Schlumberger Q3 2023 Earnings Call Transcript

There are 12 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the SLB Earnings Conference Call. At this time, all participant lines are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded.

Operator

I would now like to turn the conference over to the Senior Vice President of Investor Relations and Industry Affairs, James McDonald. Please go ahead.

Speaker 1

Thank you, Leo. Good morning, and welcome to the SOB Third Quarter 2023 Earnings Conference Call. Today's call is being hosted from New York City following our Board meeting held earlier this week. Joining us on the call are Olivier Lapouche, Chief Executive Officer And Stephane Begay, Chief Financial Officer. Before we begin, I would like to remind all participants Some of the statements we will be making today are forward looking.

Speaker 1

These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest 10 ks filing and our other SEC filings. Our comments today may also include non GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures Can be found in our Q3 press release, which is on our website. With that, I will turn the call over to Olivier.

Speaker 2

Thank you, James. Ladies and gentlemen, thank you for joining us on the call today. In my remarks This morning, I will begin by reviewing the Q3 financial results represented in today's earnings release. Then I will discuss the progress we are achieving And finally, I will share our outlook for the Q4 and the full year. Stephane will then provide more details on our financial results, and we'll open the line to your questions.

Speaker 2

Our Q3 results have built upon the positive momentum we established in the first half of the year and firmly position us We continued to grow revenue and adjusted EBITDA both sequentially and year on year, And we generated free cash flow of $1,000,000,000 for the 2nd consecutive quarter. Internationally, we continued to seize the cycle. We achieved our highest international revenue quarter since 2015 by growing revenue in this market for the 9th consecutive quarter year on year. This was particularly visible in the Middle East and Asia, where we posted 22% year on year revenue growth, led by significant growth in Saudi Arabia, the United Emirates, Kuwait and Egypt. Our strong international activity was further augmented by the resilient investments in the offshore markets, notably in Africa, Brazil and Scandinavia.

Speaker 2

Offshore continues to offer many opportunities for our business, and I will shortly discuss how the recent closing of our 1 Subsea joint venture with Aker Solutions and Subsea 7 will help us to expand our footprint in the market moving forward. And in North America, although revenue decreased sequentially due to lower activity, we continued to grow year on year, outperforming the rig count. Once again, our focus on the quality of our revenue combined with the differentiated value we deliver through technology drove margin expansion. EBITDA margins reached a new cycle high of 25% and our pretax segment operating margin expanded for the 11th consecutive quarter These are very positive results, and I want to thank the entire SLB team for delivering this strong performance. Next, I would like to share some updates about progress across our 3 engines of growth: core, digital and new energy.

Speaker 2

Let me begin with the call. The oil and gas sector continues to benefit from broad, durable and resilient material growth That is being supported by long cycle developments, production capacity expansions, exploration appraisal and the recognition of gas as a critical fuel source for the energy transition. This market fundamentals remain very compelling for our core business, which has grown 22% year to date and has materially expanded margins. This strong performance is being driven by the diversity of our portfolio, our industry leading technology and Our unique integration capabilities. Reservoir Performance achieved exceptional results with stronger evaluation activity.

Speaker 2

Production Systems achieved its highest level of margin in the cycle, led by subsea, surface and archer lift. Our Construction maintained impressive results through new technology innovations and differentiated performance. All in all, This was a very strong quarter across our core divisions. The supportive macro environment is also leading operator to make long cycle investments offshore, Where advanced inefficiency have significantly improved project economics. We have visibility into FIDs extending well beyond 2020 And there could not be a better time to join forces with Aker Solutions and Subsea 7 to drive a new RERA for Subsea.

Speaker 2

Today, SAB is recognized for its unique ability to handle large, complex and fully integrated offshore projects from subsurface development To our 1 Subsea Joint Venture, we'll further enhance this offering by bringing new levels of technology And partnership to the market. Together, our companies are the clear leader in subsea multiphase boosting and subsea gas compression, And we will provide electrification and digital solutions to further enhance the business. This partnership approach will also create a more flexible customer offering To scale through scale, increased capacity and life of field services. Collectively, this will drive meaningful change to Subsea Asset Performance as we partner with customers to help them unlock their reserves, drive efficiency, reduce cycle times and reduce emissions in the deepwater market. Now let me turn to digital.

Speaker 2

On the last call quarter, I shared an update on the emerging digital trends shaping the industry. This included the adoption of cloud computing, the power of data and AI at scale and digital operation gaining maturity. At the recent investor conference, I discussed how SLB Capitalizing on this opportunity with our platform strategy, comprising of a workflow platform that serves as the backbone for our customers' planning and operation, Now data and AI platform that unlocks data at scale for digital transformation. Today, We are seeing increased digital adoption across the industry. Delphi continued its year over year growth momentum with a 49% increase in users And an 89%, 86% increase in compute hours compared to the Q3 last year.

Speaker 2

Additionally, Our customers are embracing our connected and autonomous drilling solution with 1,900,000 feet of automated drilling Completed in the Q3, an increase of 60% year over year. As a result, SLSB's platform, representing our new digital technology offering, Sustained growth at the CAGR rate of about 60%. The benefit of this technology is clear, And you can see this illustrated in our earnings press release this morning with our shared AWS collaborative agreement and the Kuwait Energy Bassa Limited digital oilfield contract David is serving as just two recent examples of customers choosing SLB Digital Technology to reimagine And finally, let me quickly discuss some of the exciting opportunities in our new energy business and transition technology portfolio. As we address the energy dilemma, our industry has an imperative to decarbonize operations. 2 of the most immediate opportunities to do this are reducing methane emissions and scaling CCUS as a solution for mitigating climate Regarding methane, we have opportunity to address fugitive methane and flaring to better monitoring and leak detection.

Speaker 2

A few weeks ago, we launched a new IoT enabled midane point instrument for continuous monitoring that seamlessly connect to our mid teen digital platform for insights and analysis, eliminating the need for intermittent site visits and enabling operators to quickly scale up across This and other solutions are available today to help clouds abate their methane emissions. And in CCUS, momentum is building across the industry, both in oil and gas as well as in other hard to abate sectors. SLB is actively involved with more than 20 CCUS projects globally, and we are investing in captured technology as underscored by the partnership with TDI Research highlighted in our earnings release. Overall, we are pleased with our pipeline of technology and projects, and we have confidence By establishing ourselves as the leader in this space, we will create yet another avenue for diversified long term growth. Now we turn to our outlook for the Q4 and the full year.

Speaker 2

In the Q4, we expect Continued sequential revenue growth driven by year end digital sales and seasonal product and equipment sales in Production Systems. The quarter will also reflect the results of the OneSubsea joint venture. As a result, we expect overall sequential revenue growth To be in the high single digits. With our continued focus on the quality of revenue, harnessing operating leverage And further Technogulier adoption, we expect to maintain global pretax segment operating and EBITDA margins at their highest levels The cycle in line with our Q3 performance. Stephane will provide additional color on the net contribution of the 1st subsidiary joint venture on our 4th quarter Guidance.

Speaker 2

Turning to the full year. We expect to achieve our financial ambition we shared back in January. Excluding the effects of the 1 subsidiary joint venture, we expect to conclude the year by increasing revenue more than 15% and growing EBITDA in the mid-20s, We've raised some North America headwinds being more than offset by strong international growth. With this strong full year results, we will remain well positioned to continue returning value to our shareholders. I will now turn the call over to Stephane.

Speaker 3

Thank you, Olivier, and good morning, ladies and gentlemen. 3rd quarter earnings per share was $0.78 This represents an increase of $0.06 sequentially and $0.15 when compared to the Q3 of last year. We did not record any charges or credits during any of those periods. Overall, our Q3 revenue of 8 €300,000,000 increased 3% sequentially. International sequential revenue growth of 5% was led by the Middle East and Asia, which increased 8%, while North America revenue decreased 6%.

Speaker 3

Sequentially, pretax segment operating margin increased 73 basis points, which resulted incremental margins of 48%, largely due to the high quality international revenue. Companywide adjusted EBITDA margin for the Q3 reached 25%, The highest level since 2015. On a year on year basis, 3rd quarter revenue increased 11%, As international revenue grew 12%, while North America revenue increased 6%. The strong international performance was led by broad based growth across the Middle East and Asia and Offshore Markets. Let me now go through the Q3 results for each division.

Speaker 3

3rd quarter digital and integration revenue $982,000,000 increased 4% sequentially, with margins decreasing 2 percentage points to 32%. The sequential revenue growth was primarily driven by increased EPS revenue and increased digital revenue, including higher sales of exploration data licenses. Margins declined sequentially As lower profitability in APS more than offset improved digital margins. Reservoir Performance revenue of $1,700,000,000 increased 2% sequentially, while margins improved 190 basis points to 20.5%. These increases were due to strong international growth, A favorable technology mix and improved pricing.

Speaker 3

While construction revenue of $3,400,000,000 increased 2% sequentially, led by strong growth in the Middle East and Asia, which was partially offset by lower revenue in North America. Margins of 22.1 percent increased 38 basis points, driven by the international market. Finally, Production Systems revenue of €2,400,000,000 increased 2% sequentially As international revenue increased 7%, led by the Middle East and Asia and Latin America. North America revenue decreased by 8% due to lower subsea activity. Margins Expanded 147 basis points to 13.5%, representing the highest margin Since we began reporting results for the division.

Speaker 3

This expansion was primarily driven by higher sales of completions, artificial lift and surface production systems as well as pricing improvements. Now turning to our liquidity. During the quarter, we generated $1,700,000,000 of cash flow from operations And free cash flow of just over $1,000,000,000 As a result of the strong cash flow performance, our net debt reduced sequentially by €731,000,000 to €9,400,000,000 Our net debt to trailing 12 month EBITDA leverage ratio of 1.2 is at its lowest level since 2015. Capital investments, inclusive of CapEx and investments in APS Projects and Exploration Data, We're $640,000,000 in the Q1. For the full year, we are still expecting capital investments to be approximately $2,500,000,000 to $2,600,000,000 We repurchased 2,600,000 shares of our stock during the quarter For a total purchase price of $151,000,000 we continue to target to return $2,000,000,000 to our shareholders this year between dividends and stock buybacks.

Speaker 3

Before closing, I would like to add some color to the Q4 outlook that Olivier just provided. We are expecting sequential 4th quarter revenue growth To be in the high single digits, with pretax margins remaining at the same high level we achieved in the Q3. As Olivier highlighted, this outlook includes the contribution from the recently acquired Aker Subsea Business, which will be consolidated under our Production Systems division starting in the 4th quarter. The Aker Subsea business is expected to contribute approximately €400,000,000 to €500,000,000 Therefore, excluding the effects of the acquired Drakkar Subsea Business, SLB's 4th quarter sequential revenue growth Is expected to be similar to the sequential revenue growth we experienced in the Q3. SLB's organic pretax operating margin, again excluding the effects of the acquired Aker Business, is expected to continue expanding sequentially.

Speaker 3

After considering the impact of Below the line, items relating to this joint venture, such as amortization of intangibles, taxes and non controlling interest. This transaction is expected to be slightly accretive to our Q4 earnings per share, excluding charges and credits. In closing, we are very excited about the prospects of this venture, which strengthens our offshore portfolio and And has the potential to deliver more than $100,000,000 of net annual synergies starting year 3 after closing. I will now turn the conference call back to Olivier.

Speaker 2

Thank you, Stephane. Ladies and gentlemen, we will now open the line for your questions.

Operator

And our first question is from the line of James West with Evercore. Please go ahead.

Speaker 4

Hey, good morning Olivier and Savan.

Speaker 5

Good morning, John.

Speaker 4

So, Olivier, I know you recently returned from Adytek and most likely Met with all of the major oil producers in the region. Curious to hear your thoughts on the Middle East And how we should think about the Middle East with respect to Schlumberger over the next several years because it looks like it's going to be a huge driver of growth.

Speaker 2

Thank you, James. I hope everybody could catch your question relating to Middle East. Indeed, I've been the privilege to be there for About a week and not only went to the conference and met a lot of customers in the region, but also had the benefit To go to operation in Saudi and visit the customer in South over there. So great insights. Just to say that This is clearly the largest investment cycle is clearly now underway.

Speaker 2

The momentum is set. It's not about the economy set. And I think the sentiment across, actually, I'm being positive. So there is a layer, there is a noise on the

Operator

Yes, Mr. West, if you could mute your phone, sir. Okay, you may proceed.

Speaker 2

Thank you. So if I have to characterize attributes, I think breadth, resilience, durability that we have characterized for the full cycle, I think are very much in full display I think the durability 27 is the target for capacity expansion. Breadth It's not only oil, but it's also gas as a driver for regional gas consumption and LNG exports. It's offshore and onshore. It's conventional and unconventional and goes beyond 1 or 2 countries that are very well known Into Kuwait, into Iraq, into Egypt and more.

Speaker 2

And it's clearly decoupled from some of the Short term uncertainty. So it's all made about of long term contract from the rig contracting to the service contract. And we are a clear beneficiary of this situation. We have a unique footprint in the region. And indeed, we see that this will continue to support Growth in the years to come for SLB.

Speaker 2

And this year, as stated before, we'll record our record revenue in the region, And we will continue to grow and use this to be accretive to our international growth and accretive to our international margin and the company, Great outlook in essence.

Speaker 4

That's great. Thanks Olivier for that. Sorry about my phone issues here. Probably a follow-up for me, maybe for Stephane, is on FX. How much was FX a headwind during the quarter?

Speaker 3

Thanks, James. So look, most of our revenue is built in U. S. Dollars, but indeed, In a few countries, it's partially not the case. So for some of those, we indeed had an unfavorable impact Of the U.

Speaker 3

S. Dollar strengthening against local currencies, and that was both sequentially and year on year. I Prefer I'm not giving you a specific amount as we have contractual adjustment clauses that come and offset the negative effect, at least partially. But Yes, the revenue would have been slightly higher without that. And the last point here to remember is a lot of our Costs as well are expressed in local currency.

Speaker 3

So we have a natural hedge on this and the net impact

Operator

We will move on to David Anderson with Barclays. Please go ahead.

Speaker 6

Thank you. Good morning Olivier. With Aker now part of the 1 subsea JV, I was hoping you could talk a little bit more about the value proposition of Not only a larger subsea entity, but how it fits kind of within the whole how it now fits in a fully consolidated market. In terms of offshore awards and FIDs, obviously, the timing really couldn't be any better, but what does a larger, more robust OneSubsea bring to Schlumberger as a whole? And then as a follow-up, if

Speaker 7

you could talk about some

Speaker 6

of the integration steps you're planning. Culture is such a big part of Schlumberger. Just wondering how you're thinking about bringing in one of your long standing How do you think about culture in that sense? Thank you.

Speaker 2

No, great question, Dave. And I think indeed, we have been working on this I'm very proud and I believe that the timing could not be better that closing this now as the onset of the Offshore growth and the long duration that we see with FID beyond 2025. So if I had to take 3 key words, I would say technology fit, Integration, capability and scale are the three elements that I think resonate very well and create value for our customers. Technology, whether We are enhancing and getting with this addition a very comprehensive portfolio that is fit to every deepwater market that exists And that includes further capability, complementary capability in subsea processing and also in vehicles That complete the portfolio and allow us to fully participate and being differentiated in every basin, in every deepwater condition in the world. Integration, We bring and we keep our unique subsurface reservoir to processing capability at 2 adults already in 1 subsea, Well, we are enhancing it with a larger and a very competent team joining us From acquisition and engineering capability, so that we can take any deepwater prospect And help customers and collaborate to get the best outcome.

Speaker 2

And we are getting our Subsea 7 partners to joining and to be aligned with making this a success when and as we are required to deliver as So all in all, this is what value brings in integration. Scale, scale give us manufacturing footprint That give us flexibility and the ability to respond fast and to respond to customer lead everywhere And give us the unique life of field with the largest installed base of subsidiary, where we will use digital, we'll use our integration capability with our performance To provide further integration and further life of field unlocking production recovery, if you like, long term. So customer feedback It's excellent at the onset. I think the customer really appreciate and recognize the recovery potential, The comprehensive technology portfolio, the lower emission, the digital and the integration capability. Culture, I think we have discovered throughout this engagement that actually the culture are very much aligned.

Speaker 2

And I think we have had a day 1 Set of events last week or 2 weeks ago that we're really outlining how aligned we are And our complementary culture and portfolio are to go into this. So I'm very optimistic. I'm very positive and Customer feedback is so far extremely positive to onboard this and you may have seen the BP SIA announcement we did earlier, which is a A precursor in my opinion is what we can do to partner with our customers and to help unlock the future of Subsea Reserve and to impact their recovery, There are efficiency and economics and there are lower carbon outlook.

Speaker 6

Obviously, all things that your customers are looking to Looking to achieve. If I could shift over to your digital business, just more specifically digital within D and I, APS has been kind of noisy this year

Speaker 5

I was wondering if

Speaker 6

you could provide a little more context around that. Have margins improved from a year ago? Is this necessarily about margins? You just

Speaker 5

gave some interesting statistics here About

Speaker 6

an increase in number of users, increase in computing time,

Speaker 5

and you also said 60% growth.

Speaker 6

Can you just repeat exactly What you meant by that, is

Speaker 7

that the top line of that business? Thank you.

Speaker 2

Yes. I think we no, thank you, James. I think we continue to be very positive about the Digital business and its adoption with our customers, you will continue to see announcement being made from workflow And Joao's adoption for customers and also more and more enhancement Of digital operation, edge AI as you have seen many of them example into our press release earlier today. So we are very satisfied with the momentum and it's going. It's going fairly well.

Speaker 2

I think you are seeing that we have quoted that the new Technology digital portfolio from workflows to operation is growing at the CAGR about 60%. I think this is in line with what we expected. And this is on top of the baseline that includes the legacy software maintenance All the services, including the data sales that we do, that is somehow offsetting Some of this, but still represents total growth. So we expect this growth to be Very visible into the Q4 as we typically have a year end sales effect. And we continue we expect this to continue and accelerate actually Next year.

Speaker 6

Thank you very much.

Operator

Next, we move to the line of Scott Gruber with Citigroup. Please go ahead.

Speaker 5

Yes, good morning. Question on the Production Systems Outlook for margins post the Aker JV, just how should we think about the path forward For margins in the business, I'm thinking about legacy contracts in Subsea rolling out that are Largely lower margin, better price contracts rolling in. And then as you capture synergies, just what is a reasonable expectation for incrementals or where margins could go overall in Production Systems over the next 2 years?

Speaker 2

I think, as Scott simply said, we believe that we'll continue to have a In Production Systems since we have been reporting this division, on the back of rolling in contract that in the backlog Into revenue generation that are as more accretive than the previous contract and that the results of the not only the pricing environment that is more Positive also the result of better supply chain and increased efficiency and use of additional technology that I think the entire team in Production Systems has been Very good at selling to our customers. And I think, hence, the results now are very specifically to the subsea environment. The 1 sub We have been a few months back highlighting that our performance in OneSubsea is already in high teens EBITDA as in a Previous organic one subsea, the addition of the we expect to continue to and to recap this margin And long term continue to increase at this level and beyond. At Subsea, we will generate $100,000,000 From year 3 on this 1 Subsea joint venture going forward. So all in all, I believe that the element of our production system portfolio Are set to continue to not only grow, but also have incremental margin going forward.

Speaker 2

Hence, we expect the journey of margin expansion to continue next year And beyond. And the JV will be accretive to this.

Speaker 5

Got it. And then turning to North America, a couple of years ago, You tilted your sales model toward more product sales and fewer boots on the ground. But now we're going through a wave of consolidation Most of your customers, we're seeing more privates taken out and now potentially a wave of larger mergers. How does that impact your strategy in North America?

Speaker 2

I think we are we have been very Satisfied with the onset of our strategy and the deployment of strategy as we initiated it 4 years ago. I think it turned out to be both Appealing to the adoption of our tech division by private through partners through this Fit for Basin and Tech Access model as well as our focused technology and focused Fit for Basin offering has been resonating We've a large public integrated company that have adopted our technology for performance purpose. As the market mature And as some consolidation will happen, we still believe that our technology performance, Including what APAC impacts recovery, digital will continue to resonate very well and will continue to be adopted very well by Our customers, so we have an excellent exposure at this point to the public and integrated company. And I think this consolidation will give us opportunity to further showcase our technology, showcase our digital, showcase our fit for basin across both Pollution System And drilling well construction in particular. And let's not forget that CCS is a new exploration World in NAM, this is also playing a critical role to our growth towards our performance and the evolution portfolio is not digital in that context.

Speaker 2

So We will continue to use TechXESS and Fitro Basin to be agile in this market to respond to the privates that are set to come back next year And at the same time, continue to engage with our larger customer and the customer that are at the top of our portfolio Through technology and integration capabilities. So we are we believe we are set for success in this new mature market in NAM.

Speaker 5

Appreciate the color. Thank you.

Operator

Thank you. Next, we move on to Arun Jayaram with JPMorgan Chase. Please go ahead.

Speaker 8

Yes, good morning. I was wondering Olivier, if you and Stephane could elaborate on kind of the margin performance in the core. In particular, you commented about pricing gains, particularly in reservoir performance. If you could highlight what you're seeing on pricing. And excluding obviously the impact from the close of the 1 Subsea JV, Would you expect similar margin expansion in the 4th quarter on a for the legacy SLB?

Speaker 2

So let me start. I will let Stephane comment on the margin because I believe he provided some remarks to that effect. First, I believe that the core is benefiting from 3 things in my opinion. It benefits from different The performance in the eyes of the customer and hence is benefiting by this creating an opportunity to secure market position And command pricing premium or favorable commercial terms to support this performance. Performance is recognized.

Speaker 2

Performance is critical in all projects, but particularly in the development environment And it's something that differentiate us and it's been recognized. So performance is a key factor. The second, I believe, is technology. Technology adoption has been accelerating. I think the targets and the basket of technology we have set this year, Including the transition technology where we set a target for $1,000,000,000 for a year has already been achieved year to date.

Speaker 2

And hence, we see Techno's adoption As being unique in this environment has differentiated again on performance and differentiated on creating Insight and features and differentiated value for the customer have been recognized. And that is accretive to the margin. That drives our margin in the core. Finally, integration and I'll put digital into this. The ability to intertwine and add digital capability to our integration Has delivered value and you see that the Well Construction is benefiting from high level margin that are very much helped by integration And digital as well as performance.

Speaker 2

Back to Reservoir Performance. Reservoir Performance had a very strong quarter on the back of Reservoir Performance Evaluation, Which is used in exploration appraisal particularly where differentiated technology portfolio has again being recognized with a premium. So that is What we are benefiting from technology performance and integration with digital driving differentiated value proposition recognized with our pricing

Speaker 3

And relating to margins, Arun, for Q4, Yes, we do expect, excluding the effect of the Aker Subsea contribution, to continue expanding margins, Particularly, the digital and integration margins will definitely improve from accretive year end sales, so that will clearly be a tailwind. And then we'll have probably improved margins, I'd say, across the other divisions, particularly In production systems where we have typically year end sales that bring good incrementals. So yes, continuous margin expansion excluding the JV in Q4.

Speaker 2

And you could expect this to carry on In 2024, we believe that the attribute of differentiation as I outlined before and the favorable environment in which Our operating partner internationally will continue to support margin expansion for the quarter.

Speaker 8

Great. My follow-up, Stefan, dollars 1,000,000,000 of free cash flow generation in 3Q, any thoughts on what could impact free cash flow in 4Q just given working capital and just the 1 subsea JV? Just any things to flag.

Speaker 3

Sure, sure. So first, we are actually quite pleased with Our free cash flow performance so far this year, it's indeed the 2nd quarter in a row where we generate about $1,000,000,000 free cash flow. And It's really a combination, of course, of higher EBITDA, but also discipline in capital investments and an improved working capital Performance quarter after quarter. So relating to Q4, we typically see a strong end of the year as it relates To free cash flow, so we are hoping that it will be the case this year as well. We are always moving targets based On customer collections, it's the main variability.

Speaker 3

But in general, we expect a strong free cash flow performance as we close the year.

Speaker 8

All right. Thanks, gentlemen.

Speaker 2

Thank you.

Operator

Next, we move on to Marc Bianchi with TD Cohen. Please go ahead.

Speaker 9

Hi, thank you. Good morning, Mark. Good morning. You previously discussed an expectation for directionally $1,500,000,000 of EBITDA improvement in 2024, I'm curious what the underlying assumption for the JV is here, just so we can get a sense of how it's doing

Speaker 2

I don't think we'll at this point comment Specifically on next year, I think it's directionally, I think it's an indication that we gave. I think The market as it stands today, we have under a scenario of international growth momentum and also The North America coming to a year on year growth activity. I think we see a scenario by which indeed this guidance we gave or this So now we outlined will materialize, but I will not go into the detail of at this point until Our Q4 conference call and January and until we have time to triangulate some of our expectation with the customer engagement, We'll come back with more detail, including the contribution we expect for the JV Subsea at that time.

Speaker 9

Okay. Thank you. Another question on offshore, but specifically related to exploration. I think you earlier said that you 20% type growth in 2023. I'm curious how that's playing out.

Speaker 9

And then can you remind us how large exploration is for SLB?

Speaker 2

We don't comment on exploration because exploration, I think, is an as a subset of our Market segmentation touched many aspects, I think, primarily reservoir performance, but also Digital, some element of integration and obviously some components of some PS and So all in all, we believe that the exploration appraisal market has been aligned with the international growth This year, and I think there has been an element of offshore momentum that has been set this year. I think the results of and margin That we have seen for the performance are very much a reflection of that success. We are seeing success as well in our Digital sales when it relates to data exploration and we are seeing that the campaign of appraisal That are being is made around Africa, particularly continuing to be sustained and In the search of confirming these fines and to develop FID in 2024, 2025. So We are positive about the exploration. We don't see a setback for customers on exploration, and we see that the breadth of exploration appraisal In offshore and in onshore market, it's much higher than it was a couple of years ago.

Speaker 2

It's touched Many geographies in basins from Southeast Asia to obviously Middle East, EastMed Africa And North and South America is very broad and that is what I think is quite unique in this cycle.

Speaker 9

Very good. Thank you very much.

Speaker 2

Thank you. Thank you, Mark.

Operator

Our next question is from Luc Lamoine with Piper Sandler. Please go ahead. Oops, one moment please. Mr. Lemoine, your line is now open.

Operator

Please go ahead.

Speaker 7

Thanks. Olivier, good morning. You've covered the enhanced capabilities of the new OneSubsea and maybe to fine tune it a bit more. You talk about what you'd like to achieve on a commercial basis and maybe qualitatively on an operational level Within the 1st year and maybe the next few years as well.

Speaker 2

I think first and foremost is to continue to satisfy it fully The customer base and the backlog that we have respectively from Aker Solutions and from the organic OneSubsea Secured in the last 18 months and I think execution will be the first priority, 1st and foremost, to make sure the performance By joining team, we'll not be affected and I think we have been reassured from the engagement with our team That is the case. I think next, I believe that what we want to achieve is to demonstrate for every outstanding customers that we have in the portfolio today That the combination of engineering, new technology portfolio, broader portfolio and integration capability that SLB brings with Subsea 7 And the rest of the Selby portfolio is differentiated and will add value to all the backlog that we have. And 3rd and maybe the most interesting and the most exciting part that we are seeing is that customer at the onset of this announcement have come to us For asking partnership to be explored so that we can unlock economics, we can unlock recovery and we can accelerate The path to decarbonization of deepwater operation to you by the combining and using and leveraging the full portfolio we have.

Speaker 2

So I would say performance in execution, I would say, setup and integration capability for technology and finally, this Partnership model that I believe will be defining the new era for Subsea.

Speaker 7

Great, good day. Thanks a lot,

Speaker 2

Thank you.

Operator

Next we go to Neil Mehta with Goldman Sachs. Please go ahead.

Speaker 10

I had a couple of geography questions. The first is around North America recognizing it's a smaller part of the growth driver of the business. But what are you seeing real time in this market? And do you think we're in a bottoming phase as we move into 2024?

Speaker 2

Yes. Great question, Neil. I think indeed, our hypothesis for the way forward and I'm here They discussed the U. S. Land activity.

Speaker 2

The apologies we have is that by the combination of the gas price Creating a bit of a pull on supply and pull on activity on gas as well as the favorable Oil commodity price, we create a pool on the private E and P privates coming into this market, the magnitude of which is at this point difficult to judge. And I think there are plenty of scenario and it will be a little bit of the swing factor, no opinion in the 2024 planning. Yes, we believe that the trough It's Bjarne, so it's about at this point and we see incremental from H2 of this year in the U. S. Market going forward.

Speaker 2

How big is this incremental again? We'll come back to that as we guide in 2024. When it comes to North America Offshore, I think here from East Canada to Gulf of Mexico, We see a robust and steady activity going forward and we see that we will continue to benefit to our exposure And the OneSubsea JV will continue to magnify this where we have opportunity to do so and we are very satisfied with our I believe that the activity and the outlook is if anything steady and has a potential for upside in 2024.

Speaker 10

Thanks, Olivia. And then just a follow-up is on Russia. You've put out a release a couple of months ago talking about how Continue to wind down the business and our expectation is that's going to go to 0 here, but just any update on where you stand there and any color you can give the market? Thank you.

Speaker 2

As you could find in today's FAQ document that we are releasing, Russia revenue was on approximately 5% of our consolidated revenue year to date, And we expect it indeed to decline as a percentage, but not to 0 in 2024. And any guidance that we provide will always include Russia effect and how we anticipate this to happen. This has always been built in our model and does not impact our financial guidance, as I said. I remind you that we continue to ensure that our remaining presence in Russia meets and exceeds all international sanctions.

Speaker 10

That's great. Thanks, Olivia.

Speaker 5

You too.

Speaker 2

Lia?

Speaker 1

Lia, do we have any further calls on the line?

Operator

Yes, Mr. Kurt Hallead with Benchmark. You may go ahead.

Speaker 5

Hey, good morning, everybody.

Speaker 3

Good morning.

Speaker 5

Olivier, I'm kind of curious. Just this week, it looks like the U. S. So we agreed to lift sanctions on the export of Venezuelan oil products. I know that Venezuela has been a very A fairly large market for Schlumberger prior to the sanction dynamics, and I think you guys have maintained

Speaker 2

I think it's early stage. I don't think It will be appropriate to comment on the size of the opportunity, but surely, I think we have that historically Very strong track record and set of capability in country that have been dormant since we had to shut down the operation. But as soon as and we get support from our partners' customers into this, we will be Responding and as fast as we can, we need mobilizing resource and equipment that is over there to respond and But it's too early to say and it's too early to give a guidance of any sort on the impact it will have, but It's potential and it's upside if it comes indeed.

Speaker 5

That's great. Thanks. And I got a follow-up. Just I know you referenced, you expect digital revenue To grow, to be about $3,000,000,000 by 2025. So kind of curious as to what What contribution you think AI will have in that growth and whether or not the adoption rate of AI among your customer base It gives you even greater conviction of getting to that level.

Speaker 2

Yes, indeed. I think for making sure that we are all aligned, we Quoted that we expect the revenue of digital to double from $21,000,000 to $25,000,000 and to reach approximately $3,000,000,000 by $25,000,000 And indeed Very much. And a component of what we call the new technology digital portfolio includes our ability to unlock Data insights through AI, the ability to create and imagine new workflow to AI into geosounds And to support key elements of digital operations like autonomous drilling through AI. And you will see very soon some enhancements of Industry First that have used automation and AI To enable this automation, to enable this new insight, so we are very positive about what AI Can bring to this, we have a unique capability. We have domain AI capability embedded into our platform.

Speaker 2

We have DataIQ as a partner with ready to go portfolio of routines and AI capability that have been recognized Best in class and allowing our customer to rapidly unlock and use AI and scale AI into their application. And we have, For the last year and a half, launched our Innovation Factory, which are labs that we use to collaborate Customers and we have 6 of them across the globe where we collaborate and we have more than 100 projects already achieved with customers through this innovation factory saw great pickup and you may have seen during a DPAC we announced an AIQ A project that we have released with our partners in the Emirates to support AI capability with ADNOC, so it's all over the place. It's in geosounds. It's in planning. It is in execution in digital operations through autonomous operations.

Speaker 2

So it's Picking up and it would indeed hopefully contribute and give us that opportunity in 2025.

Speaker 5

That's great. Thanks for the color. You want

Speaker 2

to go?

Operator

Our last question will come from Roger Read with Wells Fargo. Please go ahead.

Speaker 11

Hey, thank you. Good morning.

Speaker 3

Good morning. Good morning, Roger.

Speaker 11

I'd like to come to it from a margin standpoint. I mean, your margins Pretty fantastic here for certainly where we are in the cycle and everything like that.

Speaker 5

Thank

Speaker 11

you. We look back We look back to the up cycle and there's still a ton of room to go. And I recognize this question may be premature relative Maybe an update when we're really looking more at 24. But what do you see as Things that could lift margins from here, what do you see things that would restrain margins from reaching sort of max levels Or what would we need to see in the market fundamentals to make a significant uplift from margins here?

Speaker 2

I don't want to first put a ceiling on the max on the margin we can achieve. I think the future and the market outlook will detect that. But most importantly, our ability to execute to continue to execute on our performance strategy, We'll continue to define our ability to capture and enhance our margin whatever the market conditions are. And I think this is what we have been achieving for The last 4 years, and I think again, technology differentiation, integration capability, Augmented by digital and performance on everything we deliver Is what is getting our customer trust us to give us premium and to give us favorable commercial condition and further growth potential by Better share of their business allocation. So I think, again, we initiated and we Telegraph pretty well 3 years ago that will be initiating a margin expansion journey.

Speaker 2

We have been on that journey for the last 3 years From the trough of 2020, we committed to expand and I think we have delivered upon this commitment. Some of you were looking forward to see when we will cross the 25%. Some of some scenario we are putting this in 2025. We said we We'll likely be able to cross this before. It came slightly ahead of our expectation, because I think I'm impressed by what our team is able to deliver.

Speaker 2

And yes, the market conditions are favorable, but we expect that the breadth, duration and resiliency of the cycle We'll continue. The effect of Middle East and Offshore will continue to give us the favorable backdrop, So that this strategy will continue to support margin expansion. So that's our belief. And again, I don't want to put the ceiling. I don't want to put the But I will continue to push my team to continue to extract the best and seize the cycle as we say.

Speaker 11

Sounds good. Good luck with everything and thank you.

Speaker 2

Thank you, Roger. Thank you very much.

Operator

And I will turn Conference back over to the Schlumberger management team for closing remarks.

Speaker 2

Thank you, Leah. Ladies and gentlemen, as we conclude today's call, I would like I'll leave you with the following takeaways. First, the ongoing Oil and Gas cycle continues to display the unique attributes of breadth, resilience and durability that are closely aligned with our business strategy. In this environment, unparalleled offerings in our core, Our ability to enhance value through digital and our investments in new energy have us positioned to win both today and tomorrow. 2nd, our international reach continue to drive our financial performance.

Speaker 2

As investment momentum has shifted internationally and offshore, Our business is well positioned for sustained growth and will be further supported by our OneSubsea joint venture. 3rd, after posting an impressive 9 months year to date performance and with visibility into the Q4 and 2024, We remain confident in our full year and through cycle financial targets. This is an exciting time for the energy industry, NSMB is ideally positioned for success across all time horizons. This is an excellent environment to continue delivering value to our shareholders. I remain Fully confident in our strategy and look forward to another successful quarter and close to the year.

Speaker 2

With that, we conclude our call this morning. Thank you, and good day, everyone.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Schlumberger Q3 2023
00:00 / 00:00
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