Commodity Price Risk
Schlumberger is exposed to the impact of market fluctuations in the price 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. The objective of these contracts is to reduce the variability of cash flows associated with
the forecasted purchase of those commodities. These contracts do not qualify for hedge accounting treatment and
therefore, changes in the fair value of the forward contracts are recorded directly to earnings.
The notional amount of outstanding commodity forward contracts was $43 million at December 31, 2012.
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, from time to time, interest rate swaps to mitigate the exposure to changes in interest rates.
During 2009, Schlumberger entered into an interest rate swap 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
.
At December 31, 2012, Schlumberger had fixed rate debt aggregating approximately $9.6 billion and variable rate
debt aggregating approximately $2.0 billion, after taking into account the effect of the interest rate swap.
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,
2012
Dec. 31,
2011
Derivative designated as hedges:
Foreign exchange contracts
$ 26
$ 2
Other current assets
Foreign exchange contracts
22
4
Other Assets
Interest rate swaps
–
9
Other Assets
Interest rate swaps
2
–
Other current assets
50
15
Derivative not designated as hedges:
Foreign exchange contracts
10
8
Other current assets
Foreign exchange contracts
6
9
Other Assets
16
17
$ 66
$ 32
Derivative Liabilities
Derivative designated as hedges:
Foreign exchange contracts
$ 80
$ 47
Accounts payable and accrued liabilities
Foreign exchange contracts
19
130
Other Liabilities
99
177
Derivative not designated as hedges:
Commodity contracts
–
3
Accounts payable and accrued liabilities
Foreign exchange contracts
3
9
Accounts payable and accrued liabilities
3
12
$102
$189
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.
50
