Schlumberger Holdings Corporation also affirmed at Baa1; outlook stable
New York, March 25, 2021 -- Moody's Investors Service, ("Moody's") changed
the outlook of Schlumberger Ltd (Schlumberger) to stable from negative.
Concurrently, Moody's affirmed Schlumberger's A2 issuer
rating, the A2 senior unsecured ratings of its guaranteed subsidiaries,
and its Prime-1 short term rating. Moody's concurrently
revised the outlook of Schlumberger Holding Corporation (SHC) to stable
from negative and affirmed its Baa1 issuer rating, Baa1 senior unsecured
ratings, and its Prime-2 short term rating.
"Schlumberger should generate substantial free cash flow in 2021 and 2022
thanks to realizing a full year's benefit of its large dividend
cut and lower costs, combined with continued capital discipline,"
said Pete Speer, Moody's Senior Vice President. "While we
expect the pace of earnings recovery to be slow, the visibility
to free cash flow generation and management's commitment to debt
reduction should enable Schlumberger to strengthen its credit metrics
and support its A2 rating."
RATINGS RATIONALE
The affirmation of Schlumberger's A2 rating and change of the outlook
to stable reflects Moody's expectations of improving financial performance,
substantial free cash flow generation and debt reduction, leading
to declining financial leverage in 2021 and 2022. An extraordinarily
difficult 2020 resulted in negative free cash flow despite the company's
large dividend cut that took effect in the second half of the year,
operating cost and capital spending reductions. This combined with
the prioritization of liquidity resulted in a meaningful increase in both
gross and to a lesser extent net debt, and a corresponding deterioration
in credit metrics. In 2021 and 2022, Schlumberger's
free cash flow should rise substantially by virtue of a full year's
benefit from its 2020 dividend cut (an additional $1 billion in
2021), reduced cash severance payments ($843 million in 2020)
and modest rises in EBITDA.
Management is committed to allocating free cash flow to gross debt reduction,
which should enable Schlumberger's Debt/EBITDA to trend towards
2.5x in 2022 with net Debt/EBITDA similarly trending towards 2x.
Asset sales could also assist in debt reduction. Important for
its A2 rating, Moody's expects debt reduction to remain a
priority over the medium term to enhance the company's resilience
to future earnings volatility and better align Schlumberger's debt
levels with its through the cycle earnings power.
Schlumberger's A2 rating remains the highest among its large oilfield
services (OFS) and drilling company peers, reflecting the diversification
and global breadth of its operations. The company's market position
is first or second in most of its products and services, and it
operates in substantially all of the major hydrocarbon basins around the
world. Schlumberger's greatly reduced dividend payout should restore
its ability to generate consistent free cash flow through cycles and maintain
large cash and short-term investment balances as an offset to its
debt balances, enhancing its ability to withstand oilfield services
cyclicality while continuing to fund necessary capital and R&D investments
that sustain and enhance its competitiveness.
SHC is a wholly owned but unguaranteed subsidiary of Schlumberger.
The Baa1 ratings of SHC and its guaranteed subsidiary, Cameron International
Corporation, reflect its weaker stand-alone credit profile
with substantial rating uplift based upon its strategic importance to
Schlumberger. SHC owns much of Schlumberger's intellectual property
and is integral to its global business from a research, manufacturing
and technology perspective. SHC's reported debt levels were cut
in half from year-end 2017 to 2019, primarily through cash
provided by its parent. Moody's expects debt reduction to
resume at SHC in 2021 and 2022, commensurate with the pace of debt
reduction for Schlumberger as a whole.
Schlumberger has excellent liquidity, underpinned by sizeable cash
and short-term investments and committed multi-currency
bank credit facilities, and forecasted free cash flow generation
in 2021 and 2022. The credit facilities backstop its commercial
paper (CP) programs, supporting the company's Prime-1 rating.
At December 31, 2020, Schlumberger had $3.0
billion of cash and short-term investments and around $5.9
billion of borrowing availability under its credit facilities, factoring
in the $400 million of commercial paper outstanding. The
company's free cash flow generation and ample liquidity position the company
to manage its debt maturities of $660 million in 2021, $1.9
billion in 2022 and $1.9 billion in 2023. SHC has
its own committed credit facilities to support its CP program and Prime-2
rating, which is included in the amounts discussed for Schlumberger,
and SHC also benefits from timely support that can be provided by its
parent company.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's forecasts that Schlumberger's Debt/EBITDA will decline towards
2.5x and net Debt/EBITDA will decline towards 2x in 2022 through
substantial debt reduction and modest increases in EBITDA. Schlumberger's
ratings could be downgraded if the company does not prioritize debt reduction
over the medium term such that it can comfortably sustain Debt/EBITDA
below 2.5x and net Debt/EBITDA at or below 2.0x.
In order to be upgraded the company would have to reduce Debt/EBITDA below
1.5x and net Debt/EBITDA below 1x.
SHC's ratings could be downgraded if anticipated debt reduction is not
achieved or if the company does not generate consistent free cash flow.
If Schlumberger's ratings were downgraded, then SHC's ratings could
be downgraded. If Schlumberger's ratings were upgraded and
SHC's stand-alone credit profile were to substantially improve
then SHC's ratings could be upgraded.
Schlumberger is the world's largest diversified oilfield services company,
providing services and technologies across the full range of the drilling
life cycle from geophysical and seismic to exploration and development
to well workover and abandonment. SHC was formed in 2011 as a wholly-owned
unguaranteed subsidiary of Schlumberger, and contains Schlumberger's
US operations.
The principal methodology used in these ratings was Global Oilfield Services
Industry Rating Methodology published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062654.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Affirmations:
..Issuer: Cameron International Corporation
....Senior Unsecured Notes, Affirmed
Baa1
..Issuer: Schlumberger Finance B.V.
....Senior Unsecured Commercial Paper,
Affirmed P-1
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A2
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)P-1
....Senior Unsecured Notes, Affirmed
A2
..Issuer: Schlumberger Finance Canada Ltd.
....Senior Unsecured Notes, Affirmed
A2
....Senior Unsecured Shelf, Affirmed
(P)A2
..Issuer: Schlumberger Finance France SAS
....Senior Unsecured Notes, Affirmed
A2
..Issuer: Schlumberger Holdings Corporation
.... Issuer Rating, Affirmed Baa1
....Commercial Paper, Affirmed P-2
....Senior Unsecured Notes, Affirmed
Baa1
..Issuer: Schlumberger Investment SA
....Commercial Paper, Affirmed P-1
....Senior Unsecured Notes, Affirmed
A2
....Senior Unsecured Shelf , Affirmed
(P)A2
..Issuer: Schlumberger Ltd
.... Issuer Rating, Affirmed A2
..Issuer: Schlumberger Norge AS
....Commercial Paper, Affirmed P-1
..Issuer: Schlumberger Plc
....Commercial Paper, Affirmed P-1
..Issuer: Schlumberger S.A.
....Commercial Paper, Affirmed P-1
Outlook Actions:
..Issuer: Cameron International Corporation
....Outlook, Changed To Stable From
Negative
..Issuer: Schlumberger Finance B.V.
....Outlook, Changed To Stable From
Negative
..Issuer: Schlumberger Finance Canada Ltd.
....Outlook, Changed To Stable From
Negative
..Issuer: Schlumberger Finance France SAS
....Outlook, Changed To Stable From
Negative
..Issuer: Schlumberger Holdings Corporation
....Outlook, Changed To Stable From
Negative
..Issuer: Schlumberger Investment SA
....Outlook, Changed To Stable From
Negative
..Issuer: Schlumberger Ltd
....Outlook, Changed To Stable From
Negative
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
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Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
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Regulatory disclosures contained in this press release apply to the credit
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The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
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Please see www.moodys.com for any updates on changes to
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for additional regulatory disclosures for each credit rating.
Peter Speer
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
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