Interest Rate Risk
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
Consolidated Statement of Income
.
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:
(Stated in millions)
Fair Value of
Derivatives
Consolidated Balance Sheet Classification
Derivative assets
Dec. 31,
2011
Dec. 31,
2010
Derivative designated as hedges:
Foreign exchange contracts
$2
$4
Other current assets
Foreign exchange contracts
4
37
Other Assets
Interest rate swaps
9
14
Other Assets
15
55
Derivative not designated as hedges:
Commodity contracts
–
3
Other current assets
Foreign exchange contracts
8
9
Other current assets
Foreign exchange contracts
9
9
Other Assets
17
21
$32
$76
Derivative Liabilities
Derivative designated as hedges:
Foreign exchange contracts
$47
$9
Accounts payable and accrued liabilities
Foreign exchange contracts
130
77
Other Liabilities
Interest rate swaps
–
7
Accounts payable and accrued liabilities
177
93
Derivative not designated as hedges:
Commodity contracts
3
–
Accounts payable and accrued liabilities
Foreign exchange contracts
9
14
Accounts payable and accrued liabilities
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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