It’s ubiquitous in fossil fuel operations across the world, has more staff than Google, turns over more than Goldman Sachs, and is worth more than McDonald’s – yet you won’t have heard of it. Meet the oil world’s most secretive operator
Schlumberger staff at work at an oil fracking site in Vaca Muerta in the Patagonian province of Neuquen, Argentina. Photograph: Eyevine
In the dying hours of a high-level conference on the banks of the Thames late in April, two oil executives are sitting patiently waiting on faded leather chairs in the lobby of a five-star Tower Bridge hotel, briefcases, architects’ plans and a folded flipchart pad at their feet.
The two bespectacled executives, looking much like soberly-suited bank managers, soon disappear into a private room to meet with Dr Abdullahi Haider, a senior adviser to the Somalian government, and a Canadian middleman, emerging an hour or so later.
Somalia could be one of the great untapped sources of offshore oil, if someone can secure a deal to find and extract it, and if anyone can, it’s the company these men work for.
The African nation is one of the most politically unstable, unsafe, and corrupt countries in the world, one of the toughest places for any business to think of operating.
But that is what Schlumberger – the biggest company you’ve never heard of – do, if the rewards are great enough.
Schlumberger were the “gold” sponsors of the conference, a two-day event attracting around a 100 delegates to discuss how to unlock Somalia’s potentially vast, and so far untapped, oil and gas reserves.
The contents of the four men’s discussions as the conference organisers packed up around them, and of their tubes of plans, remain confidential. The executives, characteristically of the secretive oil giant, declined to tell The Guardian what they had discussed.
Schlumberger employs more than 100,000 people finding, scoping, and drilling as much oil and gas as possible from 85 countries across the world. With revenues of $48bn (£30bn) a year and a valuation in excess of $116bn (£75bn), it has more staff than Google, turns over more than Goldman Sachs, and is worth more than McDonald’s.
Schlumberger profile
The last row of figure workers-115,000
$185
Tax paid 2014-$1.9bn
Pre-Tax Profit 2014-$7.6bn
Revenue 2014-$48bn
Market Capitalization-$116bn
It works with every major international oil company, and directly for most of the petrostates – including Saudi Arabia, Libya, Russia and Turkmenistan. It operates in the most difficult areas, whether politically, logistically, or technologically, and it is a world leader in the technologies required to get fossil fuels out of the ground – with 36,000 patented ways to help its clients do just that. And it does all of this while staying well out of the limelight.
But with a plea deal with the US authorities finalised at the end of last month, Schlumberger set a corporate record it would probably prefer not to be noticed: receiving the largest corporate criminal fine for sanctions violations in US history.
Its crime, to which it pled guilty, was to involve its US staff in sanctions-busting transactions with both Iran and Sudan, and for its (unsuccessful) attempts to mask such transactions from the authorities.
Schlumberger is now required to pay $155m in criminal fines, forfeit $77.5m in earnings, and undergo three years of corporate probation, the business world’s answer to a yellow card. But for a $48bn-a-year business, which made $208m profit from Iran in 2012 alone, such a fine is just a drop in the oil well. The day the deal was struck, Schlumberger shares actually rose almost 2%, a visible sign investors saw the punishment as little more than a slap on the wrist.
But the deal shines unprecedented light on some of the inner workings of a company central to drilling out fossil fuels right across the planet.
Schlumberger doesn’t actually own any oil or gas fields itself, meaning it was not on the Guardian’s divestment list of 200 companies as part of its “Keep it in the ground” campaign – but as perhaps the most sophisticated oilfields services company on the planet, it is key to deep-sea drilling, arctic exploration, re-fracking (a bid to “stimulate” a dwindling fracking site to boost its production) and more, and works with many of the nationally-owned oil companies that hold most of the world’s reserves.
The South Pars/North Dome gas field near the port of Assalouyeh, south Iran, is the world’s largest gas field. Schlumberger has been found in breach of US sanctions over Iran. Photograph: Ahmad Halabisaz/Corbis
It does all this with a huge £114m investment from the Wellcome Trust, and the Gates Foundation Trust also holds a shareholding of more than $3m in the company. Schlumberger may lack the public profile of its rival in the field, Halliburton – which became notorious among campaigners in the aftermath of the war in Iraq, especially through its ties to controversial former US vice-president Dick Cheney – but it’s bigger than it by far. Schlumberger is valued at almost three times its US-owned rival, and has around 35,000 more staff.
Schlumberger, founded in 1926 by two French brothers as a prospecting company, works under the radar. Where its better-known but smaller rivals openly lobby, donate to political parties, and even hire big-name politicians, Schlumberger does not. The results show in overage: Halliburton appeared in more than 1,700 articles in the British press in the last decade. Schlumberger is in just 500, mostly short pieces tucked away on the business pages.
One of Schlumberger’s tricks of the trade is its near-statelessness. Unlike Halliburton, it is not US-owned. Despite being a publicly listed company both in the US and the UK, and having “headquarters” in London (a sleek glass skyscraper just yards from Buckingham Palace), Paris, The Hague and Houston, Schlumberger is formally incorporated in Curaçao, a Caribbean offshore haven with ties to the Netherlands.
The company’s complex structure, which routes its operating companies through subsidiaries in the Netherlands, British Virgin Islands and Panama, often works in its favour. One such upside was for years that Schlumberger was able to operate in Iran and Sudan, despite US sanctions, because it wasn’t a US company, and so it did – including directly for the National Iranian Oil Company.
Schlumberger's global footprint
The key condition was that no US citizens or staff on US soil must be involved in the contracts. Unfortunately for Schlumberger, the company didn’t manage to keep to those terms – and the US authorities found out, and struck.
Documents filed by the Department of Justice, and accepted by Schlumberger through its guilty plea, set out how the US sanctions rules were repeatedly and deliberately breached.
Staff within the US, the document sets out, approved capital spend – money for equipment and other needs – against the terms of US sanctions. The DoJ document also sets out the steps staff members took to try to cover their tracks, including creating covernames – such as referring to Sudan as “Southern Egypt” – for the countries concerned when applying for funds.
“[E]mails often identified Iran and/or Sudan, through the use of code words,” the document states. “For example, D&M [drilling & measurements, a division within Schlumberger] personnel in MEA [Middle East and East Asia] generally referred to Iran as “Northern Gulf” and Sudan as “Southern Egypt” … these funds were approved by D&M personnel in the United States even though they were made by or on behalf of Iran or Sudan.”
One email exchange between Schlumberger staff highlights staff taking steps to avoid sending anything with the barred country named to US soil. An email to Texas notes “I have purposely not sent additional files as they refer to “Southern Egypt” by name.”
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The documents also detail Schlumberger staff modifying country codes to avoid references to Iran and Sudan, as well as arranging equipment “swaps” to facilitate US-made equipment getting to sites in Iran and Sudan, by virtue of sending new equipment to permitted countries (like Jordan), who didn’t need it, so as to allow their second-hand machinery to be sent on to the barred nations. “This is to help out Sudan again with their embargo” one employee noted in an email arranging one of the deals.
Despite its substantial fine and probation, which includes a prohibition on Schlumberger operating in Iran and Sudan (it has now exited both), analysts regard the issue as largely having passed – leaving the company free to do as it will elsewhere.
“Everyone’s known the company, Schlumberger, because it’s sort of dual-citizenship … has allowed them to operate in certain areas, which has given them an advantage over certain companies and areas, and Iran was one of them,” explains David Anderson, oil services and equipment analyst at Barclays. “They operated in the country and they paid the fine.”
For the oil analysts, Schlumberger’s sanctions breaches are a thing of the past, an embarrassing moment best forgotten. The company might no longer be able to trade in Iran and Sudan, but is free to continue its operations in some of the world’s most difficult places to work.
Schlumberger has proven itself unafraid of contentious customers, with operations in autocratic states widely criticised by human rights groups and western governments. The company’s clients have included Libya, Burma, Turkmenistan, Chad and Angola.
Documents disclosed by WikiLeaks in 2011 also shed light on the US State Department’s views on some of Schlumberger’s operations at the time, and highlight its presence in some of the most difficult areas in which to operate.
The US embassy in Turkmenistan noted the company had hired a local fixer – an “ombudsman” in their parlance – to reduce “harassment and extortion by local police”, which had included dubious “fines”, tax audits, and even deportation of employees for fratenising with Turkmen women, a serious no-no in the draconian state.
A Schlumberger worker (blue boiler suit) working at an Esso oil extraction site in Doba, Eastern Logone, Chad. Photograph: Frederic Noy/Cosmos/Eyevine
On a brighter note, the State department memo did record Schlumberger officials “claimed that corruption in Turkmenistan is not as bad as in Kazakhstan or Azerbaijan” – countries in which it also operates.
Elsewhere, Schlumberger had to battle hostage takings and raids in Nigeria – where the company “tripled the amount spent on security so it now totaled 55% of its budget”.
However, the rewards to the oilfield services companies – Schlumberger and its smaller rivals – for being willing to work where others fear to tread were also clear. In Kuwait Schlumberger and its rivals had “almost all” of the fieldwork for the national oil company, while in the UAE a State Department official remarked in 2005 that “Halliburton, Baker-Atlas, Schlumberger and other service providers act as an oligopoly and enjoy exceedingly large profit margins”.
The core of Schlumberger’s indispensability to its customer base across the world is its specialism in extracting the most fossil fuels possible. Where its rivals are often said to compete on low costs, Schlumberger offers up technical expertise to seek out and grab every drop of oil, or puff of gas.
“You could almost say Schlumberger is the Apple of the oil fields, the high tech company, they’re ubiquitous,” explains Robert MacKenzie, an analyst at Iberia Capital Partners and a former employee of Schlumberger.
“If you’re trying to develop a field and you want the best you hire Schlumberger. If you’re not certain how to work it and you want someone to help figure out how you develop it you call Schlumberger. They have driven many technology advances in the industry in the past and they continue to do that.”
Schlumberger’s technological dominance is reflected in its formidable patent portfolio. A search on Espacenet, an international database operated by the European Patent Office, for Schlumberger reveals more than 36,000 patents linked to the firm. The same search for Halliburton gives 25,000, while Baker Hughes, the third-largest in the sector has 20,000.
“Their technology is real, it’s legitimate and it is certainly one of the hallmarks of the company,” says Barclays’ David Anderson, who described Schlumberger’s patent portfolio as the company’s “calling card” since its inception. It certainly keeps the company profitable: Schlumberger’s net income topped $5bn (£3.2bn) in 2014, and the company has historically enjoyed better profit margins than its rivals.
The company is keen to tout its technological edge, with Patrick Schorn, one of the company’s presidents, telling an energy conference in December 2014 that Schlumberger had been granted 689 patents in 2013 – 166% more than just five years before, with Schorn showcasing technologies to boost fracking, and to scope out the full extent of hard-to-analyse oil reservoirs.
A Schlumberger stall at the DUG Eagle Ford Conference and Exhibition in San Antonio, Texas, US. Photograph: Eddie Seal/Getty Images
Schlumberger then uses this R&D to make its money making whole new types of drilling possible – allowing big western oil and gas companies, plus state-owned enterprises to extract exactly the reserves environmental campaigners insist must stay in the ground.
“The magnitude of deepwater reserves and production potential is simply too large for the industry to ignore,” chief executive Paul Kibsgaard told an industry audience earlier this year.
His company’s promotion material push the same message. “[N]o company can match our on-going investment in deepwater R&D,” one 2014 brochure pledged, before referring to the company’s “overwhelming market position” in ultra-deepwater rigs, a risky and controversial form of extraction, particularly in the wake of the very public Deepwater Horizon disaster in the Gulf of Mexico.
Schlumberger’s fossil-fuel reliance extends in other ways. The company has recently started offering its refracking customers new, risk-free deals, where they pay no revenue unless Schlumberger increases their production beyond a certain level, at which point they take a share, in a sense, making them an oil company in all but name – the oil indiustry’s version of the ambulance chaser’s “no win, no fee” offer.
The reliance of the business on fossil fuel extraction is tacitly, if briefly, acknowledged in a section of the company’s official annual filings from 2012, touching on significant potential risks to the business. In the guarded language of the corporate world, it warns “demand for our products and services could be reduced by changes in governmental regulations or in the law”.
“Some international, national and state governments and agencies are currently evaluating and promulgating climate-related legislation and regulations that are focused on restricting greenhouse gas emissions,” the section then explains.
“Such legislation … may significantly curtail demand for and production of fossil fuels such as oil and gas in areas of the world where our customers operate and thus adversely affect future demand for our services, which may in turn adversely affect our financial condition, results of operations and cash flows.”
For now, though, the company is still keen and willing to look to untapped frontiers of fossil fuel extraction, with the Arctic being one of the key targets in its sights – where they were behind a major oil discovery in Russia’s icy Kara Sea last year.
And despite its recent run-in with the US over sanctions, it is according to a Bloomberg report still able to work with Russia in the Arctic extraction, despite US sanctions.But with three years of corporate probation to serve, it is sure to be characteristically more careful this time to stay out of the headlines.
The Guardian contacted Schlumberger five days prior to publication in order to provide the company an opportunity to respond to matters raised in this article. At the time of publication, 72 hours after the an initial deadline for comment, Schlumberger was yet to respond to the Guardian’s email and questions, other than pointing to a recent US DoJ press release relating to the final judgement in the US sanctions case.
Paal Kibsgaard keeps a low profile. Unlike other top executives in the oil industry, Schlumberger’s Norwegian chief executive and chairman manages to avoid the public eye.
There are few interviews with the press and only a brief biography appears on the company’s website with career highlights. Made chief executive in 2011 – and anointed as chairman in April – Kibsgaard joined the firm in 1997 as an engineer in Saudi Arabia and worked his way through company ranks.
While relatively little may be known about Kibsgaard, he is among the highest paid executives in the US. Last year his total pay packet, including shares and options, hit almost $17m – ahead of Tim Cook of Apple and the chief executives of Nike and Ford, according to data compiled by Equilar.
Kibsgaard sits at the helm of a truly global operation, and in 2013 the 47-year-old from Ålesund, a picturesque port town set among snow-glazed mountains on Norway’s west coast, was named by Foreign Policy magazine as one of the 500 “most powerful people on the planet”.
Earlier this year, Kibsgaard received a medal from another of the world’s most powerful people: Vladimir Putin. In a decree signed by the Russian president, Kibsgaard was awarded the “Order of Friendship” medal for Schlumberger’s contribution to a major discovery in the Russian Arctic.
Last month, Kibsgaard – believed to be the highest paid Norwegian in the world – proved to be a ruthless operator, slashing Schlumberger’s workforce by 15% in response to the fall in oil prices. Meanwhile, investors remain supportive of Kibsgaard – presumably thanks to extra generous dividend increases since he took the top job.
In a rare interview last year, Kibsgaard spoke to financial magazine Barron’s about his ambitions for Schlumberger and offered an ambitious vision. “I don’t think we should focus on only being the best company in our industry,” he said. “We have the potential to be the best-run company in the world, and that’s what we are trying to do.”
