Important disclosures appear on the last page of this report.

Krause Fund Research Spring 2018 Energy Recommendation: SELL Analysts: Matthew Mauser matthew-mauser@uiowa.edu

Ryan Schmidt Ryan-schmidt-1@uiowa.edu

Ian Taylor ian-taylor@uiowa.edu

Company Overview Schlumberger Limited (SLB) is the world’s leading provider of technology in the oilfield services industry within the energy sector. The company operates in each of the main markets of the industry through their four main business segments: Reservoir Characterization, Drilling, Production, and Cameron. Schlumberger prioritizes providing the best services to customers by being a global driver in technological innovation. For the fiscal year ended December 31, 2017, total revenue recovered from its slump and rose 9.46% to $30.4 billion. Stock Performance Highlights 52 week High $80.89 52 week Low $61.02 Beta Value 1.078 Average Daily Volume 8.81 m Share Highlights Market Capitalization $86.04 b Shares Outstanding 1.38 b Book Value per share $26.92 EPS (2017) $(1.08) P/E Ratio N/A Dividend Yield 3.22% Dividend Payout Ratio (64.18)% Company Performance Highlights ROA (2.09)% ROE (4.04)% ROIC (3.95)% Sales $30.44 b Financial Ratios Current Ratio 1.21 Debt to Equity 0.48

Schlumberger Ltd. (NYSE: SLB)

April 15, 2018

Current Price $67.22 Target Price $60-65

Schlumberger: High Growth, High Leverage & Poor Efficiency

• High domestic growth potential: We expect Schlumberger to benefit greatly from the projected 15-20% increase in E&P spending by clients in the U.S. We expect revenue to grow at 9.65% in 2018, 11.75% in 2019 and 12.50% in years 2020-2022 as Schlumberger services more U.S. companies. • Significant debt levels: We expect Schlumberger to continue to issue debt to finance $2.77 billion in dividend payments through fiscal year 2020 when EPS finally reaches $2.53 and can fully cover the $2.00 dividend. We expect maturing debt levels to increase on a year-over-year basis to $4.3 billion in 2021 to reflect refinanced debt of $7.398 billion due in 2018. In 2022, we expect interest rates to be 3.4% resulting in higher interest payments, as well as Schlumberger’s debt/equity ratio to be 0.44. • Organic growth limitations: We expect capital expenditures to be $2.19 billion in years 2018 & 2019, and to be $3.31 billion in years 2020-2022. This reflects Schlumberger’s inability to grow organically until debt obligations are honored. • Lackluster efficiency: In 2022, we expect sales to be $53.48 billion, EBITA to be $6.826 billion and net PP&E to be $11.135 billion. We expect Schlumberger to continue to be an industry leader in both sales and PP&E volume, but to stay near the industry average of EBITA relative to their peers with significantly less sales. One Year Stock Performance

Source: Factset15

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As of April 15, 2018 our University of Iowa Krause Fund analyst team is issuing a SELL rating for Schlumberger Limited. There are many factors that we considered when determining the target price. Those factors are explained in detail within the report. One key factor that drove our valuation was Schlumberger’s ability to shift operations domestically, away from foreign operations, to service exploration & production companies in the United States with more opportunity for growth. Schlumberger has significantly greater sales and machinery & equipment than competitors, but similar EBITDA levels; showing that they are less operationally efficient. Schlumberger has borrowed a significant amount in order to maintain their dividend, resulting in large portions of debt coming due in the near future. With an economic outlook on increased oil demand, United States production growth, and increased interest rates, Schlumberger is well positioned to increase sales but will continue to struggle to meet debt obligations and compete with competitors that are more efficient. Interest Rates Interest rates are an important economic variable to monitor as it drives a firms cost of debt. The 30-Treasury Yield (3.02%) was used as the risk free rate to calculate cost of debt given the long-term valuation timeline. Rising rates lead to increased borrowing costs, as investors require a certain rate of return over the risk free rate. We expect the rate to reach 3.4% by 2022 stimulated by the recent hikes in the federal funds rate, and the fast growing economy. The Energy Equipment and Services industry is often highly leveraged in order to keep up with growing production. Firms with low cost of debt, good capital structure, and ability to pay back lenders have a significant advantage. World Real Gross Domestic Product Real Gross Domestic Product (GDP) is a macroeconomic measurement that represents the total monetary value of all goods and services produced within an economy in a given time period after adjusting for the effects of inflation. Real GDP growth is a key determinant of demand for oil and energy resources, as economic expansion results in increased demand for goods and services from industries in which oil is an important input, such as manufacturing and transportation. The following chart displays the strong association between the total world consumption of liquid

fuels, world GDP, and West Texas Intermediate (WTI) crude oil prices. Figure 1.

Source: EIA16

In general, energy companies stand to benefit from real GDP growth, as the resulting increase in demand for energy resources causes the price of oil to rise, driving top-line growth. We project global GDP growth to grow at 3.8% in 2022, because central banks are expected to gradually remove their post-crisis accommodation and the upturn in world investment growth. Domestic Growth Outlook In 2017, US real GDP grew at a rate of 2.3%, a significant increase from the 1.5% increase observed in 201620. This growth can be attributed to increases in personal consumption expenditures, as well as residential and nonresidential fixed investment. Figure 2.

Source: Federal Reserve Economic Data 17

In the next year, we predict US real GDP growth to increase around 50 basis points and reach 2.8%, marking another year of significant improvement. The tax reform enacted in the Tax Cuts and Jobs Act of 2017 will boost corporate profits and therefore business investment. In addition, rising personal income and consumer confidence,

Executive Summary

Macroeconomic Outlook

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combined with decreasing unemployment encourages consumption that drives economic expansion. Over the following 2-3 years, we expect US real GDP to slow from its rapid expansion and decline to around 2.1% as investor euphoria from the recent bull market will wear off. Additionally, the Federal Reserve has indicated that they plan to incrementally raise interest rates over this time period in an effort to slow economic growth and maintain a Goldilocks state in the economy18. The following chart displays the future interest rate projections of the Fed officials. Figure 3.

Source: Federal Open Market Committee 18

In the long-run we expect US real GDP growth to stabilize at a CV of approximately 2.6%. International Growth Outlook We consider China, India, and the Euro area to be the main drivers of foreign demand for energy resources. The following chart supports this assumption, displaying petroleum oil consumption by country. Figure 4.

Source: EIA 16

The International Monetary Fund provides estimates of real GDP growth for these countries over 2018, 2019, and 2020. In this period, China is forecasted to realize growth of 6.5%, 6.3%, and 6.2%, respectively. Over the same period, India is expected to realize growth of 7.4%, 7.8%, and 7.8%, respectively. The Euro area has projected growth of 1.9%, 1.7%, and 1.6%, respectively19.

Figure 5.

Source: IMF 19

These higher growth rates will be a significant driver of total world energy demand and consumption in the future. Oil Demand Firms in the energy equipment and services industry grow with increased demand for their services. Increased demand comes from increased production of energy commodities. We expect demand for energy equipment and services to increase with the growth in production. Growth in oil production is generally slow as nations become more developed. However, countries like the United States, Russia, and Saudi Arabia have seen a significant increase in in daily oil output since 1985 shown in Figure 6. After running a regression of global GDP percentage increases versus percentage increases in oil demand. We found that a 1% increase in global GDP growth results in a 0.48% increase in oil demand. Current global oil demand levels are 98.96 MMBOE/day, and based on our calculations and GDP growth forecasts we project this level to be 108.12 MMBOE/day by 2022. Figure 6.

Source: EIA13

The increase in output provides more demand for energy equipment and services, specifically in the United States. Due to the increased production in the United States, we

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project Schlumberger’s U.S operations to increase 20% annually through 2022 where it will make up half of all operations. Schlumberger’s sales increase can be attributable to this growth. Industry Overview Schlumberger operates in the energy equipment and services industry. Firms in this industry do not own oil reserves themselves but rather assist in the exploration, drilling, and production of wells. Some products in this industry include drilling equipment, seismic imaging, engineering and construction services, and helicopters and boats for any offshore drilling. Firms gain competitive advantages by offering superior services as well as ownership of advanced patented technology. Industry Life Cycle The energy equipment and services industry is currently in the mature stage of the industry life cycle. This is evident when considering the correlation between industry growth and growth of the general economy. The demand for oilfield services has reached a steady state, and much of the observed changes are simply due to overall economic growth in areas that demand oil. Additionally, the competitive dynamic is that the industry is increasingly becoming more concentrated among the large operators. This encourages growth through M&A to attempt to gain market share. New Initiatives, Developments & Trends The emergence of horizontal drilling and hydraulic fracturing has been a hit within the upstream oil and gas exploration industry. Allowing exploration companies to increase production and thus sustain demand for the service industry over the next five years. There have been recent industry initiatives concerning the environmental impact of unconventional oil & gas extraction methods1. This is not expected to hurt the industry because of strong production growth. Large companies will continue to dominate the market share within the industry, encouraging companies to increase M&A activity. In 2017 Halliburton Company had a failed acquisition attempt of Baker Hughes Inc., while General Electric Co. was able to successfully acquire Baker Hughes Inc1. The top four competitors within the industry account for 26% of the industry, showing that 74% of the industry is made up of smaller operators1. Smaller companies are expected to struggle winning large-scale contracts when competing against dominant competitors, Schlumberger Limited and

Halliburton Company, thus encouraging M&A activity. 76% operators in the industry employ fewer than 20 people, and 95% of operators employ fewer than 100 people; although the largest competitors of Schlumberger Limited and Halliburton Company have 100,000 and 55,000 employees, respectively1. That fact, in addition to the overall size of the largest competitors, shows why those two companies hold the largest two market shares. In an industry with demand for high value-added services and specialized skills needed from the employment pool, over the next five years industry wage expenses are expected to grow at 2.3% annually1. Another trend within the industry is that these equipment & service companies are beginning to service more companies operating in North America than globally. Due to the fact that production in the United States is at an all-time high and there are new rich oil discoveries in the North American region. Industry Leaders & Followers Leaders in the energy equipment and services industry are large companies with high market capitalization. These firms have huge operations and the ability to acquire a large client base. Figure 7 shows the largest energy equipment and services firms based on market cap. Figure 7.

Source: Net Advantage 3

Schlumberger is an industry leader as their market capitalization is twice as large as their next biggest competitor. Firms like Schlumberger and Halliburton dominate market share and account for 57% of all energy equipment & services revenue. Industry followers fail to grow significant market share and struggle offering superior services. Porter’s 5 Forces Analysis Threat of New Entrants: Low The energy equipment & services industry requires a large amount of capital to operate. New players must take out large amounts of debt to finance their operations and often

Industry Analysis

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times cannot repay their debts in times of decreasing sales. High default rates for new firms makes new competition an insignificant threat. Bargaining Power of the Suppliers: Low Suppliers of raw materials have little impact on firms in the energy equipment and services industry. Higher costs could hurt smaller firms however large firms rely on patented technology for revenue and therefore less effected by an increase in raw materials cost. Bargaining Power of the Consumer: High Customers of energy equipment and services firm have a large influence. Overall production levels determine sales of these service firms. In times of low oil prices, E&P firms decrease operations because there is no incentive to increase production. Equipment and service industry struggle in low price environments as customers can’t afford their services. Companies must decrease the cost for their services or lose market share. Threat of Substitutes: Moderate As energy is a necessity so is the demand for the energy equipment and services industry. These services will always be needed in order to extract the earths natural resources. Threats of substitutes include new technology that renders an old service useless. Firms have high research and development costs in order to keep technological superiority. Competitive Rivalry: Moderate Firms compete against one another for clients and market share. Customers choose firms based on the best services and price available. Companies with patents on exclusive technology dominate the market. Schlumberger’s total market share is 11.55% making them an industry leader. Financial Summary & Earnings Analysis Rallying from their recent slump, Schlumberger reported 2017 revenues of $30.4 billion. This figure represents a 9.5% increase from 2016, but is still down 14.2% from 2015. This data represents a full year of operation from the Cameron group, as opposed to only three quarters in 2016 after its acquisition2. Revenues from the Reservoir Characterization and Production groups increased 2%

and 21%, respectively. These increases are because of increased land activity in North America, which as a region saw a 42% jump in revenue to $9.5 billion. Revenue attributable to the Drilling group declined 2% on the year. This was caused by a decline in international rig count as well as activity reduction in Venezuela, where Latin American operations contribute 13% of total revenue. The Cameron group contributed revenues of $5.2 billion in its first full year of operations2. Schlumberger saw a decline in current assets from 2016 of 22.7% to $18.5 billion. In terms of liquidity, the company currently reports net debt of $13.1 billion. This figure includes a 48% decrease in short-term investment holdings over the year to $3.3 billion, as well as a long-term debt balance of $14.9 billion. This is a decrease of 9.6% from the 2016 balance. The debt structure of these long-term liabilities is somewhat concerning, as $10.6 billion of the balance is due within the next four years. Additionally, Schlumberger will incur purchase obligations of $3.3 billion in 2018, a number which heavily decreases in the years following. The amount of all debt liabilities to be paid in 2018 is $7.4 billion2. Schlumberger’s 2017 operating cash flow available to service this debt was $5.7 billion, and we expect this number to decrease to $4.2 billion in 2018. This raises concerns over whether Schlumberger will be able to sustain its current borrowing level without having to refinance, which is becoming increasingly risky in a rising interest rate environment. Overall, Schlumberger reported a net loss of $1.5 billion for 2017, and a diluted EPS of ($1.08), which is an increase from ($1.24) in 2016, but still a steep decline from $1.63 in 2015. Excluding charges and credits, the diluted EPS for 2017 came out to $1.50, which was above consensus estimates of $1.4114. Despite healthy revenue growth, the net loss can be attributed to high costs of service, sales, and asset impairment. Management guidance indicates a positive outlook for 2018, based on continuing improvement in North American operations attributable the observed 80% increase in rig count over 2017, an increase in financing availability from investor confidence, and a projected 15-20% increase in third-party E&P spending2.

Company Analysis

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Products, Markets & Customers There are four major product lines within Schlumberger. The first product group is the Reservoir Characterization group. This group consists of technologies that are used to find and refine hydrocarbon resources, and what drives growth for this group is exploration and discretionary spending of clients1. The second group is the Drilling group that consists of the technologies that drill and position the oil & gas wells, and what drives this group is the drilling rig counts both in North America and internationally; factors that hurt this group are when clients have low production margins1. The third group is the Production group that is composed of technologies dealing with the lifetime production of oil & gas reservoirs; the group offers pressure pumping technologies that are driven by production in North America1. The fourth group is the Cameron group that consists of technologies dealing with pressure and flow control for drilling, intervention rigs, oil & gas wells and production facilities; the driving force of growth for this group is not total production, but drilling activity per day1. We believe that the drivers of these groups are interconnected, either directly correlating with exploration activity or drilling activity. Competition The key differentiators within the oil field equipment & service industry are price differentiation, technological innovation and quality of service to customers; with each method varying depending on geography. Schlumberger has many competitors both large and small, but the following are their most direct competitors with regards to both size and product. Figure 8.

Source: Net Advantage 3

• Halliburton Company (HAL): Provides services

and products to the upstream oil and gas industry worldwide. Composed of two main sectors. The first is their completion and production segment, and the second is their drilling and evaluation segment4.

• TechnipFMC plc (FTI): Provides technology, production systems, services and solutions for worldwide oil and gas industry. Operating with three main segments: subsea, onshore/offshore and surface technologies for exploration5.

• National Oilwell Varco (NOV): Designs, manufactures, and sells equipment and components used in oil and gas drilling, completion, and production operations6.

• Baker Hughes (BHGE): Offer integrated oilfield products, services, and digital solutions worldwide to upstream and midstream companies. Services include evaluation, drilling, production, completion and storage7.

Figure 9.

Source: Net Advantage 4-7

Figure 10.

Source: Net Advantage 4-7

We believe that the chart and graphic shown above represent the most important basic metrics to consider for Schlumberger and their peers. As shown, Schlumberger is able to generate more sales than all of their peers, generating $30.4 billion in 2017 compared to the average industry sales of $17.5 billion. Although Schlumberger EBITDA is roughly $1.2 billion more than the industry average, it is $200 million less than Halliburton EBITDA, who only generates $20.6 billion in sales. Schlumberger also falls behind with their ROA and ROE compared to competitors, showing significantly negative values in both categories at -2.09% and -4.04% respectively. Regarding total debt within the company Schlumberger has $17,738 million, more than double the industry average. Schlumberger does not have the highest debt/EBITDA

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ratio among competitors, but their ratio is currently higher than the industry average. Figure 11.

Source: SLB2, Net Advantage 4-7

Schlumberger has the largest amount of debt due in the next fiscal year among competitors, roughly $2.5 billion more than the next highest. They also have the second highest Debt due/EBITDA ratio compared to competitors. We believe that this is very important among the industry due to the fact that oil prices are volatile, and environments with decreasing oil prices can make it difficult to meet these debt obligations. This is not good for Schlumberger because we believe that oil prices will decrease over the next five years. Figure 12.

Source: SLB2, Net Advantage 4-7

Figure 13.

Source: SLB2, Net Advantage 4-7

The two graphs shown above reflect how well Schlumberger is able to efficiently operate relative to their peers, in addition to how much machinery & equipment each competitor has. Combining both service and production ratios, it is evident that Schlumberger has a revenue/expense ratio of 1.11x compared to the industry average of 1.175x. Showing that they are not as efficient as their competitors at reducing their costs relative to their sales. The amount of machinery & equipment that companies have in the equipment & service industry is important because it reflects both their ability to increase the amount of clients they can service and it shows how efficient they are at meeting their clientele needs. This graph shows that Schlumberger has more machinery & equipment than the average competitor in the industry, but when viewing this graph in addition to the sales/EBITDA metrics one can deduce that Schlumberger is inefficient in their operations. Comparing them directly to their largest competitor in the market, Halliburton Company, Schlumberger has more sales, less EBITDA and requires twice as much machinery to do the job. Figure 14.

Source: SLB 2, HAL8

Another metric to show this specific comparison is the cost of services in sales on a per employee bases between Schlumberger and Halliburton. Although Schlumberger has worse metrics on plenty of the variables mentioned above, given that Schlumberger has 100,000 employees and Halliburton has 55,000, it is clear that Schlumberger is able to have less wage expense per employee over $100,000. SWOT Analysis Strengths Technological Leader Schlumberger creates a sustainable competitive advantage by developing most serviceable technologies in the oilfield services industry. The company prioritizes research and engineering spending at an industry leading level of around 3% of revenues2. This allows Schlumberger to continue to attract customers on the prospect of increasing efficiency in oil extraction. Large Clientele Exposure No single customer contributes to more than 10% of Schlumberger’s revenues2. This means that should Schlumberger lose a client, or a client goes out of business,

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the impact on Schlumberger’s operations would not be detrimental. Weaknesses Dependence on Client Production Expenditures Schlumberger’s business model inherently exposes them to volatility in the oil production market, as the majority of their revenues are derived from client capital expenditure spending. Although short-term increases of 15-20% in client E&P spending are expected, Schlumberger could be in trouble should the energy sector’s performance begin to reverse course as less production projects get approval14. Opportunities Loosening Environmental Regulation The oilfield services industry is subject to government regulations at all levels of operation. In many cases, compliance with policy standards will increase production costs and decrease profitability. However, the Trump administration has indicated that they plan to decrease the US restrictions on the oil industry. This includes opening up more areas to drilling, such as in California and on the east coast, in addition to advancing the Keystone XL and Dakota Access Pipeline propositions22. This will encourage domestic production, increasing the demand for Schlumberger’s services from E&P clients. Threats Litigation Schlumberger is currently in a legal battle with competitor Haliburton over patent awards. Haliburton is claiming that a number of Schlumberger’s fracking-related patents are not new inventions, but simply “old ideas repackaged,” and is requesting that they be cancelled21. This fight opens Schlumberger up to legal costs, as well as the risk of ultimately losing these technological advancements should Haliburton win these cases. Using a discounted cash flow, economic profit model and relative valuation analyses, we concluded that Schlumberger have a SELL rating with an intrinsic stock price of $60-$65, that is below the current price of $67.22. To arrive at this price recommendation, we forecasted future cash flows through the continuing value period of 2022. We chose this forecast because Schlumberger is a mature company that is not expected to significantly change their business operations of strategy in the near future. We assume that Schlumberger will follow industry trends and begin to service more North American

operations where there are stronger growth opportunities. In fiscal year 2017, 31% of Schlumberger operations occurred in North America leaving 69% of operations in foreign nations. We expect that ratio to be 45% North America and 55% foreign in 2019, and then 50% North America and 50% foreign from 2020 through the continuing value period. We project capital expenditures for Schlumberger to increase as the service more companies in the North American region. Due to the fact that there is increased production and drilling activity, so therefore Schlumberger will need to supply companies with more services; our projections show capital expenditures increasing from $2.2 billion to $3.3 billion in 2020 when operations shift to 50% North American. The way that we calculated the CV growth rate of 3% for Schlumberger was by taking a weighted average of the expected GDP growth rates of the regions that Schlumberger is expected to service in the year 2022. Weighting Latin America, Europe, Africa, Middle East and Asia GDP growth by 50% and United States GDP growth by 50% to get an average growth rate of 3.03%. We assume the continuing value growth for Schlumberger to be 3.00% because Schlumberger will not grow at a faster rate than the world GDP of the regions that they service. Revenue Growth We forecasted revenue growth for Schlumberger in each of their four division—Reservoir Characterization, Drilling, Production and Cameron— to grow at 9.6% in 2018, 11.75% in 2019 and 12.5% in years 2020-2022. The way that we calculated each of those assumptions for growth was by assuming an average growth of 20% in North America and 5% in foreign regions, and then weighting both of those growth forecasts by the proportion of operations in North America and abroad. Growth in those regions listed in the previous section are consistent with both management projections and with other analyst estimates2. We believe these growth assumptions will be realized due to increased production in the United States due to shale drilling technologies as well as OPEC stating that they plan to decrease production in foreign countries, thus slowing down growth to 5%. Eliminations & other for Schlumberger accounts for the services and oil that cannot be used and they eliminate from their revenue number. This category had significantly decreased from 2015 to 2016, and from 2016 onward decreased 40.58%. This elimination activity has decreased up to 400% in the past, but the activity is volatile and follows no specific trends. Therefor, taking into account that the current levels are at an all time low, we decided to take a conservative position and decrease the activity by 2% per year into the continuing value period.

Valuation Analysis

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Cost of Goods Sold & Services Cost of goods sold is forecasted as a historical average of COGS to sales in the last three years. We chose this time horizon to most accurately depict the current operations of Schlumberger while also capturing enough years to grasp an accurate average. We believe this is accurate due to Schlumberger being a oil service company that will inherently have higher costs when they generate higher revenues from increased growth. Stock Repurchases Over the previous three years, Schlumberger has decreased their stock repurchases plan from $3.6 billion in 2015 to $1.6 billion in 2016 and then $499 million in 2017. Although they enacted a stock repurchase plan in 2015 to repurchase $10 billion over the previous four years until 2018, we believe that they will not meet that plan. We incorporated management guidance of a $100 million of stock repurchases in 2018, but plan to keep stock repurchases at 2017 levels of $499 million over years 2018-2022. We believe that this is an accurate low number due to the fact that Schlumberger has had to take on debt in order to pay their $2.00 dividend over the past two years because EPS has been negative. Debt Debt is very important within the energy industry. Due to volatile oil prices, a company runs the risk of defaulting on payments if a large principle of debt comes due when oil prices are low. We forecasted their payments of debt directly from management guidance on debt maturity payments; in 2018, Schlumberger has a debt maturity of $7.398 billion due, with $2 billion to be paid with cash2. Debt is an issue for Schlumberger, with levels in the past two years rising from $1.975 billion to $3.324 billion in 2017. Largely due to Schlumberger not wanting to cut their dividend, but needing to cover a $2.7 billion dividend payment with negative earnings. Schlumberger is borrowing money in order to maintain a healthy image, and not to stimulate growth. With our growth projections moving forward they will have a debt/equity ratio of 0.46 and an interest coverage ratio of 6.98; showing that they will be able to meet interest payments on debt. The issue that we believe is significant is in years like 2018 when they have $7.398 billion of debt to pay or refinance; especially in the rising interest rate environment that the US is currently in. Thus resulting in significant cash payments, or higher interest payments on future refinanced debt. Weighted Average Cost of Capital (WACC)

We calculated a WACC of 7.57% using Schlumberger’s capital structure of 83.99% equity and 16.01% debt. We anticipate that Schlumberger will continue to maintain the same capital structure indefinitely into the future. The WACC is calculated from the cost of equity and cost of debt calculations explained below. Cost of Equity We utilized the Capital Asset Pricing Model (CAPM) to calculate the cost of equity to be 8.36%. The three variables within the CAPM are listed below.

• Risk Free Rate= 3.02% • Equity Risk Premium (ERP)= 4.95% • Beta= 1.08

The risk free rate represents the current 30-year U.S. treasury yield10. The equity risk premium is derived from Damodaran’s TTM implied ERP on April 1, 201811. We felt that this ERP was best to reflect the historical geometric average of returns against the market. Beta was calculated on a historical average of two-year, three-year, five-year and five-year monthly and weekly betas12. Cost of Debt To calculate the cost of debt for PXD we found that their current bond rating on publically traded debt is a Baa2 rating on Moody’s6. We then referenced the Damodaran default spread on companies with a market capitalization greater than $5 billion with a debt rating of A1; to find that default premium to be 0.90%11. We then took the current risk free rate and added the default premium to get a pre-tax cost of debt of 3.92%. From there we multiplied the pre-tax cost of debt by one minus the marginal tax rate of 14% and calculated the cost of debt to be 3.37%. We found the marginal tax rate by utilizing management guidance on the tax rate that they expect to have under the new tax law. They are not expected to receive a tax break as large as other companies due to them having significant operations in foreign countries. Valuation Models After macroeconomic, industry and company specific analysis, we arrived with an intrinsic value for Schlumberger Limited of $60.00-$65.00. We arrived at this valuation using the different valuation methods discussed below, but we believe that that discounted cash flow, economic profit and dividend discount analyses are the best representation of the true value of Schlumberger. We do not believe that the relative valuation analysis is an accurate representation due to the fact that Schlumberger is significantly larger than the majority of their closest peers with regards to market capitalization and on a per-employee basis.

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Discounted Cash Flow & Economic Profit Model Using the discounted cash flow and economic profit model we arrive at a price of $62.90 per share. We believe this is an accurate representation of the value of Schlumberger due to the fact that it is market agnostic and focuses entirely on Schlumberger. The important assumptions within these models is a continuing value (CV) growth rate of 3.00%. NOPLAT has decreased historically from $1.972 billion in 2015 to ($1.141) billion in 2017. We believe that our revenue forecasts will drive NOPLAT to grow to $5.9 billion in 2022. We project free cash flows to grow to $6.021 billion in 2022, due to the increases in NOPLAT and our assumptions on capital expenditures. Schlumberger will use less capital expenditures in the first two years of the model and thus see a greater increase in free cash flows during those years than in the year-over-year change of free cash flows in the final three years. These models are able to portray the internal growth opportunities of Schlumberger, and more specifically their ability to expand to North America and service exploration companies with higher growth potential than foreign exploration companies. Relative Valuation We believe that this is a valuation metric that is not able to show an accurate depiction of the value of Schlumberger. Using comparable companies to obtain an implied forward P/E ratio and per share price based on enterprise value/EBITDA multiples shows a per share range of $33.45-$91.91. The peers that we used are companies within the energy industry that have a market capitalization over $15 billion, compete with Schlumberger and are strictly oil field equipment & service companies. The companies include Halliburton Company, Baker Hughes, National Oilwell Varco, Inc. and TechnipFMC plc. Compared to the average of their peers, Schlumberger currently has higher P/E ratios in 2018 and 2019, showing that their stock is overpriced relative to their peers. We also used an enterprise value/EBITDA multiple to see how they compete relative to their peers ignoring capital structure. They are trading at a lower multiple (22.12x vs. 28.31x) and we believe it is reflective of their inability to operate as efficiently as their competitors. Due to the size disparity and operational efficiency disparity between Schlumberger and competitors, we believe that this is not the most effective way to value Schlumberger. Dividend Discount Model (DDM) We believe that the dividend discount model shows a low but accurate portrayal of the value of Schlumberger. Schlumberger currently issues a dividend of $2.00 per share and is not expected to raise that dividend in the next

five years. The dividend yield is 2.98% and we believe that this significant enough to derive a valuation from. For our calculations we found a continuing value stock price in 2022, assuming a dividend of 2.00$ for each year until then. We then discounted those values back with the cost of equity to get a valuation of $44.92 per share. Beta vs. Risk-Free Rate Differences in beta and the risk-free rate are important to our model because they affect Schlumberger’s WACC value in the cost of equity determination. Changes in the risk-free rate have less of an impact on intrinsic value per share than changes in beta, which is likely to be the variable that will see more volatility due the cyclical nature of the oilfield services industry. Figure 15.

CV Growth Rate vs. Equity Risk Premium CV growth of NOPLAT is important to our model since it represents growth into perpetuity at the steady state, while the equity risk premium is a key driver in the WACC calculation. Changes in either variable do not result in large differences in intrinsic value per share. Figure 16.

Foreign vs. North American Growth 2022E As a result of new energy policies in the US, we project growth in North American operations over the forecast period. It can be seen that incremental changes of 2.5% realized North American growth have larger effects on intrinsic value per share than 1% changes in foreign growth, indicating that there is pressure on Schlumberger to deliver on domestic growth to retain value.

Sensitivity Valuation

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Figure 17.

% Foreign vs. % North American Operations 2022E When testing the stock price against the proportion of operations for Schlumberger domestically and abroad, we found that these metrics do not change the stock price significantly. Although it is important to note that the higher percentage of operations domestically result in a higher valuation. Due to the expected industry growth within the United States. Figure 18.

ROIC vs. SG&A Margins When testing return on invested capital vs. SG&A margins in the continuing value 2022 year, we found that these metrics are not a significant source of volatility in stock price. ROIC affects the economic profit valuation and the margins will affect the NOPLAT valuation. Figure 19.

COGS % of Sales vs. Sales Growth 2022E Testing cost margins against sales growth determines the value of increasing operating efficiency versus increasing revenues. Changes in COGS as a percentage of sales result in much larger changes to intrinsic value per share than changes in sales growth. One can see a negative effect when both ratios increase due to our belief that Schlumberger has poor operational efficiency.

Figure 20.

12 | P a g e

Important Disclaimer This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

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http://quote.morningstar.com/stock-filing/Annual-Report/2017/12/31/t.aspx?t=:HAL&ft=10-K&d=fef2cdb447db9c84d6a56c38acb602f0

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SchlumbergerKey Assumptions of Valuation Model

Ticker Symbol SLBCurrent Share Price $67.95Current Model Date 4/15/2018FY End (month/day) Dec. 31Shares Outstanding 1,383,932,776 SLB Bond Rating A1 - Default Premium 0.90%Pre-Tax Cost of Debt 3.92%Cost of Equity 8.43%Beta 1.08Risk-Free Rate (30 yr, T-bill) 3.02%Equity Risk Premium 4.95%CV Growth of NOPLAT 3.00%CV Growth of EPS 3.00%CV ROIC 25.08%CV ROE 13.31%Current Dividend Yield 2.94%Sales Growth 12.50%SG&A Margins 2022E 1.42%COGS % of Sales 2022E 71.64%Marginal Tax Rate 14.00%

SchlumbergerRevenue Decomposition

Fiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E CV (2022)Revenue $35,475.00 $27,810.00 $30,440.00 33421.98 37406.95 42146.39 47479.54 53480.63Y/Y Growth % -26.98% -21.61% 9.46% 9.80% 11.92% 12.67% 12.65% 12.64%

Business SegmentsReservoir Characterization $9,501.00 $6,743.00 $6,786.00 7440.85 8315.15 9354.54 10523.86 11839.34

Y/Y Growth % -22.28% -29.03% 0.64% 9.7% 11.8% 12.5% 12.5% 12.5%Drilling $13,563.00 $8,561.00 $8,392.00 9201.83 10283.04 11568.42 13014.48 14641.29

Y/Y Growth % -26.54% -36.88% -1.97% 9.6% 11.8% 12.5% 12.5% 12.5%Production $12,548.00 $8,709.00 $10,639.00 11665.66 13036.38 14665.93 16499.17 18561.56

Y/Y Growth % -30.72% -30.59% 22.16% 9.7% 11.8% 12.5% 12.5% 12.5%Cameron - $4,211.00 $5,205.00 5707.28 6377.89 7175.12 8072.01 9081.02

Y/Y Growth % - - 23.60% 9.7% 11.8% 12.5% 12.5% 12.5%Eliminations & other ($137.00) ($414.00) ($582.00) -593.64 -605.51 -617.62 -629.98 -642.58

Y/Y Growth % 36.87% -202.19% -40.58% 2.0% 2.0% 2.0% 2.0% 2.0%

SchlumbergerIncome StatementIn millions Fiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E CV (2022)Sales Revenue 35,475.00 27,810.00 30,440.00 33,421.98 37,406.95 42,146.39 47,479.54 53,480.63 Interest & other income 236.00 200.00 224.00 230.76 237.73 244.91 252.31 259.93 Total Revenue 35,711.00 28,010.00 30,664.00 33,652.75 37,644.68 42,391.31 47,731.85 53,740.56

Cost of goods sold & services 24,243.00 20,016.00 22,706.00 23,941.84 26,796.47 30,191.57 34,011.97 38,313.53 Depreciation & amortization 4,078.00 4,094.00 3,837.00 3,214.81 2,930.39 2,724.96 2,888.70 3,006.97 Research & engineering expense 1,094.00 1,012.00 787.00 956.88 1,070.97 1,206.66 1,359.35 1,531.16 General & administrative expense 494.00 403.00 432.00 474.69 531.28 598.60 674.34 759.42 Impairment & other expenses 2,575.00 3,172.00 3,211.00 2,926.92 2,721.73 2,885.28 3,003.41 3,088.74 Merger & integration 0.00 648.00 308.00 361.33 - - - - Interest expense 346.00 570.00 566.00 740.80 663.12 638.03 692.58 768.42

Income (loss) before taxes 2,881.00 (1,905.00) (1,183.00) 1,035.49 2,930.72 4,146.21 5,101.50 6,272.33 Tax expense (benefit) 746.00 (278.00) 330.00 144.97 410.30 580.47 714.21 878.13

Income (loss) from continuing operations 2,135.00 (1,627.00) (1,513.00) 890.52 2,520.42 3,565.74 4,387.29 5,394.21 Income (loss) from discontinued operations 0.00 0.00 0.00 - - - - - Net income (loss) 2,135.00 (1,627.00) (1,513.00) 890.52 2,520.42 3,565.74 4,387.29 5,394.21

Net income (loss) attributable to noncontrolling interests (63.00) (60.00) 8.00 (42.33) (42.33) (42.33) (42.33) (42.33) Net income (loss) attributable to Schlumberger 2,072.00 (1,687.00) (1,505.00) 848.19 2,478.09 3,523.41 4,344.95 5,351.87 Basic earnings (loss) per share of Schlumberger $1.63 ($1.24) ($1.08) $0.61 $1.78 $2.53 $3.12 $3.83

Total shares outstanding 1267.00 1357.00 1388.00 1389.16 1390.92 1393.25 1396.08 1399.38Dividends per common share $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00

Schlumberger Limited Balance Sheet

Fiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E CV (2022)ASSETSCurrent Assets Cash 2,793.00 2,929.00 1,799.00 37.27 1,210.35 3,757.29 7,677.14 9,619.99 Short-term investments 10,241.00 6,328.00 3,290.00 2,940.41 2,627.97 2,348.73 2,099.16 1,876.11 Receivables, net 8,780.00 9,387.00 8,084.00 8,920.65 9,984.28 11,249.28 12,672.75 14,274.50 Inventories 3,756.00 4,225.00 4,046.00 3,928.23 4,396.60 4,953.65 5,580.48 6,285.81 Deferred taxes 208.00 - - - - - - - Other current assets 1,134.00 1,058.00 1,278.00 1,299.73 1,321.82 1,344.29 1,367.15 1,390.39 Total current assets 26,912.00 23,927.00 18,497.00 17,126.29 19,541.02 23,653.24 29,396.68 33,446.80 Long Term Assets: Fixed income investments, held-to-maturity 418.00 238.00 - - - - - - Investment in affiliated companies 3,311.00 1,243.00 1,519.00 1,564.87 1,612.13 1,660.82 1,710.98 1,762.65 Fixed assets, gross 37,120.00 40,008.00 37,813.00 40,003.67 42,194.33 45,508.90 48,823.48 52,138.05 Less: accumulated depreciation 23,705.00 27,187.00 26,237.00 29,451.81 32,382.19 35,107.15 37,995.85 41,002.83 Fixed assets, net 13,415.00 12,821.00 11,576.00 10,551.86 9,812.14 10,401.75 10,827.62 11,135.22 Multiclient Seismic Data 1,026.00 1,073.00 727.00 1,136.67 1,546.33 1,956.00 2,365.67 2,775.33 Goodwill 15,605.00 24,990.00 25,118.00 25,118.00 25,118.00 25,118.00 25,118.00 25,118.00 Intangible assets 4,569.00 9,855.00 9,354.00 8,677.00 8,004.00 7,366.00 6,750.00 6,142.00 Other assets 2,749.00 3,809.00 5,196.00 5,352.92 5,514.58 5,681.12 5,852.69 6,029.44 Total assets 68,005.00 77,956.00 71,987.00 69,527.61 71,148.20 75,836.93 82,021.63 86,409.44

LIABILITIES AND STOCKHOLDER'S EQUITYCurrent Liabilities Accounts payable & accrued liabilities 7,727.00 10,016.00 10,036.00 11,528.18 12,902.70 14,537.47 16,377.02 18,446.97 Estimated liability for taxes on income 1,203.00 1,188.00 1,223.00 537.26 1,520.60 2,151.26 2,646.90 3,254.39 Long-term debt - current portion 3,011.00 1,975.00 3,324.00 2,000.00 1,500.00 2,800.00 4,300.00 2,600.00 Short-term borrowings 1,546.00 1,178.00 - 0.00 0.00 0.00 0.00 0.00 Dividend payable 634.00 702.00 699.00 725.46 726.38 727.60 729.07 730.80Total current liabilities 14,121.00 15,059.00 15,282.00 14,790.90 16,649.69 20,216.32 24,053.00 25,032.15 Long-Term Liabilities Long-term debt 14,442.00 16,463.00 14,875.00 14,190.92 14,049.86 14,140.34 14,573.38 15,031.29 Postretirement benefits 1,434.00 1,495.00 1,082.00 1,475.21 1,424.81 1,458.02 1,554.10 1,680.85 Deferred taxes 1,075.00 1,880.00 1,650.00 1715.84 1784.31 1855.52 1929.56 2006.56 Other liabilities 1,028.00 1,530.00 1,837.00 1,892.48 1,949.63 2,008.51 2,069.17 2,131.65 Total liabilities 32,100.00 36,427.00 34,726.00 34,065.35 35,858.30 39,678.71 44,179.21 45,882.51 Minority interest - - - 0 0 0 0 0 Common stock 12,693.00 12,801.00 12,975.00 13,647.73 14,320.46 14,993.19 15,665.93 16,338.66 Treasury stock 13,372.00 3,550.00 4,049.00 4,548.00 5,047.00 5,546.00 6,045.00 6,544.00 Retained earnings 40,870.00 36,470.00 32,190.00 30,259.87 29,956.11 30,693.03 32,245.83 34,798.94 Accumulated other comprehensive income (loss) (4,558.00) (4,643.00) (4,274.00) (4,274.00) (4,274.00) (4,274.00) (4,274.00) (4,274.00) Total Schlumberger stockholders' equity 35,633.00 41,078.00 36,842.00 35,085.60 34,955.57 35,866.22 37,592.75 40,319.60 Non-controlling interests 272.00 451.00 419.00 376.67 334.33 292.00 249.67 207.33 Total equity 35,905.00 41,529.00 37,261.00 35,462.27 35,289.90 36,158.22 37,842.42 40,526.93 Total liabilities & stockholders' equity 68,005.00 77,956.00 71,987.00 69,527.61 71,148.20 75,836.93 82,021.63 86,409.44

SchlumbergerCash Flow Statement

Fiscal Years Ending Dec. 31 2015 2016 2017Cash flows from operating activities:Net income (loss) $2,135.00 ($1,627.00) ($1,513.00)Adjustments to reconcile net income (loss to cash provided by operating activities:

Impairments & other charges $2,575.00 $3,820.00 $3,764.00Depreciation & amortization $4,078.00 $4,094.00 $3,837.00Pension & other postretirement benefits expense $438.00 $187.00 $104.00Stock-based compensation expense $326.00 $267.00 $343.00Pension & other postretirement benefits funding ($346.00) ($174.00) ($133.00)Earnings of equity method investments, less dividends received ($125.00) ($60.00) ($56.00)Change in assets and liabilities:Increase (decrease) in receivables $2,176.00 $1,098.00 ($124.00)(Increase) decrease in Inventories $625.00 $800.00 $108.00(Increase) decrease in other current assets $76.00 $308.00 ($174.00)Decrease (increase) in other assets $16.00 ($488.00) $402.00Decrease in accounts payable & accrued liabilities ($2,656.00) ($1,680.00) ($737.00)Increase (decrease) in estimated liability for taxes on income ($699.00) ($110.00) $104.00Decrease (increase) in other liabilities $24.00 $77.00 ($28.00)Other operating assets & liabilities, net $162.00 ($251.00) ($234.00)

Net cash flow from operating activities: $8,805.00 $6,261.00 $5,663.00

Cash flows from investing activities:Capital expenditures ($2,410.00) ($2,055.00) ($2,107.00)SPM investments ($953.00) ($1,031.00) ($1,609.00)Multiclient seismic data capitalized ($486.00) ($630.00) ($276.00)Business acquisitions & investments, net of cash acquired ($443.00) ($2,398.00) ($847.00)Sale (purchase) of investments, net ($5,848.00) $5,544.00 $3,277.00Other cash flows from investing activities ($112.00) ($54.00) ($217.00)

Net cash flows from investing activities: ($10,252.00) ($624.00) ($1,779.00)

Cash flows from financing activities:Dividends paid ($2,419.00) ($2,647.00) ($2,778.00)Proceeds from employee stock purchase plan $296.00 $231.00 $212.00Proceeds from exercise of stock options $152.00 $184.00 $85.00Stock repurchase program ($2,182.00) ($778.00) ($969.00)Proceeds from issuance of long-term debt $9,565.00 $3,640.00 $2,371.00Repayment of long-term debt ($3,771.00) ($5,630.00) ($2,961.00)Net decrease in short-term borrowings ($3.00) ($387.00) ($1,022.00)Other cash flows from financing activities ($264.00) ($41.00) $29.00

Net cash flows from financing activities: $1,374.00 ($5,428.00) ($5,033.00)Cash flow from discontinued operations - operating activities ($233.00) - -Net increase (decrease) in cash before translation effect ($306.00) $209.00 ($1,149.00)Translation effect on cash ($31.00) ($73.00) $19.00Cash, beginning of year $3,130.00 $2,793.00 $2,929.00Cash, end of year $2,793.00 $2,929.00 $1,799.00

SchlumbergerCash Flow Statement

Fiscal Years Ending Dec. 31 2018E 2019E 2020E 2021E CV (2022)Cash flows from operating activities:Net income (loss) 848.19 2478.09 3523.41 4344.95 5351.87Adjustments to reconcile net income to cash from operating activities:

Add: Depreciation & amortization 3214.81 2930.39 2724.96 2888.70 3006.97Change in defered taxes 65.84 68.47 71.20 74.04 77.00

Changes in working capital accounts: Receivables, net (836.65) (1,063.63) (1,265.00) (1,423.47) (1,601.75) Inventories 117.77 (468.37) (557.05) (626.83) (705.33) Other current assets (21.73) (22.10) (22.47) (22.85) (23.24) Accounts payable & accrued liabilities 1,492.18 1,374.53 1,634.77 1,839.55 2,069.94 Estimated liability for taxes on income (685.74) 983.34 630.66 495.65 607.49 Dividend payable 26.46 0.92 1.21 1.48 1.72

Net cash flow from operating activities: 4221.13 6281.64 6741.69 7571.23 8784.67

Cash flows from investing activities: Short-term investments 349.59 312.44 279.24 249.57 223.05 Investment in affiliated companies (45.87) (47.26) (48.69) (50.16) (51.67) Multiclient Seismic Data (409.67) (409.67) (409.67) (409.67) (409.67) Intangible assets 677.00 673.00 638.00 616.00 608.00 Other assets (156.92) (161.66) (166.54) (171.57) (176.75)

Capital expenditures (2,190.67) (2,190.67) (3,314.57) (3,314.57) (3,314.57) Goodwill - - - - -

Net cash flows from investing activities: (1,776.54) (1,823.81) (3,022.22) (3,080.39) (3,121.61)

Cash flows from financing activities: Dividends paid (2,778.32)$ (2,781.85)$ (2,786.49)$ (2,792.15)$ (2,798.75)$

Long-term debt - current portion (1,324.00) (500.00) 1,300.00 1,500.00 (1,700.00) Short-term borrowings - - - - - Long-term debt (684.08) (141.06) 90.48 433.04 457.92 Postretirement benefits 393.21 (50.40) 33.21 96.08 126.74 Other liabilities 55.48 57.15 58.88 60.66 62.49 Common stock 672.73 672.73 672.73 672.73 672.73 Treasury stock (499.00) (499.00) (499.00) (499.00) (499.00) Currnecy translation adjustments - - - - - Unrealized gains (losses) on marketable securities - - - - - Cash flow hedges - - - - - Pension & other postretirement benefit plans - - - - - Accumulated other comprehensive income (loss) - - - - - Non-controlling interests (42.33) (42.33) (42.33) (42.33) (42.33)

Net cash flows from financing activities: (4,206.32)$ (3,284.75)$ (1,172.52)$ (570.98)$ (3,720.21)$ Net increase (decrease) in cash & cash equivalents (1,761.73)$ 1,173.08$ 2,546.94$ 3,919.85$ 1,942.85$ Cash, beginning of year 1,799.00 37.27 1,210.35 3,757.29 7,677.14 Cash, end of year 37.27 1,210.35 3,757.29 7,677.14 9,619.99

SchlumbergerCommon Size Income Statement

Fiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E CV (2022)Sales Revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Interest & other income 0.67% 0.72% 0.74% 0.69% 0.64% 0.58% 0.53% 0.49%Total Revenue 100.67% 100.72% 100.74% 100.69% 100.64% 100.58% 100.53% 100.49%

Cost of goods sold & services 68.34% 71.97% 74.59% 71.64% 71.64% 71.64% 71.64% 71.64%Depreciation & amortization 11.50% 14.72% 12.61% 9.62% 7.83% 6.47% 6.08% 5.62%Research & engineering expense 3.08% 3.64% 2.59% 2.86% 2.86% 2.86% 2.86% 2.86%General & administrative expense 1.39% 1.45% 1.42% 1.42% 1.42% 1.42% 1.42% 1.42%Impairment & other expenses 7.26% 11.41% 10.55% 8.76% 7.28% 6.85% 6.33% 5.78%Merger & integration 0.00% 2.33% 1.01% 1.08% 0.00% 0.00% 0.00% 0.00%Interest expense 0.98% 2.05% 1.86% 2.22% 1.77% 1.51% 1.46% 1.44%

Income (loss) before taxes 8.12% -6.85% -3.89% 3.10% 7.83% 9.84% 10.74% 11.73%Tax expense (benefit) 2.10% -1.00% 1.08% 0.43% 1.10% 1.38% 1.50% 1.64%

Income (loss) from continuing operations 6.02% -5.85% -4.97% 2.66% 6.74% 8.46% 9.24% 10.09%Income (loss) from discontinued operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net income (loss) 6.02% -5.85% -4.97% 2.66% 6.74% 8.46% 9.24% 10.09%

Net income (loss) attributable to noncontrolling inte -0.18% -0.22% 0.03% -0.13% -0.11% -0.10% -0.09% -0.08%Net income (loss) attributable to Schlumberger 5.84% -6.07% -4.94% 2.54% 6.62% 8.36% 9.15% 10.01%

Schlumberger Limited Common Sized Balance Sheetas a % of Total AssetsFiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E CV (2022)ASSETSCurrent Assets Cash 4.11% 3.76% 2.50% 0.05% 1.70% 4.95% 9.36% 11.13% Short-term investments 15.06% 8.12% 4.57% 4.23% 3.69% 3.10% 2.56% 2.17% Receivables, net 12.91% 12.04% 11.23% 12.83% 14.03% 14.83% 15.45% 16.52% Inventories 5.52% 5.42% 5.62% 5.65% 6.18% 6.53% 6.80% 7.27% Deferred taxes 0.31% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other current assets 1.67% 1.36% 1.78% 1.87% 1.86% 1.77% 1.67% 1.61%Total current assets 39.57% 30.69% 25.69% 24.63% 27.47% 31.19% 35.84% 38.71%Long Term Assets: Fixed income investments, held-to-maturity 0.61% 0.31% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Investment in affiliated companies 4.87% 1.59% 2.11% 2.25% 2.27% 2.19% 2.09% 2.04% Fixed assets, gross 54.58% 51.32% 52.53% 57.54% 59.30% 60.01% 59.53% 60.34% Less: accumulated depreciation 34.86% 34.87% 36.45% 42.36% 45.51% 46.29% 46.32% 47.45% Fixed assets, net 19.73% 16.45% 16.08% 15.18% 13.79% 13.72% 13.20% 12.89% Multiclient Seismic Data 1.51% 1.38% 1.01% 1.63% 2.17% 2.58% 2.88% 3.21% Goodwill 22.95% 32.06% 34.89% 36.13% 35.30% 33.12% 30.62% 29.07% Intangible assets 6.72% 12.64% 12.99% 12.48% 11.25% 9.71% 8.23% 7.11% Other assets 4.04% 4.89% 7.22% 7.70% 7.75% 7.49% 7.14% 6.98%Total assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

LIABILITIES AND STOCKHOLDER'S EQUITYCurrent Liabilities Accounts payable & accrued liabilities 11.36% 12.85% 13.94% 16.58% 18.13% 19.17% 19.97% 21.35% Estimated liability for taxes on income 1.77% 1.52% 1.70% 0.77% 2.14% 2.84% 3.23% 3.77% Long-term debt - current portion 4.43% 2.53% 4.62% 2.88% 2.11% 3.69% 5.24% 3.01% Short-term borrowings 2.27% 1.51% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Dividend payable 0.93% 0.90% 0.97% 1.04% 1.02% 0.96% 0.89% 0.85%Total current liabilities 20.76% 19.32% 21.23% 21.27% 23.40% 26.66% 29.33% 28.97%Long-Term Liabilities Long-term debt 21.24% 21.12% 20.66% 20.41% 19.75% 18.65% 17.77% 17.40% Postretirement benefits 2.11% 1.92% 1.50% 2.12% 2.00% 1.92% 1.89% 1.95% Deferred taxes 1.58% 2.41% 2.29% 2.47% 2.51% 2.45% 2.35% 2.32% Other liabilities 1.51% 1.96% 2.55% 2.72% 2.74% 2.65% 2.52% 2.47%Total liabilities 47.20% 46.73% 48.24% 49.00% 50.40% 52.32% 53.86% 53.10% Minority interest - - - 0.00% 0.00% 0.00% 0.00% 0.00% Common stock 18.66% 16.42% 18.02% 19.63% 20.13% 19.77% 19.10% 18.91% Treasury stock 19.66% 4.55% 5.62% 6.54% 7.09% 7.31% 7.37% 7.57% Retained earnings 60.10% 46.78% 44.72% 43.52% 42.10% 40.47% 39.31% 40.27% Accumulated other comprehensive income (loss) -6.70% -5.96% -5.94% -6.15% -6.01% -5.64% -5.21% -4.95% Total Schlumberger stockholders' equity 52.40% 52.69% 51.18% 50.46% 49.13% 47.29% 45.83% 46.66% Non-controlling interests 0.40% 0.58% 0.58% 0.54% 0.47% 0.39% 0.30% 0.24%Total equity 52.80% 53.27% 51.76% 51.00% 49.60% 47.68% 46.14% 46.90%Total liabilities & stockholders' equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Schlumberger Limited Common Sized Balance Sheetas a % of SalesFiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E CV (2022)ASSETSCurrent Assets Cash 7.87% 10.53% 5.91% 0.11% 3.24% 8.91% 16.17% 17.99% Short-term investments 28.87% 22.75% 10.81% 8.80% 7.03% 5.57% 4.42% 3.51% Receivables, net 24.75% 33.75% 26.56% 26.69% 26.69% 26.69% 26.69% 26.69% Inventories 10.59% 15.19% 13.29% 11.75% 11.75% 11.75% 11.75% 11.75% Deferred taxes 0.59% - - 0.00% 0.00% 0.00% 0.00% 0.00% Other current assets 3.20% 3.80% 4.20% 3.89% 3.53% 3.19% 2.88% 2.60%Total current assets 75.86% 86.04% 60.77% 51.24% 52.24% 56.12% 61.91% 62.54%Long Term Assets: Fixed income investments, held-to-maturity 1.18% 0.86% - 0.00% 0.00% 0.00% 0.00% 0.00% Investment in affiliated companies 9.33% 4.47% 4.99% 4.68% 4.31% 3.94% 3.60% 3.30% Fixed assets, gross 104.64% 143.86% 124.22% 119.69% 112.80% 107.98% 102.83% 97.49% Less: accumulated depreciation 66.82% 97.76% 86.19% 88.12% 86.57% 83.30% 80.03% 76.67% Fixed assets, net 37.82% 46.10% 38.03% 31.57% 26.23% 24.68% 22.80% 20.82% Multiclient Seismic Data 2.89% 3.86% 2.39% 3.40% 4.13% 4.64% 4.98% 5.19% Goodwill 43.99% 89.86% 82.52% 75.15% 67.15% 59.60% 52.90% 46.97% Intangible assets 12.88% 35.44% 30.73% 25.96% 21.40% 17.48% 14.22% 11.48% Other assets 7.75% 13.70% 17.07% 16.02% 14.74% 13.48% 12.33% 11.27%Total assets 191.70% 280.32% 236.49% 208.03% 190.20% 179.94% 172.75% 161.57%

LIABILITIES AND STOCKHOLDER'S EQUITYCurrent Liabilities Accounts payable & accrued liabilities 21.78% 36.02% 32.97% 34.49% 34.49% 34.49% 34.49% 34.49% Estimated liability for taxes on income 3.39% 4.27% 4.02% 1.61% 4.07% 5.10% 5.57% 6.09% Long-term debt - current portion 8.49% 7.10% 10.92% 5.98% 4.01% 6.64% 9.06% 4.86% Short-term borrowings 4.36% 4.24% - 0.00% 0.00% 0.00% 0.00% 0.00% Dividend payable 1.79% 2.52% 2.30% 2.17% 1.94% 1.73% 1.54% 1.37%Total current liabilities 39.81% 54.15% 50.20% 44.26% 44.51% 47.97% 50.66% 46.81%Long-Term Liabilities Long-term debt 40.71% 59.20% 48.87% 42.46% 37.56% 33.55% 30.69% 28.11% Postretirement benefits 4.04% 5.38% 3.55% 4.41% 3.81% 3.46% 3.27% 3.14% Deferred taxes 3.03% 6.76% 5.42% 5.13% 4.77% 4.40% 4.06% 3.75% Other liabilities 2.90% 5.50% 6.03% 5.66% 5.21% 4.77% 4.36% 3.99%Total liabilities 90.49% 130.99% 114.08% 101.92% 95.86% 94.14% 93.05% 85.79% Minority interest - - - 0.00% 0.00% 0.00% 0.00% 0.00% Common stock 35.78% 46.03% 42.62% 40.83% 38.28% 35.57% 33.00% 30.55% Treasury stock 37.69% 12.77% 13.30% 13.61% 13.49% 13.16% 12.73% 12.24% Retained earnings 115.21% 131.14% 105.75% 90.54% 80.08% 72.82% 67.92% 65.07% Accumulated other comprehensive income (loss) -12.85% -16.70% -14.04% -12.79% -11.43% -10.14% -9.00% -7.99% Total Schlumberger stockholders' equity 100.45% 147.71% 121.03% 104.98% 93.45% 85.10% 79.18% 75.39% Non-controlling interests 0.77% 1.62% 1.38% 1.13% 0.89% 0.69% 0.53% 0.39%Total equity 101.21% 149.33% 122.41% 106.10% 94.34% 85.79% 79.70% 75.78%Total liabilities & stockholders' equity 191.70% 280.32% 236.49% 208.03% 190.20% 179.94% 172.75% 161.57%

SchlumbergerValue Driver Estimation

Fiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E CV (2022)NOPLAT ComputationEBITA:Net Sales $35,475.00 $27,810.00 $30,440.00 $33,421.98 $37,406.95 $42,146.39 $47,479.54 $53,480.63 -Cost of Goods Sold $24,243.00 $20,016.00 $22,706.00 $23,941.84 $26,796.47 $30,191.57 $34,011.97 $38,313.53 -Depreciation $3,801.00 $3,309.00 $3,331.00 $2,537.81 $2,257.39 $2,086.96 $2,272.70 $2,398.97 -Amortization of non-goodwill intangibles $277.00 $785.00 $506.00 $677.00 $673.00 $638.00 $616.00 $608.00 -Research & engineering expense $1,094.00 $1,012.00 $787.00 $956.88 $1,070.97 $1,206.66 $1,359.35 $1,531.16 -General & administrative expense $494.00 $403.00 $432.00 $474.69 $531.28 $598.60 $674.34 $759.42 -Impairment & other expenses $2,575.00 $3,172.00 $3,211.00 $2,926.92 $2,721.73 $2,885.28 $3,003.41 $3,088.74 +Implied interest on operating leases $47.44 $47.44 $49.66 $48.51 $44.22 $41.12 $43.59 $45.38 EBITA $3,038.44 ($839.56) ($483.34) $1,955.37 $3,400.33 $4,580.45 $5,585.36 $6,826.20

LESS: Adjusted TaxesProvision for income tax $746.00 ($278.00) $330.00 $144.97 $410.30 $580.47 $714.21 $878.13 +Tax shield on Interest Expense $76.12 $91.20 $79.24 $103.71 $92.84 $89.32 $96.96 $107.58 +Tax shield on implied lease interest $10.44 $7.59 $6.95 $6.79 $6.19 $5.76 $6.10 $6.35 -Tax on Interest/Other Income $51.92 $32.00 $31.36 $32.31 $33.28 $34.29 $35.32 $36.39 +Tax shield on Merger/Integation (non operating expense) $0.00 $103.68 $43.12 $50.59 $0.00 $0.00 $0.00 $0.00Adjusted Taxes $780.64 ($107.53) $427.95 $273.75 $476.05 $641.26 $781.95 $955.67

PLUS: Change in Deferred Tax Liabilities Current year DTL $1,075.00 $1,880.00 $1,650.00 $1,715.84 $1,784.31 $1,855.52 $1,929.56 $2,006.56 - Current year DTA $208.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Net DTL for current year $867.00 $1,880.00 $1,650.00 $1,715.84 $1,784.31 $1,855.52 $1,929.56 $2,006.56

Previous year DTL $1,296.00 $1,075.00 $1,880.00 $1,650.00 $1,715.84 $1,784.31 $1,855.52 $1,929.56 - Previous year DTA $144.00 $208.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Net DTL for previous year $1,152.00 $867.00 $1,880.00 $1,650.00 $1,715.84 $1,784.31 $1,855.52 $1,929.56Net Change in DTL (Current-Previous year) ($285.00) $1,013.00 ($230.00) $65.84 $68.47 $71.20 $74.04 $77.00

NOPLAT: EBITA - Adjusted Taxes + Change in DT $1,972.80 $280.97 ($1,141.29) $1,747.46 $2,992.75 $4,010.39 $4,877.45 $5,947.53

Invested Capital Computation

Operating Current Assets:Normal Cash $246.74 $193.43 $211.72 $232.46 $260.18 $293.14 $330.24 $371.98

Receivables, net $8,780.00 $9,387.00 $8,084.00 $8,920.65 $9,984.28 $11,249.28 $12,672.75 $14,274.50 Inventories $3,756.00 $4,225.00 $4,046.00 $3,928.23 $4,396.60 $4,953.65 $5,580.48 $6,285.81

Operating Current Assets: $12,782.74 $13,805.43 $12,341.72 $13,081.34 $14,641.06 $16,496.07 $18,583.46 $20,932.29

Operating Current Liabilities: Accounts payable & accrued liabilities $7,727.00 $10,016.00 $10,036.00 $11,528.18 $12,902.70 $14,537.47 $16,377.02 $18,446.97 Estimated liability for taxes on income $1,203.00 $1,188.00 $1,223.00 $537.26 $1,520.60 $2,151.26 $2,646.90 $3,254.39 Dividend payable $634.00 $702.00 $699.00 $725.46 $726.38 $727.60 $729.07 $730.80

Operating current liabilities $9,564.00 $11,906.00 $11,958.00 $12,790.90 $15,149.69 $17,416.32 $19,753.00 $22,432.15

Net Working Capital $3,218.74 $1,899.43 $383.72 $290.44 ($508.63) ($920.25) ($1,169.54) ($1,499.87)

Plus: Net PPE $13,415.00 $12,821.00 $11,576.00 $10,551.86 $9,812.14 $10,401.75 $10,827.62 $11,135.22

Plus: PV of operating Leases $1,210.11 $1,266.76 $1,237.57 $1,128.09 $1,049.00 $1,112.04 $1,157.57 $1,190.45

Plus: other L-T operating assets Multiclient Seismic Data $1,026.00 $1,073.00 $727.00 $1,136.67 $1,546.33 $1,956.00 $2,365.67 $2,775.33 Intangible assets $4,569.00 $9,855.00 $9,354.00 $8,677.00 $8,004.00 $7,366.00 $6,750.00 $6,142.00 Other assets $2,749.00 $3,809.00 $5,196.00 $5,352.92 $5,514.58 $5,681.12 $5,852.69 $6,029.44

Total Other L-T Operating Assets: $8,344.00 $14,737.00 $15,277.00 $15,166.59 $15,064.91 $15,003.12 $14,968.35 $14,946.77

Less: other L-T operating liabilities $1,028.00 $1,530.00 $1,837.00 $1,892.48 $1,949.63 $2,008.51 $2,069.17 $2,131.65

Invested Capital: $25,159.85 $29,194.19 $26,637.30 $25,244.50 $23,467.79 $23,588.15 $23,714.84 $23,640.92

ROIC=NOPLAT/Beginning ICNOPLAT $1,972.80 $280.97 ($1,141.29) $1,747.46 $2,992.75 $4,010.39 $4,877.45 $5,947.53Beginning IC $27,665.00 $25,159.85 $29,194.19 $26,637.30 $25,244.50 $23,467.79 $23,588.15 $23,714.84

Return on invested capital 7.13% 1.12% -3.91% 6.56% 11.86% 17.09% 20.68% 25.08%FCF=NOPLAT-∆IC

NOPLAT $1,972.80 $280.97 ($1,141.29) $1,747.46 $2,992.75 $4,010.39 $4,877.45 $5,947.53∆IC $2,505.15 $4,034.34 $2,556.90 ($1,392.80) ($1,776.71) $120.36 $126.69 ($73.92)

Free Cash Flows $4,477.95 $3,753.37 $1,415.60 $3,140.26 $4,769.46 $3,890.03 $4,750.76 $6,021.44EP=Beginning IC*(ROIC-WACC)

Beginning IC $27,665.00 $25,159.85 $29,194.19 $26,637.30 $25,244.50 $23,467.79 $23,588.15 $23,714.84ROIC 7.13% 1.12% -3.91% 6.56% 11.86% 17.09% 20.68% 25.08%WACC 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% 7.36%

Economic Profit ($63.34) ($1,570.80) ($3,289.99) ($213.04) $1,134.76 $2,283.16 $3,141.37 $4,202.11

SchlumbergerWeighted Average Cost of Capital (WACC) Estimation

Shares Outstanding 1,383,932,776.00 MV Equity 94,038,232,129.20$ BetaMV Debt $17,737,574,921.04 Weekly 2-year 0.93PV of Operating leases $1,237,574,921.04 Monthly 2-year 1.30Total MV 111,775,807,050.24$ Weekly 3-year 1.01

Monthly 3-year 1.10% Equity 84.13% Weekly 5-year 1.05% Debt 15.87% Monthly 5-year 1.10

Average 1.08Marginal Tax Rate 2018E 14%

Beta 1.078Risk-Free Rate 3.02%ERP 4.95%

Cost of Equity 8.36%Cost of Debt 3.37%WACC 7.57%

SchlumbergerDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 3.00% CV ROIC 25.08% WACC 7.57% Cost of Equity 8.36%

Fiscal Years Ending Dec. 31 # 2018E 2019E 2020E 2021E 2022E

DCF ModelNOPLAT -1141 1747 2993 4010 4877 5948growth(NOPLAT) -253.11% 71.26% 34.00% 21.62% 21.94%

Invested Capital 26637 25244 23468 23588 23715 23641 -Capital Expenditures ($1,392.80) ($1,776.71) $120.36 $126.69 ($73.92)

Free Cash Flow 3140 4769 3890 4751ROIC 6.56% 11.86% 17.09% 20.68% 25.08%Continuing Value (CV) 114,700

Discount Periods 1 2 3 4 4PV Free Cash Flow 2919 4122 3126 3549PV CV 85680

Value of Operating Assets 99,395,614,638.11 +Excess Cash 1,587,278,816.58 +Short-term investments 3,290,000,000.00 +Investment in affiliated companies 1,519,000,000.00 -Debt ($17,737,574,921.04) -PV of operating leases (1,237,574,921.04) -PV of employee stock options (ESOP) (121,232.15) -Postretirement benefits (1,082,000,000.00) Value of Equity 85,734,622,380.46 Shares Outstanding 1,383,932,776.00 Dilutive Shares OutstandingIntrinsic Value (per share) 61.95$ Target Price as of 4/15/2018 62.90$

EP ModelBeginning Invested Capital 26637 25244 23468 23588 23715ROIC 6.56% 11.86% 17.09% 20.68% 25.08%Economic Profit -268 1083 2235 3093 4154Continuing Value 90,987 PV Free Cash Flow -249 936 1796 2310 67966

PV(Economic Profit) 72,759,846,683.91 +Beginning Invested Capital 26,637,296,104.46 Value of Operating Assets 99,397,142,788.37 +Excess Cash 1,587,278,816.58 +Short-term investments 3,290,000,000.00 +Long-term investments 1,519,000,000.00 -Debt ($17,737,574,921.04) -PV of operating leases (1,237,574,921.04) -PV of employee stock options (ESOP) (121,232.15) -Non controlling interests (1,082,000,000.00) Value of Equity 85,736,150,530.71 Shares Outstanding 1,383,932,776.00 Intrinsic Value (per share) 61.95$ Target Price as of 4/15/2018 62.90$

SchlumbergerDividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2018E 2019E 2020E 2021E 2022E

EPS 0.61$ 1.78$ 2.53$ 3.12$ 3.83$

Key Assumptions CV growth 3.00% CV ROE 13.31% Cost of Equity 8.43%

Future Cash Flows P/E Multiple (CV Year) 14.27 EPS (CV Year) 3.83 Future Stock Price 54.62$ Dividends Per Share 2.00$ 2.00$ 2.00$ 2.00$ 2.00$ Future Cash Flows

Discounted Cash Flows 1.84 1.70 1.57 1.45 39.52$

Intrinsic Value 44.23$ Target Price as of 4/15/2018 44.92$

SchlumbergerRelative Valuation Models

EPS EPSTicker Company Price 2018E 2019E P/E 18 P/E 19 EBITDA EV/EBITDAHAL Halliburton Company $46.94 $2.51 $3.45 18.70 13.61 49,631,300,000 3,565,000,000 13.92 BHGE Baker Hughes $27.77 $0.80 $1.57 34.71 17.69 37,437,200,000 663,000,000 56.47 NOV National Oilwell Varco, Inc. $36.81 $0.26 $1.06 141.58 34.73 15,334,100,000 421,000,000 36.42 FTI TechnipFMC plc $32.50 $1.35 $1.46 24.07 22.26 12,035,600,000 1,873,200,000 6.43

Average 54.77 22.07 28.31

SLB Schlumberger $67.95 $0.61 $1.78 111.2 38.1 99,395,614,638 4,493,175,491 22.12

Implied Relative Value: P/E (EPS18) $ 33.45 P/E (EPS19) $ 39.35 Enterprise Value $ 127,197,735,734.25 Shares Outstanding 1,383,932,776 Target Price $ 91.91

Enterprise Value

SchlumbergerKey Management Ratios

Fiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E CV (2022)

Liquidity RatiosCurrent Ratio Current Assets/Current Liabilities 1.91 1.59 1.21 1.16 1.17 1.17 1.22 1.34 Operating Cash Flow Ratio Operating Cash Flow/Current Liabilities 0.62 0.42 0.37 0.29 0.38 0.33 0.31 0.35 Quick Ratio (Cash+Marketable Securities+A/R)/Current Liabilities 1.54 1.24 0.86 0.80 0.83 0.86 0.93 1.03

Activity or Asset-Management RatiosAssets Turnover Ratio Sales/Average Total Assets 1.37 1.09 1.44 1.88 2.04 1.95 1.79 1.70 Receivables Turnover Ratio Sales/Average Accounts Receivables 3.56 3.06 3.48 3.93 3.96 3.97 3.97 3.97 Inventory Turnover Ratio Sales/Average Total Inventory 8.46 6.97 7.36 8.38 8.99 9.02 9.01 9.01

Financial Leverage RatiosDebt-to-Equity Ratio Total Debt/Total Equity 0.49 0.44 0.49 0.46 0.44 0.47 0.50 0.44 Equity Ratio Total Equity/Total Assets 0.53 0.53 0.52 0.51 0.50 0.48 0.46 0.47 Interest Coverage Ratio EBITDA/Interest Expense 20.57 5.71 5.93 6.98 9.55 11.45 12.24 12.80

Profitability RatiosReturn on Assets Net Income/Total Assets 3.05% -2.16% -2.09% 1.22% 3.48% 4.65% 5.30% 6.19%Return on Equity Net Income/Shareholder's Equity 5.77% -4.06% -4.04% 2.39% 7.02% 9.74% 11.48% 13.21%Profit Margin Net Income/Sales 5.84% -6.07% -4.94% 2.54% 6.62% 8.36% 9.15% 10.01%Gross Margin (Revenue-COGS)/Revenue 32.11% 28.54% 25.95% 28.86% 28.82% 28.78% 28.74% 28.71%

Payout Policy RatiosPayout Ratio (Dividends per Share + Stock Repurchases) / Net Income 102.30% -47.94% -64.18% 56.26% 19.88% 14.05% 11.42% 9.29%Dividend Coverage Ratio Earnings per Share/Dividends per Share 81.50% -62.00% -54.00% 30.54% 89.14% 126.55% 155.77% 191.45%

Present Value of Operating Lease Obligations (2017) Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015)

Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases2018 284 2017 292 2016 2612019 244 2018 220 2017 2052020 203 2019 195 2018 1622021 164 2020 167 2019 1452022 127 2021 132 2020 129Thereafter 410 Thereafter 471 Thereafter 526Total Minimum Payments 1432 Total Minimum Payments 1477 Total Minimum Payments 1428Less: Interest 194 Less: Interest 210 Less: Interest 218PV of Minimum Payments 1238 PV of Minimum Payments 1267 PV of Minimum Payments 1210

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 3.92% Pre-Tax Cost of Debt 3.92% Pre-Tax Cost of Debt 3.92%Number Years Implied by Year 6 Payment 3.2 Number Years Implied by Year 6 Payment 3.6 Number Years Implied by Year 6 Payment 4.1

Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment1 284 273.3 1 292 281.0 1 261 251.22 244 225.9 2 220 203.7 2 205 189.83 203 180.9 3 195 173.8 3 162 144.44 164 140.6 4 167 143.2 4 145 124.35 127 104.8 5 132 108.9 5 129 106.46 & beyond 127 312.1 6 & beyond 132 356.2 6 & beyond 129 394.0PV of Minimum Payments 1237.6 PV of Minimum Payments 1266.8 PV of Minimum Payments 1210.1

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 47,210Average Time to Maturity (years): 5.55Expected Annual Number of Options Exercised: 8,502

Current Average Strike Price: 79.12$ Cost of Equity: 9.00%Current Stock Price: $67.95

2018E 2019E 2020E 2021E CV (2022E)Increase in Shares Outstanding: 8,502 8,502 8,502 8,502 8,502Average Strike Price: 79.12$ 79.12$ 79.12$ 79.12$ 79.12$ Increase in Common Stock Account: 672,731 672,731 672,731 672,731 672,731

Change in Treasury Stock 499,000,000 499,000,000 499,000,000 499,000,000 499,000,000Expected Price of Repurchased Shares: 67.95$ 74.07$ 80.73$ 88.00$ 95.92$ Number of Shares Repurchased: 7,343,635 6,737,280 6,180,991 5,670,634 5,202,416

Shares Outstanding (beginning of the year) 1,388,000,000 1,389,158,677 1,390,923,709 1,393,245,030 1,396,076,708Plus: Shares Issued Through ESOP 8,502,312 8,502,312 8,502,312 8,502,312 8,502,312Less: Shares Repurchased in Treasury 7,343,635 6,737,280 6,180,991 5,670,634 5,202,416 Shares Outstanding (end of the year) 1,389,158,677 1,390,923,709 1,393,245,030 1,396,076,708 1,399,376,603

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol SLBCurrent Stock Price $67.95Risk Free Rate 3.02%Current Dividend Yield 2.94%Annualized St. Dev. of Stock Returns 7.84%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 5,696 56.17 4.80 11.00$ 62,656$ Range 2 6,665 69.93 4.00 3.09$ 20,590$ Range 3 9,107 73.97 5.50 2.40$ 21,850$ Range 4 15,511 84.01 6.10 0.88$ 13,682$ Range 5 10,231 95.07 6.20 0.24$ 2,454$ Total 47,210 79.12$ 5.55 3.82$ 121,232$