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Why Is Schlumberger’s Indebtedness Rising?

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Schlumberger’s net debt-to-EBITDA

Schlumberger’s (SLB) net debt-to-TTM (trailing 12-month) EBITDA (earnings before interest, tax, depreciation, and amortization) increased from fiscal 1Q15 through fiscal 1Q16. In fiscal 1Q16, Schlumberger’s net debt-to-EBITDA multiple more than doubled compared to a 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 Internationals (OII) had a net debt of $430 million at the end of fiscal 1Q16, compared to SLB’s $7.1 billion. SLB makes up 20.9% of the iShares US Oil Equipment & Services ETF (IEZ).

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Schlumberger’s indebtedness

From fiscal 1Q13 until fiscal 4Q14, SLB’s total debt increased 20%. Its cash and marketable securities increased 35%. SLB’s net debt thus increased 5%. TTM EBITDA increased 10.5% during the same period, and its net debt-to-EBITDA multiple decreased over the period.

Since then, the multiple has increased steadily. SLB’s long-term debt increased 63% from fiscal 4Q14 to fiscal 1Q16. Although cash and marketable securities increased significantly during this period, it couldn’t offset the increase of the company’s total debt. Net debt increased 21%, and TTM EBITDA decreased 46% during that period. Its net debt-to-EBITDA ratio increased to 1.1x, which was significantly higher than 0.5x at the end of fiscal 4Q14.

Schlumberger’s additional debt load after the Cameron merger

With the Cameron International acquisition, SLB raised its debt $2.8 billion. In April, Schlumberger repurchased approximately $1.2 billion of this debt. Schlumberger’s pre-tax quarterly net interest cost is expected to increase by ~$13 million beginning in fiscal 2Q16.

Next, we’ll look at Schlumberger’s free cash flows.

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