SLB Limited Common Shares

Ladies and gentlemen, thank you for standing by. Welcome to the Schlumberger Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for your questions, and instructions will be given at that time. If you should require assistance, please press star, then zero. As a reminder, this conference is being recorded. I would now like to turn the call over to Simon Ferrant, Vice President of Investor Relations. Please go ahead.

Good morning, good afternoon, good evening, and welcome to the Sommelier Limited 2020 earnings call. Today's call is being hosted from Houston for an Sommelier Limited board meeting held earlier this week. Joining us on the call are Olivier Labouche, Chief Executive Officer, and Stéphane Biguet, Chief Financial Officer. For today's agenda, Olivier will start with the call with his perspectives on the quarter and our updated view of the industry macro. After which, Stefan will give more details on our financial results. Then we'll open up for 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 first quarter press release, which is on our website. Now I'll send the call over to Olivier.

Thank you, Simon, and good morning, ladies and gentlemen. I hope everyone is safe and well. This morning, I'm going to comment on three topics. Our Q1 performance, how we are managing today's increasingly difficult operating environment And now we see the outlook for the second quarter. Before I do that, I would first like to thank the Schumacher people around the world who are demonstrating great resilience and adaptability. I'm very proud of our team and of what they have achieved in the first quarter. Despite the complications from the COVID-19 outbreak, they delivered strong organizational performance throughout the quarter. We kept very close to our customers as the crisis developed, and we were able to maintain well-sized operations with only minimal disruption across a few countries. The feedback I have received from our customers has been both positive and appreciative of our operational performance. Despite the difficulty of the situation and the duress under which our people have been working, Q1 was one of the best quarter in terms of service quality and actually the best quarter ever in safety performance. Let's start with the perspective on our first quarter results. The resilience of our performance given the COVID-19 related disruption and the early impact of the oil price collapse delivered earnings of 25 cents per share, only marginally short of our original expectation. The quarter was characterized by the usual combination of seasonal impact in the northern hemisphere and the sequential decline of product and software sales. However, toward the end of the quarter, activity started to decline in several basins due to the unprecedented drop in oil price and the increasing challenges posed by COVID-19. The most severe impact was in North American land, where customers were fast to react with a sharp 17% cut in rate counts. In our business segment, the reservoir characterization revenue closed the quarter sequentially down 20%, partly on seasonal effects, but also as a consequence of customers curtailing their discretionary and exploration spending in the latter part of the quarter. The margin decline on the absence of significant multi-clouds software licensed sales, weak exploration mix, and lower contribution from discretionary software sales. Drilling revenue declined sequentially on seasonal effects and the collapse in North America late in the quarter, but displayed resilience with margins flat sequentially on our operational execution and our focus on underperforming business units as well as continued success in our technology access strategies. Production revenue declined on lower activity in international markets and weaker FPS results. While production margin declined 100 basis points driven by the weaker international activity, the success of our one-steam scale-to-fit strategy in North America matched resources to market needs and optimized our operational footprint. Common revenue was seasonally lower and suffered from the exposure of the short-cycle business in North America, International Cameroon revenue was also lower as we halted manufacturing in Italy and Malaysia in response to local restrictions to mitigate the spread of the COVID-19 virus. Despite these negative effects, Cameroon margin increased sequentially, driven largely by this quarter's favorable mix in the 1 sub C portfolio. Looking at North America land in more detail, a timely acceleration of our NAS strategy protected margins from excessive sequential decline. We began the quarter having scaled our one steam fleet to fit the market, which resulted in higher utilization and minimal frack calendar gaps. However, once oil prices began to collapse in March, customers rapidly dropped rigs and frack crews. Along with well construction and completion activity decreasing, the technology mix switched from driving performance to saving costs. We reacted rapidly by stacking frag fleets to protect our margin and had reduced capacity by more than 27% and reduced our capex plan by 60% by the end of the quarter. In contrast, our international revenue closed 2% year-on-year or 4% when accounting for the 2019 business investiture. Growth was resilient in key markets across Russia and Central Asia, Saudi Arabia and Bahrain, Far East Asia and Australia, Northern Middle East, Latin America North and Norway and Denmark. Our first quarter cash flow from operation more than doubled year on year to 784 million as a result of our heightened focus on collections and our resilience in key international markets. Let me now talk about what we are doing to protect the company And now we are focused on cash, liquidity and the strength of our balance sheet in a period of high uncertainty as the depth and extent of the Coraline virus impact on global oil demand remains unknown. First, and after an in-depth review of the possible outcomes of the new oil order we are facing, we have made the very difficult but necessary decision to reduce our dividend by 75%. This will protect our cash and liquidity in the current environment while giving us greater flexibility going forward. We'll continue to exercise stringent capital stewardship while retaining the ability to balance any capital return to shareholders as operational conditions evolve. Second, we have reduced our capital investment program by more than 30% across CapEx, APS, and beauty clients. We're also reducing our research and engineering investment by more than 20% in the second quarter to reflect the necessary adjustments to our 2020 commercialization program. Third, we have accelerated and increased our structural cost reduction in North America, in alignment with the scale-to-fit strategy initiated during the fourth quarter, adjusted for the new environment. As a result, we have unfortunately had to reduce our workforce in North America by close to 1,500 people during the first quarter. We continue to decisively implement structural change during the second quarter, both in North America and internationally, to align our cost base with the anticipated short-term and second-half activity outlook, with full understanding that the pace and scale of decline is still uncertain, but would be more abrupt than during any recent downturn. Finally, we have also taken exceptional temporary measures to conserve cash by implementing furloughs across many parts of our organization, both in North America and internationally, and by reducing compensation for the executive team and for the board of directors. The result of this action represents a significant step towards protecting the company cash and liquidity in the face of the significant uncertainties. I believe that our response so far has been swift and effective, as demonstrated by our margin and cash flow performance during the first quarter, while providing service to all of our customers with unique resilience and performance across all bases. Stéphane will discuss the strength of our balance sheet, our access to liquidity, and our capital investment program in more detail in a few minutes. Before that, let me give you our perspective for the second quarter. Despite the recent agreements by the world's largest oil producer to cut production, Q2 is likely to be the most uncertain and disruptive quarter that the industry has ever seen. We are therefore not in a position to provide guidance for the next quarter as we face two degrees of uncertainty beyond the severe impact of oil demand contraction and the level of community oil price. First, it is very difficult to model or predict the frequency or magnitude of the COVID-19 disruption on field operations. Second, it is too early to judge the impact of recent OPEC Plus decision on the level of international activity as well as its repercussion on storage level globally and related risk of production shut-ins. Let me, however, share our view on the key activity trends starting with North America. We anticipate both re-activity and FRAC completion activity to continue to decline sharply during the second quarter, to reach a sequential decline of 40 to 60%. which match the full year budget adjustment guidance shared by most operators in North America land. This will represent the most severe decline in drilling and completion activity in a single quarter in several decades. Internationally, we see a less severe sequential decline as some long cycle offshore and land development markets should remain relatively resilient and will partially offset the exploration activity drop, as well as the expected activity adjustments that will result from the OPEC Plus decision. Directionally, at this time, and excluding the seasonal rebound of rig activity in Russia and China, the international rig count is expected to decline by low to mid-teens sequentially. However, this will vary greatly by basin and per customer. We have been successful during the first quarter in providing the market with resilience and performance. We anticipate building on this success and will fully leverage our unique international franchise to retain optimum activity mix going forward. As the quarter develops and we get more clarity on the timing and shape of demand recovery and better understand the OPEC Plus deal implementation and compliance, we'll be able to discuss our outlook for the second half of the year with you. Let me conclude by reinforcing the enormity of the task ahead. It will require level of response and depth of resilience that have yet to be fully realized. The actions we have taken so far have been focused on those things we can control in protecting our business. We have a clear priority on cash and liquidity in an uncertain industry and global environment. We'll continue to take the steps necessary to protect the safety and health of our people and pursue our ambition to be the performance partner of choice for our customers. The future of our industry poses a difficult challenge for people and for the environment, but continues to offer a unique opportunity. I believe that the resilience and performance of our people, our technology leadership, and our financial strength will clearly position us for success as the industry rebounds and from this unprecedented downturn. On to you, Stéphane.