3. Charges and Credits

Schlumberger recorded the following charges and credits during 2017, 2016 and 2015:

2017

•

During the fourth quarter of 2017, Schlumberger decided to cease all future marine seismic acquisition activities, after satisfying its remaining contractual commitments. As a result, Schlumberger will seek to monetize its existing fleet of marine seismic vessels. 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 that 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 the promissory notes described below, $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 that is accounted for under the percentage-of-completion method.

•

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 headcount 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 (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 represents what Schlumberger believes is 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 should be considered provisional. Once Schlumberger finalizes certain tax positions when it files its 2017 US tax return, it will be able to conclude whether any further adjustments are required to its net deferred tax liability balance in the US of $1.7 billion as of December 31, 2017, as well as to the liability associated with the one-time mandatory tax. Any adjustments to these provisional amounts will be reported as a component of Tax expense (benefit) in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018.

•

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. Schlumberger is accounting for the promissory notes as available-for-sale securities reported at fair value in Other Assets, with unrealized gains and losses included as a component of Accumulated other comprehensive loss. Following the $105 million other-than-temporary impairment charge described above, the new cost basis of these promissory notes is $135 million, which approximates their fair value at December 31, 2017.

•	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.

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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).

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)

						Noncontrolling
	Pretax		Tax			Interests		Net
Impairment & other
WesternGeco seismic restructuring charges	$	1,114	$	20		$	-	$	1,094
Venezuela investment write-down		938		-			-		938
Promissory note fair value adjustment and other		510		-			12		498
Workforce reductions		247		13			-		234
Multiclient seismic data impairment		246		81			-		165
Other restructuring charges		156		10			22		124
Cost of sales							-		-
Provision for loss on long-term construction project		245		22			-		223
Merger & integration							-		-
Merger and integration-related costs		308		70			-		238
US tax reform charge		-		(76	)		-		76
	$	3,764	$	140		$	34	$	3,590

2016

•

Schlumberger reduced its headcount 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. Schlumberger recorded a $646 million charge during the second quarter of 2016 associated with this headcount reduction. During the fourth quarter of 2016, Schlumberger further reduced its headcount in order to streamline its support cost structure. Schlumberger recorded an additional $234 million charge during the fourth quarter 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.

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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, classified as Merger & integration in the Consolidated Statement of Income (Loss), 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, which is classified in Cost of sales in the Consolidated Statement of Income (Loss). This amortization was presented as a component of Merger & integration in the prior year; however, Schlumberger reclassified this prior period item to Cost of sales in the current year.

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):

	(Stated in millions)

	Pretax		Tax		Net
Impairment & other
Workforce reductions	$	880	$	69	$	811
Other fixed asset impairments		684		52		632
Inventory write-downs		616		49		567
North America pressure pumping asset impairments		209		67		142
Multiclient seismic data impairment		198		62		136
Facility impairments		165		58		107
Facility closure costs		165		40		125
Costs associated with exiting certain activities		98		23		75
Currency devaluation loss in Egypt		63		-		63
Contract termination costs		39		9		30
Other restructuring charges		55		-		55
Merger & integration
Other merger and integration-related		160		28		132
Merger-related employee benefits		83		13		70
Facility closure costs		61		13		48
Professional fees		45		10		35
Cost of sales
Amortization of inventory fair value adjustment		299		90		209
	$	3,820	$	583	$	3,237

2015

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Schlumberger reduced its headcount during the first quarter of 2015 as a result of the severe fall in activity in North America, combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices. Schlumberger recorded a $390 million charge during the first quarter associated with this headcount reduction as well as an incentivized leave of absence program. Based on the activity outlook for 2016, as well as to further streamline its support structure, Schlumberger decided to further reduce its headcount and expand its incentivized leave of absence program during the fourth quarter of 2015. Schlumberger recorded an additional $530 million charge during the fourth quarter associated with these actions.

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As a result of unfavorable oil and gas industry market conditions that continued to deteriorate and their impact on the activity outlook, 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 restructuring charges during the fourth quarter of 2015:

$776 million of fixed asset impairments primarily related to underutilized pressure pumping and other equipment in North America, as well as certain lower-tier drilling rigs.

-	$269 million to write-down the carrying value of certain inventory, primarily in North America.

-	$182 million to reduce the carrying value of an investment in an SPM project to its estimated fair value, as a result of the decline in commodity prices and considering this project was approaching the end of its contractual term.

-	$177 million associated with certain of Schlumberger’s owned and leased facilities, including the expected sale of certain properties and the termination of certain leases.

-	$77 million relating to assets that were no longer recoverable as a result of geopolitical issues in certain countries in the Middle East.

-	$41 million relating to contract termination costs.

-	$84 million of other charges associated with then current market conditions, including $40 million relating to an other-than-temporary impairment of marketable securities and $15 million relating to the impairment of an equity-method investment.

Certain of these impairment charges were estimated based on the projected present value of future cash flows, which included unobservable inputs that required significant judgments.

•

In February 2015, the Venezuelan government replaced the SICAD II exchange rate (described in further detail below) with a new foreign exchange market system known as SIMADI. The SIMADI exchange rate was approximately 192 Venezuelan Bolivares fuertes to the US dollar as of March 31, 2015. As a result, Schlumberger recorded a $49 million devaluation charge during the first quarter of 2015, reflecting the adoption of the SIMADI exchange rate.

The following is a summary of these charges and credits, all of which were classified as Impairments & other in the Consolidated Statement of Income (Loss):

	(Stated in millions)

	Pretax		Tax		Net
Workforce reductions	$	920	$	107	$	813
Fixed asset impairments		776		141		635
Inventory write-downs		269		27		242
Impairment of SPM project		182		36		146
Facility closures		177		37		140
Geopolitical events		77		-		77
Currency devaluation loss in Venezuela		49		-		49
Contract termination costs		41		2		39
Other		84		7		77
	$	2,575	$	357	$	2,218