Schlumberger to Take $1.7-Billion Charge Against 4th-Quarter Earnings
Schlumberger Ltd. announced a $1.7-billion fourth-quarter charge against earnings Thursday to reflect the weakened value of its operations in the depressed drilling and exploration business. The announcement brings Schlumberger’s total fourth-quarter charges to $1.9 billion. The world’s largest oil field services company announced a $200-million charge in October related to the impending sale of its money-losing Fairchild Semiconductor division to Japan’s Fujitsu Microelectronics Inc.
Financial analysts said the latest charge had been expected and was consistent with similar bookkeeping moves by Schlumberger’s chief competitors: Dresser Industries, Gearhart Industries and Halliburton Co.
They also said that resultant lowered worth of Schlumberger’s assets should boost earnings because it would reduce the company’s depreciation expenses by about $130 million a year.
“Basically they’re just cleaning up. This is not a shock,” said Russell J. Hoffmann, analyst at Shearson Lehman Bros. “We think this is in line with what everyone else has been doing.”
Kevin Simpson, analyst at the New York firm Drexel Burnham Lambert, said he believes that the charge will benefit the company’s overall performance in the long term.
“It shows how serious management is about getting the company’s costs down for a leaner business environment,” Simpson said.
But Wall Street reacted negatively to the announcement, partly because it did not include plans for a stock repurchase, which some investors had expected because Schlumberger has more than $4 billion in cash. The company’s stock price slumped $1.75 a share to $32.50 in composite New York Stock Exchange trading Thursday.
Schlumberger said in a brief press statement that the charge amounted to $6 a share and consisted primarily of writeoffs in its Dowell Schlumberger pumping services division, Sedco Forex drilling services division, and other writeoffs and consolidation in oil field services equipment and inventories.
“In 1986, we have reduced the size of the company, both in organization and assets, to meet the expected business levels,” said Euan Baird, chairman and chief executive. “In particular, we have reduced the oil field services personnel by 35%.”
The company did not specify whether it expected to show a loss for the fourth quarter or the year. In the third quarter ended Sept. 30, Schlumberger reported a loss of $42 million on revenue of $1.29 billion. For the first nine months it reported net earnings of $161.4 million on revenue of $4.29 billion.
The company has suffered large losses since oil prices dropped from $30 a barrel a year ago to about $15 now. Because the world has been glutted with cheap oil, demand for exploration and drilling services has tumbled.
“I think we’re in the bottom phase right now,” Simpson said. “I think that will continue through 1987. But I think the business will not get a whole lot worse.”
Others were more pessimistic.
“With the depressed state of the oil field service industry generally, I’m not recommending anything,” said Vishnu Swarup, analyst for the Goldman, Sachs & Co. investment firm. Any improvement, he said, “is going to be a function of oil prices.”
