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Charges and Credits

12 Months Ended

Dec. 31, 2020

Restructuring And Related Activities [Abstract]

3. Charges and Credits

2020

Schlumberger recorded the following charges and credits during 2020, all of which, unless otherwise noted, are classified in Impairments & other in the Consolidated Statement of Income (Loss):

	(Stated in millions)


	Pretax			Tax			Net
First quarter:
Goodwill	$	3,070		$	-		$	3,070
Intangible assets impairments		3,321			815			2,506
Asset Performance Solutions investments		1,264			(4	)		1,268
North America pressure pumping impairment		587			133			454
Workforce reductions		202			7			195
Other		79			9			70
Valuation allowance		-			(164	)		164
Second quarter:
Workforce reductions		1,021			71			950
Asset Performance Solutions investments		730			15			715
Fixed asset impairments		666			52			614
Inventory write-downs		603			49			554
Right-of-use asset impairments		311			67			244
Costs associated with exiting certain activities		205			(25	)		230
Multiclient seismic data impairment		156			2			154
Repurchase of bonds		40			2			38
Postretirement benefits curtailment gain		(69	)		(16	)		(53	)
Other		60			4			56
Third quarter:
Facility exit charges		254			39			215
Workforce reductions		63			-			63
Other		33			1			32
Fourth quarter:
Gain on sale of OneStim		(104	)		(11	)		(93	)
Unrealized gain on marketable securities		(39	)		(9	)		(30	)
Other		62			4			58
	$	12,515		$	1,041		$	11,474

First quarter 2020:

•

Geopolitical events that increased the supply of low-priced oil to the global market occurred at the same time that demand weakened due to the worldwide effects of the COVID-19 pandemic, leading to a collapse in oil prices during March 2020. As a result, Schlumberger’s market capitalization deteriorated significantly compared to the end of 2019. Schlumberger’s stock price reached a low during the first quarter of 2020 not seen since 1995. Additionally, the Philadelphia Oil Services Sector index, which is comprised of companies involved in the oil services sector, reached an all-time low. As a result of these facts, Schlumberger determined that it was more likely than not that the fair value of certain of its reporting units was less than their carrying value. Therefore, Schlumberger performed an interim goodwill impairment test.

Schlumberger had 11 reporting units with goodwill balances aggregating $16.0 billion. Schlumberger determined that the fair value of four of its reporting units, representing $4.5 billion of goodwill, was substantially in excess of their carrying value. Schlumberger performed a detailed quantitative impairment assessment of the remaining seven reporting units, which represented $11.5 billion of goodwill. As a result of this assessment, Schlumberger concluded that the goodwill associated with each of these seven reporting units was impaired, resulting in a $3.1 billion goodwill impairment charge.

Following the $3.1 billion goodwill impairment charge relating to these seven reporting units, six of these reporting units had a remaining goodwill balance. These goodwill balances ranged between $0.2 billion and $5.0 billion and aggregated to $8.4 billion as of March 31, 2020.

Schlumberger used the income approach to estimate the fair value of its reporting units, but also considered the market approach to validate the results. The income approach estimates the fair value by discounting each reporting unit’s estimated future cash flows using Schlumberger’s estimate of the discount rate, or expected return, that a marketplace participant would have required as of the valuation date. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results. The market approach involves significant judgement involved in the selection of the appropriate peer group companies and valuation multiples.

Some of the more significant assumptions inherent in the income approach include the estimated future net annual cash flows for each reporting unit and the discount rate. Schlumberger selected the assumptions used in the discounted cash flow projections using historical data supplemented by current and anticipated market conditions and estimated growth rates. Schlumberger’s estimates are based upon assumptions believed to be reasonable. However, given the inherent uncertainty in determining the assumptions underlying a discounted cash flow analysis, particularly in a volatile market, actual results may differ from those used in Schlumberger’s valuations which could result in additional impairment charges in the future.

The discount rates utilized to value Schlumberger’s reporting units were between 12.0% and 13.5%, depending on the risks and uncertainty inherent in the respective reporting unit as well as the size of the reporting unit. Assuming all other assumptions and inputs used in each of the respective discounted cash flow analysis were held constant, a 50-basis point increase or decrease in the discount rate assumptions would have changed the fair value of the seven reporting units, on average, by less than 5%.

•

The negative market indicators described above were triggering events that indicated that certain of Schlumberger’s long-lived intangible and tangible assets may have been impaired. Recoverability testing indicated that certain long-lived assets were impaired. The estimated fair value of these assets was determined to be below their carrying value. As a result, Schlumberger recorded the following impairment charges:

$3.3 billion relating to intangible assets, of which $2.2 billion relates to Schlumberger’s 2016 acquisition of Cameron International Corporation and $1.1 billion relates to Schlumberger’s 2010 acquisition of Smith International, Inc. Following this impairment charge, the carrying value of the impaired intangible assets was approximately $0.9 billion.

$1.3 billion relating to the carrying value of certain APS projects in North America.

$0.6 billion of fixed assets associated with the pressure pumping business in North America.

•

$202 million of severance.

•

$79 million of other restructuring charges, primarily consisting of the impairment of an equity method investment that was determined to be other-than-temporarily impaired.

•

$164 million relating to a valuation allowance against certain deferred tax assets.

Second quarter 2020:

•

As previously noted, late in the first quarter of 2020 geopolitical events that increased the supply of low-priced oil to the global market occurred at the same time as demand weakened due to the worldwide effects of the COVID-19 pandemic, which led to a collapse in oil prices. As a result, the second quarter of 2020 was the most challenging quarter in decades. Schlumberger responded to these market conditions by taking actions to restructure its business and rationalize its asset base during the second quarter of 2020. These actions included reducing headcount, closing facilities and exiting business lines in certain countries. Additionally, due to the resulting activity decline, Schlumberger had assets that would no longer be utilized. As a consequence of these circumstances and decisions, Schlumberger recorded the following restructuring and asset impairment charges:

$1.021 billion of severance associated with reducing its workforce by more than 21,000 employees.

$730 million relating to the carrying value of certain APS projects in Latin America.

$666 million of fixed asset impairments primarily relating to equipment that would no longer be utilized and facilities it exited.

$603 million write-down of the carrying value of inventory to its net realizable value.

$311 million write-down of right-of-use assets under operating leases associated with leased facilities Schlumberger exited and excess equipment.

$205 million of costs associated with exiting certain activities.

$156 million impairment of certain multiclient seismic data.

$60 million of other costs, including a $42 million increase in the allowance for the doubtful accounts.

•

During the second quarter of 2020, Schlumberger repurchased certain Senior Notes (see Note 9 – Long-term Debt), which resulted in a $40 million charge.

•

As a consequence of the workforce reductions described above, Schlumberger recorded a curtailment gain of $69 million relating to its US postretirement medical plan. See Note 17 – Pension and Other Postretirement Benefit Plans for further details.

The fair value of the impaired intangible assets, fixed assets, APS investments, right-of-use assets and multiclient seismic data was estimated based on the present value of projected future cash flows that the underlying assets are expected to generate. Such estimates included unobservable inputs that required significant judgement.

Third quarter 2020:

•

During the third quarter of 2020, Schlumberger recorded the following restructuring charges:

$254 million of facility exit charges as Schlumberger continued to rationalize its real estate footprint relating to both leased and owned facilities.

$63 million of severance.

$33 million of other charges.

Fourth quarter 2020:

•

On December 31, 2020, Schlumberger contributed its onshore hydraulic fracturing business in the United States and Canada (“OneStim”), including its pressure pumping, pumpdown perforating and Permian frac sand business to Liberty Oilfield Services Inc. (“Liberty”) in exchange for a 37% equity interest in Liberty. As a result of this transaction, Schlumberger recognized a gain of $104 million during the fourth quarter of 2020. This gain is classified in Gains on sales of businesses in the Consolidated Statement of Income (Loss).

Schlumberger will account for its investment in Liberty under the equity method of accounting and will record its share of Liberty’s net income on a one-quarter lag. Based on the quoted market price of Liberty’s shares as of December 31, 2020, the value of Schlumberger’s investment is approximately $0.7 billion.

•

During the fourth quarter of 2020, a start-up company that Schlumberger previously invested in completed an initial public offering. As a result, Schlumberger recognized an unrealized gain of $39 million to increase the carrying value of this investment to its fair value of approximately $43 million. This unrealized gain is reflected in Interest and other income in the Consolidated Statement of Income (Loss).

•

During the fourth quarter of 2020, Schlumberger entered into an agreement to purchase new software licenses. This transaction rendered certain previously purchased licenses obsolete. As a result, Schlumberger wrote off the remaining $62 million of net book value associated with the obsolete software licenses.

As market conditions evolve and Schlumberger continues to develop its strategy to deal with such conditions, it may result in further restructuring and/or impairment charges in future periods.

2019

Schlumberger recorded the following charges and credits during 2019, all of which are classified as Impairments & other in the Consolidated Statement of Income (Loss), except for the gain on the formation of the Sensia joint venture:

	(Stated in millions)

	Pretax			Tax			Net
Third quarter:
Goodwill impairment	$	8,828		$	43		$	8,785
Intangible assets impairment		1,085			248			837
North America pressure pumping		1,575			344			1,231
Other North America-related		310			53			257
Argentina		127			-			127
Equity-method investments		231			12			219
Asset Performance Solutions investments		294			-			294
Other		242			13			229
Fourth quarter:
North America restructuring		225			51			174
Other restructuring		104			(33	)		137
Workforce reductions		68			8			60
Pension settlement accounting		37			8			29
Repurchase of bonds		22			5			17
Gain on formation of Sensia joint venture		(247	)		(42	)		(205	)
	$	12,901		$	710		$	12,191

Third quarter of 2019:

•

During August 2019, Schlumberger’s market capitalization deteriorated significantly compared to the end of the second quarter of 2019. Schlumberger’s stock price reached a low not seen since 2005. Additionally, the Philadelphia Oil Services Sector Index, which is comprised of companies in the oil services sector, reached an 18-year low.

As a result of these facts, Schlumberger determined that it was more likely than not that the fair value of certain of its reporting units was less than their carrying value. Therefore, Schlumberger performed an interim goodwill impairment test as of August 31, 2019.

As of August 31, 2019, Schlumberger had 17 reporting units with goodwill balances aggregating $25.0 billion. Schlumberger determined that the fair value of seven of its reporting units, representing approximately $13.8 billion of the goodwill, was substantially in excess of their carrying value. Schlumberger performed a detailed quantitative impairment assessment of the remaining 10 reporting units, which represented $11.2 billion of goodwill. As a result of this assessment, Schlumberger concluded that the goodwill associated with nine of the 10 reporting units was impaired, resulting in an $8.8 billion goodwill impairment charge.

Schlumberger primarily used the income approach to estimate the fair value of its reporting units, but also considered the market approach to validate the results. The income approach estimates the fair value by discounting each reporting unit’s estimated future cash flows using Schlumberger’s estimate of the discount rate, or expected return, that a marketplace participant would have required as of the valuation date. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results. The market approach involves significant judgement involved in the selection of the appropriate peer group companies and valuation multiples.

The discount rates utilized to value Schlumberger’s reporting units were between 12.5% and 14.0%, depending on the risks and uncertainty inherent in the respective reporting unit. Assuming all other assumptions and inputs used in each of the respective discounted cash flow analysis were held constant, a 50 basis point increase in the discount rate assumption would have increased the goodwill impairment charge by approximately $0.3 billion. Conversely, assuming all other assumptions and inputs used in each of the respective discounted cash flow analysis were held constant, a 50 basis point decrease in the discount rate assumption would have decreased the goodwill impairment charge by approximately $0.4 billion.

•

The negative market indicators described above combined with deteriorating market conditions in North America, as well as the results of the previously mentioned fair value determinations of certain of Schlumberger’s reporting units and the appointment of a new Chief Executive Officer, were all triggering events that indicated that certain of Schlumberger’s long-lived tangible and intangible assets may be impaired.

Recoverability testing, which was performed as of August 31, 2019, indicated that long-lived assets associated with certain asset groups were impaired. The estimated fair value of these asset groups was determined to be below their carrying value. As a result, Schlumberger recorded the following impairment and related charges:

$1.085 billion of intangible assets, of which $842 million relates to Schlumberger’s 2010 acquisition of Smith International, Inc. The remaining $243 million primarily relates to other acquisitions in North America.

$1.575 billion of charges relating to Schlumberger’s pressure pumping business in North America. This amount consists of $1.324 billion of pressure pumping equipment and related assets; $98 million of right-of-use assets under operating leases; $121 million relating to a supply contract; $19 million of inventory; and $13 million of severance.

$310 million of charges primarily relating to other businesses in North America, consisting of $230 million of fixed asset impairments, $70 million of inventory write-downs and $10 million of severance.

•

As a result of the economic challenges in Argentina, Schlumberger recorded $127 million of charges during the third quarter of 2019. This consists of $72 million of asset impairments, a $26 million devaluation charge and $29 million of severance.

•

Schlumberger also recorded the following impairment and restructuring charges during the third quarter of 2019:

$231 million relating to certain equity method investments that were determined to be other-than-temporarily impaired.

$294 million impairment relating to the carrying value of certain smaller APS projects.

$242 million of restructuring charges consisting of: $62 million of severance; $57 million relating to the acceleration of stock-based compensation expense associated with certain individuals; $49 million of business divestiture costs; $29 million relating to the repurchase of certain Senior Notes (see Note 9 - Long-term Debt); and $45 million of other provisions.

The fair value of certain of the assets impaired during the fourth quarter of 2019 was estimated based on the present value of projected future cash flows that the underlying assets are expected to generate. Such estimates included unobservable inputs that required significant judgment.

Fourth quarter of 2019:

•

Schlumberger recorded the following restructuring charges during the fourth quarter of 2019:

$225 million associated with facility closures and costs to exit certain activities in North America. These charges included $123 million relating to fixed assets; $55 million of right-of-use assets under operating leases; and $47 million of other exit costs.

$104 million primarily relating to restructuring certain activities outside of North America, which included $68 million associated with assets to be divested and $36 million of facility closure costs.

$68 million of severance associated with streamlining its operations and exiting certain activities.

•

Certain of Schlumberger’s defined benefit pension plans offered former Schlumberger employees, who had not yet commenced receiving their pension benefits, an opportunity to receive a lump sum payout of their vested pension benefit which resulted in Schlumberger recording a pension settlement charge of $37 million in the fourth quarter of 2019. See Note 17 – Pension and Other Postretirement Benefit Plans for further details.

•

During the fourth quarter of 2019, Schlumberger repurchased certain Senior Notes (see Note 9 – Long-term Debt), which resulted in a $22 million charge.

•

On October 1, 2019, Schlumberger and Rockwell completed the formation of Sensia, a joint venture that is the oil and gas industry’s first digitally enabled integrated automation solutions provider. Rockwell Automation owns 53% of the joint venture and Schlumberger owns 47%. In connection with this transaction, Schlumberger received a cash payment of $238 million. Schlumberger will account for its investment under the equity method of accounting. During the fourth quarter of 2019, Schlumberger recorded a $247 million gain as a result of the deconsolidation of certain of its businesses in connection with the formation of the joint venture. This gain, which is equal to the sum of the $238 million of cash proceeds received and the fair value of Schlumberger’s retained noncontrolling investment in the businesses it contributed less the carrying amount of the assets and liabilities of such businesses at the time of the closing, is classified as Gains on sale of businesses in the Consolidated Statement of Income (Loss).

2018

During 2018, Schlumberger recorded the following charges and credits:

	(Stated in millions)

	Pretax			Tax			Net
Gain on sale of marine seismic acquisition business	$	(215	)	$	(19	)	$	(196	)
Workforce reductions		184			20			164
Asset impairments		172			16			156
	$	141		$	17		$	124

•

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).

•

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).