international and offshore demand for Drilling & Measurements and M-I SWACO technologies. Integrated Project Management (IPM) operations in Latin America and in the North Africa and Australia & Papua New Guinea GeoMarkets were also stronger. Production Group revenue grew as increased sales of Artificial Lift and Completions products across all Areas in addition to the start of an SPM project in Ecuador more than compensated for lower Well Services revenue on land in North America.

On a geographical basis, North America Area revenue decreased due to the seasonal spring break-up in Western Canada and the weaker US land hydraulic fracturing market. Revenue in North America however, excluding Western Canada, improved sequentially due to increased offshore activity—particularly in deepwater US Gulf of Mexico operations. In the Latin America Area, the increase in revenue came mainly from the Mexico & Central America GeoMarket—driven by IPM land activity, SIS software sales, and demand for Drilling Group technologies offshore. The Ecuador GeoMarket was also up significantly with the start of an SPM production incentive contract. In the Europe/CIS/Africa Area, revenue increased from the strong seasonal rebound of exploration and development activity in the North Sea GeoMarket while the seasonal pick-up of activity in Russia—particularly in Sakhalin, the Caspian and Western Siberia—also contributed to the sequential improvement. Sub-Sahara Africa also grew due to high exploration activity in Tanzania and Mozambique as well as strong exploration and development activity in the Nigeria & the Gulf of Guinea GeoMarket. In the Middle East & Asia Area, the revenue increase was led by the Australia & Papua New Guinea GeoMarket as a result of strong offshore drilling activity. The China GeoMarket also posted a strong seasonal pick-up in onshore activity while the Saudi Arabia & Bahrain GeoMarket continued to register growth in both rig and rig-less operations.

Second-quarter pretax operating income of $2.1 billion increased 8% sequentially. Pretax operating margin increased 50 basis points (bps) sequentially. International pretax operating margin expanded 161 bps sequentially to 20.8% due to the seasonal rebounds of activity in Russia, the North Sea and China combined with strong results in Europe and Africa, and in other GeoMarkets in the Asia-Pacific countries and Latin America Area. The continued shift to higher-margin exploration and deepwater activities helped sustain international margins. In North America, pretax operating margin decreased 208 bps sequentially to 20.8% as a result of the spring break-up in Canada and continued cost inflation and pricing pressure in the US land hydraulic fracturing market.

Reservoir Characterization Group

Second-quarter revenue of $2.78 billion increased 7% sequentially. Pretax operating income of $784 million was 17% higher than the first quarter.

Sequentially, the revenue increase was driven primarily by a rebound in SIS software sales. Strong performances by Testing Services and Wireline Technologies on deepwater exploration projects in Africa, the North Sea and the Australia & Papua New Guinea GeoMarkets also contributed to growth. WesternGeco was slightly higher as increased productivity from the land seismic UniQ crew in the Saudi Arabia & Bahrain GeoMarket more than offset lower Marine vessel utilization resulting from planned transits and dry-docks during the quarter.

 

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Table of Contents

Pretax operating margin increased 223 bps sequentially to 28.2% primarily due to strong SIS software sales combined with the more favorable revenue mix that resulted from higher deepwater and exploration activity.

Drilling Group

Second-quarter revenue of $4.00 billion increased 6% sequentially. Pretax operating income of $738 million was 12% higher compared to the prior quarter.

Sequentially, revenue increased primarily on strong international and offshore activity for Drilling & Measurements and M-I SWACO technologies. In particular, Drilling & Measurements performance was driven by both stronger activity and an improved technology revenue mix that led to some pricing gains. In addition, M-I SWACO also posted strong results from deepwater operations in the US Gulf of Mexico as M-I SWACO activity returned to pre-Macondo levels. IPM operations in Latin America, and the North Africa and Australia & Papua New Guinea GeoMarkets were also higher with the start of several new projects.

Sequentially, pretax operating margin increased 107 bps to 18.4% due to increasing high-margin deepwater activity both in North America and internationally. Margin expansion was also the result of a favorable revenue mix that led to selected pricing gains—particularly for Drilling & Measurements services.

Production Group

Second-quarter revenue of $3.74 billion increased 6% sequentially. Pretax operating income of $612 million was 1% lower sequentially.

Sequentially, revenue grew as increased sales of Artificial Lift and Completions products across all Areas and the start of an SPM project in Ecuador more than compensated for lower Well Services revenue on land in North America. Well Services revenue from offshore and international activities also grew sequentially to further offset the lower Well Services land activity due to the Canadian spring break-up and the downward pricing trend.

Second-quarter pretax operating margin decreased 117 bps to 16.4%. This decline was largely attributable to the North American land hydraulic fracturing market as a result of the spring break-up in Canada and the continued cost inflation and pricing pressure in US land. This was offset in part by better margins posted by the other Production Group Technologies.

Second Quarter 2012 Compared to Second Quarter 2011

Product Groups

 

                 (Stated in millions)  
     Second Quarter 2012     Second Quarter 2011  
     Revenue     Income
Before
Taxes
    Revenue      Income
Before
Taxes
 

Oilfield Services

         

Reservoir Characterization

   $ 2,778      $ 784      $ 2,461       $ 602   

Drilling (1)

     4,001        738        3,367         535   

Production (1)

     3,738        612        3,152         615   

Eliminations & other

     (69     (35     10         (2
  

 

 

   

 

 

   

 

 

    

 

 

 
     10,448        2,099        8,990         1,750   

Corporate & other

     —          (169     —           (134

Interest income (2)

     —          7        —           10   

Interest expense (2)

     —          (76     —           (69

Charges and credits

     —          (22     —           (82
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ 10,448      $ 1,839      $ 8,990       $ 1,475   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

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Table of Contents

Geographic Areas

 

                  (Stated in millions)  
     Second Quarter 2012     Second Quarter 2011  
     Revenue      Income
Before
Taxes
    Revenue      Income
Before
Taxes
 

Oilfield Services

          

North America

   $ 3,346       $ 695      $ 2,864       $ 673   

Latin America

     1,844         351        1,579         283   

Europe/CIS/Africa

     2,967         596        2,374         332   

Middle East & Asia

     2,193         506        2,078         518   

Eliminations & other

     98         (49     95         (56
  

 

 

    

 

 

   

 

 

    

 

 

 
     10,448         2,099        8,990         1,750   

Corporate & other

     —           (169     —           (134

Interest income (2)

     —           7        —           10   

Interest expense (2)

     —           (76     —           (69

Charges and credits

     —           (22     —           (82
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 10,448       $ 1,839      $ 8,990       $ 1,475   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Effective January 1, 2012, a component of the Drilling Group has been reallocated to the Production Group. Historical segment information has been reclassified to conform to this new presentation.

(2) 

Excludes interest included in the Product Group and Geographical Area results.

OILFIELD SERVICES

Second-quarter 2012 revenue of $10.45 billion was 16% higher than the same period last year largely due to the significantly improved exploration and development activities of M-I SWACO, Drilling & Measurements, Wireline and Well Services Technologies in a number of international GeoMarkets and in North America offshore, particularly in the US Gulf of Mexico. Geographically, the increase was led by the Europe/CIS/Africa Area, primarily in Russia and in the Nigeria & Gulf of Guinea, Angola, the North Sea and East Africa GeoMarkets. Latin America was also higher, mainly in the Mexico & Central America Geomarket driven by strong IPM activity on land and robust offshore activity for Wireline and Drilling technologies.

Second-quarter 2012 pretax operating margin increased 63 bps to 20.1% due to the robust contributions from the Reservoir Characterization and Drilling Groups as both benefited from higher-margin exploration activities in North America offshore and in the international markets. However, this increase was partially offset by a decline in margins for Well Services technologies, primarily in North America, as a result of pricing pressure and cost inflation.

Reservoir Characterization Group

Second-quarter 2012 revenue of $2.78 billion was 13% higher than the same period last year led by Wireline and Testing Services driven by improved offshore exploration activities across all Areas, namely in North America offshore, Latin America, and in Europe/CIS/Africa. SIS was also higher on strong software sales while WesternGeco decreased on lower Marine vessel utilization from planned transits and dry-docks during the quarter.

Year-on-year, pretax operating margin increased 377 basis points to 28.2% largely due to the higher-margin exploration activities that benefited Wireline and Testing Services and higher software sales of SIS.

Drilling Group

Second-quarter 2012 revenue of $4.00 billion was 19% higher than the previous year primarily due to the significantly improved exploration and development activities of Drilling & Measurements and M-I SWACO in North America offshore and in the international markets.

Year-on-year, pretax operating margin increased 253 basis points to 18.4% primarily due to the improved revenue mix of Drilling & Measurements and M-I SWACO.

 

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Table of Contents

Production Group

Second-quarter 2012 revenue of $3.74 billion increased 19% year-on-year primarily attributable to Well Services technologies. Well Services grew equally in North America and internationally, with international growth led by Latin America and by Europe/CIS/Africa. Well Intervention, Artificial Lift and Completions Technologies also contributed to the strong growth.

Year-on-year, pretax operating margin decreased 313 basis points to 16.4% as a result of the decline in margins for Well Services technologies, primarily in North America as a result of pricing pressure and cost inflation.

Six Months 2012 Compared to Six Months 2011

Product Groups

 

                 (Stated in millions)  
     Six Months 2012     Six Months 2011  
     Revenue     Income
Before
Taxes
    Revenue      Income
Before
Taxes
 

Oilfield Services

         

Reservoir Characterization

   $ 5,364      $ 1,457      $ 4,654       $ 1,062   

Drilling (1)

     7,786        1,395        6,479         1,000   

Production (1)

     7,276        1,233        5,960         1,146   

Eliminations & other

     (60     (44     19         (3
  

 

 

   

 

 

   

 

 

    

 

 

 
     20,366        4,041        17,112         3,205   

Corporate & other

     —          (339     —           (277

Interest income (2)

     —          16        —           19   

Interest expense (2)

     —          (156     —           (140

Charges and credits

     —          (37     —           (115
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ 20,366      $ 3,525      $ 17,112       $ 2,692   
  

 

 

   

 

 

   

 

 

    

 

 

 

Geographic Areas

 

                  (Stated in millions)  
     Six Months 2012     Six Months 2011  
     Revenue      Income
Before
Taxes
    Revenue      Income
Before
Taxes
 

Oilfield Services

          

North America

   $ 6,749       $ 1,472      $ 5,453       $ 1,268   

Latin America

     3,598         672        2,964         500   

Europe/CIS/Africa

     5,582         1,028        4,564         605   

Middle East & Asia

     4,251         984        3,926         924   

Eliminations & other

     186         (115     205         (92
  

 

 

    

 

 

   

 

 

    

 

 

 
     20,366         4,041        17,112         3,205   

Corporate & other

     —           (339     —           (277

Interest income (2)

     —           16        —           19   

Interest expense (2)

     —           (156     —           (140

Charges and credits

     —           (37     —           (115
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 20,366       $ 3,525      $ 17,112       $ 2,692   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Effective January 1, 2012, a component of the Drilling Group has been reallocated to the Production Group. Historical segment information has been reclassified to conform to this new presentation.

(2) 

Excludes interest included in the Product Group and Geographical Area results.

 

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Table of Contents

OILFIELD SERVICES

Six-months 2012 revenue of $20.4 billion increased 19% versus the same period last year with the North America Area 24% higher and International Areas 17% higher. The increase in North America was led by strong growth offshore, particularly in the US Gulf of Mexico with robust deepwater and exploration activity benefiting the Reservoir Characterization and Drilling Groups Technologies. The Production Group also experienced significant improvement in activity in North America land. Internationally, higher exploration and development activities in a number of GeoMarkets both offshore and in key land markets contributed to the increase. The increase is led by the Europe/CIS/Africa Area, mainly in Russia and in the Nigeria & Gulf of Guinea, Angola, the North Sea and East Africa GeoMarkets. Latin America was also higher, mainly in the Mexico & Central America and Venezuela, Trinidad & Tobago GeoMarkets driven by strong IPM activity on land and robust offshore activity for Wireline and Drilling technologies.

On a Product Group basis, Reservoir Characterization and Drilling Group revenues were strong as a result of robust exploration and development activities in a number of international GeoMarkets and in North America offshore, particularly in the US Gulf of Mexico. Reservoir Production revenue increased mostly from Well Services.

Year-to-date pretax operating margin increased 111 basis points to 19.8% due to the robust contribution from the Reservoir Characterization and Drilling Groups as both benefited from higher-margin exploration activities in North America offshore and in the international markets. However, this increase was partially offset by a decline in margins for Well Services technologies, primarily in North America, as a result of pricing pressure and cost inflation.

Reservoir Characterization Group

Six-month 2012 revenue of $5.36 billion was 15.3% higher than the same period last year led by Wireline and Testing Services driven by improved offshore exploration activities across all Areas, namely in North America offshore, Latin America, and in Europe/CIS/Africa. Strong SIS software sales also contributed to the growth.

Year-on-year, pretax operating margin increased 434 basis points to 27.2% largely due to the higher-margin exploration activities that benefited Wireline and Testing Services and higher software sales of SIS.

Drilling Group

Six-months 2012 revenue of $7.79 billion was 20% higher than the previous year primarily due to the significantly improved exploration and development activities of M-I SWACO, Drilling & Measurements, and the other Smith technologies in North America offshore and in the international markets.

Year-on-year, pretax operating margin increased 248 basis points to 17.9% primarily due to the increase in higher-margin activities of Drilling & Measurements, M-I SWACO and Drilling Tools and Remedial Technologies that benefited from higher-margin exploration activities in North America offshore and in the international markets, mainly in the Europe/CIS/Africa Area.

Production Group

Six-months 2012 revenue of $7.28 billion increased 22% year-on-year. Well Services grew both in North America and internationally, with international growth led by Latin America and by Europe/CIS/Africa. Well Intervention, Artificial Lift and Completions Technologies posted strong growth also across all Areas.

Year-on-year, pretax operating margin decreased 227 basis points to 17.0% mainly due to decline in margins for Well Services technologies, primarily in North America, as a result of pricing pressure and cost inflation. This was mitigated in part by the margin expansion experienced in Well Intervention and Completions technologies.

 

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Table of Contents

INTEREST & OTHER INCOME

Interest & other income consisted of the following for the second quarter and six months ended June 30, 2012 and 2011:

 

     (Stated in millions)  
     Second Quarter      Six Months  
     2012      2011      2012      2011  

Equity in net earnings of affiliated companies

   $ 39       $ 19       $ 76       $ 41   

Interest income

     6         10         16         19   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 45       $ 29       $ 92       $ 60   
  

 

 

    

 

 

    

 

 

    

 

 

 

OTHER

Research & engineering and General & administrative expenses, as a percentage of Revenue, for the second quarter and six months ended June 30, 2012 and 2011 were as follows:

 

     Second Quarter     Six Months  
     2012     2011     2012     2011  

Research & engineering

     2.8     3.1     2.8     3.1

General & administrative

     1.0     1.5     1.0     1.4

General & administrative decreased as a percentage of revenue, in both the second quarter and six months compared to the prior year primarily as a result of the $50 million donation to the Schlumberger Foundation in the second quarter of 2011 (see discussion of Charges and Credits below).

The effective tax rate for the second quarter of 2012 was 24.2% compared to 24.8% for the same period in 2011 and 24.0% for the six months ended June 30, 2012 as compared to 24.3% for the same period in 2011.

CHARGES AND CREDITS

Schlumberger recorded the following charges during the second quarter and the first six months of 2012 and 2011.

2012:

In the second quarter of 2012, Schlumberger recorded $22 million of pretax merger and integration-related charges ($21 million after-tax) primarily relating to its August 27, 2010 acquisition of Smith. This amount is classified in Merger & integration in the Consolidated Statement of Income.

In the first quarter of 2012, Schlumberger recorded $15 million of pretax merger and integration-related charges ($13 million after-tax) in connection with the acquisition of Smith. This amount is classified in Merger & integration in the Consolidated Statement of Income.

2011:

The following is a summary of the second quarter of 2011 charges:

 

     (Stated in millions)       
     Pretax      Tax      Net     

Consolidated Statement
of Income 
Classification

Merger-related integration costs

   $ 32       $ 8       $ 24       Merger & integration

Donation to the Schlumberger Foundation

     50         10         40       General & administrative
  

 

 

    

 

 

    

 

 

    
   $ 82       $ 18       $ 64      
  

 

 

    

 

 

    

 

 

    

The following is a summary of the charges recorded during the first six months of 2011:

 

     (Stated in millions)       
     Pretax      Tax      Net     

Consolidated Statement
of Income 
Classification

Merger-related integration costs

   $ 65       $ 13       $ 52       Merger & integration

Donation to the Schlumberger Foundation

     50         10         40       General & administrative
  

 

 

    

 

 

    

 

 

    
   $ 115       $ 23       $ 92      
  

 

 

    

 

 

    

 

 

    

 

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Table of Contents

CASH FLOW

Net Debt represents gross debt less cash, short-term investments and fixed income investments, held to maturity. Management believes that Net Debt provides useful information regarding the level of Schlumberger indebtedness by reflecting cash and investments that could be used to repay debt.

Details of Net Debt follow:

 

           (Stated in
millions)
 
     Jun. 30,     Jun. 30,  
     2012     2011  

Net Debt, beginning of year

   $ (4,850   $ (2,638

Income from continuing operations

     2,680        2,039   

Depreciation and amortization (1)

     1,706        1,590   

Excess of equity income over dividends received

     (77     (41

Stock-based compensation expense

     167        132   

Pension and other postretirement benefits expense

     193        184   

Pension and other postretirement benefits funding

     (338     (122

Increase in working capital

     (2,720     (1,980

Capital expenditures

     (2,081     (1,716

Multiclient seismic data capitalized

     (183     (131

Dividends paid

     (701     (631

Stock repurchase program

     (823     (1,551

Proceeds from employee stock plans

     232        261   

Business acquisitions

     (682     82   

Proceeds from divestiture of Wilson distribution business

     906        —     

Proceeds from divestiture of Global Connectivity Services business

     —          385   

Currency effect on net debt

     160        (328

Other

     (309     154   
  

 

 

   

 

 

 

Net Debt, end of period

   $ (6,720   $ (4,311
  

 

 

   

 

 

 

 

(1) 

Includes multiclient seismic data costs.

 

     (Stated in millions)  
     Jun. 30,     Jun. 30,     Dec. 31,  

Components of Net Debt

   2012     2011     2011  

Cash

   $ 1,521      $ 1,378      $ 1,705   

Short-term investments

     1,972        3,555        3,122   

Fixed income investments, held to maturity

     261        318        256   

Short-term borrowings and current portion of long-term debt

     (2,521     (3,817     (1,377

Long-term debt

     (7,953     (5,745     (8,556
  

 

 

   

 

 

   

 

 

 
   $ (6,720   $ (4,311   $ (4,850
  

 

 

   

 

 

   

 

 

 

Key liquidity events during the first six months of 2012 and 2011 included:

 

   

On April 17, 2008, the Schlumberger Board of Directors approved an $8 billion share repurchase program for shares of Schlumberger common stock, to be acquired in the open market before December 31, 2011, of which $7.0 billion had been repurchased as of June 30, 2012. On July 21, 2011, the Schlumberger Board of Directors approved an extension of this repurchase program to December 31, 2013.

 

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Table of Contents

The following table summarizes the activity, during the six months ended June 30, under the April 17, 2008 share repurchase program:

 

     (Stated in millions except per share amounts)  
     Total cost
of shares
purchased
     Total number
of shares
purchased
     Average price
paid per

share
 

Six months ended June 30, 2012

   $ 823         11.9       $ 69.13   

Six months ended June 30, 2011

   $ 1,551         17.9       $ 86.76   

 

   

Cash flow provided by operations was $1.5 billion in the first six months of 2012 compared to $2.1 billion in the first six months of 2011 with an increase in working capital requirements offset in part by an increase in earnings before depreciation and amortization expense.

 

   

Capital expenditures were $2.1 billion in the first six months of 2012 compared to $1.7 billion during the first six months of 2011. Capital expenditures for the full year of 2012 are expected to be approximately $4.5 billion as compared to $4.0 billion in 2011.

 

   

During the second quarter of 2012, Schlumberger completed the divestiture of its Wilson distribution business for $906 million in cash.

 

   

During the second quarter of 2011, Schlumberger completed the divestiture of its Global Connectivity Services business for $385 million in cash.

 

   

During the first quarter of 2011, Schlumberger issued $1.1 billion of 4.20% Senior Notes due 2021 and $500 million of 2.65% Senior Notes due 2016.

 

   

During the first quarter of 2011, Schlumberger repurchased all of its outstanding 9.75% Senior Notes due 2019, 8.625% Senior Notes due 2014 and 6.00% Senior Notes due 2016 for approximately $1.26 billion.

At times, Schlumberger experiences delays in payments from certain of its customers. Schlumberger operates in approximately 85 countries. At June 30, 2012, only five of those countries individually accounted for greater than 5% of Schlumberger’s accounts receivable balance of which only one, the United States, represented greater than 10%. A delay in payment or the nonpayment of amounts that are owed to Schlumberger could have a material adverse effect on Schlumberger’s results of operations and cash flows.

As of June 30, 2012 Schlumberger had $3.5 billion of cash and short-term investments on hand. Schlumberger had separate committed debt facility agreements aggregating $4.1 billion with commercial banks, of which $2.3 billion was available and unused as of June 30, 2012. This included $3.5 billion of committed facilities which support commercial paper programs in the United States and Europe. Schlumberger believes that these amounts are sufficient to meet future business requirements for at least the next twelve months.

Schlumberger had $1.4 billion of commercial paper outstanding as of June 30, 2012.

FORWARD-LOOKING STATEMENTS

This Form 10-Q, and 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 segments (and for specified products or geographic areas within each segment); oil and natural gas demand and production growth; oil and natural gas prices; Schlumberger’s effective tax rate; improvements in operating procedures and technology; capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger’s customers; future global economic conditions; and future results of operations. These statements are subject to risks and uncertainties, including, but not limited to, 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; general economic, political and business conditions in key regions of the world; pricing erosion; weather and seasonal factors; the ability to respond to increased activity levels; 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; and other risks and uncertainties detailed in our second-quarter 2012 earnings release, our most recent Form 10-K and other filings that we make with the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying

 

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assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. Schlumberger 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 Schlumberger, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” of the Schlumberger Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Schlumberger’s exposure to market risk has not changed materially since December 31, 2011.

 

Item 4. Controls and Procedures.

Schlumberger has carried out an evaluation under the supervision and with the participation of Schlumberger’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of Schlumberger’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, Schlumberger’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that Schlumberger 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. Schlumberger’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 has been no change in Schlumberger’s internal control over financial reporting that occurred during the quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, Schlumberger’s internal control over financial reporting.

 

* Mark of Schlumberger

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

The information with respect to Item 1 is set forth under Note 12 - Contingencies, in the Consolidated Financial Statements.

 

Item 1A. Risk Factors.

As of the date of this filing, there have been no material changes from the risk factors previously disclosed in Part 1, Item 1A, of Schlumberger’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

None.

Issuer Repurchases of Equity Securities

On April 17, 2008, the Schlumberger Board of Directors (the “Board”) approved an $8 billion share repurchase program for Schlumberger common stock, which may be acquired in the open market or in negotiated transactions. On July 21, 2011, the Board approved an extension of this repurchase program to December 31, 2013. As of June 30, 2012, $1.0 billion remained available for repurchase under the existing repurchase authorization.

Schlumberger’s common stock repurchase program activity for the three months ended June 30, 2012 was as follows:

 

                   (Stated in thousands, except per
share amounts)
 
     Total number
of shares
purchased
     Average price
paid per share
     Total number of
shares purchased
as
part of publicly
announced
program
     Maximum value
of shares that

may yet be
purchased under

the program
 

April 1 through April 30, 2012

     1,442.8       $ 69.79         1,442.8       $ 1,426,620   

May 1 through May 31, 2012

     1,636.5       $ 68.97         1,636.5       $ 1,313,758   

June 1 through June 30, 2012

     4,442.4       $ 64.18         4,442.4       $ 1,028,648   
  

 

 

    

 

 

    

 

 

    
     7,521.7       $ 66.30         7,521.7      
  

 

 

    

 

 

    

 

 

    

In connection with the exercise of stock options under Schlumberger’s incentive compensation plans, Schlumberger routinely receives shares of its common stock from optionholders in consideration of the exercise price of the stock options. Schlumberger does not view these transactions as requiring disclosure under this Item as the number of shares of Schlumberger common stock received from optionholders is not material.

 

Item 3. Defaults Upon Senior Securities.

None.

 

Item 4. Mine Safety Disclosures.

The barite and bentonite mining operations of M-I LLC, which, following our acquisition of Smith, became an indirect wholly-owned subsidiary, 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.

None.

 

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Table of Contents
Item 6. Exhibits.

Exhibit 3.1 - Articles of Incorporation of Schlumberger Limited (Schlumberger N.V.) (incorporated by reference to Exhibit 3 to Schlumberger’s Current Report on Form 8-K filed on April 7, 2011).

Exhibit 3.2 - Amended and Restated By-laws of Schlumberger Limited (Schlumberger N.V.) (incorporated by reference to Exhibit 3.1 to Schlumberger’s Current Report on Form 8-K filed on July 20, 2012).

* 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 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 - The following materials from Schlumberger Limited’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statement of Income; (ii) Consolidated Statement of Comprehensive Income; (iii) Consolidated Balance Sheet; (iv) Consolidated Statement of Cash Flows; (v) Consolidated Statement of Equity, and (vi) Notes to Consolidated Financial Statements.

 

* Filed with this Form 10-Q.
** Furnished with this Form 10-Q.

 

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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 and in his capacity as Chief Accounting Officer.

 

  Schlumberger Limited
  (Registrant)
Date: July 25, 2012  

/S/    HOWARD GUILD

  Howard Guild
  Chief Accounting Officer and Duly Authorized Signatory

 

31

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