Part II, Item 7A
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Schlumberger is subject to market risks primarily associated with changes in foreign currency exchange rates,
commodity prices and interest rates.
As a multinational company, Schlumberger conducts business in approximately 80 countries. Schlumberger’s
functional currency is primarily the US dollar, which is consistent with the oil and gas industry. Approximately 80%
of Schlumberger’s revenue in 2010 was denominated in US dollars. However, outside the United States, a significant
portion of Schlumberger’s expenses is incurred in foreign currencies. Therefore, when the US dollar weakens in relation
to the foreign currencies of the countries in which Schlumberger conducts business, the US dollar-reported expenses
will increase.
A 5% increase or decrease in the average exchange rates of all the foreign currencies in 2010 would have changed
revenue by approximately 1%. If the 2010 average exchange rates of the US dollar against all foreign currencies had
strengthened by 5%, Schlumberger’s income from continuing operations would have increased by approximately 2%.
Conversely, a 5% weakening of the US dollar average exchange rates would have decreased income from continuing
operations by approximately 3%.
Although the functional currency of Schlumberger’s operations in Venezuela is the US dollar, a portion of the
transactions are denominated in local currency. For financial reporting purposes, such transactions are remeasured into
US dollars at the official exchange rate, which until January 2010 was fixed at 2.15 Venezuela bolivares fuertes per US
dollar, despite significant inflation in recent periods. In January 2010, Venezuela’s currency was devalued and a new
exchange rate system was announced. During the first quarter of 2010, Schlumberger began to apply an exchange rate of
4.3 Venezuelan bolivares fuertes per US dollar to its local currency denominated transactions in Venezuela. The
devaluation did not have an immediate significant impact to Schlumberger. Further, although this devaluation does
result in a reduction in the US dollar reported amount of local currency denominated revenues and expenses, the impact
is not material to Schlumberger’s consolidated financial statements.
Schlumberger maintains a foreign-currency risk management strategy that uses derivative instruments to protect its
interests from unanticipated fluctuations in earnings and cash flows caused by volatility in currency exchange rates.
Foreign currency forward contracts and foreign currency options provide a hedge against currency fluctuations either on
monetary assets/liabilities denominated in other than a functional currency or on expenses.
At December 31, 2010, contracts were outstanding for the US dollar equivalent of $7.3 billion in various foreign
currencies.
Schlumberger is subject to the risk of market price fluctuations of certain commodities, such as metals and fuel.
Schlumberger utilizes forward contracts to manage a small percentage of the price risk associated with forecasted metal
purchases. As of December 31, 2010, $12 million of commodity forward contracts were outstanding.
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. At December 31, 2010,
Schlumberger had fixed rate debt aggregating approximately $5.4 billion and variable rate debt aggregating approx-
imately $2.8 billion. Schlumberger has entered into interest rate swaps relating to $0.5 billion of its fixed rate debt as of
December 31, 2010 whereby Schlumberger will receive interest at a fixed rate and pay interest at a variable rate.
Schlumberger’s exposure to interest rate risk associated with its debt is also partially mitigated by its investment
portfolio. Both
Short-term investments
and
Fixed income investments
,
held to maturity
, which totaled approximately
$3.7 billion at December 31, 2010, are comprised primarily of money market funds, eurodollar time deposits, certificates
of deposit, commercial paper, euro notes and Eurobonds and are substantially all denominated in US dollars. The
average return on investment was 1.1% in 2010.
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