(5)
Represents changes in the fair value of the portion of Schlumberger’s fixed rate debt that is hedged through the use
of interest rate swaps.
Schlumberger Limited fully and unconditionally guarantees the securities issued by certain of its subsidiaries,
including the securities by Schlumberger Investment SA, a 100% – owned finance subsidiary of Schlumberger.
At December 31, 2012, Schlumberger had separate committed debt facility agreements aggregating $4.1 billion with
commercial banks, of which $3.8 billion was available and unused. This included $3.5 billion of committed facilities
which support commercial paper programs in the United States and Europe, of which $0.5 billion mature in December
2013 and $3.0 billion mature in July 2016. Interest rates and other terms of borrowing under these lines of credit vary
from country to country. There were no borrowings under the commercial paper programs at December 31, 2012. At
December 31, 2011, Schlumberger had $0.9 billion of outstanding commercial paper borrowings, which were classified
within
Long-term debt – current portion
in the
Consolidated Balance Sheet
.
Commercial paper borrowings outstanding at December 31, 2011 included certain notes issued in currencies other
than the US dollar which were swapped for US dollars and pounds sterling on the date of issue until maturity.
Commercial paper borrowings are classified as long-term debt to the extent of their backup by available and unused
committed credit facilities maturing in more than one year and to the extent it is Schlumberger’s intent to maintain
these obligations for longer than one year.
The weighted average interest rate on variable rate debt as of December 31, 2012 was 3.6%.
Long-term Debt
as of December 31, 2012, is due as follows: $1.657 billion in 2014, $1.318 billion in 2015, $1.843
billion in 2016, $0.999 billion in 2017, $2.694 billion in 2021 and $0.998 billion in 2022.
The fair value of Schlumberger’s
Long-term Debt
at December 31, 2012 and December 31, 2011 was $9.9 billion and
$8.9 billion, respectively, and was estimated based on quoted market prices.
11. Derivative Instruments and Hedging Activities
Schlumberger is exposed to market risks related to fluctuations in foreign currency exchange rates, commodity
prices and interest rates. To mitigate these risks, Schlumberger utilizes derivative instruments. Schlumberger does not
enter into derivatives for speculative purposes.
Foreign Currency Exchange Rate Risk
As a multinational company, Schlumberger conducts its 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 2012 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
(strengthens) in relation to the foreign currencies of the countries in which Schlumberger conducts business, the US
dollar – reported expenses will increase (decrease).
Schlumberger is exposed to risks on future cash flows to the extent that local currency expenses exceed revenues
denominated in local currency that are other than the functional currency. Schlumberger uses foreign currency
forward contracts and foreign currency options to provide a hedge against a portion of these cash flow risks. These
contracts are accounted for as cash flow hedges, with the effective portion of changes in the fair value of the hedge
recorded on the
Consolidated Balance Sheet
and in
Accumulated other comprehensive loss.
Amounts recorded in
Accumulated other comprehensive loss
are reclassified into earnings in the same period or periods that the hedged
item is recognized in earnings. The ineffective portion of changes in the fair value of hedging instruments, if any, is
recorded directly to earnings.
At December 31, 2012, Schlumberger recognized a cumulative net $30 million gain in
Accumulated other
comprehensive loss
relating to revaluation of foreign currency forward contracts and foreign currency options designated
as cash flow hedges, the majority of which is expected to be reclassified into earnings within the next twelve months.
Schlumberger is also exposed to changes in the fair value of assets and liabilities, including certain of its long-term
debt, which are denominated in currencies other than the functional currency. Schlumberger uses foreign currency
forward contracts and foreign currency options to hedge this exposure for certain currencies. The fair value of these
contracts are recorded on the Consolidated Balance Sheet and changes in the fair value recognized in the Consolidated
Statement of Income along with the change in fair value of the hedged item.
At December 31, 2012, contracts were outstanding for the US dollar equivalent of $7.5 billion in various foreign
currencies, of which $3.9 billion relate to hedges of debt denominated in currencies other than the functional currency.
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