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Rating Action:

Moody's reviews Schlumberger's A1 rating for downgrade

01 Apr 2020

Schlumberger Holdings' Baa1 rating affirmed; negative outlook

New York, April 01, 2020 -- Moody's Investors Service ("Moody's") placed Schlumberger Ltd's (Schlumberger) A1 issuer rating and the A1 senior unsecured ratings of its guaranteed subsidiaries under review for downgrade. Moody's affirmed Schlumberger's Prime-1 short term rating. Moody's also affirmed Schlumberger Holding Corporation's (SHC) Baa1 issuer rating and senior unsecured ratings, and its Prime-2 short term rating. SHC's outlook was changed to negative from stable.

"The review of Schlumberger's ratings reflects the large negative effect of capital spending cuts by its oil and gas producing clientele on the company's revenues and cash flow," commented Pete Speer, Moody's Senior Vice President. "Our ratings review will consider the steps that the company can take to mitigate the effects on its credit profile and its prospects for free cash flow generation and debt reduction to enhance its resilience in an uncertain recovery."

RATINGS RATIONALE

The large cuts in capital spending announced by many of the major international oil companies and independent exploration and production companies in response to the collapse of oil prices will reduce Schlumberger's revenues and cash flow in 2020 with an uncertain pace of recovery in 2021. In addition, Schlumberger's financial leverage metrics were already weakly positioned for its A1 rating entering this downturn and the company's through the cycle earnings power may be lower than Moody's prior expectations, and therefore the ratings are being reviewed for downgrade.

Moody's ratings review will focus on the potential magnitude of the declines in the company's earnings, factoring in potential areas internationally where the company could benefit from increased capital investment by national oil companies. Moody's will also evaluate management's plans for cuts in operating expenses and capital investment to assess Schlumberger's ability to generate free cash flow for debt reduction. Based on our initial assessment, Moody's believes that a potential downgrade would likely be limited to one notch, and therefore the company's P-1 rating was affirmed.

The negative outlook for SHC reflects the challenges to its earnings and cash flow given its focus in the United States. However, SHC has substantially reduced debt in recent years which has improved its resilience entering this downturn and as a result its Baa1 rating was affirmed.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The oilfield services (OFS) sector will be one of the sectors most significantly affected by the shock given its sensitivity to demand and oil prices. Schlumberger and SHC will remain vulnerable to the outbreak continuing to spread and oil prices remaining weak. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Schlumberger's and SHC's credit quality, the breadth and severity of the oil demand and supply shocks, and the broad deterioration in credit quality it has triggered.

SHC is a wholly owned but unguaranteed subsidiary of Schlumberger. The Baa1 ratings of SHC and its guaranteed subsidiary, Cameron International, reflect its stand-alone credit profile of Baa3 with two notches of 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. While SHC's focus in the United States will result in a significant drop in its earnings and cash flow in 2020, the company has benefited from multiple years of debt reduction largely funded by its parent company. This should allow SHC to maintain its stand-alone credit profile while Schlumberger's support remains strong despite the potential lowering of its rating by one notch.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

SHC's ratings could be downgraded if its earnings deteriorate more than anticipated leading to higher financial leverage metrics and less free cash flow generation and continued debt reduction. If Schlumberger's ratings were to fall below A2 then SHC's ratings could be downgraded. An upgrade of SHC is unlikely in 2020 given the weak fundamental business conditions it faces and the potential downgrade of its parent company. SHC's stand-alone credit profile would have to greatly improve through debt reduction and EBITDA growth for a rating upgrade to be considered.

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.

On Review for Downgrade:

..Issuer: Schlumberger Finance B.V.

....Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)A1

....Senior Unsecured Notes, Placed on Review for Downgrade, currently A1

..Issuer: Schlumberger Finance Canada Ltd.

....Senior Unsecured Notes, Placed on Review for Downgrade, currently A1

..Issuer: Schlumberger Finance France SAS

....Senior Unsecured Notes, Placed on Review for Downgrade, currently A1

..Issuer: Schlumberger Investment SA

....Senior Unsecured Notes, Placed on Review for Downgrade, currently A1

..Issuer: Schlumberger Ltd

.... Issuer Rating, Placed on Review for Downgrade, currently A1

..Issuer: Schlumberger Oilfield UK, plc

....Senior Unsecured Notes, Placed on Review for Downgrade, currently A1

Outlook Actions:

..Issuer: Cameron International Corporation

....Outlook, Changed To Negative From Stable

..Issuer: Schlumberger Finance B.V.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Schlumberger Finance Canada Ltd.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Schlumberger Finance France SAS

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Schlumberger Holdings Corporation

....Outlook, Changed To Negative From Stable

..Issuer: Schlumberger Investment SA

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Schlumberger Ltd

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Schlumberger Norge AS

....Outlook, Remains Stable

..Issuer: Schlumberger Oilfield UK, plc

....Outlook, Changed To Rating Under Review From Stable

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)P-1

..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

..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

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 subsidiary of SLB, and contains SLB's US operations.

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 debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings 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 to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. 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 agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569

At least one ESG consideration was material to the credit rating outcome announced and described above.

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.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com 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.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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