Schlumberger’s net debt to EBITDA
Schlumberger’s (SLB) net debt to TTM (trailing-12-month) EBITDA (earnings before interest, tax, depreciation, and amortization) shot up from 4Q14 until 4Q15. In 4Q15, Schlumberger’s net-debt-to-EBITDA multiple was 0.84, or 71% higher than one year ago.
Net-debt-to-EBITDA reflects how easily a company can repay its debts from its operational earnings and available cash. Schlumberger’s peer Oceaneering International’s (OII) net debt, by the end of 4Q15, was $410 million, compared to SLB’s $5.96 billion. SLB makes up about 7.8% of the Vanguard Energy ETF (VDE).
From 1Q13 until 4Q14, SLB’s total debt increased 20%, while its cash and marketable securities increased by 35%. SLB’s net debt, in effect, increased by 5%. TTM EBITDA increased by 10.5% during the same period. In effect, then, the company’s net-debt-to-EBITDA multiple decreased over this period.
Since then, the multiple has increased steadily. Total debt increased by 42% from 4Q14 until 4Q15. However, cash and marketable securities increased significantly during this period, offsetting total debt’s increase. So in effect, SLB’s net debt increased marginally. SLB’s TTM EBITDA decreased by 40% during the same period while its net-debt-to-EBITDA ratio increased to ~0.8x—significantly higher than the 0.5x ratio we saw at the end of 4Q14.
Schlumberger has issued debt to finance Cameron merger
During 4Q15, SLB issued about $6 billion debt. The proceeds from the debt will be used to fund 137 million shares of SLB common stock that will be paid to the Cameron International (CAM) shareholders, once the merger transaction completes. Schlumberger’s pre-tax interest expense is expected to increase ~$40 million, or 11%, in 1Q16 over 4Q15. If the merger is terminated, the debt raised for the merger will become subject to special redemption.