1 | SLB

Schlumberger Ltd. (NYSE: SLB) Recommendation: BUY

ENERGY April 12, 2016

Krause Fund Research Spring 2016

Analysts

Katherine Boyle Ryan Dowd katherine-boyle@uiowa.edu ryan-dowd@uiowa.edu

Jack Abrahamson Elliott Smith Jack-abrahamson@uiowa.edu elliott-smith@uiowa.edu

Company Overview

Schlumberger Ltd. (SLB) is the leading supplier of technology, project management, and information solutions to oil and gas exploration and production (E&P) companies operating worldwide. Schlumberger operates in the oilfield services industry providing products and solutions to upstream E&P companies in the energy sector. Schlumberger finalized its acquisition of Cameron International Corporation on April 1, 2016 and look forward to realizing the synergies in the coming years. Cameron specialized in wellhead and surface equipment, processing, pressure, and flow control. The merger creates the first full service provider of drilling and production systems to upstream clients within the energy sector. Stock Performance Highlights 52 week High $94.61 52 week Low $61.06 Beta Value 1.50 Average Daily Volume 10.01M Share Highlights Market Capitalization $107.60B Shares Outstanding 1.393B Book Value per share $28.36 EPS (as of FYE ended 12/21/15) $1.94 P/E Ratio 41.70 Dividend Yield 2.76% Dividend Payout Ratio 52.63% Company Performance Highlights ROA 3.39% ROE 6.73% ROIC 18.70% Sales 44.257B

Current Price: $75.90 Target Price Range: $92.00 - $95.00

SLB Ready to Reap Benefits of Recovering Oil Prices

• Schlumberger weathers low energy commodity prices better than peers by focusing on core drivers of value and positioning itself for strong bottom line as the world economy and oil prices recover over the next two years. • Finalized acquisition of Cameron International adds new business segments creating the first full service midstream energy equipment and information solutions provider. Sets itself up for increased EBITA through created synergies and accretive earnings estimates. • Schlumberger has produced consistently high ROIC metrics and practices innovation in ways that make it a leader in the oil & gas space. In 2015, 24% of their revenues were from new technology, new forms of revenues and constant innovation give Schlumberger high growth potential in the coming years. • Schlumberger announced a $10B share repurchase program through 2018 meaning management also finds their stock undervalued in line with our valuation models.

April 12, 2016 2 | SLB

ECONOMIC OUTLOOK

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● Real Gross Domestic Product Real gross domestic product (GDP) is a general measure of the economic climate. By adjusting for inflation, it properly reflects the monetary value of all the goods and services that a country produces. Real GDP growth has a strong correlation with the demand for oil. In order to produce more goods and services, more energy resources are required to power the machines that manufacture the goods and services, and fuel transportation. The graph below illustrates this correlation between oil demand and GDP growth.

xxEIASource:

We predict that real GDP will increase gradually in 2017 to approximately 2.5%, and will continue to rise in the following years until peaking at around 3.5-3.75%. Similarly, we predict oil prices will eventually recover to around $60 a barrel by the end of 2017. We expect that strong recoveries will happen in Europe and that emerging markets will help drive up the demand for oil as more goods and services are being produced. Domestic Growth Outlook Real GDP growth for the U.S. in 2015 was 2%, a decline from 2.47% in 2014.xxvii This decrease is due to a yearlong appreciation of the U.S. dollar which has widened the trade gap by reducing external demand for U.S. goods. Real GDP growth is expected to sit around 2% in 2016, a decrease from earlier forecasts by the Fed which forecasted it at 2.8%. The unemployment rate decline has stalled at around 5.0%. This decline, paired with an expected increase in the federal funds rate will further slow U.S. GDP growth for the remainder of 2016. Despite this bleak economic data for the U.S., it is faring well compared to many other industrialized nations.

We predict this low growth to be short-term and should begin picking up in 2017 when stronger oil prices are realized and net exports increase as the U.S. dollar starts losing value. Real GDP can expect to see about a 2.7% increase and an average of 3.25% growth for the years 2018-2021. Europe Europe had a real GDP growth of 1.8% in 2015 but has had a rough start to 2016 due to a sharp drop in banking stocks that stimulated recession fears. However, the majority of these stock drops were based on bad loans to energy companies facing 15 year lows in oil prices. The lack of consumer spending has also hurt European growth outlook. The European Central Bank (ECB) is attempting to solve this issue by setting negative interest rates on bonds to encourage lending and negative deposit rates on consumer deposit accounts to encourage spending. At the end of March, the yield on 10-year bonds in the Eurozone hit negative rates. Currently about 40% of European government bonds are negative as seen in the graph below.

Source: FRAviii

We believe that Europe will have a decrease in real GDP growth in 2016 of approximately 1.6% but will bounce back to 2% growth in 2017 as consumer spending increases again and a larger labor force welcomes more millennials and migrants. We forecast that Europe should have real GDP growth of around 2.5-3% for the years 2018-2021. China In 2015, China had its lowest GDP growth in decades at around 6.7% and expects it to slump to as low as 6% in 2016.iv This has been driven by deflationary trends suggesting that Chinese consumers and businesses are not spending as much as they used to. They also exported less in 2015 than 2014 indicating that exports may have reached their peak at around 2.3 trillion (USD) and will likely have more modest growth in the futureiii. This slowdown has contributed to a lower demand for oil.

April 12, 2016 3 | SLB

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● We believe that the years of 12-14% real GDP growth are over, and that rates will fluctuate more modestly between 6-7.5% in the future. However, by modern country standards, these expected growth rates are still large in stature. We believe that China’s economy has begun to stabilize due to peaks in the working age population and export growth. Additionally, the technology gap between China and other modern countries has closed and will now grow at a slower rate than it had in the 2000s. South America and OPEC Growth in OPEC and South American countries has been decimated by the rapid decline in oil and other commodity prices. In these countries, commodities have substantial contribution to economic growth. For example, in Saudi Arabia, oil can contribute between 45-50% of GDP and 80% of government revenue.xv South America has had increases in unemployment, inflation and political instability in big economies such as Venezuela, Argentina, and Brazil. These relatively large economies were either flat or contracted in terms of real GDP growth. The country best positioned to succeed is Iran which is coming off of trade restrictions and receiving economic incentives which will dramatically increase trade in the oil rich nation. Iran’s real GDP growth is estimated to be around 4.2 % in 2016 and could hit 6% by 2020.xx Other OPEC countries have cut real GDP growth from around 3.3% to 2.9% for 2016 due mostly to a decrease in oil revenue.xiii

We believe that South America’s real GDP growth will narrow again this year due to a slower rebound of commodity prices, significant value decreases in currencies, and current political unrest which inhibits economies from stabilizing. We project GDP to reduce about 2-3% and then have a slight positive growth in 2017, eventually reaching 2% by 2020. For middle-eastern OPEC countries we predict real GDP growth will be about 3% this year and should slowly increase as oil prices and oil demand increases in 2017 when foreign economies begin to recover. We also expect these countries to invest more in technology and manufacturing to become less reliant on oil as the quintessential revenue source in the future. Interest and Currency Exchange Rates The usage of widespread quantitative easing and manipulation of national interest rates in order to promote spending is devaluing currencies, and is causing interest rates to fluctuate around the world. The U.S. dollar has been increasing in value for a couple years as it has recovered from the 2008-2009 recession quicker than other countries. In 2011 $1 equaled .65 Euro. Today that gap has closed to around .9 Euro.vii This strong appreciation has had a substantial effect on U.S. imports across the world. Multi-national businesses particularly those that recognize revenue in

other currencies have suffered from these devaluation effects. In order to find a solution, the ECB, Bank of Japan (BOJ), and People’s Bank of China (PBC) initially devalued their currencies by turning to negative national interest rates. These reductions are intended to increase inflation, boost consumer spending, and promote the exportation of their goods and services. These events should make their exports cheaper than other industrialized countries. We expect exchange rates to stabilize in the next year as the ECB ends quantitative easing and other foreign banks stop reducing interest rates. Long-term, we expect the dollar to realize minor devaluations relative to the Euro and the Chinese Yuan. This expectation will be spurred by GDP growth in respective countries. However, it will be mostly offset by the U.S. raising its own rates at a steady pace as the federal funds rate reaches around .7% by 2017 and 3-3.25% by the end of 2020. This will slow consumer and business spending.

Country Interest Rate %

United States 0.50%

Euro Area 0.00%

China 4.35%

Japan -0.10%

Germany 0.00%

United Kingdom 0.50%

France 0.00%

Brazil 14.25%

India 6.50%

Russia 11.00%

Canada 0.50%

Australia 2.00%

Saudi Arabia 2.00%

Source: Trading Economicsxi

Oil Prices Since September of 2014 oil prices have fallen over 60% from $105 to $40/barrel which has hurt companies whose earnings are at all tied to the oil industry. Prices are expected to rebound over the next 3 years, reaching $60-65/barrel for Crude oil before leveling off.xi We believe that oil will not go back to $100/barrel or anywhere near it due to the substantial amount of oil producers, such as Iran which will start harvesting large quantities of oil. The low prices have caused solvency concerns for many small firms who do not have economies of scale, have no way to raise capital due to extremely low prices of stock, or have little access to debt markets. The graph below better demonstrates the intense drop in the price per barrel of crude oil in the past year and a half.

April 12, 2016 4 | SLB

INDUSTRY ANALYSIS

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ●

Source: ThomsonOnexix

Oil Inventories The large decline in oil prices was caused by stunted or negative economic growth around the world and an increase of production in North America from the shale oil and fracking boom. This growth occurred in states such as Texas, North Dakota and New Mexico who increased production around 2011 when oil was over $100/barrel. Through innovation, the breakeven price has dropped from $75-$90 to between $40-$50/barrel in 2015 depending on location.xx However, the market is now oversupplied with oil as OCED countries oil inventories totaled 3.04 billion at the end of 2015 and are expected to rise to 3.24 billion by the end of 2016. The chart below shows the oil inventories’ dramatic increase in early 2015 from 57 days of supply to 69 days of supply in April of 2016. As illustrated by blue trend line, the inventory levels are well outside the normal range.

Source: EIAxx

The U.S. alone has 530 million barrels in reserve as of April 1, 2016. This is a net increase of 140 million barrels since January of 2015. The rise has slowed in recent weeks as less rigs remain active. The large supply of oil has prompted many oil producers to slow production and extraction of oil due to the sharp

increase of oil supply relative to demand which began in early 2015. As shown below, the Baker Hughes rig count, an important industry metric indicating the extent of drilling activity, provides insight into current production trends. (BHI rig count)

Source: Baker Hughes Rig Countxxi

We expect the declining rig count to help reduce the oil supply glut and stimulate upward mobility in oil prices over the next three years when demand increases in the world’s big economies as they start to recover from the current economic slowdown. In the short term, this will hurt the revenue of firms in the oil service industry which is reflected in our forecasts for Schlumberger. Schlumberger operates in the Energy Equipment & Services industry. The industry is known for preparing wells for production and maintenance of wells such as cleaning or exploration. Firms operating in this industry are known as midstream companies delivering value through their contracts with upstream firms that search and extract oil and natural gas. Schlumberger and its competitive peers in this industry of the Energy sector provide equipment and services that help streamline the extraction and production of energy commodities. Recent Developments and Trends: Deepwater Drilling High development costs, technological limitations, and regulations resulting from the oil spill in 2010 made offshore drilling one of the biggest challenges for the industry.xii However, recent advancements in deep water technology such as subsea drilling plates, have helped combat these challenges by improving the safety in operations. Unfortunately, despite the developments in technology, the low price of oil has made upstream customers hesitant to invest in new offshore drilling projects. Regardless, companies such as Schlumberger see the importance of these operations for future growth, and has committed itself to maintaining its offshore operations despite the lag in new business. Still, all companies invested in these

April 12, 2016 5 | SLB

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● processes agree that searching for more cost efficient methods of servicing deep water environments are needed in order to secure new contracts and sustain operations long term.v

Exit from Venezuela The economic crisis in Venezuela is negatively impacting all firms in the energy sector with existing operations in the Latin American nation. The country is on the verge of hyperinflation with estimated rates of 481% in 2016 and up to over 1,600% in 2017.xvi The Venezuelan currency (bolivar) is also depreciating in record fashion. The dollar is 360% stronger than the bolivar now than it was a year ago.xvi This is causing oil firms to recognize sizeable losses from the devaluation. Energy firms with operations in Venezuela now have to decide whether or not to continue to engage in new business with the OPEC member. Schlumberger provides equipment to PDVSA, the sole operator of Venezuelan oil fields, and has extended them a significant line of credit over the past few years. Over $400 million has been added to impairment credits by Schlumberger due to the bolivar devaluation since 2013.xxiii The company has announced that it will be scaling back its exposure in Venezuela due to increasing accounts receivable balances that are not being paid off by PDVSA. Schlumberger’s peers are also heavily exposed to Venezuela. The Latin country is estimated to account for over 12% of Halliburton and Weatherford International’s accounts receivable balances. Companies like Weatherford can ill afford to have such sizeable outstanding balances when they are suffering from negligible liquidity (0.03 free cash flow per share). It is likely that both midstream and upstream companies suffering losses in Venezuela will begin reducing business and start encouraging PDVSA to explore alternative payment solutions. Upstream Projects Oil sands are formations of rock and sand that contain a heavy form of crude oil called bitumen. These materials are found almost exclusively in Alberta, Canada and in parts of Venezuela. In 2013, the government of Alberta released an estimate claiming that the Canadian province had potentially 1.8 trillion barrels of recoverable oil sand reserves.xxv The problem with the mining and processing of bitumen in oil sands is that it is much more expensive than conventional methods. The process requires significant time spent on mining, complicated technology for processing, and restoration of the environment upon completion of the extraction phase. Due to the high costs, oil sand services firms are feeling price pressure from E&P firms who want to pay lower rates for the extraction and processing of bitumen. Contracts already underway should remain in-tact. However, new business may be negotiated at lower price points and should slow in general until oil prices rebound and make capital expenditures attractive again.

Capital Markets for Energy The collapse of oil prices has hurt valuations for energy companies and, in turn, has reduced their stock prices. Many companies operated at a loss in 2015 which has continued in 2016. Smaller companies without economies of scale have started approaching insolvency as they try to cover their fixed costs and continue to produce oil out of necessity. Others have issued equity even though they are trading at decade lows.

Source: Bloombergii

In the debt markets, yields for energy bonds have surged to the point where over 70 company bonds issued yields over 10%.ii This is a strong indicator of the financial distress in the industry. Today, many of the big banks such as Deutsche Bank are halting the underwriting of debt for energy firms due to the difficulty of selling the bonds and the recognition of tens of billions of dollars in energy junk-bonds on their balance sheets. They are having to put billions aside to protect themselves against the possibility of energy firm defaults. Thus, small, niche market firms do not have a way to generate large amounts of capital to avoid distress and could potentially default. Though we predict crude oil prices to return to around $60 by 2018, some firms may not survive in the short term. Larger firms have cut costs and reduced their workforces. Since Q4 2014 SLB has cut 27% of its workforce, HAL 27%, NOV 20% and BHI around 20%.vii The good thing for these firms is that they may be able to buyout some of the smaller companies who have useful resources at bargain purchase prices if those companies liquidate. These acquisitions are contingent on larger firms having the necessary capital and realistic optimism about the coming years. Markets and Competition: The industry is heavily concentrated with Schlumberger, Halliburton, Baker Hughes, National Oilwell Varco, and Weatherford International accounting for over 80% of the market capitalization within the S&P 1500.

April 12, 2016 6 | SLB

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ●

Source: Factsetvii

In addition to the large international firms, there are many small firms that support a specific type of oil or gas extractor. Often times they are operating in a small geographic area. All firms in the oil services industry are struggling due to the low price of oil. The lower prices can be attributed to the oil producing firms that service firms support. These E&P companies have begun cutting production and are drilling fewer new wells. These scale backs decrease that amount of new business for midstream service firms. Comparative Analysis Due to Schlumberger's vast size compared to competitors, it does not have comparable competition at this point. However, the next two biggest firms in the industry, Baker Hughes (BHI) and Halliburton (HAL) have attempted to merge, which would make them a slightly more comparable firm in terms of size and services offered. However, due to anti-trust concerns from the U.S. Department of Justice, this merger is unlikely to happen anytime soon as the second attempt was struck down in early April. This potential merger would largely be offset by Schlumberger's recent acquisition of Cameron which adds the new business segments of Subsea, Surface, and Valves & Measurements. These new lines of business are fairly unique segments in the industry because they are newer and have a lot of room for growth as the industry evolves.

Company NameSchlumberger N.V. 107.6 B 29.51 B 7.74 B 5.64% 1.63HALLIBURTON COMPANY 32.89 B 17.68 B 3.04 B (4.23%) -0.79BAKER HUGHES INCORPORATED 18.08 B 11.94 B 1.48 B (11.24%) -4.49NATIONAL OILWELL VARCO, INC. 10.98 B 8.84 B 0.87 B (4.15%) -1.99WEATHERFORD INTERNATIONAL 6.41 B 7.14 B 0.95 B (18.48%) -2.55HELMERICH & PAYNE, INC. 6.5 B 1.66 B 0.51 B 4.80% 2.16FMC TECHNOLOGIES, INC. 5.30 B 6.48 B 1.00 B 19.62% 2.16Mean - 11.89 B 2.23 B (1.15%) -0.55

Diluted EPS 2015

SalesFY2015

EBITDAFY2015 ROE 2015

MarketCap

Source: Factsetvii

Schlumberger is in the best position to succeed because it benefits from larger profit margins due to its superior service above competitors and its operations are diversified all over the world. This will help stabilize the firm in the future compared to competitors with fewer international relations. The company currently has a low risk of default due to a high interest coverage ratio which is currently at a multiple of 13. This could allow for future acquisitions of smaller struggling firms. Many of the midsized and small firms have declining interest coverage ratios and are suffering large losses which will hinder their efforts of raising capital from creditors and investors. Unless the price of oil rebounds, they could become insolvent and begin to default on their debt. Schlumberger prides itself on innovation and maximizing value through its business segments. Staying ahead of the technology curb positions the firm to provide the most efficient methods for exploring reservoirs and pulling oil from the ground. In the current commodities climate, upstream companies focus all capex on investments that yield innovative and efficient technological solutions throughout the entire E&P process. Schlumberger has not seen a decline in new technology sales as a percentage of sales. Its commitment to integrating cutting edge equipment and services for its clients will allow Schlumberger to weather the current economic storm facing the sector. In a tough revenue growth climate like the one Schlumberger and other midstream companies are operating in, maximizing efficiency is crucial. With capital expenditures decreasing across the industry, firms must focus on generating earnings with assets on hand. Schlumberger and its competitors all saw their Return on Assets shrink from 2014 to 2015. However, Schlumberger was the only firm able to retain a positive ROA in 2015. This goes to show that amongst its peers, Schlumberger’s management is doing the best job of growing its business from asset employment and using them in an efficient manner. ROA is one metric that really shows how dominant Schlumberger is compared to the other big players such as Baker Hughes and Halliburton, who have ROAs of -2.55% and -7.44% in 2015.

Source: MergentOnlinexvii

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SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● Another factor affecting the industry is geographic revenue exposure. Schlumberger, HAL, BHI, NOV, and WFT all conduct business on a global scale. This means that these companies are all subject to risks of currency devaluations, political turmoil, rig count declines, etc. in countries of operation. 2014-2015 Geographic Revenue Declines SLB HAL BHI NOV WFT AVGNorth America -39.25% -38.65% -50.25% -40.60% -49.01% -42.19%Middle East & Asia -16.65% -6.10% -22.78% -30.34% -37.09% -18.97%Europe/CIS/Africa -25.82% -23.95% -25.79% -15.52% -26.64% -22.77%Latin America -21.89% -18.74% -19.54% -53.43% -40.67% -28.40%Total -27.43% -28.10% -37.35% -31.17% -41.52% -31.01% Source: Factsetvii

While across the world, each company saw sharp declines in revenue, some firms suffered less than others. North America hurt the industry the most. Slumping oil prices and declining active rig counts have cut some midstream firms’ North American revenues in half. Schlumberger has less exposure to this geography than many of its competitors such as BHI which saw a -50.25% decrease in North American revenues and WFT which saw -49.01%.vii While it still suffered, the decline was not as detrimental. Schlumberger’s international exposure serves as a hedge against geographic risk. As all geographies suffered revenue hits, no one region was able to setback the industry titan. Schlumberger’s revenue decreases due to current economic conditions were less significant than its competitors due to its maximization of asset efficiency, geographic exposure, cutting edge and industry leading quality of service, and use of equity financing. Schlumberger will be able to handle the current economic climate better than its peers due to diverse and robust geographic revenue segments. Despite retracting revenues, Schlumberger still reported ample Free Cash Flow. With $6.395B of FCF in 2015, Schlumberger will still be able to reduce its debt, finance its $2.5B dividends payable for 2016, continue to spend money on research and development projects, and help fund its acquisition of CAM.

Source: Factsetvii

Other firms have very small free cash flow, reducing their ability to invest more into the company, make acquisitions, or return capital to shareholders.

Source: Factsetvii

Schlumberger shows a smaller decrease in net margin compared to all competitors in 2015 and is the only firm to remain positive. Schlumberger typically has the luxury of attaching a small premium on its services due to the fact that they can offer full service to firms and do not need to sub-contract. Schlumberger’s profit margins decreased before 2015, suggesting that its economies of scale are no longer an asset and that cost of goods sold might be overtaking revenue growth. Porter’s Five Forces Analysis: Extent of Rivalry The supply of oil is over capacity for current demand, and companies are aggressively competing for any and all business. With low differentiation in products offered, they are forced to do as much as possible to separate themselves from competitors. While desperately trying to stay profitable, companies have begun participating in acquisitions which make the industry smaller and more concentrated. However, even despite companies trying to monopolize, the high costs invested force companies to do anything to survive and keeps profit competition high. Threat of Entry The oil industry is heavily regulated by both governmental and environmental restrictions. These restrictions decrease the desire for a new, inexperienced company to consider entry. Additionally, the invested capital needed is high and the challenge of finding geographical rights is close to impossible. Since the industry is made of large established companies, the issue of economies of scale makes it difficult for a new company to successfully compete. Aside from that, the industry frequently fluctuates in price. When this happens, like it has

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COMPANY ANALYSIS

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● currently with high expenses and low prices, it is difficult for companies involved to survive and deters any new companies from thinking about entry. The overall threat of entry is extremely low, which increases profitability for those in the industry. Threat of Substitutes There are a number of substitutes in the industry. Those currently available are consistently developing and becoming more popular. However, switching from oil to a substitute is expensive due to the significant quantity needed and usage. Furthermore, the availability of the substitutes is low and the quality of performance differs greatly. So although there are substitutes available such as ethanol, wind power, battery power, and solar power, the industry does not feel a high degree of threat. However, this may change in the future as those substitutes continue to develop and the world evolves. Threat of Buyers Oil is a product consumers need. There are few substitutes that satisfy this need in the same way oil does. The number of buyers within the industry is high, but with the current supply, there is not enough of them. With companies starving to make money, and industry competition high, there is little room for price differentiation. Some companies, like Schlumberger, are able to be priced at a slight premium because it has differentiated itself through additional services. Profitability is reliant on the buyers’ decision to purchase and the level of supply in comparison to demand. The large amount of buyers in the oil industry are stalling purchases due to high supply combined with low differentiation in the product lines. All in all, the threat from buyers is moderate Threat of Suppliers In the oil Industry differentiation is low, and thus, it is hard for suppliers to negotiate better deals with companies. In the current state, it is forcing suppliers to slash prices and increasing companies’ power to switch between suppliers. The success of oil/gas companies is dependent on the suppliers’ success. Currently, companies are struggling to survive, so suppliers are struggling as well. When this happens midstream companies will do what it takes to keep themselves profitable. Although suppliers in the oil industry are limited due to the invested capital needed, the current excess in supply and large amount of debt, leaves suppliers having little power.

General Information Schlumberger Ltd. (SLB), incorporated in 1926, is the global leader in the oil & gas & equipment services industry. It seeks to extract oil from the ground as efficiently as possible. Schlumberger’s employees provide project management, technology, and information solutions to oil exploration and production companies. Its operations are international in scope and it holds the largest market capitalization within the heavily concentrated industry. Schlumberger recognizes revenues within its three business segments. They include Reservoir Characterization, Drilling, and Production. The company prides itself on being able to stay ahead of the technology curve for oil extraction. The profitability of the company is largely correlated with global demand for oil and securing contracts with upstream customers (Exploration and Production Industry). Schlumberger has its own employees on site with most of its largest customers. This allows more of its high tech services to be sold at one time. Schlumberger provides a range of services and technology within the three aforementioned segments throughout the oil exploration and production life cycle. Its research and development of cutting edge technology makes it confident that it will be able to service new oilfields developed in uncomplimentary environments while still providing value to existing oilfields. Schlumberger’s significant exposure in the Eastern Hemisphere will be advantageous as new oilfield developments are likely to be implemented in the region. Recently, Schlumberger has finalized its acquisition of Cameron International (CAM), a leading global provider of flow products and services to oil and gas industries. It completed its purchase the Houston based corporation with a stock deal worth nearly $15 billion on 04/01/2016. The deal opens multiple new business segments for Schlumberger including subsea, surface, and valves & measurement services. Financial Summary The oil & gas & equipment services industry within the Energy sector is heavily concentrated with Schlumberger and its competitors Halliburton. Co. (HAL), Baker Hughes, Inc. (BHI), and National Oilwell Varco, Inc. (NOV) accounting for about 76% of the market value. With the acquisition of Cameron, Schlumberger now owns 51% of the market share for the oil & gas & equipment services industry.

Schlumberger reported revenues just shy of $35.5B for the year ended December 31, 2015. This figure was down 27% from 2014. Schlumberger recognizes this decline in sales across all three business segments. It attributed the YTY loss in revenues

April 12, 2016 9 | SLB

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● to decreases in client capital expenditures, oil rig shut downs in North America, sinking oil prices, and the devaluation of Russian and Venezuelan currencies.2 While the sales numbers may be a cause for concern, Schlumberger’s competitors suffered similar drops (HAL 28%, BHI 36%, and NOV 31%). The fiscal year 2015 hurt the margins of oil extraction and production companies. The trickle-down effect caused significant sales drops for providers of midstream services. Compared to its competition, Schlumberger has weathered the economic storm of 2015 more favorably. In 2015, it recorded EBITDA of $9.80B. While this number is down from previous years, it proves that Schlumberger can still be profitable when upstream customers cut down on capital expenditures. With the recent Cameron acquisition, Schlumberger may see a decrease in EBITDA for fiscal year 2016. Earnings per share were positives for both companies while the rest of the industry struggled to achieve positive earnings. 2015 P/E ratios are tough indicators of financial performance for this sub-industry as many companies realized negative diluted earnings per share this past year.xvii

Competition Analysis Schlumberger and Cameron have had a stable Return on Equity while the competition has had a sharp decline over the last two years. The stability of Schlumberger and Cameron suggest that equity holders’ money is being well spent, even in tough times such as the last year and a half where the oil industry suffered. This is likely due to their wide variety of services and diverse geographic segments compared to competitors. Though oil has suffered globally, it has hit the U.S the hardest and firms that primarily operate there are more likely to suffer. Firms like Baker Hughes, whose U.S. operations account for 48% of its revenue, are more likely to suffer from geographies than Schlumberger who has about 25% exposure in the U.S.vii

Managerial Guidance With oil prices steadily declining in 2015 and now hovering just above $30 per barrel, earnings are expected to be less than spectacular for Schlumberger and its competitors. Nearly 1000 oil rigs in the United States went offline in 2015 which hurt revenues of all providers of oil & gas & equipment services.xxi

The good news for Schlumberger is that 72% of its revenues in 2015 came from its international operations. This is superior to Halliburton’s 54% and Baker Hughes’s 53% (Q3 2015).vii The company’s international presence hedges its risk against economic turmoil in specific countries better than its competitors. Schlumberger will significantly reduce operations in Venezuela in 2016. This is a hedge against the economic crisis facing the country which is on the cusp of hyperinflation and facing stern currency devaluations.

However, almost all upstream clients are cutting capital expenditures which is cause for concern. Different metrics are necessary to determine which direction earnings are headed in the future. Schlumberger’s management attributed most of the negativity surrounding its earnings decline to its operations in North America. With oil rigs going offline and downward price pressure being placed on oil, demand for its services declined on onshore sites. International revenue fell more modestly, but still saw a 21% drop from 2014. E&P customers cut their capital expenditures significantly and asked for fee reductions for services provided to them. Exploration activities and budget cuts were largely to blame for the earnings decline internationally, but a lone bright spot was increased E&P activity from Saudi Arabia, Kuwait, and Oman. Management has resized its workforce to fall in better line with global activity levels of upstream clients. It is optimistic that energy supply and demand will reach a new equilibrium and that oil prices will rebound in the medium term. Until then, Schlumberger will focus on staying ahead of the curve with its technology and market dominant services and wait for its client’s investment cuts to seize.vii

Product Line Revenue Analysis: Schlumberger has three primary business segments. They consisting of Drilling, Production, and Reservoir Characterization groups. All groups contain unique technology services and product lines to satisfy the needs of firms in the oil and gas industry. The acquired three additional product lines from Cameron International include Surface, Subsea, and Valves & Measurement (VSM) groups and are included in our product line analysis to make Schlumberger the first true full service firm in the industry.xbii

Drilling Group: Contains technologies involved with drilling and the construction of oil or gas wells and rigs, including its vaunted M-I SWACO Company, responsible for drilling fluid and waste systems. Production Group: Contains the necessary technologies for the production of oil and gas through its Well Services group. Reservoir Characterization Group: Contains technologies for the discovery and classification of hydrocarbon resources through its WesternGeco, Wireline, and Testing Services teams. Subsea: Integrated technologies for oil service and exploration for sea drilling Surface: Manufacturing of well-heads for onshore/offshore drilling. This includes CAMSHALE a production service for the production of shale oil and gas.

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SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● Values & Measurement (VSM): Designs and services values to control and measure the flow of oil and gas from individual well heads into the mainstream line to refineries, petrochemical plants and industrial centers.

Source: Facsetvii

Schlumberger’s revenues are largely driven by their drilling and production groups which provide $13.6 billion and $12.5 billion in revenues. Reservoir Characterization provides an additional $9.5 billion. The other three segments combine for $6.2 billion in revenue, yielding overall revenue of $41.9 billion. It seems likely that the smaller segments which are largely the result of new technologies will have a bigger piece of the revenue in the future as the industry evolves.vii

Foreign Sales and Geographic Segments

Source: Factsetvii

Schlumberger has an even split in where its revenue comes from. This diversification of revenues should help it maintain stable profits even if one of the geographic segments has a

down year. Also the majority (76%) of Schlumberger’ revenue comes from sources outside the U.S. where the environmental regulations are a little more relaxed than in the U.S. This helps reduce litigation costs and other fines that take away from profits. The percentage of revenue from each segment has stayed fairly constant over the past few years, However the overall revenue for 2015 decreased by 27.43%. Catalysts for Growth and Change: Low Oil Price Effects The continuance of low oil prices, which is hovering just above $30 per barrel is continuing to cause financial concern for oil producers. In turn, this hurts Schlumberger because its business success is directly tied to the oil producers maintaining production to keep demand up for Schlumberger's services. To remain profitable in the current environment Schlumberger must be extremely efficient in its processes to avoid any unnecessary costs and to survive until the prices rise again. Research and Development The constant development of new technologies is the key to sustained success in this field. This is often accomplished by joint venture projects and acquisitions of specialized firms. Schlumberger is constantly acquiring firms in each of its product segments, granting it access to new technologies for greater efficiency in drilling and production. Schlumberger leads the industry in terms of revenue spent on R&D with over $1 billion spent each of the last 4 years. The revenue spent here appears to have helped its profitability by increasing efficiency in its operations, as it was the only major oil service firm to have a positive net income for FY2015.vii

Consolidation Mergers and acquisitions continue to be a big factor in this industry. As mentioned earlier, Schlumberger acquired Cameron International who specialize in Subsea and Surface drilling. The merger add business lines to service growing segments of the oil service industry. This gives Schlumberger new revenue streams which should help earnings growth and further diversify their product lines. A large potential merger to watch for is the acquisition of Baker Hughes (BHI) by Halliburton (HAL). It has not yet been cleared because of antitrust concerns, but could be a possibility in future years. This merger would give Schlumberger a closer direct competitor for business even though its market cap would still be approximately $50 greater.vii

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ANALYSIS OF VALUATION METHODS

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● S.W.O.T. Analysis: Strengths Schlumberger's vast size and diverse product segments allow it to be a full service firm in both the gas and oil markets. This allows the company to avoid subcontracting any part of its contract to other companies allowing it to realize more revenue. This enables Schlumberger to charge an extra premium that competitors cannot due to its full service capabilities and renowned customer service. Its diverse product lines also incorporate many unique technologies that are constantly evolving to meet customer needs and many of which cannot be provided by competitors. Schlumberger is also diversified extremely well geographically and its revenue is drawn fairly equally from each market allowing it to stay profitable if one market has a bad year.xxvi

Weaknesses Schlumberger’s main weakness is that it relies heavily on growth through capital expenditures in order to expand business both in terms of product offerings and in terms of expansion to new markets. It did decrease capex by 40% in 2015 to $2.4 billion and will likely cut further due to even lower expected revenues. Due to the low cost of oil that is hampering revenue in the industry, Schlumberger cannot spend as much as it would like and its capital structure is becoming more levered. Profits may continue to fall if the buyers of its services can no longer afford to produce at the current price of oil. Schlumberger is also facing a larger number of impairment costs which in fiscal year 2015 cost totaled $2.6 Billion. This was largely led by workforce reductions, fixed asset impairments, and devaluation of currency in Venezuela. Schlumberger has high currency risk due to 76% its revenue coming from international operations. The strengthening dollar and overall volatility in the currency markets could have a sizeable effect on its revenue this year.xxvi

Opportunities Schlumberger is always looking for acquisitions to expand its services and to develop innovative machines and technologies to enhance current capabilities. Many small firms may be struggling due to capital constraints and Schlumberger may be able to acquire them at bargain prices. It has made two smaller acquisitions in the last six months on top of its buying of Cameron International, which include acquiring 40% of Fortuna a NGL firm and bought Fluid Technologies, a small oil services firm.xxvi

Threats The biggest potential threat to Schlumberger is the merger between Halliburton (HAL) and Baker Hughes (BHI) as discussed earlier. This merger would allow Halliburton, the acquirer, to have similar product lines as Schlumberger and could be considered a threat to some of Schlumberger’s business. Other ongoing and fluid threats arise from litigation and regulatory measures. Schlumberger has violated the Foreign Corrupt Practices Act (FCPA) not abiding by trade sanctions and engaging in illegal operations in some countries. As a result it could face sizable penalties from the U.S. government and others. Other threats stem from environmental regulations which are currently a minor concern due to the price of using oil as energy compared to other sources. This is an ongoing long term issue that needs to be constantly evaluated.xvii Overview Our group is issuing a BUY recommendation on Schlumberger’s stock. Based on the results of our valuation model and key assumptions we calculate Schlumberger’s intrinsic value to be between $92.00 and $95.00. This target price is derived from our DCF/EP model which produced a $93.39 partially adjusted present value of the stock. SLB has been able to weather the economic downturn and low oil prices largely due to their leadership, size, and strategic acquisition of Cameron International which will make them a better-rounded and complete company in the Oil & Gas Industry. The key assumptions used in our financial models are revenue forecasts, equity and share repurchase forecasts, synergies achieved through the acquisition of Cameron International, dividend per share payouts, WACC estimation, and carrying value growth assumptions. Discounted Cash Flow (DCF) - Economic Profit (EP) Model Our DCF/EP model calculates SLB’s intrinsic value, as of 4/18, to be $93.39. The DCF/EP model is the most accurate and best representation of the true value Schlumberger shareholders receive by investing purchasing the stock. With the current price (as of 4/18/2016) finishing at $77.45, our valuation range of $92.00 to $95.00 results in a premium of between 20% and 25% over Schlumberger’s current price. The major contributors to the substantial premium are the carrying value growth assumptions, carrying value return on invested capital (ROIC), WACC calculation, and cost of equity calculation. The DCF/EP valuation model for Schlumberger is superior to the DDM and relative P/E methods because the DCF/EP method is best able to capture Schlumberger’s ability to generate high returns on its invested capital and create growth opportunities in a highly volatile industry.

April 12, 2016 12 | SLB

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● Dividend Discount Model (DDM) In looking at historical dividends for Schlumberger, it is clear that its payments to stockholder per share is well below earnings per share. This behavior is appealing to companies who strategically place themselves as growth stocks, or to companies that allocate most of their earnings to capital expenditures or back into the company to improve their trading price. We foresee Schlumberger maintaining its growth stock status throughout our forecasting period and not transitioning to a dividend driven value stock until well after our carrying value year of 2022. For this reason, our team does not consider the DDM to be an adequate representation of the Schlumberger’s intrinsic value. Relative Price to Earnings (P/E) When comparing the formative opposition in the oil & gas industry with Schlumberger, it was clear that there were no similarities between any two companies. Almost every company is reacting to low oil prices differently and some are responding much better than others. Due to this current volatility across the industry, our group has determined that the relative P/E model is also not an accurate representation of intrinsic value of Schlumberger’s stock. Forecasting Summary Important notes to keep in mind when examining our forecasted financial statements are that goodwill and accumulated other comprehensive income were unchanged and remained constant. We also did not predict any sales of fixed assets/investments line items without managerial guidance or without support based on the consistent growth rate derived from historical data. We treated the “Other Funds” accounts on the cash flow statement as a “plug” account to maintain an average cash balance. Due to the recent volatility of the energy sector, we have forecasts in proximate years for line items such as impairments which will likely increase with falling market values. After two years we forecast most acquisition and asset-sales based line items to have zero value as it is impossible to predict what management is thinking without guidance. We deliberately chose 2022 as our continuing value year based on when we foresee Schlumberger fully recovering from oil and general economic volatility. We expect the company to maintain a constant rate of growth of 6%. We also used key functions in the areas of revenue forecasts, equity and share repurchase forecasts, synergies achieved through the acquisition of Cameron International, dividends per share payouts, our WACC estimation, and our carrying value growth assumptions.

Key Assumptions: Revenue Forecasts Schlumberger’s revenue streams can be broken into five main segments: surface, valves and measurement (V&M), reservoir characterization, drilling, and production. Its largest revenue sources are from drilling and production. All of its segments’ revenues increase and decrease in a uniform matter. With the acquisition of Cameron International, Schlumberger greatly increased its V&M revenues as well as its drilling and production services revenues. Revenues dropped 25% over the past fiscal year and we anticipate further declines in 2016. Our revenue forecasts are largely in line with analysts and company estimates. Those estimates paired with historical segmentation data generated our revenue forecasts. We, as well as other analysts, predict further declines for the 2016 fiscal year in all revenue segments and total revenue overall. We expect sales to begin climbing upward during 2017 with a strong rebound until leveling out at a 6% carrying value growth rate. Equity and Share Repurchase Forecasts In Schlumberger’s 2015 10-K report, the board of directors announced a $10 billion share buyback program that is to be completed in June of 2018. We have tailored our common stock and treasury stock line items accordingly. We expect treasury stock to jump from $17 billion to $27 billion with slight growth thereafter. By 2018, our model predicts a recovered stock price ready to begin financing balance sheet and investment projects. By securing more capital through the sale of stock, Schlumberger’s debt/equity ratio will lower reducing its financial leverage. Common stock shares outstanding were derived from share change and ESOP models. The common stock line item increases at a slower rate initially with a weaker price and then picks up momentum leveling out at the 6% carrying value of growth. Synergies through Acquisition of Cameron International The merger of Cameron International and Schlumberger was completed on April 1st, 2016. Prior Cameron shareholders will receive 0.716 shares of Schlumberger common stock and $14.44 in cash for each share. This is shown on the cash flow statement under the “Purchase/Sale of Investments” line item as a cash outflow of $2.772 billion. The market responded well to the merger and both companies are excited to be performing and completing the acquisition, as it will combine two complementary technology portfolios into a pore-to-pipeline products and services company. The data and software optimization and automation business segment will be better integrated for both downhole drilling and surface drilling. As a result, Schlumberger will be a more universal and well

April 12, 2016 13 | SLB

SENSITIVITY ANALYSIS

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● equipped oil & gas company ready to service the global market. It is now the first complete drilling and production system company in the oil & gas space. Schlumberger has strong upside as the first such full service company to enter the industry. We anticipate significant potential growth going forward. The transaction is expected to be accretive to Schlumberger’s earnings per share for the 2016 fiscal year. Guidance from the board also projects synergies of $300 and $600 million dollars in the first and second years, respectively. Dividends per Share Schlumberger tends to increase its dividends paid out per share of common stock. Historically, the first quarter dividends remain the same for the following three quarters so whatever amount is declared in Q1, can be expected in Q2-Q4 as well. In January, Schlumberger declared dividends of $0.50 per common share with a payment date of April 8th, 2016. Due to this information, we have forecasted dividends per share to be $2.00 for FY2016 and increasing steadily in the following years eventually leveling off at $3.00 in the carrying value year. Dividends are difficult to forecast as they are largely up to the discretion of the board of directors for Schlumberger. However, we know that with its share repurchase program it will be able to declare higher dividends without having to pay out as much due to less shares outstanding. We think Schlumberger will take advantage of this situation to not only boost shareholder satisfaction, but also to grow its dividend yields from 2% to 3% as it moves from a growth stock to a value stock in the years after 2022. WACC Estimation We determined Schlumberger’s weighted average cost of capital (WACC) to be 8.817%. This percentage is derived after consideration of the cost of equity, cost of debt, and Schlumberger’s operating leases. When calculating the cost of equity, we use a 2.60% risk free rate, a 5.00% risk premium, and a 1.5 Beta yielding a cost of equity of 10.10%. The risk free rate is based on the 30 year Treasury bond yields. The risk premium is a percentage we chose as a group based on historical data. Lastly, Schlumberger’s beta was derived from a Bloomberg terminal using monthly beta data over the past five years. We used a 3.98% rate for the after tax cost of debt. For the tax rate, we took their marginal tax rate of 22% for the 2015 fiscal year pulled from the annual report (10-k). Schlumberger did not have any outstanding bonds issued beyond the year 2024, so we utilized Cameron International’s longest outstanding debt coupon rate of 5.10% that will mature in 2043. After multiplying the bond yield by one minus the marginal tax rate, we arrived at an after tax cost of debt of 3.98%.

Our model utilizes the capital asset pricing model (CAPM) for the calculation of the WACC. The weight of equity is 82% and the weight of debt is 18%. When multiplied by its respective costs of capital, the WACC estimation comes out to be 8.817%. We expect the weights of the two primary sources of capital to lower to around 75% equity and 25% debt in the coming years as Schlumberger issues its share buyback program. The program will leverage more of its operations with debt at first before turning around to 80% equity and 20% debt by 2022. CV Growth Assumptions We arrived at the 6% carrying value of growth assumption through a combination of variables. The primary driver of our assumption is the forecasted global GDP growth of 2.9%. The second is Schlumberger’s growth potential, as it has become the first ever company with full drilling and production capabilities through its acquisition of Cameron International. Due to this event, we multiplied the GDP growth rate by a factor of two to arrive at a 6% carrying value growth rate. Schlumberger, due to its size and scale, is strategically placed to weather the storm of low oil prices and even pursue more acquisitions of smaller companies who have not been able to survive as well. Schlumberger’s board will be able to strategically execute capital expenditure projects, mergers and acquisitions, and continue to innovate making it a pioneer in the oil & gas industry with higher potential growth rates.

Beta vs. Equity Risk Premium The beta and equity risk premium metrics are pivotal measurements when arriving at a target price range. A small decrease in the beta could mean a stock price increase of almost $10.00. We made a calculated decision to measure the beta with a monthly average over the last five years. When examining Schlumberger’s historical performance, many different economic and market conditions are captured in the past five years. In the highly cyclical industry of oilfield services, we feel as though a 1.5 beta best represents Schlumberger’s performance with market fluctuations. Our equity risk premium was chosen based upon historical average risk premiums. Small deviations in the risk premium by even 25 basis points results in large fluctuations in stock price.

April 12, 2016 14 | SLB

SCHLUMBERGER LTD. (NYSE: SLB) ● Recommendation: BUY ● Continuing Value Growth NOPLAT vs Pretax Cost of Debt The CV Growth percentage was derived from the high growth potential of Schlumberger being the first ever full drilling and production oilfield services company and from the global GDP growth rate. Further explanations are above in the assumptions section, but this metric is also crucial as small changes in assumptions can have an effect on the intrinsic value of the stock by almost $10.00. The pretax cost of debt was determined by Cameron International bond coupon rates in 2043. They have much less of an effect on the intrinsic value due to Schlumberger being primarily financed through equity and having minimal long-term debt for a company of its size.

Production Revenue Growth vs. Drilling Revenue Growth The two main revenue sources for Schlumberger are production and drilling services. In the 2015 fiscal year, both segments saw sharp declines in revenue due to commodity price drops. We have predicted further declines for the 2016 fiscal year in line with analyst estimates and company guidance. As predicted, if the revenue growth declines slow and creep back upwards then it will have positive effects on the intrinsic value of the stock. It will have the opposite effect if growth rates continue to fall.

Marginal Tax Rate vs. Pretax Cost of Debt Schlumberger’s marginal tax rate remains fairly constant and as described earlier, the pretax cost of debt is the bond coupon rate from the longest outstanding issued bond. Since the weight of the cost of debt is only 18%, the marginal tax rate does not have that big of an effect on the stock price. If Schlumberger leveraged more of its operations with debt rather than equity than the marginal tax rate would have a much more significant effect on the intrinsic value of the stock.

Continuing Value ROIC vs. WACC Schlumberger maintains a high ROIC due to its continued innovation and ability to reap positive benefits and returns on invested capital. As ROIC increases, the intrinsic value of Schlumberger’s stock will also increase. Adversely, if the WACC increases then the stock price will decrease. Schlumberger wants to maintain a low cost of capital through responsible handling of equity and debt financial instruments. We foresee Schlumberger maintaining high ROIC values through strategic acquisitions and continued innovation as it is now a full service midstream energy equipment and information solutions provider.

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.

April 12, 2016 15 | SLB

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SchlumbergerRevenue DecompositionNote: Cameron International Statements Combined

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E CV 2022Revenue 55,104 58,961 44,257 36,170 40,115 43,374 47,274 51,015 53,059 56,262 YoY Growth % 8.79% 7.00% -24.94% -18.27% 10.91% 8.12% 8.99% 7.91% 4.01% 6.04%

Business Segmentation Surface 1,464 2,411 1,957 1,800 1,962 2,100 2,310 2,472 2,570 2,725 YoY Growth % -1.65% 64.64% -18.83% -8.00% 9.00% 7.00% 10.00% 7.00% 4.00% 6.00% Valves & Measurement 2,086 2,125 1,548 1,285 1,452 1,626 1,821 1,967 2,046 2,168 YoY Growth % -2.61% 1.87% -27.15% -17.00% 13.00% 12.00% 12.00% 8.00% 4.00% 6.00% Reservoir Characterization 12,246 12,905 9,501 7,886 9,069 10,157 11,376 12,400 12,896 13,669 YoY Growth % 9.74% 5.38% -26.38% -17.00% 15.00% 12.00% 12.00% 9.00% 4.00% 6.00% Drilling 20,792 21,177 16,271 13,017 14,058 14,761 15,647 16,742 17,412 18,456 YoY Growth % 0.14% 1.85% -23.17% -20.00% 8.00% 5.00% 6.00% 7.00% 4.00% 6.00% Production 18,740 20,830 15,301 12,470 13,904 15,086 16,444 17,760 18,470 19,578 YoY Growth % 23.13% 11.15% -26.54% -18.50% 11.50% 8.50% 9.00% 8.00% 4.00% 6.00% Eliminations & Other (224) (487) (321) (289) (330) (357) (324) (325) (334) (335) YoY Growth % 83.61% 117.41% -34.09% -10.12% 14.43% 8.04% -9.14% 0.24% 2.80% 0.28%TOTAL 55,104 58,961 44,257 36,170 40,115 43,374 47,274 51,015 53,059 56,262

Business Segmentation Common Sized (% of revenue) Surface 2.66% 4.09% 4.42% 4.98% 4.89% 4.84% 4.89% 4.84% 4.84% 4.84% V&M 3.79% 3.60% 3.50% 3.55% 3.62% 3.75% 3.85% 3.86% 3.86% 3.85% Reservoir Characterization 22.22% 21.89% 21.47% 21.80% 22.61% 23.42% 24.06% 24.31% 24.30% 24.30% Drilling 37.73% 35.92% 36.76% 35.99% 35.04% 34.03% 33.10% 32.82% 32.82% 32.80% Production 34.01% 35.33% 34.57% 34.48% 34.66% 34.78% 34.78% 34.81% 34.81% 34.80% Eliminations & Other -0.41% -0.83% -0.73% -0.80% -0.82% -0.82% -0.69% -0.64% -0.63% -0.60%TOTAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Geography SegmentationNorth America 18,739 20,840 14,420 YoY Growth % 3.21% 11.21% -30.81%Middle East & Asia 10,810 11,875 9,898 YoY Growth % 17.58% 9.85% -16.65%Europe/CIS/Africa 13,191 13,479 11,260 YoY Growth % 9.39% 2.18% -16.46%Latin America 7,751 7,699 6,014 YoY Growth % 2.61% -0.67% -21.89%Other Geographical Areas 4,613 5,068 2,665 YoY Growth % 25.09% 9.85% -47.42%

TOTAL 55,104 58,961 44,257

Geography Segmentation (% of Revenue)North America 34.01% 35.35% 32.58%Middle East & Asia 19.62% 20.14% 22.36%Europe/CIS/Africa 23.94% 22.86% 25.44%Latin America 14.07% 13.06% 13.59%Other Geographical Areas 8.37% 8.60% 6.02%

TOTAL 100.00% 100.00% 100.00%

SchlumbergerIncome StatementNote: Cameron International Statements Combined

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E CV 2022REVENUES Revenue from operations 55,104 58,961 44,257 36,170 40,115 43,374 47,274 51,015 53,059 56,262 Interest & other income 165 291 236 212 219 223 210 227 240 255 Gain on formation/investment of affiliates 1,028 - - - - - - - - - TOTAL REVENUES 56,297 59,252 44,493 36,382 40,334 43,597 47,483 51,241 53,299 56,516

EXPENSES Cost of revenue 38,170 40,420 30,027 23,872 27,394 29,490 32,021 34,472 35,825 38,158 Depreciation & amortization 4,177 4,442 4,420 4,597 4,965 4,766 4,575 4,392 4,304 4,563 Research & engineering 1,174 1,217 1,094 1,039 1,019 1,039 1,070 1,102 1,146 1,215 General & administrative 2,093 2,110 1,918 1,726 1,640 1,607 1,575 1,606 1,671 1,771 Impairments/mergers/restructuring & other 749 2,104 3,348 2,000 1,000 - - - - - Interest 291 240 484 465 697 711 640 576 599 635 TOTAL EXPENSES 46,654 50,533 41,291 33,699 36,714 37,613 39,881 42,149 43,545 46,341

Income from continuing operations before taxes 9,644 8,719 3,202 2,683 3,620 5,983 7,602 9,092 9,755 10,175 (-) Taxes on income (2,076) (2,186) (930) (537) (760) (1,316) (1,748) (2,091) (2,244) (2,340)

Income from continuing operations 7,567 6,533 2,272 2,147 2,860 4,667 5,853 7,001 7,511 7,835 Minority Interest & Income (Loss) discontinued operations (69) (179) 431 150 (193) 159 160 (5) 199 (62)

NET INCOME 7,498 6,354 2,703 2,297 2,667 4,826 6,013 6,996 7,710 7,773 Prior EPS (accretive or dilutive)Basic EPS 5.14 4.50 1.94 1.70 2.02 3.72 4.63 5.37 5.90 5.94Shares Outstanding 1,460 1,412 1,393 1,354 1,321 1,296 1,298 1,302 1,307 1,309 Dividends per share 1.25 1.60 2.00 2.00 2.10 2.25 2.50 2.70 2.90 3.00

SchlumbergerBalance SheetNote: Cameron International Statements Combined

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E CV 2022ASSETS Current Assets Cash & cash equivalents 5,285 4,643 4,568 3,322 3,764 4,771 5,164 4,363 5,386 5,454 Short-term investments 4,939 4,484 10,825 5,717 5,021 4,831 5,470 6,263 6,137 6,483 Receivables, net 14,216 13,560 10,744 10,851 11,232 10,410 10,400 11,733 12,734 13,503 Inventories, net 8,193 8,019 6,514 7,817 8,442 8,780 8,604 8,260 7,930 7,612 Deferred taxes 288 144 208 140 213 369 235 368 308 309 Other current assets 1,472 1,396 1,171 1,034 1,246 1,351 1,468 1,689 1,668 1,742 Total current assets 34,394 32,246 34,030 28,880 29,918 30,511 31,341 32,676 34,163 35,103

Fixed income investments, held-to-maturity 363 442 418 451 483 512 538 559 581 616 Investment in affiliated companies 3,317 3,235 3,311 3,708 4,079 4,405 4,670 4,857 5,051 5,354 Fixed assets, gross 38,834 40,544 40,581 39,364 38,970 39,749 41,339 43,820 47,325 50,165 Less: accumulated depreciation (21,701) (23,184) (25,449) (23,618) (22,992) (23,055) (23,563) (24,539) (26,502) (28,092) Fixed assets, net 17,133 17,360 15,132 15,745 15,978 16,695 17,776 19,281 20,823 22,072 Multiclient Seismic Data 667 793 1,026 1,268 1,426 1,603 1,931 2,415 2,612 2,989 Goodwill 17,631 17,948 17,369 17,369 17,369 17,369 17,369 17,369 17,369 17,369 Intangible assets 5,613 5,382 5,151 5,099 5,048 4,998 4,948 4,899 4,850 4,801 Deferred taxes - - - - - - - - - - Other assets 2,232 2,390 3,068 3,024 3,166 3,293 3,616 4,325 4,655 5,114 TOTAL ASSETS 81,349 79,796 79,505 75,546 77,468 79,386 82,189 86,380 90,103 93,419

LIABILITIES Current Liabilities Accounts payable & accrued liabilities 12,720 12,994 10,520 11,329 12,060 12,912 12,842 12,515 12,199 11,195 Estimated liability for taxes on income 1,570 1,815 1,330 1,405 2,287 2,628 1,922 1,602 1,522 1,394 Long-term debt - current portion 1,819 1,244 3,011 1,499 1,297 566 1,591 2,697 1,844 1,496 Short-term borrowings 1,261 1,874 1,832 2,016 2,416 2,762 2,234 1,714 1,682 1,489 Dividend payable 415 518 634 704 728 762 848 882 988 1,025 Bank & short-term loans/convertible debentures - - - - - - - - - - Total current liabilities 17,786 18,445 17,327 16,953 18,789 19,630 19,437 19,410 18,235 16,598

Long-term debt 12,956 13,384 16,984 17,154 18,925 19,704 20,492 21,722 22,590 23,946 Postretirement benefits 670 1,501 1,434 1,509 1,918 2,033 1,905 1,655 1,367 1,220 Deferred Tax Liabilities 1,985 1,489 1,287 1,667 2,155 2,465 1,897 1,564 1,482 1,317 Other liabilities 1,402 1,484 1,178 1,503 1,823 1,995 1,654 1,423 1,362 1,194 TOTAL LIABILITIES 34,798 36,303 38,210 38,786 43,610 45,827 45,385 45,774 45,037 44,275

EQUITY Minority interest - - - - - - - - - - Common stock 15,402 15,753 15,961 16,280 16,769 17,439 18,486 19,142 19,890 20,683 Treasury stock (10,233) (15,566) (17,341) (20,809) (24,139) (27,035) (27,576) (27,852) (28,130) (28,693) Retained earnings 42,786 46,964 47,002 46,590 46,483 48,392 51,160 54,640 58,561 62,405 Accumulated other comprehensive income (loss) (2,634) (4,746) (5,435) (5,435) (5,435) (5,435) (5,435) (5,435) (5,435) (5,435) TOTAL SCHLUMBERGER'S STOCKHOLDER EQUITY 45,321 42,405 40,187 36,626 33,678 33,361 36,635 40,495 44,885 48,961 Non-controlling interests 1,230 1,088 1,108 134 180 199 169 111 181 183 TOTAL EQUITY 46,550 43,493 41,295 36,760 33,858 33,560 36,804 40,606 45,066 49,144

TOTAL LIABILITIES & EQUITY 81,349 79,796 79,505 75,546 77,468 79,386 82,189 86,380 90,103 93,419

SchlumbergerCash Flow StatementNote: Cameron International Statements Combined

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

Operating Activities:Net Income / Starting Line 2,297 2,667 4,826 6,013 6,996 7,710 7,773 Depreciation, Depletion & Amortization 4597 4965 4766 4575 4392 4304 4563Deferred Taxes & Investment Tax Credit 489 (415) (154) 434 466 22 166 Other Funds 1,884 831 (221) (365) (498) (721) (622) Changes in Working Capital (601) (275) 1,336 116 (1,316) (986) (1,456) NET OPERATING CASH FLOW 8,666 7,772 10,553 10,773 10,041 10,329 10,424

Investing Activities:Capital Expenditures (2,400) (2,600) (3,213) (4,316) (4,659) (4,380) (4,779) Net Assets from Acquisitions (1,155) (439) (826) (841) (1,159) (802) (1,158) Sale of Fixed Assets & Businesses - - - - - - - Purchase/Sale of Investments (Includes Cash Paid for Cameron) (3,472) 233 (887) (1,083) (437) (926) (820) Other Funds 987 564 (628) 214 (497) (224) (512) NET INVESTING CASH FLOW (6,040) (2,242) (5,554) (6,026) (6,752) (6,332) (7,269)

Financing Activities:Cash Dividends Paid (2,708) (2,774) (2,917) (3,245) (3,516) (3,790) (3,928) Change in Capital Stock (3,468) (3,329) (2,897) (541) (276) (279) (563) Issuance/Reduction of Debt, Net 2,126 774 1,510 (237) 80 1,722 1,703 Other Funds 124 314 233 (345) (297) (621) (321) NET FINANCING CASH FLOW (3,927) (5,016) (4,071) (4,367) (4,009) (2,967) (3,109)

Exchange Rate Effect 55 (72) 79 13 (80) (7) 22

NET CHANGE IN CASH (1,246) 442 1,007 393 (801) 1,023 68

Beginning Cash 4,568 3,322 3,764 4,771 5,164 4,363 5,386 Net Change in Cash (1,246) 442 1,007 393 (801) 1,023 68 Ending Cash 3,322 3,764 4,771 5,164 4,363 5,386 5,454

SchlumbergerCommon Size Income StatementNote: Cameron International Statements Combined

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E CV 2022REVENUES Revenue from operations 97.88% 99.51% 99.47% 99.42% 99.46% 99.49% 99.56% 99.56% 99.55% 99.55% Interest & other income 0.29% 0.49% 0.53% 0.58% 0.54% 0.51% 0.44% 0.44% 0.45% 0.45% Gain on formation/investment of affiliates 1.83% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%TOTAL REVENUES 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

EXPENSES Cost of revenue 67.80% 68.22% 67.49% 65.61% 67.92% 67.64% 67.44% 67.27% 67.21% 67.52% Depreciation & amortization 7.42% 7.50% 9.93% 12.63% 12.31% 10.93% 9.64% 8.57% 8.08% 8.07% Research & engineering 2.09% 2.05% 7.19% 2.86% 2.53% 2.38% 2.25% 2.15% 2.15% 2.15% General & administrative 3.72% 3.56% 4.31% 4.74% 4.07% 3.69% 3.32% 3.14% 3.13% 3.13% Impairments/mergers/restructuring & other 1.33% 3.55% 7.52% 5.50% 2.48% 0.00% 0.00% 0.00% 0.00% 0.00% Interest 0.52% 0.41% 1.09% 1.28% 1.73% 1.63% 1.35% 1.12% 1.12% 1.12%TOTAL EXPENSES 82.87% 85.28% 92.80% 92.63% 91.03% 86.28% 83.99% 82.26% 81.70% 82.00%

Income from continuing operations before taxes 17.13% 14.72% 7.20% 7.37% 8.97% 13.72% 16.01% 17.74% 18.30% 18.00%(-) Taxes on income -3.69% -3.69% -2.09% -1.47% -1.88% -3.02% -3.68% -4.08% -4.21% -4.14%

Income from continuing operations 13.44% 11.03% 5.11% 5.90% 7.09% 10.71% 12.33% 13.66% 14.09% 13.86%Minority Interest & Income (Loss) discontinued operations -0.12% -0.30% 0.97% 0.41% -0.48% 0.36% 0.34% -0.01% 0.37% -0.11%

NET INCOME 13.32% 10.72% 6.08% 6.31% 6.61% 11.07% 12.66% 13.65% 14.47% 13.75%

SchlumbergerCommon Size Balance SheetNote: Cameron International Statements Combined

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E CV 2022ASSETS Current Assets Cash & cash equivalents 10.40% 7.84% 10.27% 9.13% 9.33% 10.94% 10.88% 8.51% 10.11% 9.65% Short-term investments 9.72% 7.57% 24.33% 15.71% 12.45% 11.08% 11.52% 12.22% 11.51% 11.47% Receivables, net 27.97% 22.89% 24.15% 29.82% 27.85% 23.88% 21.90% 22.90% 23.89% 23.89% Inventories, net 16.12% 13.53% 14.64% 21.49% 20.93% 20.14% 18.12% 16.12% 14.88% 13.47% Deferred taxes 0.57% 0.24% 0.47% 0.38% 0.53% 0.85% 0.49% 0.72% 0.58% 0.55% Other current assets 2.90% 2.36% 2.63% 2.84% 3.09% 3.10% 3.09% 3.30% 3.13% 3.08% Total current assets 67.67% 54.42% 76.48% 79.38% 74.18% 69.99% 66.00% 63.77% 64.10% 62.11%

Fixed income investments, held-to-maturity 0.71% 0.75% 0.94% 1.24% 1.20% 1.17% 1.13% 1.09% 1.09% 1.09% Investment in affiliated companies 6.53% 5.46% 7.44% 10.19% 10.11% 10.11% 9.83% 9.48% 9.48% 9.47% Fixed assets, gross 76.41% 68.43% 91.21% 108.19% 96.62% 91.18% 87.06% 85.52% 88.79% 88.76% Less: accumulated depreciation -42.70% -39.13% -57.20% -64.92% -57.00% -52.88% -49.62% -47.89% -49.72% -49.71% Fixed assets, net 33.71% 29.30% 34.01% 43.28% 39.61% 38.29% 37.44% 37.63% 39.07% 39.05% Multiclient Seismic Data 1.31% 1.34% 2.31% 3.49% 3.54% 3.68% 4.07% 4.71% 4.90% 5.29% Goodwill 34.69% 30.29% 39.04% 47.74% 43.06% 39.84% 36.58% 33.90% 32.59% 30.73% Intangible assets 11.04% 9.08% 11.58% 14.02% 12.52% 11.46% 10.42% 9.56% 9.10% 8.49% Deferred taxes 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other assets 4.39% 4.03% 6.90% 8.31% 7.85% 7.55% 7.62% 8.44% 8.73% 9.05%TOTAL ASSETS 160.06% 134.67% 178.69% 207.65% 192.06% 182.09% 173.09% 168.58% 169.05% 165.30%

LIABILITIES Current Liabilities Accounts payable & accrued liabilities 25.03% 21.93% 23.64% 31.14% 29.90% 29.62% 27.05% 24.42% 22.89% 19.81% Estimated liability for taxes on income 3.09% 3.06% 2.99% 3.86% 5.67% 6.03% 4.05% 3.13% 2.86% 2.47% Long-term debt - current portion 3.58% 2.10% 6.77% 4.12% 3.22% 1.30% 3.35% 5.26% 3.46% 2.65% Short-term borrowings 2.48% 3.16% 4.12% 5.54% 5.99% 6.34% 4.70% 3.34% 3.16% 2.63% Dividend payable 0.82% 0.87% 1.42% 1.94% 1.80% 1.75% 1.79% 1.72% 1.85% 1.81% Bank & short-term loans/convertible debentures 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total current liabilities 34.99% 31.13% 38.94% 46.60% 46.58% 45.03% 40.93% 37.88% 34.21% 29.37%

Long-term debt 25.49% 22.59% 38.17% 47.15% 46.92% 45.20% 43.16% 42.39% 42.38% 42.37% Postretirement benefits 1.32% 2.53% 3.22% 4.15% 4.76% 4.66% 4.01% 3.23% 2.56% 2.16% Deferred taxes 3.91% 2.51% 2.89% 4.58% 5.34% 5.65% 4.00% 3.05% 2.78% 2.33% Other liabilities 2.76% 2.50% 2.65% 4.13% 4.52% 4.58% 3.48% 2.78% 2.56% 2.11%TOTAL LIABILITIES 68.47% 61.27% 85.88% 106.61% 108.12% 105.11% 95.58% 89.33% 84.50% 78.34%

Minority interest 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Common stock 30.30% 26.59% 35.87% 44.75% 41.57% 40.00% 38.93% 37.36% 37.32% 36.60% Treasury stock -20.13% -26.27% -38.97% -57.20% -59.85% -62.01% -58.08% -54.35% -52.78% -50.77% Retained earnings 84.19% 79.26% 105.64% 128.06% 115.24% 111.00% 107.74% 106.63% 109.87% 110.42% Accumulated other comprehensive income (loss) -5.18% -8.01% -12.22% -14.94% -13.47% -12.47% -11.45% -10.61% -10.20% -9.62%TOTAL SCHLUMBERGER'S STOCKHOLDER EQUITY 89.17% 71.57% 90.32% 100.67% 83.50% 76.52% 77.15% 79.03% 84.21% 86.63% Non-controlling interests 2.42% 1.84% 2.49% 0.37% 0.45% 0.46% 0.36% 0.22% 0.34% 0.32%TOTAL EQUITY 91.59% 73.40% 92.81% 101.04% 83.94% 76.98% 77.51% 79.24% 84.55% 86.95%

TOTAL LIABILITIES & EQUITY 160.06% 134.67% 178.69% 324.79% 192.06% 182.09% 173.09% 168.58% 169.05% 165.30%

SchlumbergerValue Driver EstimationNote: Cameron International Statements Combined

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E CV 2022Marginal Tax Rate 23.00% 24.00% 22.00% 20.00% 21.00% 22.00% 23.00% 23.00% 23.00% 23.00%

WACC 8.82% 8.82% 8.82% 8.82% 8.82% 8.82% 8.82% 8.82% 8.82% 8.82%Normal Cash (% of sales) 3.40% 3.40% 3.40% 3.40% 3.40% 3.40% 3.40% 3.40% 3.40% 3.40%Cost of Debt 5.10% 5.10% 5.10% 5.10% 5.10% 5.10% 5.10% 5.10% 5.10% 5.10%

NOPLAT Computation

EBITA: Net Sales 55,104 58,961 44,257 36,170 40,115 43,374 47,274 51,015 53,059 56,262 (-)Cost of Goods Sold (38,170) (40,420) (30,027) (23,872) (27,394) (29,490) (32,021) (34,472) (35,825) (38,158) (-)Depreciation & Amortization (4,177) (4,442) (4,420) (4,597) (4,965) (4,766) (4,575) (4,392) (4,304) (4,563) (-)Research & Development (1,174) (1,217) (1,094) (1,039) (1,019) (1,039) (1,070) (1,102) (1,146) (1,215) (-)Other SG&A (2,093) (2,110) (1,918) (1,726) (1,640) (1,607) (1,575) (1,606) (1,671) (1,771) (-)Operating Expenses (7,444) (7,769) (7,432) (7,362) (7,623) (7,412) (7,220) (7,101) (7,121) (7,549) (+)Implied Interest on Operating Leases 84.1 97.7 97.3 94.3 92.5 91.5 95.2 100.9 109.0 113.3 EBITA 9,574 10,870 6,895 5,030 5,191 6,563 8,127 9,543 10,222 10,669

Less: Adjusted Taxes: Provision for Income Taxes 2,076 2,186 930 537 760 1,316 1,748 2,091 2,244 2,340 (+)Tax Shield on Interest Expense 67 58 106 93 146 156 147 132 138 146 (-)Tax on Gain (236) - - - - - - - - - (+)Tax Shield on Impairment 172 505 737 400 210 - - - - - (-)Tax on Non-Operating Income (38) (70) (52) (42) (46) (49) (48) (52) (55) (59) (+)Tax Shield on Interest on Operating Leases 19.3 23.4 21.4 18.9 19.4 20.1 21.9 23.2 25.1 26.1 Total Adjusted Taxes 2,060 2,702 1,743 1,006 1,090 1,444 1,869 2,195 2,351 2,454

Plus: Change in Deferred Tax: DT Liabilities 1,985 1,489 1,287 1,667 2,155 2,465 1,897 1,564 1,482 1,317 DT Current Assets 288 144 208 140 213 369 235 368 308 309 DT Long-Term Assets - - - - - - - - - - Net Deferred Taxes 1,697 1,345 1,079 1,527 1,942 2,096 1,662 1,196 1,174 1,008 Change in Deferred Taxes 760 (352) (266) 448 415 154 (434) (466) (22) (166)

NOPLAT = EBITA - Adjusted Taxes + Net DT 8,274 7,816 4,887 4,472 4,516 5,273 5,824 6,882 7,849 8,049

Invested Capital Computation

Operating Current Assets: Normal Cash 1,874 2,005 1,505 1,230 1,364 1,475 1,607 1,735 1,804 1,913 Short-Term Receivables, Net 14,216 13,560 10,744 10,851 11,232 10,410 10,400 11,733 12,734 13,503 Inventory 8,193 8,019 6,514 7,817 8,442 8,780 8,604 8,260 7,930 7,612 Other Current Assets 1,472 1,396 1,171 1,034 1,246 1,351 1,468 1,689 1,668 1,742 Operating Current Assets 25,755 24,980 19,934 20,931 22,284 22,015 22,080 23,417 24,136 24,770

Operating Current Liabilities: Accounts Payable & Accrued Liabilities 12,720 12,994 10,520 11,329 12,060 12,912 12,842 12,515 12,199 11,195 Dividends Payable 415 518 634 704 728 762 848 882 988 1,025 Income Taxes Payable 1,570 1,815 1,330 1,405 2,287 2,628 1,922 1,602 1,522 1,394 Operating Current Liabilities 14,706 15,327 12,484 13,438 15,076 16,302 15,612 14,999 14,709 13,613

Net Operating Working Capital 11,050 9,653 7,450 7,494 7,209 5,713 6,468 8,418 9,426 11,157

Plus: Net PPE 17,133 17,360 15,132 15,745 15,978 16,695 17,776 19,281 20,823 22,072 Plus: PV of Operating Leases 1,649 1,916 1,908 1,359 1,411 1,493 1,655 1,834 2,043 2,171 Plus: Multiclient Seismic Data 667 793 1,026 1,268 1,426 1,603 1,931 2,415 2,612 2,989 Plus: Net Intangible (Non-Goodwill) Assets 5,613 5,382 5,151 5,099 5,048 4,998 4,948 4,899 4,850 4,801 Plus: Other Operating Assets 2,232 2,390 3,068 3,024 3,166 3,293 3,616 4,325 4,655 5,114 Less: Other Long-Term Liabilities (1,402) (1,484) (1,178) (1,503) (1,823) (1,995) (1,654) (1,423) (1,362) (1,194)

Invested Capital 36,941 36,010 32,556 32,487 32,415 31,800 34,740 39,748 43,047 47,111

Value Drivers:

ROIC 24.41% 21.16% 13.57% 13.74% 13.90% 16.27% 18.31% 19.81% 19.75% 18.70% NOPLAT 8,274 7,816 4,887 4,472 4,516 5,273 5,824 6,882 7,849 8,049 Beginning Invested Capital 33,903 36,941 36,010 32,556 32,487 32,415 31,800 34,740 39,748 43,047

EP 5,285 4,559 1,712 1,601 1,651 2,415 3,020 3,819 4,345 4,254 Beginning Invested Captial 33,903 36,941 36,010 32,556 32,487 32,415 31,800 34,740 39,748 43,047 ROIC 24.41% 21.16% 13.57% 13.74% 13.90% 16.27% 18.31% 19.81% 19.75% 18.70% WACC 8.82% 8.82% 8.82% 8.82% 8.82% 8.82% 8.82% 8.82% 8.82% 8.82%

FCF 5,237 8,747 8,340 4,542 4,587 5,889 2,884 1,873 4,550 3,985 NOPLAT 8,274 7,816 4,887 4,472 4,516 5,273 5,824 6,882 7,849 8,049 Change in Invested Capital 3,038 (931) (3,453) (70) (71) (616) 2,940 5,008 3,299 4,064

SchlumbergerWeighted Average Cost of Capital (WACC) EstimationNote: Cameron International Statements Combined

Cost of EquityRisk Free Rate 2.60%Risk Premium 5.00%Beta 1.5Cost of Equity 10.10%

Cost of DebtBond Yield 5.10%Tax Rate 22.00%After Tax Cost of Debt 3.98%

Variable WeightsTotal Equity 105,730.22# Shares 1,393 $/Share $75.90Total Debt 23,735 Enterprise Value 129,464.92Weight of Equity 82%Weight of Debt 18%

WACC 8.817%

SchlumbergerDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation ModelsNote: Cameron International Statements Combined

Key Inputs: CV Growth 6.00% CV ROIC 18.70% WACC 8.82% Cost of Equity 10.10%DCF ModelFiscal Years Ending Dec. 31 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022ENOPLAT 4,887 4,472 4,516 5,273 5,824 6,882 7,849 8,049 Change in Invested Capital (3,453) (70) (71) (616) 2,940 5,008 3,299 4,064 FCF 8,340 4,542 4,587 5,889 2,884 1,873 4,550 3,985 Continuing Value 194,044

Periods to Discount 1 2 3 4 5 6 6 Present Value of FCF 4,174 3,873 4,570 2,057 1,228 2,741 116,875

Value of Operating Assets 135,517 Add: Excess Cash 3,063 Add: Marketable Securities 10,825 Add: Fixed income investments, held-to-maturity 418 Add: Investment in affiliated companies 3,311 Less: St Debt and Current Portion of LT Debt (4,843) Less: LT Debt (16,984) Less: Derivatives Liabilities held for Hedging (165) Less: PV of Operating Leases (1,908) Less: Employee Stock Options (827) Less: Underfunded Retirement Plans (1,066)

Value of Equity 127,341.94 Shares Outstanding 1,393 Intrinsic Value $91.41Intrinsic Value (Adjusted) $93.39

EP Model Fiscal Years Ending Dec. 31 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022EBeginning Invested Capital 36,010 32,556 32,487 32,415 31,800 34,740 39,748 43,047 ROIC 13.57% 13.74% 13.90% 16.27% 18.31% 19.81% 19.75% 18.70%Economic Profit 1,601 1,651 2,415 3,020 3,819 4,345 4,254 Continuing Value 150,997 Periods to Discount 1 2 3 4 5 6 6 PV of CF 1,472 1,394 1,874 2,154 2,503 2,617 90,947

Present Value of Economic Profit 102,961 Plus: Beginning Invested Capital 32,556 Value of Operating Assets 135,517 Add: Excess Cash 3,063 Add: Marketable Securities 10,825 Add: Fixed income investments, held-to-maturity 418 Add: Investment in affiliated companies 3,311 Less: St Debt and Current Portion of LT Debt (4,843) Less: LT Debt (16,984) Less: Derivatives Liabilities held for Hedging (165) Less: PV of Operating Leases (1,908) Less: Employee Stock Options (827) Less: Underfunded Retirement Plans (1,066)

Value of Equity 127,341.94 Shares Outstanding 1,393 Intrinsic Value $91.41Intrinsic Value (Adjusted) $93.39

SchlumbergerDividend Discount Model (DDM) or Fundamental P/E Valuation ModelNote: Cameron International Statements Combined

Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E 2022E

EPS 1.70$ 2.02$ 3.72$ 4.63$ 5.37$ 5.90$ 5.94$

Key Assumptions CV growth 6.00% CV ROE 15.88% Cost of Equity 10.10%

Future Cash Flows P/E Multiple (CV Year) 15.17 EPS (CV Year) 5.94 Future Stock Price 90.06$ Dividends Per Share 2.00 2.10 2.25 2.50 2.70 2.90 3.00

Period 1 2 3 4 5 6 6Discount Factor 1.1010 1.2122 1.3346 1.4694 1.6178 1.7812 1.7812

Discounted Cash Flows 1.82 1.73 1.69 1.70 1.67 1.63 50.56

Intrinsic Value 60.79$ As of Today 62.11$

SchlumbergerRelative Valuation ModelsNote: Cameron International Statements Combined

EPS EPSTicker Company Price 2016E 2017E P/E 16 P/E 17 P/S 16 P/S 17 EV/EBITDA 17BHI Baker Hughes $42.95 (0.84) 0.23 (51.1) 186.7 1.45 1.55 15.5 10.5HAL Halliburton $35.09 0.37 1.29 94.8 27.2 1.60 1.65 12.1 8.9WFT Weatherford International $7.46 (0.62) (0.19) (12.0) (39.3) 0.85 0.85 14 9.5NOV National Oilwell Varco $29.53 (0.09) 0.47 (328.1) 62.8 1.10 1.20 14.6 11.4HP Helmerich & Payne $56.63 (0.78) (0.27) (72.6) (209.7) 2.20 2.50 12.3 13.2RIG Transocean $8.58 0.18 (0.76) 47.7 (11.3) 0.70 0.85 6.4 9.1

Average (53.6) 2.7 1.3 1.4 12.5 10.4

SLB Schlumberger $75.90 1.70 2.02 41.7 28.7 3.0 3.1 13.8 11.7

Implied Value:Relative P/E (EPS16) $ (90.84)Relative P/E (EPS17) 5.54$ P/S 16 2.23$ P/S 17 2.89$ EV/EBITDA 16 21.17$ EV/EBITDA 17 21.06$

EV/EBITDA 16

SchlumbergerKey Management RatiosNote: Cameron International Statements Combined

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E CV 2022

Liquidity RatiosCurrent Ratio Current Assets / Current Liabilities 1.93 1.75 1.96 1.70 1.59 1.55 1.61 1.68 1.87 2.11Quick Ratio (Total Current Assets - Inventories) / TotalCurrent Liabilities 1.47 1.31 1.59 1.24 1.14 1.11 1.17 1.26 1.44 1.66Cash Ratio (Cash + Cash Equivalents) / Total Liaiblities 0.15 0.13 0.12 0.09 0.09 0.10 0.11 0.10 0.12 0.12Operating Cash Flow Ratio (EBIT + Depreciation - Income Taxes) / Total Current Liabilities 0.60 0.68 0.55 0.51 0.41 0.54 0.55 0.52 0.57 0.63

Asset-Management RatiosTotal Asset Turnover Ratio Revenue / Total Assets 0.68 0.74 0.56 0.48 0.52 0.55 0.58 0.59 0.59 0.60Fixed Asset Turnover Ratio Revenue / Net PPE 3.22 3.40 2.92 2.30 2.51 2.60 2.66 2.65 2.55 2.55Receivables Turnover Ratio Revenue / Average Accounts Receivable 4.00 4.25 3.64 3.35 3.63 4.01 4.54 4.61 4.34 4.29

Financial Leverage RatiosDebt Ratio Total Liabilities / Total Assets 0.43 0.45 0.48 0.51 0.56 0.58 0.55 0.53 0.50 0.47Debt to Equity Ratio Total Liabilities / Total Shareholder's Equity 0.75 0.83 0.93 1.06 1.29 1.37 1.23 1.13 1.00 0.90LT Debt to Equity Ratio Long Term Debt / Equity 0.28 0.31 0.41 0.47 0.56 0.59 0.56 0.53 0.50 0.49Interest Coverage Ratio Net Income / Total Shareholder's Equity 0.16 0.15 0.07 0.06 0.08 0.14 0.16 0.17 0.17 0.16

Profitability RatiosGross Margin (Revenue - Cost of goods sold) / Revenues 30.73% 31.45% 32.15% 34.00% 31.71% 32.01% 32.26% 32.43% 32.48% 32.18%Operating Margin Operating Income / Net Sales 17.50% 14.79% 7.24% 7.42% 9.02% 13.80% 16.08% 17.82% 18.38% 18.09%Return on Equity Net Income / Total Shareholder's Equity 16.54% 14.98% 6.73% 6.27% 7.92% 14.47% 16.41% 17.28% 17.18% 15.88%Return on Assets Net Income / Total Assets 9.73% 7.89% 3.39% 2.96% 3.49% 6.15% 7.44% 8.30% 8.74% 8.47%

Payout Policy RatiosPayout Ratio Dividends / EPS 24.34% 35.56% 103.07% 117.93% 104.04% 60.44% 53.96% 50.26% 49.15% 50.54%Dividend Coverage Ratio Net Income / Required Preferred Dividend Payout 4.11 2.81 0.97 0.85 0.96 1.65 1.85 1.99 2.03 1.98

Operating Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases2016 261 2015 432 2014 423.8 2013 4362017 205 2016 343 2015 328.9 2014 306.452018 162 2017 281 2016 277.9 2015 248.452019 145 2018 217 2017 223.5 2016 199.552020 129 2019 195 2018 194.5 2017 174.55Thereafter 526 Thereafter 904 Thereafter 948.7 Thereafter 636.8Total Minimum Payments 1428 Total Minimum Payments 2372 Total Minimum Payments 2397.3 Total Minimum Payments 2001.8Less: Interest 273 Less: Interest 464 Less: Interest 481 Less: Interest 353PV of Minimum Payments 1155 PV of Minimum Payments 1908 PV of Minimum Payments 1916 PV of Minimum Payments 1649

Pre-Tax Cost of Debt 5.10% Pre-Tax Cost of Debt 5.10% Pre-Tax Cost of Debt 5.10% Pre-Tax Cost of Debt 5.10%Number Years Implied by Year 6 Payment 4.1 Number Years Implied by Year 6 Payment 4.6 Number Years Implied by Year 6 Payment 4.9 Number Years Implied by Year 6 Payment 3.6

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment1 261 248.3 1 432 411.0 1 423.8 403.2 1 436 414.92 205 185.6 2 343 310.5 2 328.9 297.8 2 306.45 277.43 162 139.6 3 281 242.1 3 277.9 239.4 3 248.45 214.04 145 118.8 4 217 177.9 4 223.5 183.2 4 199.55 163.65 129 100.6 5 195 152.1 5 194.5 151.7 5 174.55 136.16 & beyond 129 362.2 6 & beyond 195 614.1 6 & beyond 194.5 640.8 6 & beyond 174.55 443.0PV of Minimum Payments 1155.1 PV of Minimum Payments 1907.7 PV of Minimum Payments 1916.1 PV of Minimum Payments 1649.0

Operating Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases2012 313 2011 325 2010 247 2009 2932013 239 2012 242 2011 187 2010 1842014 181 2013 167 2012 126 2011 1342015 150 2014 124 2013 78 2012 942016 105 2015 99 2014 62 2013 62Thereafter 441 Thereafter 377 Thereafter 258 Thereafter 258Total Minimum Payments 1429 Total Minimum Payments 1334 Total Minimum Payments 958 Total Minimum Payments 1025Less: Interest 251 Less: Interest 222 Less: Interest 156 Less: Interest 162PV of Minimum Payments 1178 PV of Minimum Payments 1112 PV of Minimum Payments 802 PV of Minimum Payments 863

Pre-Tax Cost of Debt 5.10% Pre-Tax Cost of Debt 5.10% Pre-Tax Cost of Debt 5.10% Pre-Tax Cost of Debt 5.10%Number Years Implied by Year 6 Payment 4.2 Number Years Implied by Year 6 Payment 3.8 Number Years Implied by Year 6 Payment 4.2 Number Years Implied by Year 6 Payment 4.2

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment1 313 297.8 1 325 309.2 1 247 235.0 1 293 278.82 239 216.4 2 242 219.1 2 187 169.3 2 184 166.63 181 155.9 3 167 143.9 3 126 108.5 3 134 115.44 150 122.9 4 124 101.6 4 78 63.9 4 94 77.05 105 81.9 5 99 77.2 5 62 48.4 5 62 48.46 & beyond 105 302.7 6 & beyond 99 261.3 6 & beyond 62 177.3 6 & beyond 62 177.3PV of Minimum Payments 1177.7 PV of Minimum Payments 1112.3 PV of Minimum Payments 802.4 PV of Minimum Payments 863.5

Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases2008 213 2007 191 2007 1252009 165 2008 123 2008 992010 110 2009 82 2009 702011 77 2010 62 2010 432012 58 2011 44 2011 33Thereafter 279 Thereafter 189 Thereafter 79Total Minimum Payments 902 Total Minimum Payments 691 Total Minimum Payments 449Less: Interest 158 Less: Interest 113 Less: Interest 63PV of Minimum Payments 744 PV of Minimum Payments 578 PV of Minimum Payments 386

Pre-Tax Cost of Debt 5.10% Pre-Tax Cost of Debt 5.10% Pre-Tax Cost of Debt 5.10%Number Years Implied by Year 6 Payment 4.8 Number Years Implied by Year 6 Payment 4.3 Number Years Implied by Year 6 Payment 2.4

Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment1 213 202.7 1 191 181.7 1 125 118.92 165 149.4 2 123 111.4 2 99 89.63 110 94.8 3 82 70.6 3 70 60.34 77 63.1 4 62 50.8 4 43 35.25 58 45.2 5 44 34.3 5 33 25.76 & beyond 58 188.7 6 & beyond 44 129.4 6 & beyond 33 56.7PV of Minimum Payments 743.9 PV of Minimum Payments 578.3 PV of Minimum Payments 386.5

Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012)

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

Present Value of Operating Lease Obligations (2011) Present Value of Operating Lease Obligations (2010) Present Value of Operating Lease Obligations (2009) Present Value of Operating Lease Obligations (2008)

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

Present Value of Operating Lease Obligations (2007) Present Value of Operating Lease Obligations (2006) Present Value of Operating Lease Obligations (2005)

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

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

Number of Options Outstanding (shares): 41Average Time to Maturity (years): 6.03Expected Annual Number of Options Exercised: 7

Current Average Strike Price: 78.73$ Cost of Equity: 10.10%Current Stock Price: $75.90

2016E 2017E 2018E 2019E 2020E 2021E CV 2022Increase in Shares Outstanding: 7 7 7 7 7 7 7Average Strike Price: 78.73$ 78.73$ 78.73$ 78.73$ 78.73$ 78.73$ 78.73$ Increase in Common Stock Account: 537 537 537 537 537 537 537

Change in Treasury Stock 3,468 3,329 2,897 541 276 279 563Expected Price of Repurchased Shares: 75.90$ 83.57$ 92.01$ 101.30$ 111.53$ 122.79$ 135.20$ Number of Shares Repurchased: 46 40 31 5 2 2 4

Shares Outstanding (beginning of the year) 1,393 1,354 1,321 1,296 1,298 1,302 1,307Plus: Shares Issued Through ESOP 7 7 7 7 7 7 7Less: Shares Repurchased in Treasury 46 40 31 5 2 2 4 Shares Outstanding (end of the year) 1,354 1,321 1,296 1,298 1,302 1,307 1,309

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol SLBCurrent Stock Price $75.90Risk Free Rate 2.60%Current Dividend Yield 2.76%Annualized St. Dev. of Stock Returns 33.66%

$37.85-$67.87 5 51.61 2.50 26.71$ 130$ $68.51-$70.93 7 69.81 5.60 21.83$ 164$ $72.11-$78.31 9 73.56 7.00 21.93$ 196$ $83.88-$84.93 8 84.17 4.40 15.94$ 121$ $88.61-$114.83 12 95.48 8.00 17.73$ 216$ Total 41 78.73$ 6.03 27.03$ 827$

Value of Options Granted in MM

Range of Outstanding Options

Average Exercise Price

B-S Option Price

Average Remaining Life (yrs)

Number of Shares in MM