SLB Limited Common Shares

Ladies and gentlemen, thank you for standing by. Welcome to the Schlumberger Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions. Instructions will be given at that time. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Simon Ferrant, Vice President of Investor Relations. Please go ahead.

Good morning, good afternoon, good evening, and welcome to the Schlumberger Limited Third Quarter 2019 Earnings Call. Today's call is being hosted from New York City, following the Schlumberger Limited Board meeting held here this week. Joining us on the call are Olivier Lepuche, Chief Executive Officer, and Simon Eyre, Chief Financial Officer. Our earnings call will take a slightly different format. We've shortened our prepared remarks in order to leave more time for your questions. Olivier will start the call with his perspective on the quarter, after which Simon and I will give more details on the financial results. Then we'll open up for your questions. As always, before we begin, I'd like to remind the participants that some of the statements we're making today are forward-looking. 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-K filing and 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 third quarter press release, which is on our website. Now, I'll turn the call over to Olivier.

Thank you, Simon. Ladies and gentlemen, good morning. I would like to add to the earnings release my comments on the quarter before covering some of the points critical to our business. First of all, as we have seen in our release this morning, we have taken a largely non-cash $12.7 billion charge. This charge reflects the impact that market conditions have had on the valuation of our goodwill, intangibles, and fixed assets. None of this changes our ability to generate strong cash flow as this quarter has once again demonstrated, giving us flexibility to navigate the more uncertain market landscape. will discuss the charge during his remarks. I will now comment on our Q3 operational performance, followed by the short-term outlook, and conclude with a brief update on our strategy implementation. Our first quarter results were very positive in a mixed market environment, driven by strong international performance. The international margins improved, and we delivered more than $1 billion in free cash flow. Additionally, we recorded the best-ever quarterly safety performance for the company, an outstanding achievement, setting a new safety performance benchmark for our industry. All in all, a very solid quarter, aligned with our performance vision and our focus on returns. I'm very pleased with the results and I'm proud of the Schumacher team that delivered this performance. The financial results this quarter were driven by the strength of activity in the key international markets. Summer activity peaked in Russia, the CIS, and the North Sea. The Far East and Asia regions also saw strong growth, and new projects began in Sub-Sahara and North Africa. Only Latin America revenue was lower on reduced activity in Mexico and Argentina. In North America, we experienced strong offshore sales offset by minimal growth on land. One steam activity was modestly higher, recovering from the spring break-up in Canada during Q2. Towards the end of the quarter, however, we saw lower pricing and increased gaps in the FRAC calendar as customer work programs were constrained by cash flow. North America land drilling revenue was essentially flat. Despite recount reductions, as our fit-for-basing technology access approach on equipment sales and leasing helped offset declines. Common results closed in line with expectations. This included robust operating margins, building on sequential growth in most international regions, which were offset partially by declining activity in North America at the end of the quarter. Our international performance this quarter was very solid, with a high double-digit basis point improvement in our margin on the back of 3% sequential revenue growth. More than two-thirds of our product lines and geomarkets posted both sequential revenue growth and margin expansion, leveraging in particular the favorable offshore and exploration activity mix and the deployment of new technology. At the closing of this quarter, half of our international geomarkets have posted year-to-date double-digit revenue growth. This improvement in international margins was achieved despite the lingering and sustained effect of a handful of contracts that are highly dilutive. Without the effect of these underperforming business units, our growth in international margins would have been even greater. We are making progress engaging with our customers on those contracts, working collaboratively to improve terms and conditions and to enlist their support to improve our operations. As part of this plan, I have been taking personal actions during the last few weeks and anticipate visible progress during the coming months and quarters. Margin improvements and stringent capital deployments are both part of our increasingly returns-focused approach under the new capital stewardship element of the strategy. As international activity increases, our deployment of CapEx will be further prioritized towards the business units with higher returns. This action, together with increasing activity, is starting to create some tightness in the market, which is a catalyst for pricing improvement. Now, I will move on to the short-term outlook for business. Based on our Q3 year-to-date results and our outlook for Q4, we still expect full-year high single-digit international revenue growth, excluding Camelot. Sequentially, however, Q4 will include the seasonal activity decline in the northern hemisphere, and we anticipate only muted year-end sales. We are also closely monitoring the situation in Ecuador following the recent events and are preparing for further decline in Argentina. In addition, we expect seasonal weakness in North America as the fourth quarter develops. We are anticipating a year-end slowdown in North America similar to last year due to operator budget constraints. However, this year the activity reduction has started earlier than last and we anticipate the sequential decline in Q4 to be more pronounced than last year. Moving on to the macro and medium-term view. The market environment remains challenged with limited visibility, particularly in view of the global trade concerns that are challenging world economic growth and the rate of oil demand growth. At the same time, the U.S. production growth rate has declined for the last eight months, and it is expected to drop further in 2020 as a result of the reduced activity this year. Therefore, an absence of a recession, the prospects for international activity growth remain firmly in place. In this market context, our approach to North American land is under evaluation for both the medium and the long term. We are already scanning to fit the one stimulus net and we will be stacking fleets as the market contracts during the fourth quarter. At the same time, a strategic review of this market is well underway and will be completed during the fourth quarter for execution early next year. This gives me the opportunity to update you on our strategy execution. Last month, we presented four key elements of that strategy that included leading and driving digital transformation in our industry, developing fit-for-based solutions, capturing value from the performance impact for our customers, and fostering capital stewardship. Performance is at the heart of this new strategic direction. We are already off to an excellent start on digital. We presented our vision of the EMP industry to 800 customers and technology partners at the Global SIS Forum in September. There, we demonstrated our firm commitment to an open digital environment that we believe can unlock further customer performance. This forum marked a new chapter for the digital future of our industry. The interest from our customers and digital partners was far beyond our expectations and is already translating into sizeable opportunities. The central JV is also an important part of our digital strategy, and the announcement of its closing reinforces our leadership of and commitment to the industry digital transformation. We are also making progress with our new fit for Beijing strategic approach, In the release today, there are multiple examples of feed-for-basing technology, all of which drive our customer performance, such as NeoCR bit-steerable system and Aegis drill bit technology. In addition, in North America, I am pleased to report early success of the technology access strategy with sales and leasing of rotary steerable tools. This is a new channel that accesses a new market where our participation was previously minimal. Also in North America, our flagship project with Oxy in the Avantime Basin is now operating at scale with continuously improved operational efficiency, setting new FRAC records in the Delaware. The value being created is shared through an aligned commercial model and is a good example of our new strategy performance model approach. Finally, as an update to our SPM strategy, we have made progress in our divestiture of Argentina assets as we have a few offers in hand that we are reviewing with the anticipation to finalize with the other party during the upcoming months. Since taking the role as CEO for ShroomLJ, I have made a point of visiting many of our customers, our people and our locations. The reception by our customers to both our engagements and strategic direction has been very positive. The enthusiasm of our people has been highly motivating and their commitment is evident. The industry is acknowledging the need for higher performance in a new era. All in all, I'm very pleased with the initial steps of our strategy execution and with the internal and external alignment with our vision to become the performance partner of choice in our industry. I will now pass the call over to Simon.