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 interest rate swaps to mitigate the exposure to changes in interest rates.

During the third quarter of 2009, Schlumberger entered into interest rate swaps relating to two of its debt

instruments. The first swap was for a notional amount of $450 million in order to hedge changes in the fair value of

Schlumberger’s $450 million 3.00% Notes due 2013. Under the terms of this swap, Schlumberger receives interest at a

fixed rate of 3.0% annually and will pay interest quarterly at a floating rate of three-month LIBOR plus a spread of

0.765%. This interest rate swap is designated as a fair value hedge of the underlying debt. This derivative instrument is

marked to market with gains and losses recognized currently in income to offset the respective losses and gains

recognized on changes in the fair value of the hedged debt. This results in no net gain or loss being recognized in the

.

The second swap was for a notional amount of $600 million in order to hedge a portion of the changes in fair value of

Schlumberger’s $650 million 6.50% Notes due 2012. Under the terms of this swap agreement, Schlumberger received

interest at a fixed rate of 6.50% semi-annually and paid interest semi-annually at a floating rate of one-month LIBOR

plus a spread of 4.84%. During the third and fourth quarters of 2010, Schlumberger repurchased all of the outstanding

$650 million 6.50% Notes due 2012. Accordingly, this interest rate swap, which had previously been designated as a fair

value hedge of the underlying debt, was settled during the fourth quarter and resulted in Schlumberger receiving

proceeds of approximately $10 million.

At December 31, 2011, Schlumberger had fixed rate debt aggregating approximately $7.5 billion and variable rate

debt aggregating approximately $2.4 billion, after taking into account the effects of the interest rate swaps.

The fair values of outstanding derivative instruments are summarized as follows:

Derivative designated as hedges:

Foreign exchange contracts

$2

$4

Foreign exchange contracts

4

37

Interest rate swaps

9

14

15

55

Derivative not designated as hedges:

Commodity contracts

–

3

Foreign exchange contracts

8

9

Foreign exchange contracts

9

9

17

21

$32

$76

Derivative designated as hedges:

Foreign exchange contracts

$47

$9

Foreign exchange contracts

130

77

Interest rate swaps

–

7

177

93

Derivative not designated as hedges:

Commodity contracts

3

–

Foreign exchange contracts

9

14

12

14

$189

$107

The fair value of all outstanding derivatives is determined using a model with inputs that are observable in the

market or can be derived from or corroborated by observable data.

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