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 85 countries. Schlumberger’s
functional currency is primarily the US dollar, which is consistent with the oil and gas industry. Approximately 75% of
Schlumberger’s revenue in 2011 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 2011 would have changed
revenue by approximately 1%. If the 2011 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 2%.
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, 2011, contracts were outstanding for the US dollar equivalent of $6.9 billion in various foreign currencies
of which $3.9 billion relate to hedges of debt balances denominated in currencies other than the functional currency.
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, 2011, $27 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, 2011,
Schlumberger had fixed rate debt aggregating approximately $8.0 billion and variable rate debt aggregating approximately
$1.9 billion. Schlumberger has entered into interest rate swaps relating to $0.5 billion of its fixed rate debt as of
December 31, 2011 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
$3.4 billion at December 31, 2011, 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 2011.
The following table represents carrying amounts of Schlumberger’s debt at December 31, 2011 by year of maturity:
(Stated in millions)
Expected Maturity Dates
2012 2013 2014 2015 2016 2021 Total
Fixed rate debt
5.25% Guaranteed Notes
$ 649
$ 649
3.00% Guaranteed Notes
458
458
2.75% Guaranteed Notes
$ 1,290
1,290
4.50% Guaranteed Notes
$ 1,297
1,297
2.650% Senior Notes
$ 498
498
1.950% Senior Notes
1,099
1,099
3.300% Senior Notes
$ 1,595 1,595
4.200% Senior Notes
1,099 1,099
Total fixed rate debt
$ – $1,107 $1,290 $1,297 $1,597 $2,694 $7,985
Variable rate debt
1,377
62 314
– 195
– 1,948
Total
$1,377 $1,169 $1,604 $1,297 $1,792 $2,694 $9,933
The fair market value of the outstanding fixed rate debt was approximately $8.4 billion as of December 31, 2011. The
weighted average interest rate on the variable rate debt as of December 31, 2011 was approximately 2.80%.
Schlumberger does not enter into derivatives for speculative purposes.
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