Schlumberger Annual Report 2018

Plain-text annual report

2018 Annual Report Schlumberger Limited Schlumberger is the world’s leading provider of technology for reservoir characterization, drilling, production, and processing to the oil and gas industry. Working in more than 85 countries and employing approximately 100,000 people who represent over 140 nationalities, Schlumberger supplies the industry’s most comprehensive range of products and services, from exploration through production, and integrated pore to pipeline solutions that optimize hydrocarbon recovery to deliver reservoir performance. Financial Performance (Stated in millions, except per-share amounts) Year ended December 31 Revenue Net income (loss) attributable to Schlumberger Diluted earnings (loss) per share Cash dividends per share Cash flow from operations 2018 $ 32,815 2,138 $ 1.53 $ 2.00 $ 5,713 $ 2017 30,440 (1,505) (1.08) 2.00 5,663 $ $ $ $ $ 2016 $ 27,810 $ (1,687) (1.24) $ $ 2.00 $ 6,261 Safety Performance Year ended December 31 Combined Lost Time Injury Frequency (CLTIF)—Industry Recognized Auto Accident Rate mile (AARm)—Industry Recognized 2018 1.09 0.34 2017 0.90 0.34 2016 0.90 0.25 Front Cover A field engineer uses Concert* well testing live performance technology to carry out data analysis of real-time surface and downhole measurements during a well testing operation. Concert performance significantly increases operational control and collaboration, providing a step change in operational efficiency with a particular focus on safety and the environment. Inside Front Cover The sun begins to set on the Palliser Block in Alberta, Canada, where Schlumberger Production Management is partnering with Torxen Energy, a private Canadian E&P company, to increase operations efficiency and well productivity. Contents Inside Front Cover Financial and Safety Performance 2 Letter to Shareholders 5 Performed by Schlumberger 6 Technology Drives E&P Performance 8 The Path to Digital Technology Integration 10 Integrated Drilling 12 Integrated Completions 14 Digitally Enabled Well Testing 15 Integrated Production Systems 16 Schlumberger Production Management 18 The Key to Long-Term Success 19 2018 Form 10-K Directors, Officers, and Corporate Information Inside Back Cover 1 Letter to Shareholders The gradual recovery of the oil price during the ﬁrst three quarters of 2018 drove strong global activity, particularly in the development of unconventional land resources in the US. Once oil prices began to fall sharply in the fourth quarter, however, US land activity slowed while international activity remained firm as E&P investment continued to be robust. Against this backdrop, Schlumberger revenue increased 8% year-on-year to reach $32.8 billion with international revenue growth outpacing that of North America in the third quarter. Earnings grew for the second consecutive year. Paal Kibsgaard Chairman and Chief Executive Officer In the oil markets, sentiment was stable and positive for the first three quarters of 2018, supporting the rising oil price environment. OECD crude and product stocks continued a downward trend that began in the third quarter of 2016. Production cuts from OPEC and Russia in 2017 strengthened the oil price. Activity picked up globally and, as oil reached its peak price for the year in October, production from major producers, including unconventional US production, began to surprise to the upside. Output in Libya rebounded sharply; Saudi Arabia and the United Arab Emirates each recorded record production output; and dispensations from the Iran export sanctions all contributed to increased production that more than offset declines elsewhere. As a result, the market became oversupplied at the beginning of the fourth quarter despite the anticipated slowdown in production growth in the Permian Basin due to capacity takeaway constraints. This, coupled with concerns about global oil demand, caused oil prices to plummet by more than 40% during the fourth quarter of 2018 and led to a sudden and sharp decrease in US land well completions activity during the final months of the year. In North America, our financial results were driven by the strength of activity in the development of shale oil resources that increased US production to record levels. In line with this, our OneStim® business grew by 41% year-over-year, boosted by the performance of our technology and the benefit of our transformation program, which has streamlined our operations. In drilling services, the market leadership of our rotary steerable systems and the increasing deployment of our innovative range of drill bits drove growth throughout the year. Offshore activity across North America, however, remained subdued although customer activity showed early signs of growth toward the end of the year. 2 International revenue grew faster than in North America during the third quarter of 2018 for the first time since 2014, marking the beginning of a positive activity trend after three consecutive years of declining revenue. This was driven by the increased activity of the national oil companies as they began to accelerate investment in longer-term resource development. One major result of this for Schlumberger during the year was the strong demand for our integrated drilling services, where we deployed an additional 80 rigs on major projects in Saudi Arabia, India, Norway, Russia, and Iraq. These integrated drilling projects represent significant growth and performance upside for our operations in the coming years. Our performance during the year benefitted from new technology sales that remained steady at 23% of total sales. During the year, we commercialized new technologies such as the HyperBlade* hyperbolic diamond element bit, GyroSphere* MEMS gyro-while-drilling service, Fulcrum* cement-conveyed frac performance technology, and Concert* well testing live performance. This strong commitment to technology innovation is based on our firm belief that technology drives E&P performance by improving operational efficiency and lowering the cost per barrel. Although our health and safety performance in the fourth quarter was our safest on record regarding recordable injuries, our full-year performance deteriorated compared with the previous year. Regretfully, we suffered three driving-related fatalities in North America involving two contractors and one employee, and a contractor was fatally injured in a rigsite incident. In our continual pursuit of workplace safety, our focus for 2019 will leverage the Schlumberger SAFE program, in which everyone in the company makes a personal commitment to themselves, their families, and their colleagues to ensure their own safety and the safety of others. This program has multiple initiatives, including the use of new mobile technologies to increase driving safety. “ Taken together, our people, technology, and processes make us the partner of choice in the sustainable, responsible development of hydrocarbon resources.” 2018 Revenue 23% New Technology 77% Other Revenue During the past four years, we have modernized our operating platform, creating stronger and more specialized operations support functions. Now that our transformation is largely complete, the improvements we have made enhance the development and delivery of our technology along with the reliability of our products and services. Strengthened by our increased focus on teamwork and functional accountability, these combined improvements have resulted in more robust execution capabilities and increased performance. One of our greatest strengths is the diversity of our people, with men and women of many nationalities, cultures, and technical backgrounds working together and sharing common objectives. We attract and retain top performers worldwide by addressing the evolving needs of our workforce in terms of competency development and quality of life. Our domain experts provide a competitive advantage, enabling us to design and execute efficient operations that maximize hydrocarbon recovery while our technology and processes are helping to reduce the environmental footprint of E&P operations. We work closely with our customers to achieve environmental, social, and governance (ESG) objectives; mitigate social and environmental risks; and 3 lower greenhouse gas emissions in field operations. This is integral to achieving our goal to improve social and economic conditions in the communities where we live and work. Taken together, our people, technology, and processes make us the partner of choice in the sustainable, responsible development of hydrocarbon resources. Looking forward, we see a series of factors that will likely define the oil market in the coming year. These include the impact of the latest OPEC and Russia production cuts, slowing production growth from North America land driven by lower investments and activity toward the end of 2018, the expiration of the dispensations given to the Iran export sanctions, and the efforts being made to resolve the global trade discussions. Based on these factors, we expect the oil market sentiments to improve over the course of 2019, leading to a corresponding recovery in oil prices. In a market environment with continued robust economic growth, a multiyear increase in international E&P investment will be required. Through the success we have achieved in modernizing our operating platform, expanding our technology offering, and evolving our business models, we are very well positioned to outgrow the market in the coming upcycle, generate superior operating margins, and deliver cash returns that benefit our shareholders. On behalf of the entire Schlumberger organization around the world, I would like to thank our customers and our shareholders for their continued confidence and support. I would also like to personally thank each Schlumberger employee for their strong commitment and steadfast dedication to the company. The future remains bright for Schlumberger. Paal Kibsgaard Chairman and Chief Executive Officer 4 Performed by Schlumberger This was the 19th year of the Performed by Schlumberger program, which recognizes projects and their team members who have demonstrated exceptional levels of teamwork, innovation, and business impact for Schlumberger. Only one project receives the Chairman’s Award, representing an outstanding example of our core values: our people, our commitment to technology, and our determination to produce superior proﬁts. In 2018, 405 projects competed in the Performed by Schlumberger program. Schlumberger people around the globe cast their votes for the top three submissions, thereby shortening the list of contenders to seven projects. Several among these seven were recognized as winners of a Silver or Gold Performed by Schlumberger award, but only one received the highest accolade—the Chairman’s Award. This year’s winner was the Wireline product line with The Rise of Remote project. Wireline is at the forefront of digital enablement in the E&P industry by combining downhole technologies with a highly effective and robust surface organizational integration between wellsites and remote operations centers where domain experts provide borderless competency for customers on a 24/7 basis. Wireline remote operations have reduced the wellsite footprint; health, safety, and environment (HSE) exposure; and operational costs. These advances translate to setting new benchmarks for operational efficiency and decreased nonproductive time. Remote operations mean that informed decisions can be made in real time with a higher level of collaboration between customers and Schlumberger domain experts, such as drilling and reservoir engineers. The Rise of Remote project team received the Performed by Schlumberger Award from Chairman and CEO Paal Kibsgaard (second from left) and EVP Corporate Engagement Jean-François Poupeau (far left). Also pictured, from the left, Maria Lorente, Djamel Idri, Sebastien Roche, Nicholas Pantin, Swaty Gupta, and Jessica Latka. Wireline remote operations embrace a collaborative mindset, end-to-end systems knowledge, and redesigned workﬂows that ﬁrmly establish and support a new way of working based on innovative technology and domain expertise. This begins with a critical assessment of how the data are used across reservoir characterization, well construction, and ﬁeld production. During the development process as it is conventionally practiced today, many types of data exist in silos, making holistic analysis challenging. Without a complete systems approach, precious information and time are lost because the lack of interface among different systems makes it difficult to share localized knowledge. The Wireline product line has 13 remote operations centers around the globe that beneﬁt from our domain experts, most of whom have more than 25 years of ﬁeld experience. Since January 2017, these centers have completed more than 30,000 hours of logging on more than 3,650 projects worldwide. More importantly, the remote operations model has decreased nonproductive time by 50% compared with conventional wireline models. This includes the ability of the remote operations engineers to provide their problem-solving expertise on ﬁve times as many operations without physically traveling to each location. The Rise of Remote project is being adopted across Schlumberger and by our customers to capitalize on the value unlocked by digital enablement in the E&P industry. 5 Well construction and operations specialists in the drilling control room prepare to run casing using the Schlumberger rig of the future’s advanced mechanization features and integrated equipment sequencing software. This rig is part of the OneDrill integrated drilling system. 6 Technology Drives E&P Performance New technology has enabled the E&P industry to address technical challenges within a variety of operating and business environments that are in a constant state of change. This has driven performance and pushed the technical envelope while delivering a superior return on investment to the E&P industry. Schlumberger has established an extensive portfolio of pore to pipeline technologies and services that addresses evolving customer needs by increasing efficiency, improving well productivity, and lowering the cost per barrel while helping to reduce environmental impacts. In the past few years, we have enhanced our portfolio by adding new levels of technology integration and digital-technology enablement in our oilﬁeld services operations. Whether we develop discrete technologies or fully integrated systems, Schlumberger expects its technologies and services to do more, in the same way that consumer digital technologies, such as mobile phones, have dramatically altered the way we live our daily lives. Although our portfolio addresses evolving customer needs by increasing efficiency and improving well productivity while helping to reduce environmental impacts, harnessing more from our technologies is increasingly important as market dynamics change more rapidly. A more agile approach—building further on integration and digital enablement in our oilﬁeld services operations—is required to continue to deliver full-cycle returns. Schlumberger seeks to exceed its customers’ needs by deploying innovative, digitally enabled technology combined with a new way of working and ﬂexible business models that together drive company performance. 7 The Path to Digital Technology Integration The current oil price environment has driven many oil and gas operators to focus on maximizing cash flow by producing their fields harder and prioritizing short-term actions versus longer- term reservoir management. Given this scenario, how can the industry achieve a step change in E&P performance over the full cycle for the benefit of all stakeholders? One answer is by adopting new technologies that, from the start, have been engineered to leverage the latest advances in collaborative and digital enablement. When these digitally enabled technologies are combined with our domain expertise, streamlined processes, and integrated systems, it makes us a strong partner in the sustainable development of hydrocarbon resources. To capitalize on the latest advances in digital enablement, Schlumberger has established three technology centers that innovate within the rapidly evolving world of digital technology, automation, and artificial intelligence. Established in 2014, our California-based center in Menlo Park focuses on developing software that makes it possible to apply new technology to oilfield challenges. Since 2016, our industrial internet center in Sugar Land, Texas, has focused on architecture and infrastructure development for the cloud, big data, industrial internet of things (lIoT), automation, and cybersecurity across multiple platforms. In 2017, the Schlumberger-Doll Research Center in Cambridge, Massachusetts—which was established in 1948—added a robotics department to support system automation, including flexible manufacturing of field equipment, such as drilling rigs. Together, these centers are helping to create seamless digital workflows for E&P domains by tapping into our reservoir expertise and leadership in hardware and software development. This unique combination is enabling Schlumberger to construct a digital ecosystem for today’s industry needs that can also incorporate the next generations of hardware and software solutions for the technical challenges that lie ahead. Recent advances in hardware and software solutions include HyperBlade hyperbolic diamond element bit, GyroSphere MEMS gyro-while-drilling service, Fulcrum cement-conveyed frac performance technology, and Concert well testing live performance. Each of these technologies helps E&P company performance by either increasing operational efficiency or improving well productivity and, in each case, also decreasing the environmental impacts of oilfield operations. An unconventional completions architect at the Schlumberger Software Technology Innovation Center in Menlo Park, California, uses a virtual reality headset to view the digital twin of an actual wellsite (left and right sides of larger photo). He is simultaneously collaborating with ﬁeld operations experts, laying out equipment to improve the efficiency of the rig-up process. 8 Technology Spotlight: GyroSphere Service Oilﬁeld drilling technology is subject to environmental conditions such as severe mechanical shocks and vibrations. A technician uses a ﬁeld emission scanning electron microscope to analyze a microelectromechanical system (MEMS) sensor for gyro surveying while drilling in the oil ﬁeld. Solid-state technology enables the GyroSphere MEMS sensor to withstand downhole shock and vibration during drilling beyond the limits of current gyro technologies. Gyro surveying is an essential part of drilling because it delivers accurate direction and inclination data when regular measurements-while-drilling (MWD) tools cannot achieve that goal. However, most conventional gyro-while-drilling systems continue to depend on mechanical gyroscopes that adversely affect the efficiency of drilling operations by requiring a wait for running surveys after connections. They are also susceptible to the ordinary shock and vibration of drilling activities, which means they must be recalibrated after every single run—taking up further valuable rig time. In 2018, Schlumberger introduced the GyroSphere MEMS gyro-while-drilling service to improve drilling operational efficiency. The GyroSphere service uses microelectromechanical systems (MEMS), which is the same solid-state technology used within a cell phone GPS unit to pinpoint location. Gyro-surveying-while-drilling measurements using the GyroSphere service are taken during drillpipe connections and the data is available right after drilling mud begins circulating in the well, instead of 30 minutes later, as is the case with mechanical gyros. Two surveys can now be completed in the same time it takes conventional gyros to start one survey. This represents a signiﬁcant time savings for operators routinely using gyro-while-drilling surveys to drill upper sections of wells in congested areas. The MEMS gyro-while-drilling surveys sustain the accuracy needed for today’s complex drilling environment. When combined with MWD surveys, gyro surveys can reduce measurement uncertainty by up to 45%, which is beneficial in long horizontal well sections or when drilling smaller targets. Unlike other gyro-surveying-while-drilling services in the oil ﬁeld today, the GyroSphere service more transparently delivers gyro-surveying data that increases drilling operation efficiency and tool reliability while improving access to small-target reservoirs. Improving drilling efficiency also helps to reduce the environmental impacts of drilling operations by reducing the amount of time needed for operations. Validated through extensive testing and ﬁeld trials in the North Sea, Ecuador, Africa, and Far East Asia, the service has produced more than 20,000 successful surveys with zero failures. In Russia, GyroSphere service enabled a customer to avoid wellbore collisions while accessing reservoirs from existing structures, thereby eliminating the drilling risks associated with deploying conventional gyro surveys. 9 Integrated Drilling Given that approximately two-thirds of the oil discovered is currently left in the ground, the application of customized technology is key to increasing cost-efficient field development. During the last few years, the industry has depended on enhancements of discrete drilling technologies to improve drilling performance. Optimizing drilling efficiency, however, demands expert knowledge of the workflow and every component of the system—from drill bit to top drive. The best way to achieve a new level of efficiency requires a holistic and collaborative approach to managing the entire drilling system. Consider that in the Permian Basin, a Schlumberger study identified more than 4,000 separate steps in drilling a well that require over 200 workflows. Yet, when an operator integrates individual services from multiple providers, operational time and resources may not be optimized. And when resources such as the delivery of equipment and consumables are not optimized based on the unique needs of the operation, potential outcomes include higher operating costs and an unnecessarily large environmental footprint. Conventional drilling operations often introduce planning inefficiencies and manually intensive workflows that can be remedied by an integrated drilling system with digitally enabled hardware and software that leverages the value from all the data generated during operations. In the planning phase, for example, the DrillPlan* coherent well construction planning solution learns from previous experiences to design the well and deliver a superior digital well plan. By combining the DrillPlan solution with the advanced operational control in the OneDrill* integrated drilling system, drilling workflows can be optimized even further. This is particularly important when establishing the necessary rig schedule to account for material use, delivery, and shipping, and determining inventory levels. Additional software within the OneDrill system handles operations management tasks, such as dispatching construction activities, detailed scheduling, and assuring operational integrity to optimize resources. By streamlining the management of resources at the wellsite—such as equipment, consumables, and the number of people—we can reduce transportation requirements and decrease fuel consumption and CO2 emissions. The OneDrill system will deliver increased levels of operational reliability and efficiency when deployed with the Schlumberger land rig of the future and its unique hardware and software platform. This land rig incorporates automated pipe handling and more than 1,000 sensors for equipment control, system health monitoring, and process monitoring. The sensors monitor and record more than 350 rig activities to improve operations reliability based on predictive health maintenance. Predictive maintenance extends equipment and tool life, reducing downtime and operating costs by taking proactive remedial action. This schematic illustrates part of a digital workﬂow using the DrillPlan coherent well construction planning solution. The DrillPlan solution enables collaboration between the E&P company’s multidisciplinary well planning team and service company domain experts during various stages of the well planning process. 10 Technology Spotlight: HyperBlade Bit The HyperBlade hyperbolic diamond element bit reduces drilling costs by increasing the rate of penetration with improved steering response in soft and plastic rock formations. The new technology incorporates the Hyper hyperbolic diamond cutting elements that cut 20% deeper into rock compared with conventional polycrystalline diamond compact cutters. As operating environments become increasingly complex and remote, ﬁeld equipment longevity, durability, and reliability are essential. Drillers need to be able to stay in control of downhole conditions, and the drill bit—the part of the bottomhole assembly (BHA) that cuts the rock to create the borehole—is a critical component in overall drilling efficiency. Diamond element technology is at the heart of the Schlumberger strategy for optimal drilling performance. Our strategic acquisition of Smith International in 2010 added synthetic diamond material technology and manufacturing to the company through MegaDiamond, a Schlumberger company. MegaDiamond invented the ﬁrst polycrystalline diamond material, which was used to create polycrystalline diamond compact (PDC) cutters that have greatly improved drilling performance. As the only oilﬁeld service company that designs and manufactures PDC cutters, Schlumberger is uniquely equipped to ensure that the development of our cutting elements is fully aligned with what our customers need to meet their drilling challenges. In 2018, Schlumberger extended its Blade family of diamond element bits with the introduction of the HyperBlade hyperbolic diamond element bit. The HyperBlade bit uses a 3D Hyper* hyperbolic diamond cutting element with a proﬁle that cuts more than 20% deeper into soft and plastic formations. In these formation types, ﬂat PDC cutters can be compromised when long ribbons of cuttings material impede the bit cutting structure. The Hyper element minimizes this effect by creating small cuttings chips through the combination of its hyperbolic geometry and the chip-breaking proﬁle at the center of the element, which also improves cuttings removal. This also helps the HyperBlade bit increase the rate of penetration (ROP) in a variety of drilling environments without compromising steerability or directional tracking. Technology such as the HyperBlade bit also helps limit the environmental impacts of drilling operations because less time is spent drilling due to efficiency gains, which in turn decreases the emissions associated with drilling operations as well as a reduction in noise exposure. HyperBlade bit technology helped to reduce drilling time for a customer in the Denver-Julesburg Basin in Colorado. In this soft formation, vertical, curve, and lateral sections of the wells are drilled in one run, with each run using one bit and one BHA. A BHA ﬁtted with a HyperBlade bit proved to be an excellent solution. In this case, the HyperBlade bit achieved an average ROP increase of 20% in three wells on two separate pads within the same ﬁeld. In one well, there was a 50% improvement in ROP in the vertical section, which saved the operator 7.5 hours of drilling time compared with offset wells using conventional bits. 11 Integrated Completions In North America, the expansion of unconventional resource development has benefitted from adopting technologies and processes, such as multistage completions, to improve operational efficiency and reduce operating costs. Furthermore, the integration of best-in-class hydraulic fracturing, multistage completions, and pumpdown perforating technologies is leading to increased operational efficiency and improved long- term reservoir management. The OneStim integrated completions system brings domain experts together in state-of-the-art facilities to align every aspect of the well completions process, from operational planning to resource management. These fully integrated services start with mining, delivering, and managing proppant at the wellsite. The unique vertical integration of sand mines, trucking, and an extensive rail network ensure on-time delivery of proppant to Schlumberger North American operations, optimizing logistics and fleet utilization. In the Eagle Ford Shale, OneStim helped a customer decrease pad-to-pad mobilization by 50% and more than double the amount of stages placed per day. Integrating technologies such as the CAMShale* fracturing fluid delivery and flowback service reduced rig-up time—from three hours to less than 18 minutes. The number of connections needed was similarly greatly reduced by using Monoline* flanged-connection fracturing fluid delivery technology to conduct single-line rig-up. Our hydraulic fracturing technologies are helping operators complete more stages per day and optimize reservoir stimulation. In unconventional reservoirs, parent wells are initially drilled and subsequently followed by child, or infill, wells. As subsurface dynamics change between parent and child wells, BroadBand Shield* fracture-geometry control The automated stimulation delivery platform shown above incorporates a self-contained proppant delivery and storage system that streamlines OneStim materials management; improves health, safety, and environmental performance; and increases operational efficiency. 12 service and WellWatcher Stim* stimulation monitoring service make it possible to maintain the productivity of existing wells while avoiding detrimental parent-child well interactions. For a customer in North Dakota, BroadBand Shield service helped overcome such an interaction during the stimulation of a child well, saving approximately $400,000 in intervention costs and more than two weeks of deferred production in neighboring parent wells. Through vertical integration of sand supply via mining, logistics, and pumping services as well as its streamlined management of resources and operations, the OneStim system enables efficiencies that result in greater cost savings. Our novel fluid and proppant technologies can also decrease the water and sand requirements for each well. On average, the HiWAY* flow-channel fracturing technique uses 40% less proppant in hydraulic fracturing treatments. Compared with slickwater treatments, the HiWAY technique uses 25% less water, decreasing the environmental impacts at the wellsite. The environmental impacts of well completions operations can be reduced even further by using the Schlumberger Stewardship Tool. This innovative software can evaluate every phase of a well completions project by managing risk, mitigating pollution, minimizing waste, and lowering greenhouse gas emissions, among other considerations. The tool provides quantitative results based on specific job information, from the type of wellsite equipment needed and how it is powered, to water and chemical usage. The Stewardship Tool can assess 19 key performance indicators, which are aligned with the Global Reporting Initiative, an independent international standards organization, in its G4 Sustainability Reporting Guidelines. Technology Spotlight: Fulcrum Technology Horizontal drilling has the potential to increase well productivity by exposing more of the reservoir to the wellbore, while also reducing operational costs and environmental impacts. In North America unconventional reservoirs, multistage hydraulic fracturing is the preferred completion technique for long horizontal wells. Several factors affect the success of a fracturing treatment, one of which is cement quality. If there are any channels for fracturing ﬂuid and pressure to escape behind the casing, the efficiency of the fracturing operations will be reduced. Fulcrum cement-conveyed frac performance technology optimizes hydraulic isolation in the horizontal well and enables more efficient fracturing without adding operational complication or cost. During cementing, Fulcrum technology interacts with the ﬂuid that remains after drilling to reduce the potential for ﬂuid communication through any channels. More efficient fracturing means less wasted ﬂuid, proppant, and energy—which in turn reduces environmental impacts because less resources are needed. For example, after ﬁve horizontal wells with 10,000-ft laterals were cemented using Fulcrum technology for a customer in the Permian Basin, measurements of the quality of the cement between casing and formation conﬁrmed superior zonal isolation compared with offset wells cemented with conventional methods. OneStim hydraulically fractured these ﬁve wells and early production was compared with public data Researchers conduct lab tests on Fulcrum cement-conveyed frac performance technology. The Fulcrum system lowers the risk of ﬂuid migration from zone to zone behind the casing, which is important in the isolation of hydraulic fracturing stages in horizontal wells. from representative offset wells within a 10-mile radius that had been completed in the last two years using conventional stimulation methods. Normalized by lateral length, the mean three-month cumulative liquids production in the ﬁve wells treated with Fulcrum technology was 22% higher compared with the offset wells. 13 Digitally Enabled Well Testing When we look to new sources of oil to meet demand and replace reserves, we must first confirm a reservoir’s capacity to produce oil and gas by conducting well tests. The results of these tests affect the accuracy of oil reserve estimates and help determine the efficiency of hydrocarbon recovery. However, conventional well testing presents several challenges—from environmental and safety considerations to the quality and quantity of the data collected. Concert performance technology addresses these challenges by enabling well testing operations with real-time surface and downhole measurements, data analysis, and collaboration capabilities. Concert performance technology uses sensors and cameras to acquire data, monitor, and analyze surface test operations through mobile devices, web-based dashboards, and wearable technology. The data is made available to the customer using the web-based dashboard. When everyone is viewing the same data, diagnostics, and analysis in real time, a new level of collaboration is achieved. Digitally enabling the entire well testing process decreases workforce exposure by reducing the time needed to read sensors and monitor data locally. Cameras also provide continuous video surveillance of burner combustion to manage fallout and emissions. The result is safer well testing operations and a reduced environmental footprint. For example, a customer developing a deepwater gas condensate field offshore Australia that has multiple ultrahigh- rate wells required a dual testing system with two burners and more than twice the number of monitoring stations. The system also included pressure control valves more than 150 m from the well test area. The conventional approach would have required one crew member to observe each burner and perform numerous manual tasks to read gauges and collect and analyze samples. Instead, Concert performance technology enhanced both crew safety and environmental compliance by avoiding manual measurement and providing continuous real-time data and analysis of the well testing operation. Field engineers review real-time data during well testing operations. The Concert well testing live performance includes mobile devices and wearable technology to enhance data analysis and collaboration at the wellsite. 14 Digital technology enables ﬁeld personnel access to critical information during operations. OneSurface engineers use a handheld device to assess dynamic changes in ﬂuid ﬂow inside the hydrocarbon processing plant. Integrated Production Systems A production system often requires several years to design and build, which delays the time to first oil. And because it is inevitable that reservoir production changes over time, facilities must be designed to accommodate every challenging condition that might occur during the field’s productive lifecycle. This means that new facilities are often overdesigned, leading to additional delays and capital outlay and resulting in an environmental footprint that is larger than necessary. When using our OneSurface® reservoir-integrated production system, customers can improve their project economics by maximizing recovery, accelerating production, and managing risk from the very beginning. With the OneSurface system, the process begins with real-time downhole measurement as the vital narrative for optimally designing surface processing facilities that deliver first oil in months rather than years and then proactively match and manage changes in production. OneSurface is built on the synergy of Testing Services and Cameron Process Systems, and brings together leading downhole, surface, and digital technologies that enable teams to anticipate and react to any changes that might occur during production. Once processing begins, information from the reservoir, surface, and facility stream directly into a cloud-based environment. In the cloud, reservoir and production data are seamlessly integrated and analyzed for secure access. The facility automatically keeps the operational team informed and can respond to challenging live flow events faster than possible with human intervention. When dynamic reservoir changes occur, the facility easily incorporates leading process technologies to keep pace with production. This means that the customer can produce export-quality hydrocarbons at optimal levels without compromising cash flow for the life of the field. Flow assurance and production are continuously optimized by the OneSurface system’s ongoing integration of data analytics, process modeling, and the automation of best practices. One example of a OneSurface system is an onshore sour gas and liquids early production facility in the Middle East with a processing capacity of 400 MMcf/d of gas and 2,700 bbl/d of liquids. This fast-track facility uses bacteria from the THIOPAQ O&G process to eliminate hydrogen sulfide, which uses significantly less power and chemicals to treat gas compared with traditional methods. The bacteria consume the hydrogen sulfide in the gas stream and produce solid elemental sulfur that can be used for agricultural purposes. The OneSurface system also enables fast production shutdown and startup with minimal waste due to the simplicity of its design and operation, which further reduces the environmental impacts. Schlumberger achieved first gas for this facility in record time—14 months from the project award—by leveraging its processing technology and engineering and domain expertise. This is one among 80 fast-track facilities that Schlumberger has designed, built, and commissioned globally. 15 Schlumberger Production Management Although most of our work is performed under a standard single-product-line contract in which we price our technologies separately, we can also provide technical support during the different phases of a customer’s project. This begins with our Integrated Services Management (ISM) for which specially trained project managers provide scheduling, planning, and activity coordination for the various Schlumberger product lines involved in the project. Another level is Integrated Drilling Services (IDS), which includes project management, engineering design, and technical optimization capabilities on contracts where commercial terms provide performance- based compensation to Schlumberger. The highest level of integrated services that we provide is through the Schlumberger Production Management (SPM) model, created in 2011 to help develop and comanage customer assets under long-term commercial agreements. In the SPM model, we assume responsibility for full-field management, combining our pore to pipeline portfolio of products and services with our technical expertise and operational experience. This model fills a gap in the market that exists between what a traditional service company can offer and the business models that E&P companies currently use. SPM helps our customers develop or redevelop their fields to increase production, improve cash flow, and optimize reservoir recovery. To date, approximately 10,000 wells have been successfully brought to production through our global team of 2,000 oilfield specialists, which includes 850 engineers and 675 geoscientists. Today we comanage approximately 250,000 bbl/d of oil equivalent production on 15 projects in four continents. Our primary focus is mature oil fields on land. For example, in Alberta, Canada, SPM is increasing operations efficiency and well productivity in the Palliser Block by partnering with Torxen Energy, a private Canadian E&P company. In 2018, we drilled 123 wells and decreased operating expenditures by 30% through increased efficiency and the integration of existing asset operations with SPM into a streamlined and more collaborative team. The total field production rate has increased from 10,000 bbl/d to 21,000 bbl/d of oil through the adoption of new technologies and improved operational processes. To reduce the environmental impacts, high-bleed pneumatic actuators were replaced with low-bleed devices to minimize the total methane released, thus reducing the total carbon dioxide emissions (CO2E). A total of 881 devices were replaced in 2018, resulting in an estimated CO2E reduction of approximately 55,000 tons per year. An aerial view of Schlumberger Production Management completions operations in the Palliser Block in Alberta, Canada. 16 Stewardship Tool Stakeholders discuss how the HiWAY ﬂow-channel fracturing system can decrease not only water usage but also proppant quantities and wellsite equipment requirements—all of which reduces truck traffic and CO2 emissions. The image on the monitor shows the overall reduction in environmental footprint by adopting the optimized case (in blue) versus the conventional method, or base case (in red). The Stewardship Tool has attracted a high level of interest among our customers and other stakeholders as a potential tool for planning development scenarios and holding meaningful discussions about environmental impacts and how to minimize them. The software uses quantitative results to evaluate each phase of a project to manage risk, prevent pollution, minimize waste, and lower greenhouse gas emissions. Schlumberger also uses the Stewardship Tool to help embed sustainability into our engineering and operational practices. By modeling efficiency gains at the wellsite, we can enable our customers to drill faster and with better accuracy while lowering environmental impacts. In well stimulation, for example, emissions, air quality, water usage, noise, and chemical usage are among the 19 key performance indicators that can be measured and evaluated to reduce environmental impacts. Once a base case is established, asset owners and service providers can further optimize the individual components that affect speciﬁc environmental concerns. For example, truck traffic is related to the transport of equipment to the wellsite, delivery of water and proppant, and movement of ﬂowback water from the location. One option to decrease truck traffic would be piping water to the location rather than using trucks. Another option would be using the ﬂowback water at the next wellsite instead of transporting it for offsite disposal. As stakeholders adjust the options available, they can see how the optimized case compares with the base case already established. In addition, by introducing novel technologies engineered to reduce environmental impacts, we can further reduce truck traffic. For instance, rather than using conventional hydraulic fracturing methods, the HiWAY flow-channel fracturing technique combined with state-of-the-art crosslinked gel ﬂuid technology can decrease not only water usage but also proppant quantities and wellsite equipment requirements—all of which would reduce truck traffic. A reduction in truck traffic translates into a reduction of CO2 emissions. We are currently using the Stewardship Tool in completions- related new product development where environmental aspects are a critical area of focus. Additionally, a drilling module has been developed and is in the process of being rolled out to drilling-related product development centers. Externally, we are introducing the Stewardship Tool to customers for use in development planning and stakeholder engagement activities. For more information on the Stewardship Tool and other environmental, social, and governance (ESG) initiatives, please refer to our Global Stewardship Reports, which can be accessed on our public website. 17 The Key to Long-Term Success Schlumberger firmly believes that technology drives E&P performance. For more than 90 years, we have used our innovative technology and reservoir domain expertise to deliver solutions that help improve our customers’ performance. Now, with the large amount of data generated from oilfield operations, we are pairing our domain knowledge and expertise with data- driven analytics to bring our customers a deeper and broader understanding of their entire reservoir development process to reduce risk and deliver full-cycle returns. The amount of data generated from operations is expected to increase exponentially, necessitating a secure way to manage and analyze it. The DELFI* cognitive E&P environment provides our customers with an ecosystem that supports all the tools needed to manage large volumes of data. Customers can combine their data and petrotechnical expertise with a Schlumberger E&P Data Lake on the Google™ Cloud Platform that includes data from more than 1,000 3D seismic surveys, 5 million wells, 1 million well logs, and 400 million production records. Working with this information in the cloud enables our customers to take advantage of data analytics, machine learning, high performance computing, and the IoT to maximize operational efficiency and optimize production. Furthermore, customers and software partners can securely add their intellectual property and unique workflows to help create the best solution for their assets. Customers who engage Schlumberger integrated services are benefitting from project derisking, drilling efficiency, effective project management, and integration synergies. These benefits result in improved project cash flow, reduced operating costs, and accelerated development. The introduction of new digital technologies that leverage all available oilfield data is only the beginning of the journey toward the digitally enabled, fully integrated systems that will create a step change in E&P performance and reduce the environmental impacts of oilfield operations. We are excited to continue to partner with our stakeholders on the journey to meet global E&P industry challenges. A drilling engineer integrates wellbore engineering and geomechanical workﬂows in the DELFI cognitive E&P environment. These workﬂows include the generation of a mechanical earth model so that when a well trajectory design is changed, the wellbore stability analysis in the DrillPlan coherent well construction planning solution is automatically updated. This automated solution signiﬁcantly reduces well planning time. 18 2018 Form 10-K Schlumberger Limited 20 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-4601 Schlumberger N.V. (Schlumberger Limited) (Exact name of registrant as specified in its charter) Curaçao (State or other jurisdiction of incorporation or organization) 42, rue Saint-Dominique Paris, France 5599 San Felipe, 17th Floor Houston, Texas, United States of America 62 Buckingham Gate, London, United Kingdom Parkstraat 83, The Hague, The Netherlands (Addresses of principal executive offices) 52-0684746 (IRS Employer Identification No.) 75007 77056 SW1E 6AJ 2514 JG (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 Name of each exchange on which registered Common Stock, par value $0.01 per share New York Stock Exchange Euronext Paris The London Stock Exchange SIX Swiss Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES Í NO ‘ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ‘ NO Í 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 Í 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) YES Í NO ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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 Í 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 Act). YES ‘ NO Í As of June 30, 2018, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately $92.72 billion. As of December 31, 2018, the number of shares of common stock outstanding was 1,382,964,324. DOCUMENTS INCORPORATED BY REFERENCE Certain information required to be furnished pursuant to Part III of this Form 10-K is set forth in, and is incorporated by reference from, Schlumberger’s definitive proxy statement for its 2019 Annual General Meeting of Stockholders, to be filed by Schlumberger with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2018 (the “2019 Proxy Statement”). SCHLUMBERGER LIMITED Table of Contents Form 10-K PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3 9 Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Market for Schlumberger’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Item 8. Item 9. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . 80 Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 PART III Item 10. Directors, Executive Officers and Corporate Governance of Schlumberger . . . . . . . . . . . . . . . . . 82 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . 82 Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 PART IV Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Certifications 2 PART I Item 1. Business. All references in this report to “Registrant,” “Company,” “Schlumberger,” “we” or “our” are to Schlumberger Limited (Schlumberger N.V., incorporated in Curaçao) and its consolidated subsidiaries. Founded in 1926, Schlumberger is the world’s leading provider of technology for reservoir characterization, drilling, production and processing to the oil and gas industry. Having invented wireline logging as a technique today Schlumberger supplies the industry’s most for obtaining downhole data in oil and gas wells, from exploration through production, and integrated comprehensive range of products and services, pore-to-pipeline solutions that optimize hydrocarbon recovery to deliver reservoir performance. As of December 31, 2018, the Company employed approximately 100,000 people of over 140 nationalities operating in more than 85 countries. Schlumberger has executive offices in Paris, Houston, London and The Hague. Schlumberger operates in each of the major oilfield service markets, through four segments: Reservoir Characterization, Drilling, Production and Cameron. Each segment consists of a number of technology-based service and product lines, or Technologies. These Technologies cover the entire life cycle of the reservoir and correspond to a number of markets in which Schlumberger holds leading positions. The role of the Technologies is to support Schlumberger in providing the best possible service to customers and to ensure that Schlumberger remains at the forefront of technology development and services integration. The Technologies are collectively responsible for driving excellence in execution throughout their businesses; overseeing operational processes, resource allocation and personnel; and delivering superior financial results. The segments are as follows: Reservoir Characterization – Consists of the principal Technologies involved in finding and defining hydrocarbon resources. These include WesternGeco®, Wireline, Testing Services, OneSurface®, Software Integrated Solutions (“SIS”) and Integrated Services Management (“ISM”). (cid:129) WesternGeco is a leading geophysical services supplier, providing comprehensive worldwide reservoir interpretation and data processing services. It provides a highly efficient and scientifically advanced imaging platform to its customers. Through access to the industry’s global marine fleet, it provides accurate measurements and images of subsurface geology and rock properties for multiclient surveys. WesternGeco offers the industry’s most extensive multiclient library. (cid:129) Wireline provides the information necessary to evaluate subsurface formation rocks and fluids to plan and monitor well construction, and to monitor and evaluate well production. Wireline offers both openhole and cased-hole services including wireline perforating. Slickline services provide downhole mechanical well intervention. (cid:129) (cid:129) (cid:129) (cid:129) Testing Services provides exploration and production pressure and flow-rate measurement services both at the surface and downhole. Testing has a network of laboratories that conduct rock and fluid characterization. Testing also provides tubing-conveyed perforating services. OneSurface provides a unique, reservoir-driven, fit-for-purpose integrated production system for accelerating first oil and gas and maximizing project economics. Software Integrated Solutions sells proprietary software and provides consulting, information management and IT infrastructure services to customers in the oil and gas industry. SIS also offers expert consulting services for reservoir characterization, field development planning and production enhancement, as well as industry-leading petrotechnical data services and training solutions. Integrated Services Management provides coordination and management of Schlumberger services, products and third parties in projects around the world. ISM offers a certified integrated services project manager as a focal point of contact between the project owner and the various Schlumberger services, ensuring alignment of project objectives. 3 Drilling – Consists of the principal Technologies involved in the drilling and positioning of oil and gas wells and comprises Bits & Drilling Tools, M-I SWACO, Drilling & Measurements, Land Rigs and Integrated Drilling Services (“IDS”). (cid:129) Bits & Drilling Tools designs, manufactures and markets roller cone and fixed cutter drill bits for all environments. The drill bits include designs for premium market segments where faster penetration rates and increased footage provide significant economic benefits in lowering overall well costs. Drilling Tools includes a wide variety of bottom-hole-assembly, borehole-enlargement technologies and impact tools, as well as a comprehensive collection of tubulars and tubular services for oil and gas drilling operations. (cid:129) M-I SWACO is a supplier of drilling fluid systems engineered to improve drilling performance by anticipating fluids-related problems; fluid systems and specialty equipment designed to optimize wellbore productivity; and production technology solutions formulated to maximize production rates. M-I SWACO also provides engineered managed pressure drilling and underbalanced drilling solutions, as well as environmental services and products to safely manage waste volumes generated in both drilling and production operations. (cid:129) (cid:129) (cid:129) Drilling & Measurements provides mud logging services for geological and drilling surveillance, directional drilling, measurement-while-drilling and logging-while-drilling services for all well profiles as well as engineering support. Land Rigs provides land drilling rigs and related support services. The land drilling system of the future, currently under development, represents an integrated drilling platform bringing together digitally enabled surface and downhole hardware combined with a common optimization software to create a step-change in operational efficiency. Integrated Drilling Services supplies all of the services necessary to construct or change the architecture (re-entry) of wells. IDS covers all aspects of well planning, well drilling, engineering, supervision, logistics, procurement and contracting of third parties, and drilling rig management. Production – Consists of the principal Technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, OneStim®, Completions, Artificial Lift, and Schlumberger Production Management (“SPM”). (cid:129) Well Services provides services used during oil and gas well drilling and completion as well as those used to maintain optimal production throughout the life of a well. Such services include pressure pumping, well cementing and stimulation, and coiled tubing equipment for downhole mechanical well intervention, reservoir monitoring and downhole data acquisition. (cid:129) (cid:129) (cid:129) (cid:129) OneStim provides a low cost-to-serve and highly competitive service delivery platform in North America’s unconventional plays. The services include hydraulic fracturing, multistage completions, perforating, coiled tubing equipment and services for downhole mechanical well intervention, and a vertically integrated product and logistics organization. Completions supplies well completion services and equipment that include packers, safety valves, sand control technology as well as a range of intelligent well completions technology and equipment. Artificial Lift provides production equipment and optimization services using electrical submersible pumps, gas lift equipment, rod lift systems, progressing cavity pumps and surface horizontal pumping systems. Schlumberger Production Management is a business model for field production projects. This model combines the required services and products of the Technologies with drilling rig management, specialized engineering and project management expertise to provide a complete solution to well construction and production improvement. 4 SPM creates alignment between Schlumberger and the asset holder and/or the operator whereby Schlumberger receives remuneration in line with its value creation. These projects are generally focused on developing and co-managing production of long-term agreements. Schlumberger will invest its own services and products, and in some cases cash, into the field development activities and operations. Although in certain arrangements Schlumberger is paid for a portion of the services or products it provides, generally Schlumberger will not be paid at the time of providing its services or upon delivery of its products. Instead, Schlumberger is generally compensated based upon cash flow generated or on a fee-per-barrel basis. This includes certain arrangements whereby Schlumberger is only compensated based upon incremental production that it helps deliver above a mutually agreed baseline. SPM represented less than 5% of Schlumberger’s consolidated revenue during each of 2018, 2017 and 2016. assets under customer Cameron – Consists of the principal Technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities, and includes OneSubsea®, Surface Systems, Drilling Systems, and Valves & Measurement. (cid:129) (cid:129) (cid:129) (cid:129) OneSubsea provides integrated solutions, products, systems and services for the subsea oil and gas market, including integrated subsea production systems involving wellheads, subsea trees, manifolds and flowline connectors, control systems, connectors and services designed to maximize reservoir recovery and extend the life of each field. OneSubsea offers integration and optimization of the entire production system over the life of the field by leveraging flow control expertise and process technologies with petrotechnical expertise and reservoir and production technologies. Surface Systems designs and manufactures onshore and offshore platform wellhead systems and processing solutions, including valves, chokes, actuators and Christmas trees, and provides services to oil and gas operators. Drilling Systems provides drilling equipment and services to shipyards, drilling contractors, E&P companies and rental tool companies. The products fall into two broad categories: pressure control equipment and rotary drilling equipment. These products are designed for either onshore or offshore applications and include drilling equipment packages, blowout preventers (BOPs), BOP control systems, connectors, riser systems, valves and choke manifold systems, top drives, mud pumps, pipe handling equipment, rig designs and rig kits. Valves & Measurement serves portions of the upstream, midstream and downstream markets and provides valve products and measurement systems that are primarily used to control, direct and measure the flow of oil and gas as they are moved from wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centers for processing. Supporting the Technologies is a global network of research and engineering centers. Through this organization, Schlumberger is committed to advanced technology programs that enhance oilfield efficiency, lower finding and producing costs, improve productivity, maximize reserve recovery and increase asset value while accomplishing these goals in a safe and environmentally sound manner. A network of GeoMarket* regions, within each of four major geographic areas of North America, Latin America, Europe/CIS/Africa and Middle East & Asia, provides logistical, technical and commercial coordination. The GeoMarket structure offers customers a single point of contact at the local level for field operations and brings together geographically focused teams to meet local needs and deliver customized solutions. The GeoMarkets are responsible for providing the most efficient and cost-effective support possible to the operations. Schlumberger primarily uses its own personnel to market its offerings. The customer base, business risks and opportunities for growth are essentially uniform across all services and products. Manufacturing and engineering 5 facilities as well as research centers are shared, and the labor force is interchangeable. Technological innovation, quality of service and price differentiation are the principal methods of competition, which vary geographically with respect to the different services and products offered. While Schlumberger has numerous competitors, both large and small, Schlumberger believes it is an industry leader in providing geophysical equipment and services, rig equipment, surface wireline logging, well production testing, exploration and production software, equipment, subsea equipment, artificial lift, hydraulic fracturing, cementing, coiled-tubing services, drilling and completion fluids, solids control and waste management, drilling pressure control, drill bits, measurement-while- drilling, logging-while-drilling, directional-drilling services, and surface data (mud) logging. GENERAL Intellectual Property limited to patents, Schlumberger owns and controls a variety of intellectual property, proprietary information and software tools and applications that, in the aggregate, are material to Schlumberger’s business. While Schlumberger seeks and holds numerous patents covering various products and processes, no particular patent or group of patents is material to Schlumberger’s business. including but not Seasonality Seasonal changes in weather and significant weather events can temporarily affect the delivery of oilfield services. For example, the spring thaw in Canada and consequent road restrictions can affect activity levels, while the winter months in the North Sea, Russia and China can produce severe weather conditions that can temporarily reduce levels of activity. In addition, hurricanes and typhoons can disrupt coastal and offshore operations. Furthermore, customer spending patterns for multiclient data, software and other oilfield services and products generally result in higher activity in the fourth quarter of each year as clients seek to fully utilize their annual budgets. Customers and Backlog of Orders For the year ended December 31, 2018, no single customer exceeded 10% of consolidated revenue. Other than the OneSubsea, Drilling Systems and WesternGeco businesses, Schlumberger has no significant backlog due to the nature of its businesses. The combined backlog of these businesses was $2.7 billion at December 31, 2018 (of which approximately 50% is expected to be recognized as revenue during 2019) and $2.5 billion at December 31, 2017. Executive Officers of Schlumberger The following table sets forth, as of January 23, 2019, the names and ages of the executive officers of Schlumberger, including all offices and positions held by each for the past five years. Name Age Current Position and Five-Year Business Experience Paal Kibsgaard 51 Chairman of the Board of Directors, since April 2015; Chief Executive Officer, since August 2011; Director since April 2011. Simon Ayat 64 Executive Vice President and Chief Financial Officer, since March 2007. Alexander C. Juden 58 Secretary and General Counsel, since April 2009. Ashok Belani 60 Executive Vice President Technology, since January 2011. 6 Name Age Current Position and Five-Year Business Experience Jean-Francois Poupeau 57 Executive Vice President Corporate Engagement, since May 2017; Executive Vice President Corporate Development and Communications, June 2012 to April 2017. Patrick Schorn 50 Executive Vice President, Wells, since May 2018; Executive Vice President, New Ventures, May 2017 to May 2018; President, Operations, August 2015 to May 2017; President, Operations & Integration, July 2013 to August 2015. Khaled Al Mogharbel 48 President, Eastern Hemisphere, since May 2017; President, Drilling Group, July 2013 to April 2017; President, Middle East, August 2011 to June 2013. Aaron Gatt Floridia 50 President, Western Hemisphere, since May 2017; Chief Commercial Officer, May 2016 to May 2017; President, Reservoir Characterization Group, August 2011 to May 2016. Stephane Biguet 50 Vice President Finance, since December 2017; Vice President and Treasurer, December 2016 to November 2017; Vice President Controller, Operations, August 2015 to December 2016; Vice President Controller, Operations & Integration, November 2013 to August 2015. Pierre Chereque 64 Vice President and Director of Taxes, since June 2017; Director of Taxes, Operations July 2004 to May 2017. Stephanie Cox 50 President NAL Drilling, since May 2018; Vice President Human Resources, June 2017 to April 2018; President, North America June 2016 to May 2017; President, Asia June 2014 to May 2016; Vice President, Human Resources May 2009 to May 2014. Simon Farrant 54 Vice President Investor Relations, since February 2014; Special Projects Manager, December 2013 to January 2014. Kevin Fyfe Hinda Gharbi 45 Vice President and Controller, since October 2017; Controller, Cameron Group, April 2016 to October 2017; Vice President Finance, OneSubsea July 2013 to March 2016. 48 Vice President, Human Resources, since May 2018; President, Reservoir Characterization Group, June 2017 to May 2018; President, Wireline June 2013 to May 2017. Howard Guild 47 Chief Accounting Officer, since July 2005. Claudia Jaramillo 46 Vice President and Treasurer, since December 2017; ERM and Treasury Projects Manager, July 2017 to November 2017; Controller North America, July 2014 to July 2017; Controller, Drilling and Measurements, July 2011 to June 2014. Vijay Kasibhatla 55 Director of Mergers and Acquisitions, since January 2013. Saul R. Laureles 53 Director, Corporate Legal, since July 2014; Assistant Secretary, since April 2007; Deputy General Counsel, Governance and Securities, October 2012 to June 2014. 7 Name Age Current Position and Five-Year Business Experience Olivier Le Peuch 55 Executive Vice President Reservoir and Infrastructure, since May 2018; President, Cameron Group, February 2017 to May 2018; President, Completions October 2014 to January 2017; Vice President EMS, August 2010 to September 2014. Guy Arrington 55 Vice President, Operational Planning and Resource Management, since February 2018; President, M-I SWACO, February 2014 to January 2018; President, Bits and Advanced Technologies, September 2010 to January 2014. Abdellah Merad 45 President NAL Production Group, since May 2018, President, Production Group, May 2017 to May 2018; Vice President Controller, Operations, December 2016 to April 2017; Vice President, Global Shared Services Organization, November 2013 to December 2016. Available Information The Schlumberger Internet website is www.slb.com. Schlumberger uses its Investor Relations website, www.slb.com/ir, as a routine channel for distribution of important information, including news releases, analyst presentations, and financial information. Schlumberger makes available free of charge through its Investor Relations website at www.slb.com/ir access to its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, its proxy statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, and amendments to each of those reports, as soon as reasonably practicable after such material is filed with or furnished to the Securities and Exchange Commission (“SEC”). Alternatively, you may access these reports at the SEC’s Internet website at www.sec.gov. Copies are also available, without charge, from Schlumberger Investor Relations, 5599 San Felipe, 17th Floor, Houston, Texas 77056. Unless expressly noted, the information on our website or any other website is not incorporated by reference in this Form 10-K and should not be considered part of this Form 10-K or any other filing Schlumberger makes with the SEC. 8 Item 1A. Risk Factors. The following discussion of risk factors known to us contains important information for the understanding of our “forward-looking statements,” which are discussed immediately following Item 7A. of this Form 10-K and elsewhere. These risk factors should also be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and related notes included in this Form 10-K. We urge you to consider carefully the risks described below, as well as in other reports and materials that we file with the SEC and the other information included or incorporated by reference in this Form 10-K. If any of the risks described below or elsewhere in this Form 10-K were to materialize, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected. In such case, the trading price of our common stock could decline and you could lose part or all of your investment. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also materially adversely affect our financial condition, results of operations and cash flows. Demand for our products and services is substantially dependent on the levels of expenditures by our customers. A substantial or an extended decline in oil and gas prices could result in lower expenditures by our customers, which could have a material adverse impact on our financial condition, results of operations and cash flows. Demand for our products and services depends substantially on expenditures by our customers for the exploration, development and production of oil and natural gas reserves. These expenditures are generally dependent on our customers’ views of future oil and natural gas prices and are sensitive to our customers’ views of future economic growth and the resulting impact on demand for oil and natural gas. Declines, as well as anticipated declines, in oil and gas prices could result in project modifications, delays or cancellations, general business disruptions, and delays in payment of, or nonpayment of, amounts that are owed to us. These effects could have a material adverse effect on our financial condition, results of operations and cash flows. Historically, oil and natural gas prices have experienced significant volatility and can be affected by a variety of factors, including: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) demand for hydrocarbons, which is affected by general economic and business conditions; the ability or willingness of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels for oil; oil and gas production levels by non-OPEC countries; the level of excess production capacity; political and economic uncertainty and geopolitical unrest; the level of worldwide oil and gas exploration and production activity; access to potential resources; governmental policies and subsidies; the costs of exploring for, producing and delivering oil and gas; technological advances affecting energy consumption; and weather conditions. The oil and gas industry has historically experienced periodic downturns, which have been characterized by diminished demand for our products and services as well as and downward pressure on the prices we charge. Sustained market uncertainty can also result in lower demand and pricing for our products and services. A significant downturn or sustained market uncertainty could result in a reduction in demand for oilfield services and could adversely affect our financial condition, results of operations and cash flows. 9 A significant portion of our revenue is derived from our non-United States operations, which exposes us to risks inherent in doing business in each of the over 85 countries in which we operate. Our non-United States operations accounted for approximately 69% of our consolidated revenue in 2018, 74% in 2017 and 80% in 2016. Operations in countries other than the United States are subject to various risks, including: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) volatility in political, social and economic conditions; exposure to expropriation of our assets or other governmental actions; social unrest, acts of terrorism, war or other armed conflict; confiscatory taxation or other adverse tax policies; deprivation of contract rights; trade and economic sanctions or other restrictions imposed by the European Union, the United States or other countries; exposure under the United States Foreign Corrupt Practices Act (“FCPA”) or similar legislation; restrictions on the repatriation of income or capital; currency exchange controls; inflation; and currency exchange rate fluctuations and devaluations. Our failure to comply with complex US and foreign laws and regulations could have a material adverse effect on our operations. We are subject to complex US and foreign laws and regulations, such as the FCPA, the U.K. Bribery Act and various other anti-bribery and anti-corruption laws. We are also subject to trade control regulations and trade sanctions laws that restrict the movement of certain goods to, and certain operations in, various countries or with to certain persons. Our ability to transfer people, products and data among certain countries is subject maintaining required licenses and complying with these laws and regulations. The internal controls, policies and procedures, and employee training and compliance programs we have implemented to deter prohibited practices may not be effective in preventing employees, contractors or agents from violating or circumventing such internal policies or violating applicable laws and regulations. Any determination that we have violated or are responsible for violations of anti-bribery, trade control, trade sanctions or anti-corruption laws could have a material adverse effect on our financial condition. Violations of international and US laws and regulations or the loss of any required licenses may result in fines and penalties, criminal sanctions, administrative remedies or restrictions on business conduct, and could have a material adverse effect on our reputation and our business, operating results and financial condition. Demand for our products and services could be reduced by existing and future legislation or regulations. Environmental advocacy groups and regulatory agencies in the United States and other countries have been focusing considerable attention on the emissions of carbon dioxide, methane and other greenhouse gasses and their potential role in climate change. Existing or future legislation and regulations related to greenhouse gas emissions and climate change, as well as government initiatives to conserve energy or promote the use of alternative energy sources, may significantly curtail demand for and production of fossil fuels such as oil and gas in areas of the world where our customers operate, and thus adversely affect future demand for our products and services. This may, in turn, adversely affect our financial condition, results of operations and cash flows. Some international, national, state and local governments and agencies have also adopted laws and regulations or are evaluating proposed legislation and regulations that are focused on the extraction of shale gas or oil using 10 hydraulic fracturing. Hydraulic fracturing is a stimulation treatment routinely performed on oil and gas wells in low-permeability reservoirs. Specially engineered fluids are pumped at high pressure and rate into the reservoir interval to be treated, causing cracks in the target formation. Proppant, such as sand of a particular size, is mixed with the treatment fluid to keep the cracks open when the treatment is complete. Future hydraulic fracturing- related legislation or regulations could limit or ban hydraulic fracturing, or lead to operational delays and increased costs, and therefore reduce demand for our pressure pumping services. If such additional international, national, state or local legislation or regulations are enacted, it could adversely affect our financial condition, results of operations and cash flows. Environmental compliance costs and liabilities could reduce our earnings and cash available for operations. We are subject to increasingly stringent laws and regulations relating to importation and use of hazardous materials, radioactive materials, chemicals and explosives and to environmental protection, including laws and regulations governing air emissions, hydraulic fracturing, water discharges and waste management. We incur, and expect to continue to incur, capital and operating costs to comply with environmental laws and regulations. The technical requirements of these laws and regulations are becoming increasingly complex, stringent and expensive to implement. These laws may provide for “strict liability” for remediation costs, damages to natural resources or threats to public health and safety. Strict liability can render a party liable for damages without regard to negligence or fault on the part of the party. Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances. We use and generate hazardous substances and wastes in our operations. In addition, many of our current and former properties are, or have been, used for industrial purposes. Accordingly, we could become subject to material liabilities relating to the investigation and cleanup of potentially contaminated properties, and to claims alleging personal injury or property damage as the result of exposures to, or releases of, hazardous substances. In addition, stricter enforcement of existing laws and regulations, new laws and regulations, the discovery of previously unknown contamination or the imposition of new or increased requirements could require us to incur costs or become the basis for new or increased liabilities that could reduce our earnings and our cash available for operations. We could be subject to substantial liability claims, including catastrophic well incidents, which could adversely affect our financial condition, results of operations and cash flows. The technical complexities of our operations expose us to a wide range of significant health, safety and environmental risks. Our offerings involve production-related activities, radioactive materials, chemicals, explosives and other equipment and services that are deployed in challenging exploration, development and production environments. An accident involving these services or equipment, or a failure of a product, could cause personal injury, loss of life, damage to or destruction of property, equipment or the environment, or suspension of operations. Catastrophic well incidents, including blow outs at a well site, may expose us to additional liabilities. Generally, we rely on contractual indemnities, releases, limitations on liability with our customers and insurance to protect us from potential liability related to such events. However, our insurance may not protect us against liability for certain kinds of events, including events involving pollution, or against losses resulting from business interruption. Moreover, we may not be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate. Any damages caused by our services or products that are not covered by insurance, or are in excess of policy limits or subject to substantial deductibles, could adversely affect our financial condition, results of operations and cash flows. If we are unable to maintain technology leadership, this could adversely affect any competitive advantage we hold. The oilfield service industry is highly competitive. Our ability to continually provide competitive technology and services can impact our ability to defend, maintain or increase prices for our products and services, maintain 11 market share, and negotiate acceptable contract terms with our customers. If we are unable to continue to develop and produce competitive technology or deliver it to our clients in a timely and cost-competitive manner in the various markets we serve, it could adversely affect our financial condition, results of operations and cash flows. Limitations on our ability to protect our intellectual property rights, including our trade secrets, could cause a loss in revenue and any competitive advantage we hold. Some of our products or services, and the processes we use to produce or provide them, have been granted patent protection, have patent applications pending, or are trade secrets. Our business may be adversely affected if our patents are unenforceable, the claims allowed under our patents are not sufficient to protect our technology, our patent applications are denied or our trade secrets are not adequately protected. Our competitors may be able to develop technology independently that is similar to ours without infringing on our patents or gaining access to our trade secrets, which could adversely affect our financial condition, results of operations and cash flows. We may be subject to litigation if another party claims that we have infringed upon its intellectual property rights. The tools, techniques, methodologies, programs and components we use to provide our services may infringe upon the intellectual property rights of others. Infringement claims generally result in significant legal and other costs, and may distract management from running our business. Royalty payments under licenses from third parties, if available, would increase our costs. Additionally, developing non-infringing technologies would increase our costs. If a license were not available, we might not be able to continue providing a particular service or product, which could adversely affect our financial condition, results of operations and cash flows. Failure to obtain and retain skilled technical personnel could impede our operations. We require highly skilled personnel to operate and provide technical services and support for our business. Competition for the personnel required for our businesses intensifies as activity increases. In periods of high utilization it may become more difficult to find and retain qualified individuals. This could increase our costs or have other adverse effects on our operations. Severe weather may adversely affect our operations. Our business may be materially affected by severe weather in areas where we operate. This may entail the evacuation of personnel and stoppage of services. In addition, if particularly severe weather affects platforms or structures, this may result in a suspension of activities. Any of these events could adversely affect our financial condition, results of operations and cash flows. Cyberattacks could have a material adverse impact on our business and results of operation. We rely heavily on information systems to conduct our business, including systems operated by or under the control of third parties. Although we devote significant resources to protect our systems and proprietary data, we have experienced and will continue to experience varying degrees of cyber incidents in the normal conduct of our business. There can be no assurance that the systems we have designed to prevent or limit the effects of cyber incidents or attacks will be sufficient to prevent or detect such incidents or attacks, or to avoid a material adverse impact on our systems when such incidents or attacks do occur. If our systems, or the systems of third parties for protecting against cybersecurity risks are circumvented or breached, or we are subject to ransomware or other attacks, this could result in disruptions to our business operations; unauthorized access to (or the loss of Company access to) competitively sensitive, confidential or other critical data or systems; loss of customers; financial losses; regulatory fines; misuse or corruption of critical data and proprietary information. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. Schlumberger owns or leases numerous manufacturing facilities, administrative offices, service centers, research centers, data processing centers, mines, ore, drilling fluid and production chemical processing centers, sales 12 offices and warehouses throughout the world. Schlumberger views its principal manufacturing, mining and processing facilities, research centers and data processing centers as its “principal owned or leased facilities.” The following sets forth Schlumberger’s principal owned or leased facilities: Taubate, Brazil; Beijing and Shanghai, China; Clamart, France; Pune, India; Johor, Malaysia; Veracruz, Mexico; Stavanger, Norway; Singapore; Campina, Romania; Abingdon, Cambridge and Stonehouse, United Kingdom and within the United States: Little Rock, Arkansas; Ville Platte, Louisiana; Boston, Massachusetts; Houston, Katy, Rosharon and Sugar Land, Texas. Item 3. Legal Proceedings. The information with respect to this Item 3. Legal Proceedings is set forth in Note 16 of the Consolidated Financial Statements. Item 4. Mine Safety Disclosures. 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 Form 10-K. 13 PART II Item 5. Market for Schlumberger’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities. As of December 31, 2018, there were 26,720 stockholders of record. The principal United States market for Schlumberger’s common stock is the New York Stock Exchange (“NYSE”), where it is traded under the symbol “SLB.” The following graph compares the cumulative total stockholder return on Schlumberger common stock with the cumulative total return on the Standard & Poor’s 500 Index (“S&P 500 Index”) and the cumulative total return on the Philadelphia Oil Service Index. It assumes $100 was invested on December 31, 2013 in Schlumberger common stock, in the S&P 500 Index and in the Philadelphia Oil Service Index, as well as the reinvestment of dividends on the last day of the month of payment. The stockholder return set forth below is not necessarily indicative of future performance. The following graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Schlumberger specifically incorporates it by reference into such filing. Comparison of Five-Year Cumulative Total Return Among Schlumberger Common Stock, the S&P 500 Index and the Philadelphia Oil Service Index Comparison of Cumulative Five-Year Total Return $200 $150 $100 $50 $0 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Schlumberger Ltd S&P 500 Index Philadelphia Oil Service Index (OSX) Share Repurchases On July 18, 2013, the Schlumberger Board of Directors (the “Board”) approved a $10 billion share repurchase program for Schlumberger common stock, to be completed by June 30, 2018. This program was completed during May 2017. On January 21, 2016, the Board approved a new $10 billion share repurchase program for Schlumberger common stock. 14 Schlumberger’s common stock repurchase program activity for the three months ended December 31, 2018 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 October 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586.0 682.4 797.6 2,066.0 $ $ $ $ 59.05 49.22 39.97 48.44 586.0 682.4 797.6 $ $ $ 9,342,049 9,308,458 9,276,578 2,066.0 Unregistered Sales of Equity Securities None. 15 Item 6. Selected Financial Data. The following selected consolidated financial data should be read in conjunction with both “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” of this Form 10-K in order to understand factors, such as business combinations and charges and credits, which may affect the comparability of the Selected Financial Data. (Stated in millions, except per share amounts) Year Ended December 31, 2018 2017 2016 2015 2014 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,815 Income (loss) from continuing operations . . . . . $ 2,138 Diluted earnings (loss) per share from continuing operations . . . . . . . . . . . . . . . . . . . . $ Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Short-term investments . . . . . . . . . . . . . . . . . . . . $ Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . $ Fixed income investments, held to maturity . . . . $ 1.53 1,433 1,344 2,245 - Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,507 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,644 Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,051 Schlumberger stockholders’ equity . . . . . . . . . . . $ 36,162 Cash dividends declared per share . . . . . . . . . . . $ 2.00 $ $ $ $ $ $ $ $ $ $ $ $ 30,440 $ 27,810 $ 35,475 (1,505) $ (1,687) $ 2,072 (1.08) $ (1.24) $ 1,799 3,290 3,215 - 71,987 14,875 18,199 36,842 2.00 $ $ $ $ $ $ $ $ $ 2,929 6,328 8,868 238 77,956 16,463 19,616 41,078 2.00 $ $ $ $ $ $ $ $ $ 1.63 2,793 10,241 12,791 418 68,005 14,442 18,999 35,633 2.00 $ $ $ $ $ $ $ $ $ $ $ $ 48,580 5,643 4.31 3,130 4,371 10,518 442 66,904 10,565 13,330 37,850 1.60 During 2018, Schlumberger adopted ASU No. 2016-02, Leases. Prior year amounts reflected in the table above have not been adjusted and continue to be reflected in accordance with Schlumberger’s historical accounting. Refer to Note 15 to the Consolidated Financial Statements for further details. 16 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis contains forward-looking statements, limitation, statements relating to our plans, strategies, objectives, expectations, intentions and resources. Such forward- looking statements should be read in conjunction with our disclosures under “Item 1A. Risk Factors” of this Form 10-K. including, without 2018 Executive Overview Schlumberger full-year 2018 revenue of $32.8 billion increased 8% over 2017. This revenue growth was driven almost entirely by increased activity in North America against a backdrop of increasing oil prices throughout most of the year. In the oil markets, sentiment was stable and positive for the first three quarters of 2018, providing a rising oil price environment. OECD crude and product stocks continued a downward trend that began in the third quarter of 2016. Production cuts from OPEC and Russia in 2017 served to strengthen the oil price. Activity picked up globally and, as oil reached its peak price for the year in October, production from major producers, including unconventional US production, began to surprise to the upside. Output in Libya rebounded sharply; Saudi Arabia and the United Arab Emirates each recorded record production output; and dispensations from the Iran export sanctions generated aggregate production that more than offset declines elsewhere. As a result, the market became oversupplied at the beginning of the fourth quarter despite the anticipated slowdown in the Permian Basin production growth due to capacity takeaway constraints. This, coupled with concerns about global oil demand, caused oil prices to plummet by more than 40% during the fourth quarter of 2018 and led to a sudden and sharp decrease in US land well completion activity during the final months of the year. In the natural gas markets, consumption of liquified natural gas (“LNG”) continued to rise enabled by vast sources of new supply. The US became a LNG exporter in 2016, when the first shipment left Sabine Pass in Louisiana. US export capacity grew to 37 million tonnes in 2018 and is set to nearly double in 2019. Underground gas storage in the US was below average through most of 2018, however, rising gas production from unconventional oil and gas wells in the US Northeast, Midcontinent and the Permian Basin helped to keep Henry Hub prices well below international prices. This will allow the US to join Australia and the Middle East as significant exporters. Schlumberger financial performance in 2018 was driven largely by North America, where revenue of $12.0 billion grew 26% year-over-year, despite the steep fall-off in activity during the fourth quarter of the year. This growth was driven by increased land activity that primarily benefited Schlumberger’s OneStim business, where revenue grew 41%. Full-year 2018 international revenue of $20.4 billion was essentially flat compared with 2017. During the third quarter of 2018, international revenue grew faster than North America revenue for the first time since 2014, marking the beginning of a positive activity trend after three consecutive years of declining revenue. This was driven by the increased activity of national oil companies (“NOCs”), as they began to invest in longer-term resource development following a sustained period of deep underinvestment and declining production. The dramatic fall in oil prices in the fourth quarter was largely driven by higher-than-expected US shale production as a result of the surge in activity earlier in the year, and as geopolitics negatively impacted the global demand- and supply-balance sentiments. The combination of these two factors, together with a large sell-off in the equity markets due to concerns around global growth and increasing US interest rates, created a near-perfect storm to close out 2018. Looking ahead to 2019, Schlumberger expects a more positive supply- and demand-balance sentiment to lead to a gradual recovery in the price of oil over the course of the year, as the OPEC and Russia production cuts take 17 full effect; the effect of lower activity in North America land in the second half of 2018 impacts production growth; the dispensations from the Iran export sanctions expire and are not renewed; and as the US and China continue to work toward a solution to their ongoing trade dispute. In the meantime, the recent oil price volatility has introduced more uncertainty around the global exploration and production (“E&P”) spending outlook for 2019, with customers generally taking a more conservative approach at the start of the year. However, based on recent discussions with customers, Schlumberger is seeing clear signs that E&P investments are starting to normalize and reflect a more sustainable financial stewardship of the global resource base. For the North America land E&P operators, this means that future investments will likely be much closer to the level that can be covered by free cash flow. Conversely, in the international markets apart from the Middle East and Russia, after four years of underinvestment and a focus on maximizing cash flow, the NOCs and independents are starting to see the need to invest in their resource base simply to maintain production at current levels. This means that even with the current oil price levels, Schlumberger expects solid, single-digit growth in the international markets, while in North America land the increased cost of capital and focus on aligning investments closer to free cash flow has introduced more uncertainty to the outlook for both drilling and production activity. Fourth Quarter 2018 Results (Stated in millions) Fourth Quarter 2018 Third Quarter 2018 Income Before Taxes Income Before Taxes Revenue Revenue Reservoir Characterization . . . . . . . . . . . . . . . . . . . . . . . . Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cameron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminations & other $ $ 1,651 2,461 2,936 1,265 (133) Pretax operating income . . . . . . . . . . . . . . . . . . . . . . . Corporate & other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense (3) Charges & credits (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 1,676 2,429 3,249 1,298 (148) 364 318 198 127 (40) 967 (238) 8 (132) 43 372 339 320 148 (27) 1,152 (234) 8 (139) - $ 8,180 $ 648 $ 8,504 $ 787 (1) Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets, certain centrally managed initiatives and other nonoperating items. (2) (3) Excludes interest income included in the segments’ income (fourth quarter 2018: $2 million; third quarter 2018: $2 million). Excludes interest expense included in the segments’ income (fourth quarter 2018: $9 million; third quarter 2018: $8 million). (4) Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements. 18 Fourth-quarter revenue of $8.2 billion declined 4% sequentially driven by lower activity and pricing for most Production- and Cameron-related businesses in North America land. Lower revenue from OneSubsea also contributed to the decline. International activity remained resilient despite the oil price drop, with revenue increasing 1% sequentially. The seasonal slowdown in Russia was offset by increased revenue in the Middle East, Asia and Africa. Revenue from Europe and Latin America was flat compared with the previous quarter. Sequential performance was heavily impacted by Production- and Cameron-related activity declines in North America land, as seen by the 12% sequential decrease of revenue in North America. OneStim revenue dropped 25% sequentially as a number of fleets were warm-stacked during the latter part of the quarter, and as Schlumberger focused on securing dedicated contracts for the first half of 2019 early in the fourth-quarter tendering cycle. Reservoir Characterization Fourth-quarter revenue of $1.7 billion decreased 1% sequentially driven by the seasonal decline in Wireline activity in Russia, lower Wireline exploration activity offshore North America, and reduced OneSurface activity in the Middle East. These effects were partially offset by year-end sales of SIS software. Reservoir Characterization pretax operating margin of 22% was essentially flat compared with the previous quarter as the effect of high-margin SIS software sales was offset by the seasonal decline in higher-margin Wireline revenue. Drilling Fourth-quarter revenue of $2.5 billion increased 1% sequentially driven primarily by international growth in Drilling & Measurements and M-I SWACO, while Drilling revenue remained resilient in North America land. Drilling pretax operating margin of 13% decreased 105 basis points (“bps”) sequentially due to a seasonal activity decline in Russia and the increased cost of mobilizing additional resources as IDS project activity scaled up across international operations. Production Fourth-quarter revenue of $2.9 billion declined 10% sequentially. OneStim revenue in North America land dropped 25%, accounting for the vast majority of the Production revenue decrease, as a number of fleets were warm-stacked during the latter part of the quarter due to market oversupply conditions. Production pretax operating margin of 7% decreased 310 bps sequentially due to reduced pricing and activity in the OneStim business in North America land. Cameron Cameron revenue of $1.3 billion declined 3% sequentially as increased international sales in Surface Systems were more than offset by lower revenue from the OneSubsea and Valves & Measurement product lines. OneSubsea booked more than $600 million in new project orders during the fourth quarter of 2018, indicating that it is now close to the cycle trough of backlog-driven activity. Cameron pretax operating margin of 10% declined 140 bps sequentially due to lower OneSubsea margins. 19 Full-Year 2018 Results (Stated in millions) 2018 2017 Income Before Taxes Revenue Income Before Taxes Revenue Reservoir Characterization . . . . . . . . . . . . . . . . . . . . . Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cameron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminations & other . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 6,526 9,250 12,394 5,167 (522) Pretax operating income . . . . . . . . . . . . . . . . . . . . Corporate & other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charges & credits (4) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,795 8,392 10,630 5,205 (582) $ 1,392 1,239 1,052 608 (104) 4,187 (937) 52 (537) (141) 1,244 1,151 936 733 (143) 3,921 (934) 107 (513) (3,764) $ 32,815 $ 2,624 $ 30,440 $ (1,183) (1) Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets, certain centrally managed initiatives and other nonoperating items. Full-year 2018 and 2017 results each include $252 million of amortization expense associated with intangible assets recorded as a result of the acquisition of Cameron, which was completed on April 1, 2016. (2) (3) Excludes interest income included in the segments’ income (2018: $8 million; 2017: $21 million). Excludes interest expense included in the segments’ income (2018: $38 million; 2017: $52 million). (4) Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements. Full-year 2018 revenue of $32.8 billion increased 8% year-on-year and grew for the second successive year. Performance was driven by North America where revenue of $12.0 billion increased 26% due to the OneStim business, which grew by 41%. Full-year international revenue of $20.4 billion was essentially flat compared with 2017. Full-year 2018 pretax operating income of $4.2 billion grew 7% year-on-year. Pretax operating margin of 13% was essentially flat with the previous year, as the impact of higher revenue was offset by reactivation and mobilization costs associated with the ramp-up and strategic positioning for increased activity in both North America and internationally. Reservoir Characterization Full-year 2018 revenue of $6.5 billion decreased 4% year-on-year primarily due to reduced OneSurface revenue following the end of the first phase of an integrated production system project in the Middle East and reduced WesternGeco activity as marine seismic acquisition contracts wound down during 2018 following the fourth quarter 2017 decision to cease all future marine seismic acquisition activities after satisfying Schlumberger’s remaining commitments. 20 Year-on-year, pretax operating margin increased 303 bps to 21% primarily as a result of reduced depreciation and amortization following the WesternGeco impairment charges recorded in the fourth quarter of 2017. Drilling Full-year 2018 revenue of $9.3 billion increased 10% year-on-year primarily due to higher demand for directional drilling technologies on land in North America and the start of new integrated drilling projects internationally. This benefited Drilling & Measurements, Bits & Drilling tools, M-I SWACO and Integrated Drilling Services. Year-on-year, pretax operating margin declined 32 bps to 13%. Production Full-year 2018 revenue of $12.4 billion increased 17% year-on-year with most of the revenue increase attributable to the accelerated land activity growth in North America that benefited the OneStim pressure pumping businesses in North America land for the first three quarters of 2018. Growth was driven by the deployment of additional hydraulic fracturing capacity, market share gains, operational efficiency improvements and improved pricing. Year-on-year, pretax operating margin declined 32 bps to 8%. Cameron Full-year 2018 revenue of $5.2 billion decreased 1% year-on-year. A 15% revenue increase in the short-cycle business of Surface Systems, driven by higher North America land activity, was offset by a 12% decline in the long-cycle OneSubsea business. Year-on-year, pretax operating margin of 12% declined 232 bps due primarily to the decline in high-margin OneSubsea project volumes. Full-Year 2017 Results (Stated in millions) 2017 2016 Income Before Taxes Revenue Income Before Taxes Revenue Reservoir Characterization . . . . . . . . . . . . . . . . . . Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cameron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminations & other . . . . . . . . . . . . . . . . . . . . . . . $ $ 6,795 8,392 10,630 5,205 (582) Pretax operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate & other (1) Interest income (2) . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charges & credits (4) $ 1,244 1,151 936 733 (143) 3,921 (934) 107 (513) (3,764) $ 6,660 8,561 8,792 4,211 (414) 1,244 994 512 653 (130) 3,273 (925) 84 (517) (3,820) $ 30,440 $ (1,183) $ 27,810 $ (1,905) 21 (1) Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets, certain centrally managed initiatives and other nonoperating items. Full-year 2017 and 2016 include $252 million and $189 million, respectively, of amortization expense associated with intangible assets recorded as a result of the acquisition of Cameron, which was completed on April 1, 2016. (2) (3) Excludes interest income included in the segments’ income (2017: $21 million; 2016: $26 million). Excludes interest expense included in the segments’ income (2017: $52 million; 2016: $53 million). (4) Charges and credits are described in detail in Note 3 to the Consolidated Financial Statements. Full-year 2017 revenue of $30.4 billion increased 9% year-on-year. This included a full year of activity from the acquired Cameron businesses versus nine months of activity for the same period in 2016. Excluding the impact of Cameron, revenue increased 7% year-on-year. The growth was primarily driven by North America, where the land rig count increased more than 80% versus the same period last year. Full-year 2017 pretax operating margin was expanded 111 bps to 13%, as improved profitability in North America due to the land activity growth that benefited Production and Drilling was offset by margin declines in Reservoir Characterization and Cameron. Reservoir Characterization Full-year 2017 revenue of $6.8 billion increased 2% year-on-year primarily due to higher WesternGeco and Wireline revenue on projects in the Middle East & Asia Area, North America land, Russia and Mexico. Year-on-year, pretax operating margin was essentially flat at 18%. Drilling Full-year 2017 revenue of $8.4 billion decreased 2% year-on-year primarily due to the rig count declines internationally and in offshore North America combined with pricing pressure. Revenue also declined as a result of Schlumberger’s decision in April 2016 to reduce its activities in Venezuela to align operations with cash collections. Year-on-year, pretax operating margin increased 210 bps to 14% primarily due to improved profitability in North America due to accelerated land activity and improved pricing. This improvement was partially offset by the negative impact of reduced activity in Venezuela. Production Full-year 2017 revenue of $10.6 billion increased 21% year-on-year with most of the revenue increase attributable to the accelerated land activity growth in North America that benefited the pressure pumping business which grew 44%. Lower SPM production levels in Ecuador partially offset the revenue increase. Year-on-year, pretax operating margin increased 298 bps to 9% as a result of improved profitability in North America due to the accelerated land activity and improved pricing. This was partially offset by reduced margins in SPM due to lower production in Ecuador. Cameron Cameron contributed full-year revenue of $5.2 billion. Cameron revenue for 2016 included only nine months of revenue following the April 2016 closing of the acquisition. Revenue in 2017 was impacted by a declining project backlog, particularly for the long-cycle businesses of Drilling Systems and OneSubsea. 22 Year-on-year, pretax operating margin of 14% decreased 142 bps as a result of lower Drilling Systems project volumes. Interest and Other Income Interest & other income consisted of the following: (Stated in millions) 2018 2017 2016 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Earnings of equity method investments . . . . . . . . . . . . . . . . . . . . . . . $ 60 89 $ 128 96 $ 149 $ 224 $ 110 90 200 The decrease in interest income in 2018 compared to 2017 is primarily attributable to lower cash and short-term investment balances. Interest Expense Interest expense of $575 million in 2018, $566 million in 2017 and $570 million in 2016 has been essentially flat. Other Research & engineering and General & administrative expenses, as a percentage of Revenue, were as follows: Research & engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General & administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1% 1.4% 2.6% 1.4% 3.6% 1.4% 2018 2017 2016 Research & engineering costs have decreased in terms of both absolute dollars and as a percentage of Revenue over the past two years as a result of cost control measures. Income Taxes The Schlumberger effective tax rate was 17% in 2018, (28)% in 2017, and 15% in 2016. The Schlumberger effective tax rate has historically been sensitive to the geographic mix of earnings. When the percentage of pretax earnings generated outside of North America increases, the Schlumberger effective tax rate generally decreases. Conversely, when the percentage of pretax earnings generated outside of North America decreases, the Schlumberger effective tax rate generally increases. As discussed in further detail in Note 3 to the Consolidated Financial Statements, on December 22, 2017 the US enacted the Tax Cuts and Jobs Act (the “Act”). The Act, which is also commonly referred to as “US tax reform,” significantly changed US corporate income tax laws by, among other things, reducing the US corporate income tax rate from 35% to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of US subsidiaries. The effective tax rate for each of 2017 and 2016 was significantly impacted by the charges and credits described in Note 3 to the Consolidated Financial Statements because they were only partially tax-effective. Excluding the 23 impact of these charges and credits, the effective tax rate was 17% in 2018, 18% in 2017 and 16% in 2016. The decrease in the effective tax rate in 2018 as compared to 2017, excluding the impact of charges and credits, was primarily due to the impact of US tax reform. The increase in the effective tax rate in 2017 as compared to 2016, excluding the impact of charges and credits, was primarily attributable to a change in the geographic mix of earnings as the percentage of pretax earnings generated in North America increased compared to 2016. Charges and Credits Schlumberger recorded significant charges and credits during 2018, 2017 and 2016. These charges and credits, which are summarized below, are more fully described in Note 3 to the Consolidated Financial Statements. The following is a summary of the 2018 charges and credits, of which the $215 million gain on the sale of the marine seismic acquisition business is classified in Gain on sale of business in the Consolidated Statement of Income (Loss), while the remaining $356 million of other charges are classified in Impairments & other. Gain on sale of marine seismic acquisition business . . . . . . . . . . . . . . . . . . . . Workforce reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) Pretax Tax Net $ $ (215) $ 184 172 141 $ (19) $ 20 16 17 $ (196) 164 156 124 The following is a summary of the 2017 charges and credits, of which $3.211 billion were classified in Impairments & other, $245 million were classified in Cost of sales and $308 million were classified in Merger & integration in the Consolidated Statement of Income (Loss): Pretax Tax Noncontrolling Interests Net (Stated in millions) Impairment & other WesternGeco seismic restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . Venezuela investment write-down . . . . . Promissory note fair value adjustment and other . . . . . . . . . . . . . . . . . . . . . . . Workforce reductions . . . . . . . . . . . . . . . Multiclient seismic data impairment . . . Other restructuring charges . . . . . . . . . . Cost of sales Provision for loss on long-term construction project . . . . . . . . . . . . . . . Merger & integration Merger and integration-related costs . . . US tax reform charge . . . . . . . . . . . . . . . . . . $ $ 1,114 938 510 247 246 156 245 308 - 20 - - 13 81 10 22 70 (76) $ $ - - 1,094 938 12 - - 22 - - - - - 498 234 165 124 - 223 - 238 76 $ 3,764 $ 140 $ 34 $ 3,590 24 The following is a summary of the 2016 charges and credits, of which $3.172 billion were classified in Impairments & other, $349 million were classified in Merger & integration and $299 million were classified in Cost of sales in the Consolidated Statement of Income (Loss): (Stated in millions) Pretax Tax Net Impairment & other $ Workforce reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other fixed asset impairments . . . . . . . . . . . . . . . . . . . . . . Inventory write-downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America pressure pumping asset impairments . . . . . Multiclient seismic data impairment . . . . . . . . . . . . . . . . . . Facility impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Facility closure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs associated with exiting certain activities . . . . . . . . . . Currency devaluation loss in Egypt . . . . . . . . . . . . . . . . . . Contract termination costs . . . . . . . . . . . . . . . . . . . . . . . . . Other restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . Merger & integration Other merger and integration-related . . . . . . . . . . . . . . . . . Merger-related employee benefits . . . . . . . . . . . . . . . . . . . Facility closure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of inventory fair value adjustment $ 880 684 616 209 198 165 165 98 63 39 55 160 83 61 45 299 $ 69 52 49 67 62 58 40 23 - 9 - 28 13 13 10 90 $ 3,820 $ 583 $ 811 632 567 142 136 107 125 75 63 30 55 132 70 48 35 209 3,237 Liquidity and Capital Resources Schlumberger had total Cash, Short-term investments and Fixed income investments, held to maturity of $2.8 billion, $5.1 billion and $9.5 billion at December 31, 2018, 2017 and 2016, respectively. Total debt was $16.1 billion, $18.2 billion and $19.6 billion at December 31, 2018, 2017 and 2016, respectively. 25 Details of the components of liquidity as well as changes in liquidity follow: Components of Liquidity: (Stated in millions) Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2016 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed income investments, held to maturity . . . . . . . . . . . . Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 1,433 1,344 - $ 1,799 3,290 - (1,407) (14,644) (3,324) (14,875) Net debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,274) $ (13,110) $ 2,929 6,328 238 (3,153) (16,463) (10,121) Changes in Liquidity: 2018 2017 2016 2,177 $ 356 (215) 3,556 (1,513) $ 3,764 - 3,837 (1,627) 3,820 - 4,094 Income (loss) from continuing operations before noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Impairments and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of WesternGeco marine seismic business . . . . . . . . Depreciation and amortization (2) . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings of equity method investments, less dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension and other postretirement benefits expense . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . Pension and other postretirement benefits funding . . . . . . . . . . . . Decrease (increase) in working capital (3) . . . . . . . . . . . . . . . . . . . US Federal tax refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SPM investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multiclient seismic data capitalized . . . . . . . . . . . . . . . . . . . . . . . Free cash flow (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock repurchase program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from employee stock plans . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of WesternGeco marine seismic business, net of cash divested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business acquisitions and investments, net of cash acquired plus debt assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (48) 30 345 (83) (442) - 37 5,713 (2,160) (981) (100) 2,472 (2,770) (400) 261 (437) 579 (292) (14) (56) 104 343 (133) (823) 685 (545) 5,663 (2,107) (1,609) (276) 1,671 (2,778) (969) 297 (1,779) - (847) (363) Increase in Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Debt, Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . (164) (13,110) (2,989) (10,121) Net Debt, End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,274) $ (13,110) $ (10,121) 26 (60) 187 267 (174) 416 - (662) 6,261 (2,055) (1,031) (630) 2,545 (2,647) (778) 415 (465) - (4,022) (87) (4,574) (5,547) (1) (2) (3) (4) “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’s indebtedness by reflecting cash and investments that could be used to repay debt. Net Debt is a non-GAAP financial measure that should be considered in addition to, not as a substitute for or superior to, total debt. Includes depreciation of property, plant and equipment and amortization of intangible assets, multiclient seismic data costs and SPM investments. Includes severance payments of approximately $340 million during 2018, $455 million during 2017 and $850 million during 2016. “Free cash flow” represents cash flow from operations less capital expenditures, SPM investments and multiclient seismic data costs capitalized. Management believes that free cash flow is an important liquidity measure for the company and that it is useful to investors and management as a measure of the ability of our business to generate cash. Once business needs and obligations are met, this cash can be used to reinvest in the company for future growth or to return to shareholders through dividend payments or share repurchases. Free cash flow does not represent the residual cash flow available for discretionary expenditures. Free cash flow is a non-GAAP financial measure that should be considered in addition to, not as substitute for or superior to, cash flow from operations. Key liquidity events during 2018, 2017 and 2016 included: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Cash flow from operations was $5.7 billion in 2018, $5.7 billion in 2017 and $6.3 billion in 2016. Operating cash flows for 2018 were essentially flat compared to 2017 as the lower consumption of working capital was offset by decreased depreciation and amortization following the asset impairment charges recorded during the fourth quarter of 2017. The improvement in working capital in 2018 was largely driven by strong accounts receivable collections. The decrease in operating cash flows in 2017 as compared to 2016 was largely attributable to lower earnings before consideration of non-cash charges and credits and depreciation and amortization expense. On July 18, 2013, the Board approved a $10 billion share repurchase program to be completed at the latest by June 30, 2018. This program was completed during May 2017. On January 21, 2016, the Board approved a new $10 billion share repurchase program for Schlumberger common stock. Schlumberger had repurchased $723 million of Schlumberger common stock under this program as of December 31, 2018. The following table summarizes the activity under these share repurchase programs during 2018, 2017 and 2016: (Stated in thousands, except per share amounts) Total Cost of Shares Purchased Total Number of Shares Purchased Average Price Paid per Share 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ 399,786 968,676 778,018 6,495.1 13,249.7 10,988.5 $ $ $ 61.55 73.11 70.80 Dividends paid during 2018, 2017 and 2016 were $2.8 billion, $2.8 billion and $2.6 billion, respectively. Capital expenditures were $2.2 billion in 2018, $2.1 billion in 2017 and $2.1 billion in 2016. Capital expenditures during 2019 are expected to range between $1.5 billion and $1.7 billion. During the fourth quarter of 2018, Schlumberger issued €600 million of 1.00% Guaranteed Notes due 2026. During the fourth quarter of 2018, Schlumberger completed the divestiture of its marine seismic acquisition business for net proceeds of $579 million (after considering $21 million of cash divested). 27 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) During the fourth quarter of 2017, Schlumberger issued $500 million of 2.20% Guaranteed Notes due 2020 and $600 million of 2.65% Guaranteed Notes due 2022. During 2018, 2017 and 2016, Schlumberger made contributions of $83 million, $133 million and $174 million, respectively, to its postretirement benefit plans. The US pension plans were 88% funded at both December 31, 2018 and December 31, 2017 based on their projected benefit obligations. Schlumberger’s international defined benefit pension plans were a combined 97% funded at both December 31, 2018 and December 31, 2017 based on their projected benefit obligations. Schlumberger expects to contribute approximately $25 million to its postretirement benefit plans in 2019, subject to market and business conditions. The increase in SPM investments in 2017 as compared to 2016 is primarily attributable to the purchase of a majority non-operating interest in the Palliser Block, located in Alberta, Canada, from Cenovous Energy. Schlumberger paid $2.8 billion of cash in connection with its 2016 acquisition of Cameron. Additionally, as a result of the acquisition of Cameron, Schlumberger assumed $3.0 billion of debt (including a $244 million adjustment to increase Cameron’s long-term fixed rate debt to its estimated fair value) and acquired $2.2 billion of cash and short-term investments. During the second quarter of 2016, Schlumberger repurchased approximately $1.4 billion of Cameron’s long-term fixed-rate debt. In connection with Schlumberger’s 2016 acquisition of Cameron, Cameron was merged with Schlumberger Holdings Corporation (“SHC”), an indirect wholly-owned United States subsidiary of Schlumberger. Under the terms of the agreement, Cameron shareholders received 0.716 shares of Schlumberger Limited common stock and a cash payment of $14.44 in exchange for each Cameron share of common stock outstanding. In connection with this transaction, SHC acquired approximately 138 million shares of common stock from Schlumberger Limited and transferred those shares to Cameron’s shareholders. In order to partially fund the purchase of the 138 million shares of common stock from Schlumberger Limited that were transferred to Cameron stockholders, SHC issued $6 billion of notes during the fourth quarter of 2015 consisting of the following: – – – – – $500 million of 1.90% Senior Notes due 2017; $1.3 billion of 2.35% Senior Notes due 2018; $1.6 billion of 3.00% Senior Notes due 2020; $850 million of 3.63% Senior Notes due 2022; and $1.75 billion of 4.00% Senior Notes due 2025. As of December 31, 2018, Schlumberger had $2.8 billion of cash and short-term investments on hand. Schlumberger also has separate committed credit facility agreements aggregating $6.5 billion with commercial banks, of which $4.1 billion was available and unused as of December 31, 2018. The $6.5 billion of committed credit facility agreements support commercial paper programs. Schlumberger believes these amounts are sufficient to meet future business requirements for at least the next 12 months. The total outstanding commercial paper borrowings were $2.4 billion as of December 31, 2018 and $3.0 billion as of December 31, 2017. 28 Summary of Contractual Obligations (Stated in millions) Payment Period Total 2019 2020-2021 2022-2023 After 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Debt (1) . . . . . Interest on fixed rate debt obligations (2) Operating leases . . . . . . . . . . . . . . . . . . . . . . . . Purchase obligations (3) . . . . . . . . . . . . . . . . . . . $ 16,051 1,951 1,985 3,764 $ 1,408 398 568 3,518 $ 5,186 659 732 177 $ 6,558 370 293 54 2,899 524 392 15 $ 23,751 $ 5,892 $ 6,754 $ 7,275 $ 3,830 (1) (2) Excludes future payments for interest. Excludes interest on $2.8 billion of variable rate debt, which had a weighted average interest rate of 3.5% as of December 31, 2018. (3) Represents an estimate of contractual obligations in the ordinary course of business. Although these contractual obligations are considered enforceable and legally binding, the terms generally allow Schlumberger the option to reschedule and adjust its requirements based on business needs prior to the delivery of goods. Refer to Note 18, Pension and Other Benefit Plans, of the Consolidated Financial Statements for details regarding Schlumberger’s pension and other postretirement benefit obligations. As discussed in Note 14, Income Taxes, of the Consolidated Financial Statements, included in the Schlumberger Consolidated Balance Sheet at December 31, 2018 is approximately $1.4 billion of liabilities associated with uncertain tax positions in the over 100 jurisdictions in which Schlumberger conducts business. Due to the uncertain and complex application of tax regulations, combined with the difficulty in predicting when tax audits throughout the world may be concluded, Schlumberger cannot make reliable estimates of the timing of cash outflows relating to these liabilities. Schlumberger has outstanding letters of credit/guarantees that relate to business performance bonds, custom/ excise tax commitments, facility lease/rental obligations, etc. These were entered into in the ordinary course of business and are customary practices in the various countries where Schlumberger operates. Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires Schlumberger to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. The following accounting policies involve “critical accounting estimates” because they are particularly dependent on estimates and assumptions made by Schlumberger about matters that are inherently uncertain. Schlumberger bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 29 Allowance for Doubtful Accounts Schlumberger maintains an allowance for doubtful accounts in order to record accounts receivable at their net realizable value. Judgment is involved in recording and making adjustments to this reserve. Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices. Adjustments to the allowance may be required in future periods depending on how such potential issues are resolved, or if the financial condition of Schlumberger’s customers were to deteriorate resulting in an impairment of their ability to make payments. As a large multinational company with a long history of operating in a cyclical industry, Schlumberger has extensive experience in working with its customers during difficult times to manage its accounts receivable. During weak economic environments or when there is an extended period of weakness in oil and gas prices, Schlumberger typically experiences delays in the payment of its receivables. However, except as described below, Schlumberger has not had material write-offs due to uncollectible accounts receivable over the recent industry downturn. Schlumberger operates in more than 85 countries. As of December 31, 2018, only three of those countries individually accounted for greater than 5% of Schlumberger’s net receivables balance, of which only one (the United States) accounted for greater than 10% of such receivables. In April 2016, Schlumberger announced that it was reducing its activity in Venezuela to align operations with cash collections as a result of insufficient payments on outstanding receivables. Schlumberger also previously disclosed that its judgment regarding the collectibility of its receivables and promissory notes in Venezuela is sensitive to the political and economic conditions in the country and that, if conditions in Venezuela worsen, Schlumberger may be required to record adjustments to the carrying value of these assets. During the fourth quarter of 2017, conditions in Venezuela further deteriorated such that Schlumberger determined it was appropriate to write-off the remaining outstanding receivable balance of approximately $469 million and record an impairment charge of $105 million related to the aforementioned promissory notes. Goodwill, Intangible Assets and Long-Lived Assets Schlumberger records the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as goodwill. The goodwill relating to each of Schlumberger’s reporting units is tested for impairment annually as well as when an event, or change in circumstances, indicates an impairment may have occurred. Under generally accepted accounting principles, Schlumberger has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one or more of its reporting units is greater than its carrying amount. If, after assessing the totality of events or circumstances, Schlumberger determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if Schlumberger concludes otherwise, then it is required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded based on that difference. Schlumberger has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. Schlumberger elected to perform the qualitative assessment described above for purposes of its annual goodwill impairment test in 2018. Based on this assessment, Schlumberger concluded it was more likely than not that the fair value of each of its reporting units was greater than its carrying amount. Accordingly, no further testing was required. Long-lived assets, including fixed assets, intangible assets and investments in SPM projects, are reviewed for the carrying value may not be impairment whenever events or changes in circumstances indicate that 30 recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows as well as the estimated fair value of long-lived assets involves significant estimates on the part of management. If there is a material change in economic conditions or other circumstances influencing the estimate of future cash flows or fair value, Schlumberger could be required to recognize impairment charges in the future. Income Taxes Schlumberger conducts business in more than 100 tax jurisdictions, a number of which have tax laws that are not fully defined and are evolving. Schlumberger’s tax filings are subject to regular audits by the tax authorities. These audits may result in assessments for additional taxes that are resolved with the authorities or, potentially, through the courts. Schlumberger recognizes the impact of a tax position in its financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Tax liabilities are recorded based on estimates of additional taxes that will be due upon the conclusion of these audits. Estimates of these tax liabilities are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of tax regulations, the ultimate resolution of audits may result in liabilities that could be materially different from these estimates. In such an event, Schlumberger will record additional tax expense or tax benefit in the period in which such resolution occurs. Revenue Recognition for Certain Long-lived Construction-type Contracts Schlumberger recognizes revenue for certain long-term construction-type contracts over time. These contracts involve significant design and engineering efforts in order to satisfy custom designs for customer-specific applications. Under this method, revenue is recognized as work progresses on each contract. Progress is measured by the ratio of actual costs incurred to date on the project in relation to total estimated project costs. Approximately 5% and 7% of Schlumberger’s revenue in 2018 and 2017, respectively, was recognized under this method. The estimate of total project costs has a significant impact on both the amount of revenue recognized as well as the related profit on a project. Revenue and profits on contracts can also be significantly affected by change orders and claims. Profits are recognized based on the estimated project profit multiplied by the percentage complete. Due to the nature of these projects, adjustments to estimates of contract revenue and total contract costs are often required as work progresses. Any expected losses on a project are recorded in full in the period in which they become probable. Multiclient Seismic Data Schlumberger capitalizes the costs associated with obtaining multiclient seismic data. The carrying value of the multiclient seismic data library at December 31, 2018 and 2017 was $601 million and $727 million, respectively. Such costs are charged to Cost of services based on the percentage of the total costs to the estimated total revenue that Schlumberger expects to receive from the sales of such data. However, under no circumstances will an individual survey carry a net book value greater than a 4-year, straight-line amortized value. The carrying value of surveys is reviewed for impairment annually as well as when an event or change in circumstance indicates an impairment may have occurred. Adjustments to the carrying value are recorded when it is determined that estimated future revenues, which involve significant judgment on the part of Schlumberger, would not be sufficient to recover the carrying value of the surveys. Significant adverse changes in Schlumberger’s estimated future cash flows could result in impairment charges in a future period. For purposes library, surveys are primarily analyzed for impairment of performing the annual impairment on a survey-by-survey basis. test of the multiclient 31 Pension and Postretirement Benefits Schlumberger’s pension and postretirement benefit obligations are described in detail in Note 18 to the Consolidated Financial Statements. The obligations and related costs are calculated using actuarial concepts, which include critical assumptions related to the discount rate, expected rate of return on plan assets and medical cost trend rates. These assumptions are important elements of expense and/or liability measurement and are updated on an annual basis, or upon the occurrence of significant events. The discount rate that Schlumberger uses reflects the prevailing market rate of a portfolio of high-quality debt instruments with maturities matching the expected timing of payment of the related benefit obligations. The following summarizes the discount rates utilized by Schlumberger for its various pension and postretirement benefit plans: (cid:129) (cid:129) (cid:129) (cid:129) The discount rate utilized to determine the liability for Schlumberger’s United States pension plans and postretirement medical plan was 4.30% at December 31, 2018 and 3.70% at December 31, 2017. The weighted-average discount international pension plans was 4.00% at December 31, 2018 and 3.55% at December 31, 2017. rate utilized to determine the liability for Schlumberger’s The weighted-average discount rate utilized to determine expense for Schlumberger’s United States pension plans and postretirement medical plan decreased from 4.20% in 2017 to 3.70% in 2018. The weighted-average discount rate utilized to determine expense for Schlumberger’s international pension plans decreased from 4.13% in 2017 to 3.55% in 2018. The expected rate of return for Schlumberger’s retirement benefit plans represents the average rate of return expected to be earned on plan assets over the period that benefits included in the benefit obligation are expected to be paid. The expected rate of return for Schlumberger’s United States pension plans has been determined based upon expected rates of return for the investment portfolio, with consideration given to the distribution of investments by asset class and historical rates of return for each individual asset class. The weighted average expected rate of return on plan assets for the United States pension plans was 7.25% in both 2018 and 2017. The weighted average expected rate of return on plan assets for the international pension plans was 7.40% in both 2018 and 2017. A lower expected rate of return would increase pension expense. Schlumberger’s medical cost trend rate assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. The overall medical cost trend rate assumption utilized to determine the 2018 postretirement medical expense was 7.00%, graded to 5.0% over the next nine years. The overall medical trend rate assumption utilized to determine the postretirement medical liability at December 31, 2018 was 7.00%, graded to 5.0% over the next nine years. The following illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for Schlumberger’s United States and international pension plans: Change in Assumption 25 basis point decrease in discount rate . . . . . . . . . . . . . . . . . . . . . . . . . 25 basis point increase in discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . 25 basis point decrease in expected return on plan assets . . . . . . . . . . . . 25 basis point increase in expected return on plan assets . . . . . . . . . . . . Effect on 2018 Pretax Expense +$39 -$36 +$29 -$28 (Stated in millions) Effect on Dec. 31, 2018 Liability +$509 -$480 - - 32 The following illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for Schlumberger’s United States postretirement medical plans: Change in Assumption Effect on 2018 Pretax Expense 25 basis point decrease in discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 basis point increase in discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +$2 - (Stated in millions) Effect on Dec. 31, 2018 Liability +$38 -$36 33 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Schlumberger is subject to market risks primarily associated with changes in foreign currency exchange rates and interest rates. As a multinational company, Schlumberger operates in more than 85 countries. Schlumberger’s functional currency is primarily the US dollar. Approximately 80% of Schlumberger’s revenue in 2018 was denominated in US dollars. However, outside the United States, a significant portion of Schlumberger’s expenses is incurred in foreign currencies. Therefore, when the US dollar weakens in relation to the foreign currencies of the countries in which Schlumberger conducts business, the US dollar-reported expenses will increase. Schlumberger maintains a foreign-currency risk management strategy that uses derivative instruments to manage the impact of changes in foreign exchange rates on its earnings. Schlumberger enters into foreign currency forward contracts to provide a hedge against currency fluctuations on certain monetary assets and liabilities, and certain expenses denominated in currencies other than the functional currency. A 10% appreciation in the US dollar from the December 31, 2018 market rates would increase the unrealized value of Schlumberger’s forward contracts by $132 million. Conversely, a 10% depreciation in the US dollar from the December 31, 2018 market rates would decrease the unrealized value of Schlumberger’s forward contracts by $143 million. In either scenario, the gain or loss on the forward contract would be offset by the gain or loss on the underlying transaction, and therefore, would have no impact on future earnings. At December 31, 2018, contracts were outstanding for the US dollar equivalent of $5.0 billion in various foreign currencies, of which $1.9 billion related to hedges of debt balances denominated in currencies other than the functional currency. 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. At December 31, 2018, Schlumberger had fixed rate debt aggregating approximately $13.2 billion and variable rate debt aggregating approximately $2.8 billion, before considering the effects of cross currency swaps. Schlumberger’s exposure to interest rate risk associated with its debt is also partially mitigated by its investment portfolio. Short-term investments, which totaled approximately $1.3 billion at December 31, 2018, are comprised primarily of money market funds, time deposits, certificates of deposit, commercial paper, bonds and notes, substantially all of which are denominated in US dollars. The average return on investments was 2.3% in 2018. 34 The following table reflects the carrying amounts of Schlumberger’s debt at December 31, 2018 by year of maturity: 2019 2020 2021 2022 2023 2024 2025 2026 Thereafter Total (Stated in millions) $1,596 499 $1,596 1,100 132 Fixed rate debt 0.63% Guaranteed Notes . . . . . . . $ 683 571 1.50% Guaranteed Notes . . . . . . . 3.00% Senior Notes . . . . . . . . . . . 2.20% Senior Notes . . . . . . . . . . . 3.30% Senior Notes . . . . . . . . . . . 4.20% Senior Notes . . . . . . . . . . . 4.50% Notes . . . . . . . . . . . . . . . . . 2.40% Senior Notes . . . . . . . . . . . 3.63% Senior Notes . . . . . . . . . . . 2.65% Senior Notes . . . . . . . . . . . 3.60% Notes . . . . . . . . . . . . . . . . . 3.65% Senior Notes . . . . . . . . . . . 4.00% Notes . . . . . . . . . . . . . . . . . 3.70% Notes . . . . . . . . . . . . . . . . . 4.00% Senior Notes . . . . . . . . . . . 1.00% Guaranteed Notes . . . . . . . 7.00% Notes . . . . . . . . . . . . . . . . . 5.95% Notes . . . . . . . . . . . . . . . . . 5.13% Notes . . . . . . . . . . . . . . . . . $ 997 847 598 109 $1,493 82 $ 55 $1,742 $678 Total fixed rate debt Variable rate debt . . . . . . . . . . . . . . . . . . . . . . . $1,254 $2,095 $2,828 $2,551 $1,575 $ 55 $1,742 $678 - 255 1,870 562 153 9 - - $ 683 571 1,596 499 1,596 1,100 132 997 847 598 109 1,493 82 55 1,742 678 210 115 99 $210 115 99 $424 $13,202 2,849 - Total . . . . . . . . . . . . . . . . . . . . . . . $1,407 $2,104 $3,083 $4,421 $2,137 $ 55 $1,742 $678 $424 $16,051 The fair market value of the outstanding fixed rate debt was approximately $13.1 billion as of December 31, 2018. The weighted average interest rate on the variable rate debt as of December 31, 2018 was 3.5%. Schlumberger does not enter into derivatives for speculative purposes. Forward-looking Statements This Form 10-K 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 including our growth; oil and natural gas prices; transformation program; capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger’s customers; the effects of U.S. tax reform; our effective tax rate; Schlumberger’s SPM projects, joint ventures and alliances; 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 improvements in operating procedures and technology, 35 natural gas exploration and development; general economic, political and business conditions in key regions of the world; foreign currency risk; pricing pressure; weather and seasonal factors; operational modifications, delays or cancellations; production declines; 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 this 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 any such development changes), or should our underlying 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. 36 Item 8. Financial Statements and Supplementary Data. SCHLUMBERGER LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (LOSS) Year Ended December 31, Revenue Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest & other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research & engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General & administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairments & other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merger & integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) attributable to noncontrolling interests . . . . . . . . . . . . . . Net income (loss) attributable to Schlumberger . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings (loss) per share of Schlumberger . . . . . . . . . . . . . . . . . . . . . Diluted earnings (loss) per share of Schlumberger . . . . . . . . . . . . . . . . . . . . Average shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ See the Notes to Consolidated Financial Statements (Stated in millions, except per share amounts) 2018 2017 2016 $ $ $ $ 24,296 8,519 32,815 149 215 20,618 7,860 702 444 356 - 575 2,624 447 2,177 39 2,138 1.54 1.53 1,385 1,393 $ 21,927 8,513 30,440 224 - 18,206 8,337 787 432 3,211 308 566 (1,183) 330 (1,513) (8) 20,259 7,551 27,810 200 - 17,352 7,057 1,012 403 3,172 349 570 (1,905) (278) (1,627) 60 (1,505) $ (1,687) (1.08) $ (1.08) $ 1,388 1,388 (1.24) (1.24) 1,357 1,357 37 SCHLUMBERGER LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Stated in millions) Year Ended December 31, Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Currency translation adjustments 2018 2017 2016 $ 2,177 $ (1,513) $ (1,627) Net change arising during the period . . . . . . . . . . . . . . . . . . . . (191) Marketable securities Unrealized gain (loss) arising during the period . . . . . . . . . . . . Cash flow hedges Net gain (loss) on cash flow hedges . . . . . . . . . . . . . . . . . . . . . Reclassification to net income (loss) of net realized loss . . . . . Pension and other postretirement benefit plans Actuarial gain (loss) arising during the period . . . . . . . . . . . . . Amortization to net income (loss) of net actuarial loss . . . . . . Amortization to net income (loss) of net prior service cost . . . Income taxes on pension and other postretirement benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income (loss) attributable to noncontrolling (11) (16) 1 (186) 187 (5) (18) 1,938 (3) (8) 22 - 134 159 80 (83) 21 (101) 121 (289) 157 102 (15) (1,144) (13) (1,712) interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 (8) 60 Comprehensive income (loss) attributable to Schlumberger . . . . . $ 1,899 $ (1,136) $ (1,772) See the Notes to Consolidated Financial Statements 38 SCHLUMBERGER LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Stated in millions) 2018 2017 December 31, ASSETS Current Assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables less allowance for doubtful accounts (2018–$249; 2017–$241) . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,433 $ 1,344 7,881 4,010 1,063 Investments in Affiliated Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed Assets less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multiclient Seismic Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,731 1,538 11,679 601 24,931 8,727 7,300 1,799 3,290 8,084 4,046 1,278 18,497 1,519 11,576 727 25,118 9,354 5,196 $ 70,507 $ 71,987 LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated liability for taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . . . . . Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Postretirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schlumberger stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,223 1,155 1,407 701 13,486 14,644 1,153 1,441 3,197 33,921 13,132 (4,006) 31,658 (4,622) 36,162 424 36,586 10,036 1,223 3,324 699 15,282 14,875 1,082 1,650 1,837 34,726 12,975 (4,049) 32,190 (4,274) 36,842 419 37,261 $ 70,507 $ 71,987 See the Notes to Consolidated Financial Statements 39 SCHLUMBERGER LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Stated in millions) 2018 2017 2016 2,177 $ (1,513) $ (1,627) Year Ended December 31, Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Adjustments to reconcile net income (loss) to cash provided by operating activities: Impairments and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of WesternGeco marine seismic acquisition business . . . . . . Depreciation and amortization (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension and other postretirement benefits expense . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension and other postretirement benefits funding . . . . . . . . . . . . . . . . . . Earnings of equity method investments, less dividends received . . . . . . . Change in assets and liabilities: (2) Decrease (increase) in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) in other current assets . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . (Decrease) increase in estimated liability for taxes on income . . . . . . . . . Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356 (215) 3,556 30 345 (83) (48) 430 (10) 121 (58) (824) (159) 69 26 3,764 - 3,837 104 343 (133) (56) (124) 108 (174) 402 (737) 104 (28) (234) NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . 5,713 5,663 Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SPM investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multiclient seismic data capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business acquisitions and investments, net of cash acquired . . . . . . . . . . . . . . Proceeds from sale of WesternGeco marine seismic business, net of cash divested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sale of investments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,160) (981) (100) (292) 579 1,943 (29) (2,107) (1,609) (276) (847) - 3,277 (217) NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . (1,040) (1,779) Cash flows from financing activities: Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock repurchase program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net decrease in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET CASH USED IN FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . Net (decrease) increase in cash before translation effect . . . . . . . . . . . . . . . . . . . . . . Translation effect on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,770) 227 34 (400) 898 (2,861) (85) (63) (5,020) (347) (19) 1,799 (2,778) 212 85 (969) 2,371 (2,961) (1,022) 29 (5,033) (1,149) 19 2,929 Cash, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,433 $ 1,799 $ 3,820 - 4,094 187 267 (174) (60) 1,098 800 308 (488) (1,680) (110) 77 (251) 6,261 (2,055) (1,031) (630) (2,398) - 5,544 (54) (624) (2,647) 231 184 (778) 3,640 (5,630) (387) (41) (5,428) 209 (73) 2,793 2,929 (1) (2) Includes depreciation of property, plant and equipment and amortization of intangible assets, multiclient seismic data costs and SPM investments. Net of the effect of business acquisitions and divestitures. See the Notes to Consolidated Financial Statements 40 SCHLUMBERGER LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Stated in millions) Common Stock Issued In Treasury Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interests Total Balance, January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in unrealized gain on marketable securities . . . . . . . . . . . . Changes in fair value of cash flow hedges . . . . . . . . . . . . . . . . . . . . Pension and other postretirement benefit plans . . . . . . . . . . . . . . . . Shares sold to optionees, less shares exchanged . . . . . . . . . . . . . . . . Vesting of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares issued under employee stock purchase plan . . . . . . . . . . . . . Stock repurchase program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared ($2.00 per share) . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of Cameron International Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of noncontrolling interest Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in unrealized gain on marketable securities . . . . . . . . . . . . Changes in fair value of cash flow hedges . . . . . . . . . . . . . . . . . . . . Pension and other postretirement benefit plans . . . . . . . . . . . . . . . . Shares sold to optionees, less shares exchanged . . . . . . . . . . . . . . . . Vesting of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares issued under employee stock purchase plan . . . . . . . . . . . . . Stock repurchase program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared ($2.00 per share) . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in unrealized gain on marketable securities . . . . . . . . . . . . Changes in fair value of cash flow hedges . . . . . . . . . . . . . . . . . . . . Pension and other postretirement benefit plans . . . . . . . . . . . . . . . . Shares sold to optionees, less shares exchanged . . . . . . . . . . . . . . . . Vesting of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares issued under employee stock purchase plan . . . . . . . . . . . . . Stock repurchase program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared ($2.00 per share) . . . . . . . . . . . . . . . . . . . . . . . . Stranded tax related to US pension . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,693 $ (13,372) $ 40,870 $ (1,687) (4,558) $ 272 $ 60 (83) 21 20 (43) (4,643) (3) (8) 22 358 (4,274) (191) (11) (15) (22) (2,713) 36,470 (1,505) (2,775) 32,190 2,138 106 13 451 (8) (24) 419 39 (5) (2,770) 109 (9) (109) (29) (82) (122) (55) 267 103 266 122 286 (778) 9,924 (3) 2 12,801 (3,550) (10) (110) (52) 343 3 95 110 264 (969) 1 12,975 (4,049) (41) (72) (67) 345 75 72 294 (400) (8) 2 35,905 (1,627) (83) 21 20 (43) 184 - 231 (778) 267 (2,713) 10,027 106 12 41,529 (1,513) (3) (8) 22 358 85 - 212 (969) 343 (2,775) (20) 37,261 2,177 (196) (11) (15) (22) 34 - 227 (400) 345 (2,770) - (44) Balance, December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,132 $ (4,006) $ 31,658 $ (4,622) $ 424 $ 36,586 See the Notes to Consolidated Financial Statements 41 SCHLUMBERGER LIMITED AND SUBSIDIARIES SHARES OF COMMON STOCK Balance, January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of Cameron International Corporation . . . . . . . . . . Shares sold to optionees, less shares exchanged . . . . . . . . . . . . Vesting of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares issued under employee stock purchase plan . . . . . . . . . Stock repurchase program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares sold to optionees, less shares exchanged . . . . . . . . . . . . Vesting of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares issued under employee stock purchase plan . . . . . . . . . Stock repurchase program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares sold to optionees, less shares exchanged . . . . . . . . . . . . Vesting of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares issued under employee stock purchase plan . . . . . . . . . Stock repurchase program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See the Notes to Consolidated Financial Statements Issued In Treasury (Stated in millions) Shares Outstanding 1,434 - - - - 1,434 - - - - 1,434 - - - - 1,434 (178) 138 3 1 4 (11) (43) 1 2 3 (13) (50) 1 1 3 (6) (51) 1,256 138 3 1 4 (11) 1,391 1 2 3 (13) 1,384 1 1 3 (6) 1,383 42 Notes to Consolidated Financial Statements 1. Business Description Schlumberger Limited (Schlumberger N.V., comprise “Schlumberger”) (collectively, characterization, drilling, production and processing to the oil and gas industry. incorporated in Curaçao) and its consolidated subsidiaries reservoir leading supplier of technology for the world’s 2. Summary of Accounting Policies The Consolidated Financial Statements of Schlumberger have been prepared in accordance with accounting principles generally accepted in the United States of America. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, Schlumberger evaluates its estimates, including those related to collectibility of accounts receivable; revenue recognized for certain long-term construction-type contracts over time; recoverability of fixed assets, goodwill, intangible assets, Schlumberger Production Management investments and investments in affiliates; income taxes; multiclient seismic data; contingencies and actuarial assumptions for employee benefit plans. Schlumberger bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Revenue Recognition In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This ASU amended the existing accounting standards for revenue recognition and requires companies to recognize revenue when control of the promised goods or services is transferred to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services. Schlumberger adopted this ASU on January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Prior period amounts have not been adjusted and continue to be reflected in accordance with Schlumberger’s historical accounting. The adoption of impact on Schlumberger’s Consolidated Financial Statements. this ASU did not have a material Schlumberger recognizes revenue upon the transfer of control of promised products or services to customers at an amount that reflects the consideration it expects to receive in exchange for these products or services. The vast majority of Schlumberger’s services and product offerings are short-term in nature. The time between invoicing and when payment is due under these arrangements is generally between 30 to 60 days. Revenue is occasionally generated from contractual arrangements that include multiple performance obligations. Revenue from these arrangements is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using expected costs plus margin. Revenue is recognized for certain long-term construction-type contracts over time. These contracts involve significant design and engineering efforts in order to satisfy custom designs for customer-specific applications. Revenue is recognized as work progresses on each contract. Progress is measured by the ratio of actual costs 43 incurred to date on the project in relation to total estimated project costs. The estimate of total project costs has a significant impact on both the amount of revenue recognized as well as the related profit on a project. Revenue and profits on contracts can also be significantly affected by change orders and claims. Due to the nature of these projects, adjustments to estimates of contract revenue and total contract costs may be required as work progresses. Progress billings are generally issued upon completion of certain phases of work as stipulated in the contract. Any expected losses on a project are recorded in full in the period in which they become probable. Due to the nature of its businesses, Schlumberger does not have significant backlog. Total backlog was $2.7 billion at December 31, 2018, of which approximately 50% is expected to be recognized as revenue during 2019. Short-term Investments Short-term investments are comprised primarily of money market funds, time deposits, certificates of deposit, commercial paper, bonds and notes, substantially all of which are denominated in US dollars and are stated at cost plus accrued interest, which approximates fair value. For purposes of the Consolidated Statement of Cash Flows, Schlumberger does not consider Short-term investments to be cash equivalents. Investments in Affiliated Companies Investments in companies in which Schlumberger does not have a controlling financial interest, but over which it has significant influence, are accounted for using the equity method. Schlumberger’s share of the after-tax earnings of equity method investees is included in Interest and other income. Investments in privately held companies in which Schlumberger does not have the ability to exercise significant influence are accounted for using the cost method. Equity and cost method investments are classified as Investments in Affiliated Companies in the Consolidated Balance Sheet. Multiclient Seismic Data Schlumberger’s multiclient library consists of completed and in-process seismic surveys that are licensed on a nonexclusive basis. Schlumberger capitalizes costs directly incurred in acquiring and processing the multiclient seismic data. Such costs are charged to Cost of services based on the percentage of the total costs to the estimated total revenue that Schlumberger expects to receive from the sales of such data. However, under no circumstance will an individual survey carry a net book value greater than a 4-year, straight-line amortized value. The carrying value of the multiclient library is reviewed for impairment annually as well as when an event or change in circumstance indicating impairment may have occurred. Adjustments to the carrying value are recorded when it is determined that estimated future cash flows, which involve significant judgment on the part of Schlumberger, would not be sufficient to recover the carrying value of the surveys. Significant adverse changes in Schlumberger’s estimated future cash flows could result in impairment charges in a future period. Schlumberger Production Management Schlumberger Production Management (“SPM”) projects are focused on developing and managing production on behalf of Schlumberger’s clients under long-term agreements. Schlumberger will invest its own services and products, and in some cases cash, into the field development activities and operations. Although in certain arrangements Schlumberger is paid for a portion of the services or products it provides, generally Schlumberger will not be paid at the time of providing its services or upon delivery of its products. Instead, Schlumberger is 44 compensated based upon cash flow generated or on a fee-per-barrel basis. This includes certain arrangements whereby Schlumberger is only compensated based upon incremental production it helps deliver above a mutually agreed baseline. Revenue from SPM arrangements, which is recognized as the related production is achieved, represented less than 5% of Schlumberger’s consolidated revenue during each of 2018, 2017 and 2016. Schlumberger capitalizes its cash investments in a project as well as the direct costs associated with providing services or products for which Schlumberger will be compensated when the related production is achieved. These capitalized investments are amortized to the Consolidated Statement of Income (Loss) as the related production is achieved based on the units of production method, whereby each unit produced is assigned a pro-rata portion of the unamortized costs based on estimated total production, resulting in a matching of revenue with the applicable costs. Amortization expense relating to these capitalized investments was $568 million, $465 million and $449 million in 2018, 2017 and 2016, respectively. The unamortized portion of Schlumberger’s investments in SPM projects was $4.201 billion and $4.065 billion at December 31, 2018 and 2017, respectively. These amounts are included within Other Assets in Schlumberger’s Consolidated Balance Sheet. Concentration of Credit Risk Schlumberger’s assets that are exposed to concentrations of credit risk consist primarily of cash, short-term investments, receivables from clients and derivative financial instruments. Schlumberger places its cash and short-term investments with financial institutions and corporations and limits the amount of credit exposure with any one of them. Schlumberger regularly evaluates the creditworthiness of the issuers in which it invests. By using derivative financial instruments to hedge certain exposures, Schlumberger exposes itself to some credit risk. Schlumberger minimizes this credit risk by entering into transactions with high-quality counterparties, limiting the exposure to each counterparty and monitoring the financial condition of its counterparties. Schlumberger operates in more than 85 countries and as such, its accounts receivable are spread over many countries and customers. Accounts receivable in the United States represented 22% of Schlumberger’s accounts receivable balance at December 31, 2018. No other country accounted for greater than 10% of Schlumberger’s accounts receivable balance. 45 Earnings per Share The following is a reconciliation from basic to diluted earnings (loss) per share of Schlumberger for each of the last three years: (Stated in millions, except per share amounts) Net Income (Loss) Attributable to Schlumberger Average Shares Outstanding Earnings (Loss) per Share 2018: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,138 1,385 $ 1.54 Assumed exercise of stock options . . . . . . . . . . . . . . . . . . Unvested restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . - - - 8 Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,138 1,393 $ 1.53 2017: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,505) 1,388 $ (1.08) Assumed exercise of stock options . . . . . . . . . . . . . . . . . . . Unvested restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . - - - - Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,505) 1,388 $ (1.08) 2016: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,687) 1,357 $ (1.24) Assumed exercise of stock options . . . . . . . . . . . . . . . . . . . Unvested restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . - - - - Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,687) 1,357 $ (1.24) The number of outstanding employee stock options to purchase shares of Schlumberger common stock and unvested restricted stock units that were not included in the computation of diluted earnings/loss per share, because to do so would have had an anti-dilutive effect, were as follows: (Stated in millions) 2018 2017 2016 Employee stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unvested restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 - 47 5 47 5 3. Charges and Credits Schlumberger recorded the following charges and credits during 2018, 2017 and 2016: 2018 (cid:129) During the fourth quarter of 2018, Schlumberger completed the divestiture of its marine seismic acquisition business to Shearwater GeoServices (“Shearwater”) for $600 million of cash and a 15% equity interest in Shearwater. As a result of this transaction, Schlumberger recognized a $215 million gain. This gain is classified in Gain on sale of business in the Consolidated Statement of Income (Loss). 46 (cid:129) (cid:129) During the fourth quarter of 2018, Schlumberger recorded $172 million of charges to fully impair certain long-lived assets. This amount is classified in Impairments & other in the Consolidated Statement of Income (Loss). During the second quarter of 2018, Schlumberger recorded a $184 million charge associated with workforce reductions, primarily to further streamline its support cost structure. This charge is classified in Impairment & other in the Consolidated Statement of Income (Loss). The following is a summary of these charges and credits. Gain on sale of marine seismic acquisition business . . . . . . . . . . . . . . . . . . . . Workforce reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) Pretax Tax Net $ $ (215) $ 184 172 (19) $ 20 16 (196) 164 156 141 $ 17 $ 124 2017 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) During the fourth quarter of 2017, Schlumberger decided to cease all future marine seismic acquisition activities, after satisfying its remaining contractual commitments. This decision resulted in a charge of $1.025 billion consisting of the following: $786 million write-down of the vessels to their estimated fair value; $78 million impairment of intangible assets; $59 million write-down of inventory, and $102 million of other related restructuring costs. The fair value of the vessels was determined based on unobservable inputs that required significant judgments. Schlumberger also recorded a $90 million impairment charge relating to its land seismic business. As a result of the unfavorable near-term outlook for exploration spending, Schlumberger determined in the fourth quarter of 2017 that the carrying value of certain multiclient seismic data, primarily related to the US Gulf of Mexico, was impaired, resulting in a $246 million charge that was estimated based on the projected present value of future cash flows these surveys are expected to generate. During the fourth quarter of 2017, Schlumberger determined that it was appropriate to write-down its investment in Venezuela, given the recent economic and political developments in the country which have created significant uncertainties regarding recoverability. As a result, Schlumberger recorded a charge of $938 million, reflecting $469 million of accounts receivable, a $105 million other-than- temporary impairment charge relating to certain promissory notes, $285 million of fixed assets and $79 million of other assets in the country. During the fourth quarter of 2017, Schlumberger recorded a $245 million charge related to an estimated loss on a long-term surface facility construction project. Schlumberger recorded $156 million of other restructuring charges during the fourth quarter of 2017, primarily relating to facility and other exit costs. During the fourth quarter of 2017, Schlumberger recorded a $247 million charge associated with workforce reductions primarily to further streamline its support cost structure. On December 22, 2017, the US enacted the Tax Cuts and Jobs Act (the “Act”). The Act, which is also commonly referred to as “US tax reform,” significantly changes US corporate income tax laws by, among other things, reducing the US corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of US subsidiaries. As a result, Schlumberger recorded a net charge of $76 million during the fourth quarter of 2017. This amount, which is included in Tax expense (benefit) in the Consolidated Statement of Income 47 (Loss), consists of two components: (i) a $410 million charge relating to the one-time mandatory tax on previously deferred earnings of certain non-US subsidiaries that are owned either wholly or partially by a US subsidiary of Schlumberger, and (ii) a $334 million credit resulting from the remeasurement of Schlumberger’s net deferred tax liabilities in the US based on the new lower corporate income tax rate. Although the $76 million net charge represented what Schlumberger believed was a reasonable estimate of the impact of the income tax effects of the Act on Schlumberger’s Consolidated Financial Statements as of December 31, 2017, it was considered provisional. During 2018, Schlumberger finalized its accounting for this matter and concluded that no material adjustments were required. After considering the impact of foreign tax credits and tax losses, the resulting cash tax payable as a result of the one-time mandatory tax on previously deferred foreign earnings of Schlumberger’s US subsidiary will not be significant. During the second quarter of 2017, Schlumberger entered into a financing agreement with its primary customer in Venezuela. This agreement resulted in the exchange of $700 million of outstanding accounts receivable for promissory notes with a three-year term that bear interest at the rate of 6.50% per annum. Schlumberger recorded these notes at their estimated fair value on the date of the exchange, which resulted in a charge of $460 million. Following the $105 million other-than-temporary impairment charge described above, the new cost basis of these promissory notes was $135 million, which approximated their fair value at December 31, 2017. Schlumberger sold these promissory notes during the fourth quarter of 2018, which resulted in an immaterial loss. During the second quarter of 2017, Schlumberger entered into discussions with a customer relating to certain of its outstanding accounts receivable. As a result of these discussions, Schlumberger recorded a charge of $50 million to adjust these receivables to their estimated net realizable value. Schlumberger recorded $308 million of charges during 2017 relating to employee benefits, facility closures and other merger and integration-related costs, primarily in connection with Schlumberger’s 2016 acquisition of Cameron International Corporation (“Cameron”) (See Note 4 – Acquisitions). (cid:129) (cid:129) (cid:129) The following is a summary of these charges and credits, of which $3.211 billion were classified as Impairments & other, $245 million were classified in Cost of sales and $308 million were classified as Merger & integration in the Consolidated Statement of Income (Loss). (Stated in millions) Pretax Tax Noncontrolling Interests Net Impairment & other WesternGeco seismic restructuring charges . . . . . . . $ Venezuela investment write-down . . . . . . . . . . . . . . Promissory note fair value adjustment and other . . . Workforce reductions . . . . . . . . . . . . . . . . . . . . . . . . Multiclient seismic data impairment . . . . . . . . . . . . Other restructuring charges . . . . . . . . . . . . . . . . . . . Cost of sales Provision for loss on long-term construction project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merger & integration Merger and integration-related costs . . . . . . . . . . . . US tax reform charge . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,114 938 510 247 246 156 245 308 - $ 20 - - 13 81 10 22 70 (76) $ - - 12 - - 22 - - - - - 1,094 938 498 234 165 124 - 223 - 238 76 $ 3,764 $ 140 $ 34 $ 3,590 48 2016 (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Schlumberger reduced its workforce during the second quarter of 2016 as a result of persistent unfavorable oil and gas industry market conditions and the expected impact on customer activity levels. As a result, Schlumberger recorded a $646 million charge during the second quarter of 2016. During the fourth quarter of 2016, Schlumberger further reduced its workforce in order to streamline its support cost structure and recorded an additional $234 million charge associated with these actions. During the fourth quarter of 2016, Schlumberger recorded $302 million of restructuring charges consisting of the following: $165 million of facility closure costs due to the expected sale of certain owned properties and the termination of certain facility leases; $98 million of asset write-offs associated with exiting certain activities; and $39 million of contract termination costs. During the fourth quarter of 2016, the Central Bank of Egypt took the decision to float its currency and the Egyptian pound devalued relative to the US dollar. As a result, Schlumberger recorded a $63 million devaluation charge during the fourth quarter of 2016. As a result of the unfavorable oil and gas industry market conditions that continued to deteriorate in the first half of 2016, and the related impact on 2016 first half operating results and expected customer activity levels, Schlumberger determined that the carrying values of certain assets were no longer recoverable and also took certain decisions that resulted in the following impairment and other charges during the second quarter of 2016: - - - - - - $209 million impairment of pressure pumping equipment in North America. $165 million impairment of facilities in North America. $684 million of other fixed asset impairments primarily relating to underutilized equipment. $616 million write-down of the carrying value of certain inventory to its net realizable value. $198 million impairment of certain multiclient seismic data, largely related to the US Gulf of Mexico. $55 million of other restructuring costs. The fair value of the impaired fixed assets and multiclient seismic data was estimated based on the projected present value of future cash flows that these assets are expected to generate. Such estimates included unobservable inputs that required significant judgments. In connection with Schlumberger’s acquisition of Cameron, Schlumberger recorded $349 million of charges consisting of the following: $83 million relating to employee benefits for change-in-control arrangements and retention bonuses; $45 million of transaction costs, including advisory and legal fees; $61 million of facility closure costs, and $160 million of other merger and integration-related costs. Additionally, Schlumberger recorded $299 million of charges relating to the amortization of purchase accounting adjustments associated with the write-up of acquired inventory to its estimated fair value. 49 The following is a summary of these charges and credits, of which $3.172 billion were classified as Impairments & other, $349 million were classified as Merger & integration and $299 million were classified in Cost of sales in the Consolidated Statement of Income (Loss): Impairment & other $ Workforce reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other fixed asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventory write-downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America pressure pumping asset impairments . . . . . . . . . . . . . Multiclient seismic data impairment . . . . . . . . . . . . . . . . . . . . . . . . . . Facility impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Facility closure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs associated with exiting certain activities . . . . . . . . . . . . . . . . . . Currency devaluation loss in Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . Contract termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merger & integration Other merger and integration-related . . . . . . . . . . . . . . . . . . . . . . . . . Merger-related employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . Facility closure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales Amortization of inventory fair value adjustment . . . . . . . . . . . . . . . . (Stated in millions) Pretax Tax Net $ 880 684 616 209 198 165 165 98 63 39 55 160 83 61 45 299 $ 69 52 49 67 62 58 40 23 - 9 - 28 13 13 10 90 811 632 567 142 136 107 125 75 63 30 55 132 70 48 35 209 $ 3,820 $ 583 $ 3,237 4. Acquisitions Cameron On April 1, 2016, Schlumberger acquired all of the outstanding shares of Cameron, a leading provider of flow equipment products, systems and services to the oil and gas industry worldwide. Under the terms of the merger agreement, Cameron became a wholly-owned subsidiary of Schlumberger. Each share of Cameron common stock issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive 0.716 shares of Schlumberger stock and $14.44 in cash. 50 Calculation of Consideration Transferred The fair value of the consideration transferred to effect the acquisition of Cameron was as follows: (stated in millions, except exchange ratio and per share amounts) Equity consideration: Number of shares of Cameron stock outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schlumberger shares of common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schlumberger closing stock share price on April 1, 2016 . . . . . . . . . . . . . . . . . . . . . Equity consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash consideration: Number of shares of Cameron stock outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash consideration per Cameron share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 0.716 138 72.12 192 14.44 $ $ $ 9,924 Cash consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other: Fair value of replacement equity awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,776 103 Total fair value of the consideration transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,803 Certain amounts reflect rounding adjustments 51 Allocation of Consideration Transferred to Net Assets Acquired The following amounts represent the fair value of assets acquired and liabilities assumed in the merger. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets: Customer relationships (weighted-average life of 25 years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technology/Technical know-how (weighted-average life of 16 years) Tradenames (weighted-average life of 25 years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred taxes (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Less: Investment in OneSubsea (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total identifiable net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill (5) $ (Stated in millions) 785 $ 1,448 1,669 2,350 1,320 2,371 1,736 1,225 511 (2,604) (3,018) (1,343) (538) 5,912 (2,065) (57) 3,790 9,013 Total consideration transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,803 (1) (2) (3) (4) (5) Schlumberger recorded an adjustment of $299 million to write-up the acquired inventory to its estimated fair value. Schlumberger’s 2016 Cost of sales reflected this increased valuation. In connection with the merger, Schlumberger assumed all of the debt obligations of Cameron, including its $2.75 billion of fixed rate notes. Schlumberger recorded a $244 million adjustment to increase the carrying amount of these notes to their estimated fair value. This adjustment is being amortized as a reduction of interest expense over the remaining term of the respective obligations. In connection with the acquisition accounting, Schlumberger provided deferred taxes related to, among other items, the estimated fair value adjustments for acquired inventory, intangible assets and assumed debt obligations. Prior to the completion of the merger, Cameron and Schlumberger operated OneSubsea, a joint venture that manufactured and developed products, systems and services for the subsea oil and gas market, which was 40% owned by Schlumberger and 60% owned by Cameron. OneSubsea is now owned 100% by Schlumberger. As a result of obtaining control of this joint venture, Schlumberger was required to remeasure its previously held equity interest in the joint venture to its acquisition-date fair value. Schlumberger determined that the estimated fair value of its previously held equity interest approximated its carrying value. Accordingly, Schlumberger did not recognize any gain or loss on this transaction. The goodwill recognized is primarily attributable to expected synergies that will result from combining the operations of Schlumberger and Cameron, as well as intangible assets which do not qualify for separate recognition. The amount of goodwill that is deductible for income tax purposes is not significant. 52 Supplemental Pro Forma Financial Information Cameron’s results of operations have been included in Schlumberger’s financial statements for periods subsequent to the closing of the acquisition on April 1, 2016. Businesses acquired from Cameron contributed revenues of approximately $4 billion and pretax operating income of approximately $0.7 billion for the period from April 1, 2016 through December 31, 2016. The following supplemental pro forma results of operations assume that Cameron had been acquired on January 1, 2015. The supplemental pro forma financial information was prepared based on the historical financial information of Schlumberger and Cameron and has been adjusted to give effect to pro forma adjustments that are both directly attributable to the transaction and factually supportable. The pro forma amounts reflect certain adjustments to amortization expense, interest expense and income taxes resulting from purchase accounting. The pro forma results for the year ended December 31, 2016 reflect adjustments to exclude after-tax merger and integration costs of $285 million and after-tax charges relating to the amortization of the inventory fair value adjustment of $209 million. The supplemental pro forma financial information presented below is unaudited and does not include any anticipated cost savings or the expected realization of other synergies associated with this transaction. Accordingly, this supplemental pro forma financial information is presented for informational purposes only and is not necessarily indicative of what the actual results of operations of the combined company would have been had the acquisition occurred on January 1, 2015, nor is it indicative of future results of operations. (Stated in millions, except per share amounts) Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net income (loss) attributable to Schlumberger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2016 29,438 (1,419) (1.02) Other Schlumberger made other acquisitions and investments for cash payments, net of cash acquired, of $292 million during 2018, $847 million during 2017 and $407 million during 2016. None of these transactions were significant to Schlumberger’s consolidated financial statements, either individually or in the aggregate. 5. Inventories Inventories, which are stated at the lower of average cost or net realizable value, consist of the following: Raw materials & field materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,803 519 1,688 $ 4,010 $ 1,846 503 1,697 4,046 (Stated in millions) 2018 2017 53 6. Fixed Assets Fixed assets consist of the following: (Stated in millions) 2018 2017 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Buildings & improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seismic vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 462 5,534 32,668 - 38,664 26,985 $ 11,679 $ 428 5,122 32,160 103 37,813 26,237 11,576 The estimated useful lives of Buildings & improvements are primarily 25 to 30 years. The estimated useful lives of Machinery & equipment are primarily 5 to 10 years. Depreciation expense, which is recorded on a straight-line basis, was $2.1 billion, $2.3 billion and $2.7 billion in 2018, 2017 and 2016, respectively. 7. Multiclient Seismic Data The change in the carrying amount of multiclient seismic data is as follows: Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized in period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charged to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment charge (see Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) 2018 2017 $ 727 100 (226) - 601 $ 1,073 276 (377) (245) 727 $ $ 54 8. Goodwill The changes in the carrying amount of goodwill by segment were as follows: (Stated in millions) Reservoir Characterization Drilling Production Cameron Total Balance, January 1, 2017 . . . . . . $ Acquisitions . . . . . . . . . . . . . . . . Impact of changes in exchange rates . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2017 . . . Acquisitions . . . . . . . . . . . . . . . . Business divestiture . . . . . . . . . . Impact of changes in exchange rates . . . . . . . . . . . . . . . . . . . . . 4,820 $ 21 10,114 $ 3 4,639 $ 46 $ 5,417 24 24,990 94 7 4,848 39 (175) 9 10,126 - - 12 4,697 - - 6 5,447 - - 34 25,118 39 (175) (9) (15) (19) (8) (51) Balance, December 31, 2018 . . . $ 4,703 $ 10,111 $ 4,678 $ 5,439 $ 24,931 9. Intangible Assets Intangible assets consist of the following: 2018 2017 Gross Book Value Accumulated Amortization Net Book Value Gross Book Value Accumulated Amortization Net Book Value (Stated in millions) 4,768 $ 1,243 $ 3,525 $ 4,832 $ 1,020 $ 3,812 Customer Relationships . . $ Technology/Technical Know-How . . . . . . . . . . Tradenames . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . 3,494 2,799 1,404 1,246 628 621 2,248 2,171 783 3,634 2,806 1,295 1,078 533 582 $ 12,465 $ 3,738 $ 8,727 $ 12,567 $ 3,213 $ 2,556 2,273 713 9,354 Customer relationships are generally amortized over periods ranging from 18 to 28 years, technology/technical know-how are generally amortized over periods ranging from 10 to 18 years, and tradenames are generally amortized over periods ranging from 15 to 30 years. Amortization expense was $673 million in 2018, $663 million in 2017 and $567 million in 2016. Based on the carrying value of intangible assets at December 31, 2018, amortization expense for the subsequent five years is estimated to be as follows: 2019: $677 million, 2020: $668 million, 2021: $632 million, 2022: $622 million and 2023: $612 million. 55 10. Long-term Debt and Debt Facility Agreements Long-term Debt consists of the following: 4.00% Senior Notes due 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.30% Senior Notes due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00% Senior Notes due 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.65% Senior Notes due 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20% Senior Notes due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.40% Senior Notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.63% Senior Notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00% Guaranteed Notes due 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.65% Senior Notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.20% Senior Notes due 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.00% Notes due 2038 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50% Notes due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.95% Notes due 2041 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60% Notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13% Notes due 2043 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00% Notes due 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70% Notes due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.63% Guaranteed Notes due 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.50% Guaranteed Notes due 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) 2018 2017 $ 1,742 1,596 1,596 1,493 1,100 997 847 678 598 499 210 132 115 109 99 82 55 - - 2,433 263 1,741 1,595 1,593 1,492 1,100 996 846 - 598 498 212 135 115 110 99 82 56 712 603 1,694 598 $ 14,644 $ 14,875 Schlumberger Limited fully and unconditionally guarantees the securities issued by certain of its subsidiaries, including securities Investment SA, a wholly-owned finance subsidiary of Schlumberger. issued by Schlumberger At December 31, 2018, Schlumberger had separate committed credit facility agreements aggregating $6.5 billion with commercial banks, of which $4.1 billion was available and unused. These committed facilities support commercial paper programs in the United States and Europe, and $1.0 billion matures in February 2019, $1.5 billion matures in November 2020, $2.0 billion matures in February 2022 and $2.0 billion matures in February 2023. Interest rates and other terms of borrowing under these lines of credit vary from country to country. During the fourth quarter of 2018, Schlumberger issued €600 million of 1.00% Guaranteed Notes due 2026. Commercial paper borrowings are classified as long-term debt to the extent they are backed up by available and unused committed credit facilities maturing in more than one year and to the extent it is Schlumberger’s intent to maintain these obligations for longer than one year. Borrowings under the commercial paper programs at December 31, 2018 were $2.4 billion, all of which was classified within Long-term debt in the Consolidated Balance Sheet. At December 31, 2017, borrowings under the commercial paper programs were $3.0 billion, of 56 which $1.7 billion was classified within Long-term debt and $1.3 billion was classified in Short-term borrowings and current portion of long-term debt in the Consolidated Balance Sheet. The weighted average interest rate on variable rate debt as of December 31, 2018 was 3.5%. Long-term Debt as of December 31, 2018 is due as follows: $2.1 billion in 2020, $3.1 billion in 2021, $4.4 billion in 2022, $2.1 billion in 2023, $1.8 billion in 2025, $0.7 billion in 2026 and $0.4 billion thereafter. The fair value of Schlumberger’s Long-term Debt at December 31, 2018 and December 31, 2017 was $14.6 billion and $15.2 billion, respectively, and was estimated based on quoted market prices. 11. Derivative Instruments and Hedging Activities Schlumberger is exposed to market risks related to fluctuations in interest rates and foreign currency exchange rates. To mitigate these risks, Schlumberger utilizes derivative instruments. Schlumberger does not enter into derivative transactions for speculative purposes. 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. During 2013, Schlumberger entered into a cross-currency swap for a notional amount of €0.5 billion in order to hedge changes in the fair value of Schlumberger’s €0.5 billion 1.50% Guaranteed Notes due 2019. Under the terms of this swap, Schlumberger will receive interest at a fixed rate of 1.50% on the euro notional amount and pay interest at a floating rate of three-month LIBOR plus approximately 64 basis points on the US dollar notional amount. This cross-currency swap is designated as a fair value hedge of the underlying debt and is marked to market with gains and losses recognized immediately in income to largely offset the effects of changes in the fair value of the hedged debt. During 2017, a Canadian dollar functional currency subsidiary of Schlumberger issued $1.1 billion of US dollar denominated debt. Schlumberger entered into cross-currency swaps for an aggregate notional amount of $1.1 billion in order to hedge changes in the fair value of its $0.5 billion 2.20% Senior Notes due 2020 and its $0.6 billion 2.65% Senior Notes due 2022. These cross-currency swaps effectively convert the US dollar notes to Canadian dollar denominated debt with fixed annual interest rates of 1.97% and 2.52%, respectively. These cross-currency swaps are designated as cash flow hedges. The changes in the fair values of the hedges are recorded on the Consolidated Balance Sheet and in Accumulated Other Comprehensive Loss. Amounts recorded in Accumulated Other Comprehensive Loss are reclassified to earnings in the same periods that the underlying hedged item is recognized in earnings. At December 31, 2018, Schlumberger had fixed rate debt aggregating $12.7 billion and variable rate debt aggregating $3.4 billion, after taking into account the effect of interest rate swaps. Foreign Currency Exchange Rate Risk As a multinational company, Schlumberger conducts its business in over 85 countries. Schlumberger’s functional currency is primarily the US dollar. Approximately 79% of Schlumberger’s revenues in 2018 was denominated in US dollars. However, outside the United States, a significant portion of Schlumberger’s expenses is incurred in 57 foreign currencies. Therefore, when the US dollar weakens (strengthens) in relation to the foreign currencies of the countries in which Schlumberger conducts business, increase (decrease). the US dollar–reported expenses will Schlumberger 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. Schlumberger is also exposed to risks on future cash flows relating to certain of its fixed rate debt denominated in currencies other than the functional currency. Schlumberger 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, 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. At December 31, 2018, Schlumberger recognized a cumulative net $12 million loss in Accumulated Other Comprehensive Loss relating to revaluation of foreign currency forward contracts designated as cash flow hedges, the majority of which is expected to be reclassified into earnings within the next 12 months. Schlumberger is exposed to changes in the fair value of assets and liabilities denominated in currencies other than the functional currency. While Schlumberger 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 contracts is recorded on the Consolidated Balance Sheet and changes in the fair value are recognized in the Consolidated Statement of Income (Loss), as are changes in the fair value of the hedged item. Transaction gains of $1 million in 2018 and transaction losses of $17 million and $93 million in 2017 and 2016, respectively, were recognized in the Consolidated Statement of Income (Loss) net of related hedging activities. Included in the 2016 amount was $63 million of losses relating to Egypt. See Note 3— Charges and Credits for further details. At December 31, 2018, contracts were outstanding for the US dollar equivalent of $5.0 billion in various foreign currencies, of which $1.9 billion relates to hedges of debt denominated in currencies other than the functional currency. The fair value of outstanding derivatives was not material at December 31, 2018 and 2017. 58 The effect of derivative instruments designated as fair value hedges and those not designated as hedges on the Consolidated Statement of Income (Loss) was as follows: Gain (Loss) Recognized in Income (Loss) 2018 2017 2016 Consolidated Statement of Income (Loss) Classification (Stated in millions) Derivatives designated as fair value hedges: Cross currency swap . . . . . . . . . . . . $ (25) $ 73 $ (31) Interest expense Derivatives designated as cash flow hedges: Cross currency swap . . . . . . . . . . . . $ Foreign exchange contracts . . . . . . $ Derivatives not designated as hedges: 80 $ (1) 79 $ (8) $ - (8) $ Interest expense - - Cost of services/sales - Foreign exchange contracts . . . . . . $ 40 $ (26) $ (246) Cost of services/sales 12. Stockholders’ Equity Schlumberger is authorized to issue 4,500,000,000 shares of common stock, par value $0.01 per share, of which 1,382,964,324 and 1,383,932,776 shares were outstanding on December 31, 2018 and 2017, respectively. Holders of common stock are entitled to one vote for each share of stock held. Schlumberger is also authorized to issue 200,000,000 shares of preferred stock, par value $0.01 per share, which may be issued in series with terms and conditions determined by the Schlumberger Board of Directors. No shares of preferred stock have been issued. 59 Accumulated Other Comprehensive Loss consists of the following: Currency Translation Adjustments Marketable Securities Cash Flow Hedges Pension and Other Postretirement Benefit Plans Total (Stated in millions) Balance, January 1, 2016 . . . . . . . . . . $ (2,053) $ - $ (39) $ (2,466) $ (4,558) Other comprehensive income (loss) before reclassifications . . . . Amounts reclassified from accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . Balance, December 31, 2016 . . . . . . . Other comprehensive income (loss) before reclassifications . . . . Amounts reclassified from accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . (83) - - (2,136) (3) - - Balance, December 31, 2017 . . . . . . . (2,139) Reclassification to Retained Earnings of stranded tax effects resulting from US tax reform . . . . Other comprehensive loss before reclassifications . . . . . . . . . . . . . . . Amounts reclassified from accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . - - - 21 - - 21 (8) - - 13 - - - 2 $ (101) (289) (452) 121 - (19) 22 - - 3 - 1 - 259 (13) 380 (13) (2,509) (4,643) 134 145 239 (15) 239 (15) (2,151) (4,274) (109) (186) 182 (18) (109) (404) 183 (18) (191) (11) (16) Balance, December 31, 2018 . . . . . . . $ (2,330) $ (12) $ (2,282) $ (4,622) Other comprehensive loss was $239 million in 2018 and $85 million in 2016. Other comprehensive income was $369 million in 2017. 13. Stock-based Compensation Plans Schlumberger has three types of stock-based compensation programs: (i) stock options, (ii) a restricted stock, restricted stock unit and performance share unit program (collectively referred to as “restricted stock”), and (iii) a discounted stock purchase plan (“DSPP”). Stock Options Key employees are granted stock options under Schlumberger stock option plans. For all stock options granted, the exercise price equals the average of the high and low sales prices of Schlumberger stock on the date of grant; the maximum term is 10 years, and the options generally vest in increments over five years. 60 The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option- pricing model with the following weighted-average assumptions and resulting weighted-average fair value per share: Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected option life in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average fair value per share . . . . . . . . . . . . . . . . . . . . . $ 2.6% 26% 2.6% 7.0 17.37 $ 2.3% 27% 2.4% 7.0 20.85 $ 2.7% 30% 1.7% 7.0 17.45 2018 2017 2016 The following table summarizes information related to options outstanding and options exercisable as of December 31, 2018: (Shares stated in thousands) Options Outstanding Options Exercisable Weighted- Average Remaining Contractual Life (in years) Weighted- Average Exercise Price Options Exercisable Weighted- Average Exercise Price 3.0 4.1 7.5 5.0 5.5 5.0 $ $ $ $ $ $ 61.23 72.17 79.34 85.88 95.86 79.36 5,736 10,144 2,851 6,129 6,186 31,046 $ $ $ $ $ $ 60.99 72.02 79.81 85.00 96.24 78.09 Exercise prices range $37.85 - $69.98 . . . . . . . . . . . . $70.31 - $76.74 . . . . . . . . . . . . $77.10 - $83.15 . . . . . . . . . . . . $83.89 - $88.77 . . . . . . . . . . . . $90.00 - $114.83 . . . . . . . . . . . Options Outstanding 6,859 10,579 8,095 9,644 8,352 43,529 The weighted-average remaining contractual life of stock options exercisable as of December 31, 2018 was 4.1 years. The following table summarizes stock option activity during the years ended December 31, 2018, 2017 and 2016: (Shares stated in thousands) 2018 Weighted- Average 2017 Weighted- Average Shares Exercise Price Shares Exercise Price Shares 2016 Weighted- Average Exercise Price Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . Assumed in Cameron transaction . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . 47,210 $ 2,121 $ - $ (936) $ (4,866) $ 79.13 76.95 46,502 5,024 $ $ 78.31 86.55 41,087 7,672 $ $ - 54.20 84.19 $ - (1,156) $ (3,160) $ - 57.87 86.99 3,088 $ (3,357) $ (1,988) $ Outstanding at year-end . . . . . 43,529 $ 79.36 47,210 $ 79.13 46,502 $ 78.73 76.14 63.24 60.70 84.60 78.31 61 Stock options outstanding and stock options exercisable as of December 31, 2018 had no intrinsic value . The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $15 million, $26 million and $45 million, respectively. Restricted Stock Schlumberger grants performance share units to certain executives. The number of shares earned is determined at the end of each performance period, which is generally three years, based on Schlumberger’s achievement of certain predefined targets as defined in the underlying performance share unit agreement. In the event Schlumberger exceeds the predefined target, shares for up to the maximum of 250% of the target award may be awarded. In the event Schlumberger falls below the predefined target, a reduced number of shares may be awarded. If Schlumberger falls below the threshold award performance level, no shares will be awarded. As of December 31, 2018, 1.9 million performance share units were outstanding assuming the achievement of 100% of target. All other restricted stock awards generally vest at the end of three years. Restricted stock awards generally do not pay dividends or have voting rights prior to vesting. Accordingly, the fair value of a restricted stock award is the quoted market price of Schlumberger’s stock on the date of grant less the present value of the expected dividends not received prior to vesting. The following table summarizes information related to restricted stock transactions: (Shares stated in thousands) 2018 2017 2016 Weighted- Average Grant Date Fair Value Restricted Stock Weighted- Average Grant Date Fair Value Restricted Stock Weighted- Average Grant Date Fair Value Restricted Stock Unvested at beginning of year . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . Assumed in Cameron transaction . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . 5,428 3,204 $ $ $ - (982) $ (699) $ Unvested at year-end . . . . . . . . . 6,951 $ Discounted Stock Purchase Plan 72.33 70.54 - 77.62 70.67 70.13 5,112 2,495 $ $ $ - (1,645) $ (534) $ 78.31 73.09 - 83.03 80.17 3,571 1,678 $ $ 1,824 $ (1,720) $ (241) $ 85.04 68.66 72.12 72.64 80.87 5,428 $ 72.33 5,112 $ 78.31 Under the terms of the DSPP, employees can choose to have a portion of their earnings withheld, subject to certain restrictions, to purchase Schlumberger common stock. The purchase price of the stock is 92.5% of the lower of the stock price at the beginning or end of the plan period at six-month intervals. The fair value of the employees’ purchase rights under the DSPP was estimated using the Black-Scholes model with the following assumptions and resulting weighted-average fair value per share: Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average fair value per share . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.9% 22% 1.6% 9.01 $ 2.7% 19% 1.0% 9.46 2.7% 25% 0.5% $ 10.37 2018 2017 2016 62 Total Stock-based Compensation Expense The following summarizes stock-based compensation expense recognized in income: Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DSPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) 2018 2017 2016 $ $ $ 134 179 32 $ 161 148 34 345 $ 343 $ 175 47 45 267 At December 31, 2018, there was $418 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements, of which $238 million is expected to be recognized in 2019, $139 million in 2020, $35 million in 2021, $6 million in 2022. As of December 31, 2018, approximately 45 million shares of Schlumberger common stock were available for future grants under Schlumberger’s stock-based compensation programs. 14. Income Taxes Schlumberger operates in more than 100 tax jurisdictions, where statutory tax rates generally vary from 0% to 35%. Income (loss) before taxes subject to United States and non-United States income taxes was as follows: United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outside United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) 2018 2017 2016 $ $ (55) $ 2,679 (841) $ (342) (3,103) 1,198 2,624 $ (1,183) $ (1,905) Schlumberger recorded net pretax charges of $141 million in 2018 ($102 million in the US and $39 million outside the US); $3.764 billion in 2017 ($533 billion in the US and $3.231 billion outside the US); and $3.820 billion in 2016 ($1.848 billion in the US and $1.972 billion outside the US). These charges and credits are included in the table above and are more fully described in Note 3 – Charges and Credits. The components of net deferred tax assets (liabilities) were as follows: (Stated in millions) 2018 2017 Postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in non-US subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 122 (2,110) (223) (140) 111 343 456 135 (2,186) (224) (55) 126 118 436 $ (1,441) $ (1,650) 63 The above deferred tax balances at December 31, 2018 and 2017 were net of valuation allowances relating to net operating losses in certain countries of $87 million and $119 million, respectively. Schlumberger generally does not provide for taxes related to its undistributed earnings because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. Taxes that would be incurred if the undistributed earnings of other Schlumberger subsidiaries were distributed to their ultimate parent company would not be material. The components of Tax expense (benefit) were as follows: Current: United States-Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States-State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outside United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States-Federal United States-State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outside United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) 2018 2017 2016 $ $ $ $ 124 (50) 618 692 (143) $ (4) (69) (29) (245) (170) $ 57 703 590 (225) $ 4 (47) 8 (260) 447 $ 330 $ (511) (36) 648 101 (352) (13) (51) 37 (379) (278) A reconciliation of the United States statutory federal tax rate to the consolidated effective tax rate follows: US federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-US income taxed at different rates . . . . . . . . . . . . . . . . . . . . Charges and credits (See Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enactment of US tax reform (See Note 3) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 2017 2016 21% (2) (2) - - - 17% 35% - (24) (40) (6) 7 (28)% 35% 2 (21) (1) - - 15% A number of the jurisdictions in which Schlumberger operates have tax laws that are not fully defined and are evolving. Schlumberger’s tax filings are subject to regular audit by the tax authorities. These audits may result in assessments for additional taxes that are resolved with the tax authorities, or potentially through the courts. Tax liabilities are recorded based on estimates of additional taxes that will be due upon the conclusion of these audits. Due to the uncertain and complex application of tax regulations, the ultimate resolution of audits may result in liabilities which could be materially different from these estimates. 64 A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions for the years ended December 31, 2018, 2017 and 2016 is as follows: (Stated in millions) 2018 2017 2016 $ Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions based on tax positions related to the current year . . Additions for tax positions of prior years . . . . . . . . . . . . . . . . . Additions related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . Impact of changes in exchange rates . . . . . . . . . . . . . . . . . . . . . Settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . Reductions for tax positions of prior years . . . . . . . . . . . . . . . . Reductions due to the lapse of the applicable statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,393 88 145 - (41) (22) (57) (73) $ 1,419 132 58 - 23 (41) (157) (41) 1,285 70 119 127 (25) (45) (85) (27) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,433 $ 1,393 $ 1,419 The amounts above exclude accrued interest and penalties of $205 million, $195 million and $178 million at December 31, 2018, 2017 and 2016, respectively. Schlumberger classifies interest and penalties relating to uncertain tax positions within Tax expense (benefit) in the Consolidated Statement of Income (Loss). The following table summarizes the tax years that are either currently under audit or remain open and subject to examination by the tax authorities in the most significant jurisdictions in which Schlumberger operates: Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ecuador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 - 2018 2015 - 2018 2011 - 2018 2013 - 2018 2015 - 2018 2004 - 2018 2016 - 2018 2015 - 2018 In certain of the jurisdictions noted above, Schlumberger operates through more than one legal entity, each of which may have different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, it is important to note that tax years are technically not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination. 15. Leases and Lease Commitments During the fourth quarter of 2018, Schlumberger adopted ASU No. 2016-02, Leases, effective January 1, 2018. This ASU requires lessees to recognize an operating lease asset and a lease liability on the balance sheet, with the exception of short-term leases. Under the transition method selected by Schlumberger, leases existing at, or entered into after, January 1, 2018 were required to be recognized and measured. Prior period amounts have not been adjusted and continue to be reflected in accordance with Schlumberger’s historical accounting. The adoption of this standard resulted in the recording of operating lease assets and operating lease liabilities of approximately of $1.3 billion as of January 1, 2018, with no related impact on Schlumberger’s Consolidated Statement of Equity or Consolidated Statement of Income (Loss). Short-term leases have not been recorded on the balance sheet. 65 Schlumberger elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allows companies to carry forward their historical lease classification. Schlumberger’s leasing activities primarily consist of operating leases for administrative offices, manufacturing facilities, research centers, service centers, sales offices and certain equipment. Total operating lease expense, which approximates cash paid and includes short-term leases, was $1.7 billion in 2018, $1.4 billion in 2017, and $1.2 billion in 2016. Future minimum rental commitments under noncancelable operating leases as of December 31, 2017 were as follows: 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter (Stated in millions) 284 244 203 164 127 410 1,432 $ $ Maturities of operating lease liabilities as of December 31, 2018 were as follows: 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amounts recognized in Balance Sheet Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) 568 $ 486 246 161 132 392 $ $ $ $ 1,985 (209) 1,776 551 1,225 1,776 Operating lease assets of $1.8 billion as of December 31, 2018 were included in Other Assets in the Consolidated Balance Sheet. The weighted-average remaining lease term as of December 31, 2018 was 7 years. The weighted-average discount rate used to determine the operating lease liability as of December 31, 2018 was 3.2%. 16. Contingencies Schlumberger and its subsidiaries are 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. 66 17. Segment Information Schlumberger’s segments are as follows: (cid:129) (cid:129) (cid:129) (cid:129) Reservoir Characterization – Consists of the principal Technologies involved in finding and defining hydrocarbon resources. These include WesternGeco, Wireline, Testing Services, OneSurface, Software Integrated Solutions and Integrated Services Management. Drilling – Consists of the principal Technologies involved in the drilling and positioning of oil and gas wells. These include Bits & Drilling Tools, M-I SWACO, Drilling & Measurements, Land Rigs and Integrated Drilling Services. Production – Consists of the principal Technologies involved in the lifetime production of oil and gas reservoirs. These include Well Services, OneStim, Completions, Artificial Lift and Schlumberger Production Management. Cameron – Consists of the principal Technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities. These include OneSubsea, Surface Systems, Drilling Systems and Valves & Measurements. Financial information for the years ended December 31, 2018, 2017 and 2016, by segment, is as follows: Revenue $ $ 6,526 9,250 12,394 5,167 (522) (Stated in millions) 2018 Income Before Taxes Depreciation and Amortization Capital Expenditures Assets 302 718 886 146 108 $ 4,477 5,843 12,625 3,967 1,460 33,658 2,777 5,700 $ 673 597 1,417 241 189 439 $ 1,392 1,239 1,052 608 (104) 4,187 (937) 52 (537) (141) $ 32,815 $ 2,624 $ 70,507 $ 3,556 $ 2,160 Reservoir Characterization . . . . . . . Drilling . . . . . . . . . . . . . . . . . . . . . . Production . . . . . . . . . . . . . . . . . . . . Cameron . . . . . . . . . . . . . . . . . . . . . Eliminations & other . . . . . . . . . . . . Pretax operating income . . . . . . Goodwill and intangible assets . . . . Cash and short term investments . . All other assets . . . . . . . . . . . . . . . . Corporate & other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income (2) Interest expense (3) . . . . . . . . . . . . . . . . . . . . . . . . . . Charges & credits (4) 67 $ Revenue 6,795 $ 8,392 10,630 5,205 (582) Reservoir Characterization . . . . . Drilling . . . . . . . . . . . . . . . . . . . . . Production . . . . . . . . . . . . . . . . . . Cameron . . . . . . . . . . . . . . . . . . . . Eliminations & other . . . . . . . . . . Pretax operating income . . . . Goodwill and intangible assets . . Cash and short term investments . . . . . . . . . . . . . . . . All other assets . . . . . . . . . . . . . . . Corporate & other (1) . . . . . . . . . . Interest income (2) . . . . . . . . . . . . . Interest expense (3) . . . . . . . . . . . . . . . . . . . . . . Charges & credits (4) (Stated in millions) Depreciation and Amortization 989 $ 697 1,240 260 213 Capital Expenditures 305 $ 629 889 150 134 438 2017 Assets 4,892 5,513 12,450 3,978 1,665 34,472 5,089 3,928 Income Before Taxes $ 1,244 1,151 936 733 (143) 3,921 (934) 107 (513) (3,764) $ 30,440 $ (1,183) $ 71,987 $ 3,837 $ 2,107 $ Revenue 6,660 $ 8,561 8,792 4,211 (414) Reservoir Characterization . . . . . Drilling . . . . . . . . . . . . . . . . . . . . . Production . . . . . . . . . . . . . . . . . . Cameron . . . . . . . . . . . . . . . . . . . . Eliminations & other . . . . . . . . . . Pretax operating income . . . . Goodwill and intangible assets . . Cash, short term investments and fixed income investments . . . . . All other assets . . . . . . . . . . . . . . . Corporate & other (1) . . . . . . . . . . Interest income (2) . . . . . . . . . . . . . Interest expense (3) . . . . . . . . . . . . . . . . . . . . . . Charges & credits (4) (Stated in millions) Depreciation and Amortization 1,156 $ 881 1,231 208 234 Capital Expenditures 532 $ 425 655 176 267 384 2016 Assets 6,890 6,803 10,497 4,246 1,528 34,845 9,495 3,652 Income Before Taxes $ 1,244 994 512 653 (130) 3,273 (925) 84 (517) (3,820) $ 27,810 $ (1,905) $ 77,956 $ 4,094 $ 2,055 (1) Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets (including intangible asset amortization expense resulting from the 2016 acquisition of Cameron), certain centrally managed initiatives and other nonoperating items. 68 (2) (3) Interest income excludes amounts which are included in the segments’ income (2018: $8 million; 2017: $21 million; 2016: $26 million). Interest expense excludes amounts which are included in the segments’ income (2018: $38 million; 2017: $53 million; 2016: $53 million). (4) See Note 3 – Charges and Credits. Segment assets consist of receivables, inventories, fixed assets, multiclient seismic data and SPM investments. Depreciation and amortization includes depreciation of property, plant and equipment and amortization of intangible assets, multiclient seismic data costs and SPM investments. Revenue by geographic area for the years ended December 31, 2018, 2017 and 2016 is as follows: (Stated in millions) 2018 2017 2016 North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe/CIS/Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East & Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminations & other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 11,984 3,745 7,158 9,543 385 $ 9,487 3,976 7,072 9,394 511 6,665 4,230 7,373 9,264 278 $ 32,815 $ 30,440 $ 27,810 Revenue is based on the location where services are provided and products are sold. During each of the three years ended December 31, 2018, 2017 and 2016, no single customer exceeded 10% of consolidated revenue. Schlumberger did not have revenue from third-party customers in its country of domicile during the last three years. Revenue in the United States in 2018, 2017 and 2016 was $10.1 billion, $8.1 billion and $5.4 billion, respectively. North America and International revenue disaggregated by segment was as follows: (Stated in millions) 2018 North America International Eliminations & other Total Reservoir Characterization . . . . . . . . . . . . . . . . . Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cameron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 992 2,332 6,312 2,316 32 $ 5,067 6,684 6,077 2,771 (153) $ 467 234 5 80 (401) 6,526 9,250 12,394 5,167 (522) $ 11,984 $ 20,446 $ 385 $ 32,815 69 Fixed Assets less accumulated depreciation by geographic area are as follows: North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe/CIS/Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East & Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (Stated in millions) 2018 2017 $ 5,715 898 2,364 2,604 98 5,121 1,042 2,545 2,762 106 $ 11,679 $ 11,576 18. Pension and Other Benefit Plans Pension Plans Schlumberger sponsors several defined benefit pension plans that cover substantially all US employees hired prior to October 1, 2004. The benefits are based on years of service and compensation, on a career-average pay basis. In addition to the US defined benefit pension plans, Schlumberger sponsors several other international defined benefit pension plans. The most significant of these international plans are the International Staff Pension Plan and the UK pension plan (collectively, the “International plans”). The International Staff Pension Plan covers certain international employees hired prior to July 1, 2014 and is based on years of service and compensation on a career-average pay basis. The UK plan covers employees hired prior to April 1, 1999, and is based on years of service and compensation, on a final salary basis. The weighted-average assumed discount rate, compensation increases and expected long-term rate of return on plan assets used to determine the net pension cost for the US and International plans were as follows: 2018 US 2017 International 2016 2018 2017 2016 Discount rate . . . . . . . . . . . . . . . . . . Compensation increases . . . . . . . . . Return on plan assets . . . . . . . . . . . . 3.70% 4.00% 7.25% 4.20% 4.00% 7.25% 4.50% 4.00% 7.25% 3.55% 4.81% 7.40% 4.13% 4.81% 7.40% 4.36% 4.81% 7.40% Net pension cost for 2018, 2017 and 2016 included the following components: US 2017 2018 (Stated in millions) International 2016 2018 2017 2016 Service cost - benefits earned during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59 $ 57 $ 62 $ 138 $ 95 $ 110 Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . Amortization of prior service cost . . . . . . . . . Amortization of net loss . . . . . . . . . . . . . . . . . 167 (248) 13 47 175 (242) 12 39 177 (235) 12 79 304 (584) 10 140 306 (541) 97 120 311 (517) 122 78 $ 38 $ 41 $ 95 $ 8 $ 77 $ 104 70 The weighted-average assumed discount rate and compensation increases used to determine the projected benefit obligations for the US and International plans were as follows: US International 2018 2017 2018 2017 Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation increases . . . . . . . . . . . . . . . . . . . . . 4.30% 4.00% 3.70% 4.00% 4.00% 4.83% 3.55% 4.81% The changes in the projected benefit obligation, plan assets and funded status of the plans were as follows: (Stated in millions) US International 2018 2017 2018 2017 Change in Projected Benefit Obligations Projected benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contribution by plan participants . . . . . . . . . . . . . . . . . . Actuarial (gains) losses . . . . . . . . . . . . . . . . . . . . . . . . . Currency effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 4,603 59 167 - (349) - (202) $ 4,240 57 175 - 325 - (194) $ 8,752 138 304 79 (758) (87) (317) 7,793 95 306 88 616 147 (293) Projected benefit obligation at end of year . . . . . . . . . . $ 4,278 $ 4,603 $ 8,111 $ 8,752 Change in Plan Assets Plan assets at fair value at beginning of year . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . Currency effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . Contributions by plan participants . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan assets at fair value at end of year . . . . . . . . . . . . . . Unfunded Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amounts Recognized in Balance Sheet Postretirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amounts Recognized in Accumulated Other Comprehensive Loss Actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior service cost Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . $ $ $ $ $ $ $ $ 71 $ 4,058 (112) - 4 - (202) - $ 3,625 622 - 5 - (194) - $ 8,507 (370) (105) 78 79 (317) - 7,194 1,216 161 88 88 (293) 53 3,748 $ 4,058 $ 7,872 $ 8,507 (530) $ (545) $ (239) $ (245) (530) $ - (545) $ - (514) $ 275 (530) $ (545) $ (239) $ (418) 173 (245) 852 18 870 4,070 $ $ $ 887 30 917 4,347 $ $ $ 1,440 9 1,449 7,895 $ $ $ 1,419 17 1,436 8,400 The unfunded liability represents the difference between the plan assets and the projected benefit obligation (“PBO”). The PBO represents the actuarial present value of benefits based on employee service and compensation and includes an assumption about future compensation levels. The accumulated benefit obligation (“ABO”) represents the actuarial present value of benefits based on employee service and compensation, but does not include an assumption about future compensation levels. Actuarial gains arising during 2018 are primarily attributable to the increase in the discount rate used to determine the PBO. As of December 31, 2018, the PBO and fair value of plan assets for plans with PBOs in excess of plan assets were $11.0 billion and $9.9 billion, respectively. The related ABO for these plans was $10.6 billion at December 31, 2018. The weighted-average allocation of plan assets and the target allocations by asset category are as follows: Equity securities . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . Alternative investments . . . . . . . . . . . . . . . . . Target 20 - 30% 63 - 77 0 - 3 5 - 10 US 2018 International 2017 Target 2018 2017 21% 70 2 7 51% 47 - 59% 38 3 8 27 - 33 0 - 3 15 - 22 50% 32 2 16 64 23 4 9 100% 100% 100% 100% 100% 100 Asset performance is monitored frequently with an overall expectation that plan assets will meet or exceed the weighted index of its target asset allocation and component benchmark over rolling five-year periods. The expected rate of return on assets assumptions reflect the long-term average rate of earnings expected on funds invested or to be invested. The assumptions have been determined based on expectations regarding future rates of return for the portfolio considering the asset allocation and related historical rates of return. The appropriateness of the assumptions is reviewed annually. The fair value of Schlumberger’s pension plan assets at December 31, 2018 and 2017, by asset category, is presented below and was determined based on valuation techniques categorized as follows: (cid:129) (cid:129) (cid:129) Level One: The use of quoted prices in active markets for identical instruments. Level Two: The use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or other inputs that are observable in the market or can be corroborated by observable market data. Level Three: The use of significant unobservable inputs that management’s estimates of assumptions that market participants would use in pricing. typically require the use of 72 US Plan Assets 2018 2017 (Stated in millions) Total Level One Level Two Level Three Total Level One Level Two Level Three $ 112 $ 92 $ 20 $ Asset Category: Cash and Cash Equivalents . . . . $ Equity Securities: 80 $ 44 $ 36 $ US (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International (b) 501 267 416 263 85 4 Debt Securities . . . . . . . . . Corporate bonds (c) Government and government- related debt securities (d) . . . . . Collateralized mortgage obligations and mortgage backed securities (e) . . . . . . . . . Alternative Investments: Private equity (f) . . . . . . . . . . . . Real estate (g) . . . . . . . . . . . . . . 1,517 - 1,517 1,072 66 1,006 40 185 86 - - - 40 - - - - - - - - 185 86 1,324 757 1,148 747 771 656 108 183 147 - 163 - - - Total . . . . . . . . . . . . . . . . . . . . . . . $ 3,748 $ 789 $ 2,688 $ 271 $ 4,058 $ 2,150 $ 1,578 $ 330 International Plan Assets 2018 2017 (Stated in millions) Total Level One Level Two Level Three Total Level One Level Two Level Three $ 307 $ 69 $ 238 $ Asset Category: Cash and Cash Equivalents . . . . . . . . $ 157 Equity Securities: $ 75 $ 82 $ . . . . . . . . . . . . . . . . . . . . . . . . US (a) International (b) . . . . . . . . . . . . . . . . . 2,421 1,526 2,028 1,406 Debt Securities Corporate bonds (c) . . . . . . . . . . . . . . Government and government- related debt securities (d) . . . . . . . . . . Collateralized mortgage obligations and mortgage backed securities (e) . . Alternative Investments: Private equity (f) . . . . . . . . . . . . . . . . Real estate (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other 923 1,377 236 565 150 517 - 5 - - - - 393 120 923 1,372 236 - - - 565 150 517 - - - - - - 3,286 2,160 2,642 1,871 841 985 150 477 168 133 - 11 - - - - - - - 477 168 133 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,872 $3,514 $3,126 $1,232 $8,507 $4,593 $3,136 $ 778 (a) US equities include companies that are well-diversified by industry sector and equity style (i.e., growth and value strategies). Active and passive management strategies are employed. Investments are primarily in large capitalization stocks and, to a lesser extent, mid- and small-cap stocks. 73 - - - - - - - - - - - - - - 183 147 176 10 771 493 108 644 289 841 974 150 (b) (c) (d) (e) (f) (g) International equities are invested in companies that are traded on exchanges outside the US and are well-diversified by industry sector, country and equity style. Active and passive strategies are employed. The vast majority of the investments are made in companies in developed markets, with a small percentage in emerging markets. Corporate bonds consist primarily of investment grade bonds from diversified industries. Government and government-related debt securities are comprised primarily of inflation-protected US treasuries and, to a lesser extent, other government-related securities. Collateralized mortgage obligations and mortgage backed-securities are debt obligations that represent claims to the cash flows from pools of mortgage loans, which are purchased from banks, mortgage companies, and other originators and then assembled into pools by governmental, quasi-governmental and private entities. Private equity includes investments in several funds of funds. Real estate primarily includes investments in real estate limited partnerships, concentrated in commercial real estate. Schlumberger’s funding policy is to annually contribute amounts that are based upon a number of factors including the actuarial accrued liability, amounts that are deductible for income tax purposes, legal funding requirements and available cash flow. Schlumberger expects to contribute approximately $25 million to its postretirement benefit plans in 2019, subject to market and business conditions. Postretirement Benefits Other Than Pensions Schlumberger provides certain healthcare benefits to certain former US employees who have retired. Effective April 1, 2015, Schlumberger changed the way it provides healthcare coverage to certain retirees who are age 65 and over. Under the amended plan, these retirees transferred to individual coverage under the Medicare Exchange. Schlumberger subsidizes the cost of the program by providing these retirees with a Health Reimbursement Account. The annual subsidy may be increased based on medical cost inflation, but it will not be increased by more than 5% in any given year. The actuarial assumptions used to determine the accumulated postretirement benefit obligation and net periodic benefit cost for the US postretirement medical plan were as follows: Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on plan assets . . . . . . . . . . . . . . . . . . . . . Current medical cost trend rate . . . . . . . . . . . . . Ultimate medical cost trend rate . . . . . . . . . . . . Year that the rate reaches the ultimate trend Benefit Obligations At December 31, Net Periodic Benefit Cost for the Year 2018 2017 2018 2017 2016 4.30% - 7.00% 5.00% 3.70% - 7.25% 5.00% 3.70% 7.00% 7.00% 5.00% 4.20% 7.00% 7.25% 5.00% 4.50% 7.00% 7.50% 5.00% rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 2026 2026 2026 2026 The net periodic benefit credit for the US postretirement medical plan included the following components: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) 2018 2017 2016 $ $ $ 32 43 (63) (28) $ 29 46 (60) (29) (16) $ (14) $ 30 47 (57) (32) (12) 74 The changes in the accumulated postretirement benefit obligation, plan assets and funded status were as follows: Change in Projected Benefit Obligations Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost Contribution by plan participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (Stated in millions) 2018 2017 $ 1,213 32 43 8 (128) (62) 1,108 29 46 8 71 (49) Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,106 $ 1,213 Change in Plan Assets Plan assets at fair value at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions by plan participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan assets at fair value at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unfunded Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amounts Recognized in Accumulated Other Comprehensive Loss Actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ $ $ 1,094 (44) 1 8 (62) 952 143 40 8 (49) 997 $ 1,094 (109) $ (119) $ 14 (186) (172) $ 36 (215) (179) The unfunded liability is included in Postretirement Benefits in the Consolidated Balance Sheet. The assets of the US postretirement medical plan are invested 57% in equity securities and 43% in debt securities at December 31, 2018. The fair value of these assets was primarily determined based on Level Two valuation techniques. Other Information The expected benefits to be paid under the US and International pension plans as well as the postretirement medical plan are as follows: (Stated in millions) Pension Benefits US International Postretirement Medical Plan 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024-2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ $ $ 211 216 221 227 233 1,240 $ $ $ $ $ $ 304 316 327 339 351 1,980 $ $ $ $ $ $ 52 53 55 60 61 341 75 In addition to providing defined pension benefits and a postretirement medical plan, Schlumberger has other deferred benefit programs, primarily profit sharing and defined contribution pension plans. Expenses for these programs were $435 million, $413 million and $445 million in 2018, 2017 and 2016, respectively. 19. Supplementary Information Cash paid (refunded) for interest and income taxes was as follows: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 592 628 $ $ 572 $ (44) $ 599 750 Interest and other income includes the following: (Stated in millions) 2018 2017 2016 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings of equity method investments . . . . . . . . . . . . . . . . . . . . . . . The change in Allowance for doubtful accounts is as follows: Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amounts written off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ (Stated in millions) 2018 2017 2016 $ 60 89 $ 128 96 149 $ 224 $ 110 90 200 (Stated in millions) 2018 2017 2016 $ 241 15 (7) $ 397 7 (163) 333 123 (59) 397 Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 249 $ 241 $ Revenue in excess of billings related to contracts where revenue is recognized over time was $0.2 billion and $0.3 billion at December 31, 2018 and 2017, respectively. Such amounts are included within Receivables less allowance for doubtful accounts in the Consolidated Balance Sheet. Accounts payable and accrued liabilities consist of the following: Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payroll, vacation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Billings and cash collections in excess of revenue . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Stated in millions) 2018 2017 $ 4,709 1,244 877 3,393 4,614 1,296 752 3,374 10,223 $ 10,036 $ $ 76 Management’s Report on Internal Control Over Financial Reporting Schlumberger management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a–15(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Schlumberger’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. limitations, Schlumberger management assessed the effectiveness of its internal control over financial reporting as of December 31, 2018. In making this assessment, it used the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control–Integrated Framework. Based on this assessment Schlumberger’s management has concluded that, as of December 31, 2018, its internal control over financial reporting is effective based on those criteria. The effectiveness of Schlumberger’s internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein. 77 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Schlumberger Limited Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Schlumberger Limited and its subsidiaries (“the Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control–Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in 78 accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. limitations, /s/ PricewaterhouseCoopers LLP Houston, Texas January 23, 2019 We have served as the Company’s auditor since 1952. 79 Quarterly Results (Unaudited) The following table summarizes Schlumberger’s results by quarter for the years ended December 31, 2018 and 2017. (Stated in millions, except per share amounts) Net Income (Loss) Attributable to Schlumberger (2) Earnings per Share of Schlumberger (2) Basic Diluted Revenue (2) Gross Margin (1), (2) Quarters 2018 First . . . . . . . . . . . . . . . . . . . . . . . . . Second (3) . . . . . . . . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . . . . . . . . . . Fourth (4) . . . . . . . . . . . . . . . . . . . . . $ $ 7,829 8,303 8,504 8,180 $ 1,027 1,124 1,180 1,008 $ 525 430 644 538 $ 0.38 0.31 0.46 0.39 $ 32,815 $ 4,337 $ 2,138 $ 1.54 $ 0.38 0.31 0.46 0.39 1.53 Quarters 2017 . . . . . . . . . . . . . . . . . . . . . . . First (5) . . . . . . . . . . . . . . . . . . . . . Second (6) Third (7) . . . . . . . . . . . . . . . . . . . . . . Fourth (8) . . . . . . . . . . . . . . . . . . . . . . $ $ 6,894 7,464 7,905 8,179 $ 818 994 1,108 978 $ 279 (74) 545 (2,255) $ 0.20 (0.05) 0.39 (1.63) 0.20 (0.05) 0.39 (1.63) $ 30,440 $ 3,897 $ (1,505) $ (1.08) $ (1.08) (1) Gross margin equals Total Revenue less Cost of Services and Cost of Sales. (2) Amounts may not add due to rounding. (3) Net income in the second quarter of 2018 includes after-tax and noncontrolling interest charges of $164 million. (4) Net income in the fourth quarter of 2018 includes after-tax and noncontrolling interest credits of $40 million. (5) Net income in the first quarter of 2017 includes after-tax and noncontrolling interest charges of $68 million. (6) Net income in the second quarter of 2017 includes after-tax and noncontrolling interest charges of $631 million. (7) Net income in the third quarter of 2017 includes after-tax charges of $36 million. (8) Net income in the fourth quarter of 2017 includes after-tax charges of $2.923 billion. * Mark of Schlumberger Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 9A. 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 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 80 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 so 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 fourth quarter of 2018 that has materially affected, or is reasonably likely to materially affect, Schlumberger’s internal control over financial reporting. Item 9B. Other Information. In 2013, Schlumberger 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”). Schlumberger’s residual transactions or dealings with the government of Iran during 2018 consisted of payments of taxes and other typical governmental charges. Certain non-US subsidiaries of Schlumberger 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 Schlumberger 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. Schlumberger anticipates that it will discontinue dealings with Saderat and Tejarat following the receipt of all amounts owed to Schlumberger for prior services rendered in Iran. 81 PART III Item 10. Directors, Executive Officers and Corporate Governance of Schlumberger. See “Item 1. Business–Executive Officers of Schlumberger” of this Report for Item 10 information regarding executive officers of Schlumberger. The information under the captions “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance–Director Nominations” and “Corporate Governance–Board Committees–Audit Committee” in Schlumberger’s 2019 Proxy Statement is incorporated herein by reference. Schlumberger has a Code of Conduct that applies to all of its directors, officers and employees, including its principal executive, financial and accounting officers, or persons performing similar functions. Schlumberger’s Code of Conduct is posted on its website at www.slb.com/about/codeofconduct.aspx. Schlumberger intends to disclose future amendments to the Code of Conduct and any grant of a waiver from a provision of the Code of Conduct requiring disclosure under applicable SEC rules at www.slb.com/about/codeofconduct.aspx. Item 11. Executive Compensation. The information set the captions “Compensation Discussion and Analysis,” “Executive Compensation Tables and Accompanying Narrative,” “Compensation Committee Report” and “Director Compensation in Fiscal Year 2018” in Schlumberger’s 2019 Proxy Statement is incorporated herein by reference. forth under Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information under the captions “Stock Ownership Information–Security Ownership by Certain Beneficial Owners,” “Stock Ownership Information–Security Ownership by Management” and “Equity Compensation Plan Information” in Schlumberger’s 2019 Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information under the captions “Corporate Governance–Board Independence” and “Corporate Governance– Policies and Procedures for Approval of Related Person Transactions” in Schlumberger’s 2019 Proxy Statement is incorporated herein by reference. Item 14. Principal Accounting Fees and Services. The information under the caption “Ratification of Appointment of Independent Auditors for 2019” in Schlumberger’s 2019 Proxy Statement is incorporated herein by reference. 82 PART IV Item 15. Exhibits and Financial Statement Schedules. (a) The following documents are filed as part of this Report: (1) Financial Statements Consolidated Statement of Income (Loss) for the three years ended December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of Comprehensive Income (Loss) for the three years ended December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheet at December 31, 2018 and 2017 . . . . . . . . Consolidated Statement of Cash Flows for the three years ended December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of Stockholders’ Equity for the three years ended December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . Report of Independent Registered Public Accounting Firm . . . . . . . . . Quarterly Results (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page(s) 37 38 39 40 41 and 42 43 to 77 78 80 Financial statements of companies accounted for under the equity method and unconsolidated subsidiaries have been omitted because they do not meet the materiality tests for assets or income. (2) Financial Statement Schedules not required (3) Exhibits: See exhibits listed under Part (b) below. (b) Exhibits 83 INDEX TO EXHIBITS Articles of Incorporation of Schlumberger Limited (Schlumberger N.V.), as amended on April 6, 2016 (incorporated by reference to Exhibit 3.1 to Schlumberger’s Current Report on Form 8-K filed on April 6, 2016) Exhibit 3.1 Amended and Restated By-Laws of Schlumberger Limited (Schlumberger N.V.), as amended on January 19, 2017 (incorporated by reference to Exhibit 3.1 to Schlumberger’s Current Report on Form 8-K filed on January 19, 2017) Indenture dated as of December 3, 2013, by and among Schlumberger Investment SA, as issuer, Schlumberger Limited, as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Schlumberger’s Current Report on Form 8-K filed on December 3, 2013) First Supplemental Indenture dated as of December 3, 2013, by and among Schlumberger Investment SA, as issuer, Schlumberger Limited, as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee (including form of global notes representing 3.650% Senior Notes due 2023) (incorporated by reference to Exhibit 4.2 to Schlumberger’s Current Report on Form 8-K filed on December 3, 2013) Schlumberger Limited Supplementary Benefit Plan, as established effective June 1, 1995 and conformed to include amendments through January 1, 2019 (*) (+) Schlumberger Limited Restoration Savings Plan, as established effective June 1, 1995 and conformed to include amendments through January 1, 2019 (*) (+) Schlumberger Technology Corporation Supplementary Benefit Plan, as established effective January 1, 1995 and conformed to include amendments through January 1, 2019 (*) (+) Schlumberger 2001 Stock Option Plan, as amended and restated as of July 19, 2017 (*) (+) Schlumberger Limited 2004 Stock and Deferral Plan for Non-Employee Directors, as amended and restated effective January 19, 2012 (incorporated by reference to Exhibit 10 to Schlumberger’s Current Report on Form 8-K filed on April 11, 2012) (+) Schlumberger 2005 Stock Incentive Plan, as amended and restated as of July 19, 2017 (*) (+) Schlumberger 2008 Stock Incentive Plan, as amended and restated as of July 19, 2017 (*) (+) Schlumberger 2010 Omnibus Stock Incentive Plan, as amended and restated as of July 19, 2017 (*) (+) Cameron International Corporation Equity Incentive Plan, as amended and restated as of January 1, 2013 (incorporated by reference to Exhibit 10.16 to Schlumberger’s Annual Report on Form 10-K for the year ended December 31, 2016) (+) 3.2 4.1 4.2 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 French Sub-Plan of Schlumberger 2010 Omnibus Stock Incentive Plan for Employees in France (incorporated by reference to Exhibit 10.7 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013) (+) 10.10 84 Amended and Restated French Sub Plan for Restricted Units (incorporated by reference to Appendix B of Schlumberger’s Definitive Proxy Statement filed with the SEC on March 2, 2018) Form of Option Agreement (Employees in France), Incentive Stock Option, under Schlumberger 2010 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013) (+) Form of Option Agreement (Employees in France), Non-Qualified Stock Option, under Schlumberger 2010 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.11 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013) (+) Form of Schlumberger Stock Incentive Plan Restricted Stock Unit Award Agreement for France (incorporated by reference to Exhibit 10.3 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017) (+) Exhibit 10.11 10.12 10.13 10.14 Schlumberger 2013 Omnibus Stock Incentive Plan, as Amended and Restated as of July 19, 2017 (*) (+) 10.15 Form of Option Agreement, Incentive Stock Option, under Schlumberger 2013 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015) (+) Form of Option Agreement, Non-Qualified Stock Option, under Schlumberger 2013 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015) (+) Form of Restricted Stock Unit Award Agreement under Schlumberger 2013 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015) (+) Schlumberger Discounted Stock Purchase Plan, as amended and restated effective as of January 19, 2017 (incorporated by reference to Appendix C to Schlumberger’s Definitive Proxy Statement on Schedule 14A filed on February 21, 2017) (+) 10.16 10.17 10.18 10.19 Schlumberger 2017 Omnibus Stock Incentive Plan, as Amended and Restated as of July 19, 2017 (*) (+) 10.20 Form of Incentive Stock Option Agreement under 2017 Schlumberger Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017) (+) Form of Restricted Stock Unit Award Agreement under Schlumberger 2017 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017) (+) Form of Non-Qualified Stock Option Agreement under Schlumberger 2017 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017) (+) Form of 2017 Two-Year Performance Share Unit Award Agreement under Schlumberger 2013 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017) (+) 10.21 10.22 10.23 10.24 85 Form of 2017 Three-Year Performance Share Unit Award Agreement under Schlumberger 2013 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Schlumberger’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017) (+) Form of 2018 French Qualified Performance Share Unit Award Agreement under Schlumberger 2010 Omnibus Stock Incentive Plan (*) (+) Addendum to Restricted Stock Unit Award Agreements, Performance Share Unit Agreements, Incentive Stock Option Agreements, and Non-Qualified Stock Option Agreements Issued Prior to July 19, 2017 (*) (+) Exhibit 10.25 10.26 10.27 Form of Indemnification Agreement (incorporated by reference to Exhibit 10 to Schlumberger’s Current Report on Form 8-K filed on October 21, 2013) 10.28 Subsidiaries (*) Consent of Independent Registered Public Accounting Firm (*) Powers of Attorney (*) 21 23 24 Certification of Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002 (*) to Rule 13a-14(a) as adopted pursuant to 31.1 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*) 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 (*) 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 (*) Mine Safety Disclosure (*) The following materials from Schlumberger Limited’s Annual Report on Form 10-K for the year ended December 31, 2018, 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. (*) (*) Exhibits electronically filed with this Form 10-K. All other exhibits incorporated by reference. (+) Management contracts or compensatory plans or arrangements. 31.2 32.1 32.2 95 101 Item 16. Form 10-K Summary. None. 86 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: January 23, 2019 SCHLUMBERGER LIMITED By: /S/ HOWARD GUILD Howard Guild Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name * Paal Kibsgaard /S/ SIMON AYAT Simon Ayat /S/ HOWARD GUILD Howard Guild * Peter L.S. Currie * Miguel Galuccio * V. Maureen Kempston Darkes * Nikolay Kudryavtsev * Michael E. Marks * Tatiana Mitrova * Indra K. Nooyi * Lubna S. Olayan * Mark G. Papa * Leo Rafael Reif * Henri Seydoux Title Chairman and Chief Executive Officer (Principal Executive Officer) Executive Vice President and Chief Financial Officer (Principal Financial Officer) Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director Director Director Director Director Director Director Director /s/ ALEXANDER C. JUDEN *By Alexander C. Juden Attorney-in-Fact January 23, 2019 87 Significant Subsidiaries Listed below are the significant subsidiaries of the Registrant as of December 31, 2018, and the states or jurisdictions in which they are incorporated or organized. The indentation reflects the principal parenting of each subsidiary. The names of other subsidiaries have been omitted from the list below, since they would not constitute, in the aggregate, a significant subsidiary as of December 31, 2018. Exhibit 21 Schlumberger B.V., Netherlands Cameron Lux I SARL, Luxembourg OneSubsea BV, Netherlands Schlumberger Canada Limited, Canada Schlumberger SA, France Services Petroliers Schlumberger, France Schlumberger Norge AS, Norway Schlumberger Holdings Corporation, Delaware Cameron International Corporation, Delaware Schlumberger Technology Corporation, Texas Smith International Inc., Delaware Schlumberger UK Limited, UK Schlumberger Plc, UK Schlumberger Oilfield UK Plc, UK Schlumberger Oilfield Holdings Limited, BVI Schlumberger Holdings II Limited, BVI Dowell Schlumberger Corporation, BVI Schlumberger Logelco, Inc., Panama Schlumberger Middle East SA., Panama Schlumberger Offshore Services Limited, BVI Schlumberger Overseas, SA, Panama Schlumberger Seaco, Inc., Panama Schlumberger Oilfield Eastern Ltd., BVI Exhibit 23 Consent of Independent Registered Public Accounting Firm We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-36366; 333-104225; 333-115277; 333-124534; 333-151920; 333-173055, as amended by post-effective amendment on Form S-8; 333-188589; 333-188590; 333-218181; and 333-218182); on Form S-3 (No.333-221161); on Form S-4 (No. 333-97899); and on Form S-4 as amended by post-effective amendment on Form S-8 (Nos. 333-207260 and 333-166326) of Schlumberger Limited of our report dated January 23, 2019 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Houston, Texas January 23, 2019 Powers of Attorney Exhibit 24 Each of the undersigned, in the capacity or capacities set forth below his or her signature as a member of the Board of Directors and/or an officer of Schlumberger Limited, a Curaçao corporation, hereby appoints Simon Ayat, Howard Guild and Alexander C. Juden, or any of them, the attorney or attorneys of the undersigned, with full power of substitution and revocation, for and in the name, place and stead of the undersigned to execute and file with the Securities and Exchange Commission the Annual Report on Form 10-K under the Securities Exchange Act of 1934 (the “Exchange Act”) for the fiscal year ending December 31, 2018, and any amendment or amendments to any such Annual Report on Form 10-K, and any agreements, consents or waivers relative thereto, and to take any and all such other action for and in the name and place and stead of the undersigned as may be necessary or desirable in order to comply with the Exchange Act or the rules and regulations thereunder. /s/ Peter L.S. Currie Peter L.S. Currie Director /s/ Miguel Galuccio Miguel Galuccio Director /s/ V. Maureen Kempston Darkes V. Maureen Kempston Darkes Director /s/ Paal Kibsgaard Paal Kibsgaard Chairman of the Board and Chief Executive Officer /s/ Nikolay Kudryavtsev Nikolay Kudryavtsev Director /s/ Michael E. Marks Michael E. Marks Director Date: January 16, 2019 /s/ Tatiana Mitrova Tatiana Mitrova Director /s/ Indra K. Nooyi Indra K. Nooyi Director /s/ Lubna S. Olayan Lubna S. Olayan Director /s/ Mark G. Papa Mark G. Papa Director /s/ Leo Rafael Reif Leo Rafael Reif Director /s/ Henri Seydoux Henri Seydoux Director Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Paal Kibsgaard, certify that: 1. I have reviewed this Annual Report on Form 10-K of Schlumberger Limited; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: January 23, 2019 /s/ Paal Kibsgaard Paal Kibsgaard Chief Executive Officer Exhibit 31.2 I, Simon Ayat, certify that: CERTIFICATION OF CHIEF FINANCIAL OFFICER 1. I have reviewed this Annual Report on Form 10-K of Schlumberger Limited; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: January 23, 2019 /s/ Simon Ayat Simon Ayat Executive Vice President and Chief Financial Officer 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 32.1 In connection with the Annual Report on Form 10-K of Schlumberger N.V. (Schlumberger Limited) (the “Company”) for the year ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paal Kibsgaard, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) (2) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: January 23, 2019 /s/ Paal Kibsgaard Paal Kibsgaard Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Schlumberger Limited and will be retained by Schlumberger Limited and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Exchange Act. 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 32.2 In connection with the Annual Report on Form 10-K of Schlumberger N.V. (Schlumberger Limited) (the “Company”) for the year ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Simon Ayat, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) (2) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: January 23, 2019 /s/ Simon Ayat Simon Ayat Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Schlumberger Limited and will be retained by Schlumberger Limited and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Exchange Act. Mine Safety Disclosure Exhibit 95 The following disclosure is provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977. The table that follows reflects citations, orders, violations and proposed assessments issued by the Mine Safety and Health Administration (the “MSHA”) to M-I LLC, an indirect wholly-owned subsidiary of Schlumberger. The disclosure is with respect to the full year ended December 31, 2018. Due to timing and other the data may not agree with the mine data retrieval system maintained by the MSHA at factors, www.MSHA.gov. Full Year 2018 (whole dollars) Mine or Operating Name/MSHA Identification Number Section 104 S&S Citations Section 104(b) Orders Section 104(d) Citations and Orders Section 110(b)(2) Violations Section 107(a) Orders Proposed MSHA Assessments (1) Mining Related Fatalities Received Notice of Potential to Have Pattern Under Section 104(e) (yes/no) Received Notice of Pattern of Violations Under Section 104(e) (yes/no) Legal Actions Pending as of Last Day of Period Legal Actions Initiated During Period Legal Actions Resolved During Period Amelia Barite Plant/1600825 Battle Mountain Grinding Plant/ 2600828 Galveston GBT Barite Grinding Plant/4104675 Greybull Milling Operation/ 4800602 Greybull Mining Operation/ 4800603 Greystone Mine/2600411 Mountain Springs Beneficiation Plant/2601390 Wisconsin Proppants Hixton Mine/ 4703742 Wisconsin Proppants Alma Mine/ 4703823 Wisconsin Proppants Monahans Mine/4105336 High Roller Sand/4105321 0 0 0 1 0 0 0 1 0 2 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $118 $118 $472 *$708 $118 $118 $0 *$399 $0 $774 $2,056 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N N N N N N N N N N N N 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (1) * * Amounts included are the total dollar value of proposed assessments received from MSHA on or before December 31, 2018, regardless of whether the assessment has been challenged or appealed, for citations and orders occurring during the full year 2018. Citations and orders can be contested and appealed, and as part of that process, are sometimes reduced in severity and amount, and sometimes dismissed. The number of citations, orders, and proposed assessments vary by inspector and also vary depending on the size and type of the operation. As of January 7, 2019, MSHA had not yet proposed an assessment for (1) S&S citation and (1) non-S&S citation at Greybull Milling Operations/4800602. As of January 7, 2019, MSHA had not yet proposed an assessment for (1) S&S citation and (2) non-S&S citations at Wisconsin Proppants Hixton Mine/4703742. Board of Directors Corporate Officers Peter L.S. Currie 2, 4 President, Currie Capital LLC Palo Alto, California Paal Kibsgaard Chairman and Chief Executive Officer Guy Arrington Vice President Operational Planning and Resource Management Simon Ayat Executive Vice President and Chief Financial Officer Alexander C. Juden Secretary and General Counsel Ashok Belani Executive Vice President Technology Jean-François Poupeau Executive Vice President Corporate Engagement Olivier Le Peuch Executive Vice President Reservoir and Infrastructure Patrick Schorn Executive Vice President Wells Aaron Gatt Floridia Executive Vice President Western Hemisphere Khaled Al Mogharbel Executive Vice President Eastern Hemisphere Stephane Biguet Vice President Finance Pierre Cheréque Vice President and Director of Taxes Stephanie Cox President NAL Drilling Hinda Gharbi Vice President Human Resources Abdellah Merad President NAL Production Simon Farrant Vice President Investor Relations Howard Guild Chief Accounting Officer Kevin Fyfe Vice President and Controller Claudia Jaramillo Vice President and Treasurer Vijay Kasibhatla Director Mergers and Acquisitions Saul Laureles Director Corporate Legal and Assistant Secretary Eileen Hardell Assistant Secretary Corporate Information Stockholder Information Schlumberger’s common stock is listed on the New York Stock Exchange, trading symbol “SLB,” and on the Euronext Paris, London, and SIX Swiss Stock Exchanges. For quarterly earnings dividend announcements and other informa- tion, please call (800) 997-5299 from the United States and Canada, or +1 (813) 774-5043 outside North America. You may also visit www.slb.com/ir. Stock Transfer Agent and Registrar Computershare Trust Company, N.A. P.O. Box 30170 College Station, Texas 77842 +1 (877) 745-9341 +1 (781) 575-2707 For Overnight Delivery: Computershare Trust Company, N.A. 211 Quality Circle, Suite 210 College Station, Texas 77845 +1 (877) 745-9341 +1 (781) 575-2707 General stockholder information is available on the Computershare website at www.computershare.com. E-mail Alerts To receive Schlumberger press releases and daily news, sign up at www.slb.com/ir. V. Maureen Kempston Darkes 1, 3 Former Group Vice President General Motors Corporation Detroit, Michigan Miguel M. Galuccio 3, 5 Chairman and Chief Executive Officer Vista Oil and Gas Mexico City, Mexico Paal Kibsgaard Chairman and Chief Executive Officer Schlumberger Nikolay Kudryavtsev 1, 3, 5 Rector Moscow Institute of Physics and Technology Moscow, Russia Michael E. Marks 1 Managing Partner Riverwood Capital, LLC Palo Alto, California Tatiana A. Mitrova 1 Director of the Energy Centre SKOLKOVO Business School (Moscow) Moscow, Russia Indra K. Nooyi 1, 2 Chairman PepsiCo Purchase, New York Lubna S. Olayan 3, 4 Chief Executive Officer Olayan Financing Company Riyadh, Saudi Arabia Mark G. Papa 3 Chairman and Chief Executive Officer Centennial Resource Development, Inc. Houston, Texas Leo Rafael Reif 2, 4, 5 President Massachusetts Institute of Technology Cambridge, Massachusetts Henri Seydoux 2, 4, 5 Chairman and Chief Executive Officer Parrot S.A. Paris, France 1 Member, Audit Committee 2 Member, Compensation Committee 3 Member, Finance Committee 4 Member, Nominating and Governance Committee 5 Member, Science and Technology Committee Form 10-K The Schlumberger 2018 annual report on Form 10-K ﬁled with the Securities and Exchange Commission is available without charge. To obtain a copy, call (800) 997-5299 within North America and +1 (813) 774-5043 outside North America. Alternatively, you can view and print all of our SEC ﬁlings online at www.slb.com/ir or write to: Vice President Investor Relations Schlumberger Limited 5599 San Felipe, 17th Floor Houston, Texas, 77056. Duplicate Mailings When a stockholder owns shares in more than one account, or when stockholders live at the same address, duplicate mailings may result. If you receive duplicate reports, you can help eliminate the added expense by requesting that only one copy be sent. To elimi- nate duplicate mailings, contact Computershare Trust Company, N.A., Stock Transfer Agent and Registrar. Nonproﬁt Community Development Programs Schlumberger supports and encourages a range of community development programs—both local and global—many of which are supported by employee volunteers. We have chosen to focus on science, technology, engineering, and mathematics (STEM) education and community health and safety. To learn more about these programs, please see the latest edition of the Schlumberger Global Stewardship Report at www.slb.com. World Wide Web For information on Schlumberger technology, services, and solutions, visit www.slb.com. For information on career and job opportunities at Schlumberger, visit www.careers.slb.com. * Mark of Schlumberger Other company, product, and service names are the properties of their respective owners. Photography by John Hafemeister and Gary Ranos (inside front cover, 6, 8 inset, 9, 10, 11a, 15, 18); PRA (5); Saba Studios (11b, 11c); Frog Design (12); Chris Daeffler (13); Stuart Conway (cover, 14); Curtis Comeau (16). Schlumberger Limited 42 rue Saint-Dominique 75007 Paris France 5599 San Felipe Houston, Texas 77056 United States 62 Buckingham Gate London SW1E 6AJ United Kingdom Parkstraat 83 2514 JG The Hague The Netherlands www.slb.com

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