Letter to Shareholders
Schlumberger revenue for 2014 reached a record $48.6 billion, up 7% and growing for the fifth consecutive year. In North America, revenue surged by more than $2.3 billion, driven by strong activity both on land and offshore as well as by the penetration of innovative hydraulic stimulation technologies. International revenue increased by $1.2 billion, or 4%, on significant strength in the Middle East & Asia and in spite of considerable headwinds in the face of activity challenges, geopolitical unrest, falling oil prices, and international sanctions elsewhere.
Oil markets remained relatively well balanced during 2014 as increasing global production capacity almost matched increasing demand. Yet, after more than three years of remarkable stability, oil prices dropped dramatically by more than 40% late in the year to end at their lowest levels since 2009. But unlike the previous fall in price that was triggered by a global economic recession, this year’s drop resulted from a higher marketed supply of oil that became increasingly evident as North American tight oil production continued to grow and as OPEC shifted focus from protecting oil prices to protecting market share. At the same time, production recovered in countries that had suffered degrees of geopolitical disturbance, and the US dollar strengthened to further weaken overall commodity prices.
In natural gas markets, US prices reached multiyear highs in February on exceptionally cold weather and risks of local supply shortages. Storage, however, returned to historical average levels at the end of the year as sustained production growth in the Marcellus play and increasing associated gas production in US tight oil plays more than offset the impact of low activity levels in other unconventional plays. Overall, these increasing supplies more than met growing demand. Internationally, natural gas prices eased broadly in 2014 on mild temperatures in Europe, LNG capacity additions in the Pacific region, and the impact of weaker oil prices on oil-indexed natural gas pricing formulas.
Against this background, Schlumberger performance in 2014 was led by North America, where revenue grew by 16% on robust land activity and increased service intensity, market share gains, and new technology penetration. Offshore operations, however, suffered from a number of operational delays that affected drilling and exploration activity in particular. The 4% growth in International revenue was led by activity in a number of key markets, both on land and offshore. Middle East & Asia grew by 10%, driven by Saudi Arabia, Australia, the United Arab Emirates, and Oman. Revenue in Europe, the CIS & Africa improved by 1%, led by the Sub-Saharan region on strong exploration and development activities in the Central West Africa, Angola, and Continental Europe GeoMarket* regions. Norway also showed strong growth through market share gains and higher rig-related services for a number of customers. In Latin America, however, revenue slipped by 1% as strong activity in Venezuela and Ecuador was unable to compensate for lower activity and pricing in both Brazil and Mexico. As one measure of our ability to outperform the markets in which we operate, our operating income grew by 13% versus 2013, with more than 70% of that growth coming from International activity.