SLB Limited Common Shares

Ladies and gentlemen, thank you for standing by, and 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. If you would like to ask a question, please press 1, then 0 on your telephone keypad. You will hear acknowledgment that your line has been placed in queue, and you may remove yourself from this queue at any time by pressing 1, then 0 again. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to the Vice President of Investor Relations, Simon Ferrant. Please go ahead.

Good morning, good afternoon, good evening, and welcome to the Slumber Day Limited second quarter 2020 earnings call. Today's call is being hosted from Houston following a Slumber Day Limited board meeting held earlier this week. Joining us on the call are Olivier Lepouche, Chief Executive Officer, and Stéphane Biguet, Chief Financial Officer. For today's agenda, Olivier will start the call with his perspective on the quarter and our updated view of the industry macro, after which Stéphane will give more details on our financial results, then we'll open up to your questions. As always, before we begin, I'd like to remind the participants that some of the statements we'll be making today are forward-looking. These masses 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 reconciliations to the most directly comparable GAAP financial measures can be found in our second quarter press release, which is on our website. Now I'll turn the call over to Olivier.

Thank you, Simon, and good morning, ladies and gentlemen. Thank you all for joining us on the call. Today, in our prepared remarks, I would like first to review the company's performance during the second quarter, then offer commentary on the short-term outlook, and finally reflect on where we stand in our performance strategy vision. As we close one of the most difficult quarters in our industry, I want first to thank the women and men of Schlumerger, for their resilience, performance and dedication during these unique circumstances and express my pride not only in what we have achieved but also in what we contributed for the health of the community where we work and live. Reflecting on the quarter's performance, I would like to comment on four key attributes that clearly made this quarter unique in its achievements. Operational performance, margins, cash and liquidity and digital. First, Our operational performance supported our best-ever safety and service quality performance on record. Indeed, our frequency of safety incidents reduced nearly 50% from a year ago, whilst our service quality improved nearly 40% year-on-year. To reach a new benchmark in integrated performance for our customers. This is an attribute of our performance vision that is becoming a clear differentiator in execution and very well acknowledged by our customers. Second is the strength of our operating margins, with 18% decremotal margins despite the most severe and abrupt activity drop. These margins resulted primarily from the combination of swift action on viable costs and decision to accelerate the restructure of the company. This new organization structure of four divisions aligned with our customer key workflow and five key basins of activity is significantly leaner and more responsive, adapted to the new industry normals and strategically align with our performance vision. Internationally, the impact of this decisive action also combines with progress on our capital stewardship program and continued industry adoption of new technology, particularly reservoir evaluation and digital solutions. As a consequence, the margins of our international franchise remain remarkably resilient, flat sequentially. despite the material revenue contraction and the adverse margin impact from the major disruption in Ecuador. As our climate earnings release, the majority of our job markets and three out of four business segments either expanded or maintained margin internationally, clearly demonstrating the strength of our franchise and the resilience of our earnings power. In North America, we accelerated the restructuring initiated last year with emphasis on scale-to-fit and the asset-light business model with significant permanent reduction to fixed and infrastructure costs. At this point, we have shut down about 150 of our facilities and continue to make progress on the technology access franchise. In short, we ready the business for a market of smaller scale and lower growth outlook but with higher returns. Third, the cash flow performance was extremely solid during the quarter, building on very strong cash flow from operations and leveraging the aggressive reduction of our capital spending. In fact, cash flow was still strong even when excluding working capital and accounting for the significant negative impact of severance payments during the quarter. Similarly, the liquidity position of the company significantly improved during Q2, while debt was visibly lower year over year. The attention to liquidity and cash preservation has been a very clear focus for my entire management team and finance function during the last several months. And I'm quite satisfied to have navigated this very difficult quarter with such a positive outcome. Finally, the adoption of digital, both internally and externally, is becoming a major factor of performance and was very impactful during the second quarter, operationally and financially. Internally, we made significant improvements in the deployment of digital operations, particularly remote operations and digital inspections, as the COVID-19 pandemic restrictions created a catalyst for further adoption. Our drilling remote operations expanded over 25% during the quarter to exceed two-thirds of our drilling activity. We have drilled 1,250 wells in Q2 using our remote operations capabilities. supported by more than 250 remote operations engineers. In addition, we are now performing over 1,000 digital inspections per week applied to maintenance, manufacturing, or integration applications across more than 40 countries, leveraging our digital backbone infrastructure. Therefore, during the quarter, digital operations had a magnifying impact, lowering the cost of sales delivery, the size of operating crews, and increasing efficiency across operation lifecycle, hence contributing to our operating margins. Externally, we saw greater adoption of our open digital platform for both subsurface and operations solutions. The diversity and depth of digital solutions deployed with our customers, as described in several examples in our earnings release, reflects the growing maturity of the digital transformation in our industry and the success of our Delphi platform. We are extremely proud to be associated with ExxonMobil for the deployment of drill plant and drill ops digital solutions to transform drilling planning and operation, including automation. We share the same vision for the future of our industry with ambition to deliver faster and lower cost wealth through digital technology. As digitalization is accelerating, we are also seeing continued progress in technology adoption despite the challenging context. As fit for basing and performance-focused technology, generate significant efficiency gains for our customers. All in all, this quarter promised to be messy from an activity outlook, and it certainly was. However, the performance and resilience of our team, our decisive action to preserve cash and margins, and the continued execution of our strategy, including digital, have delivered a very strong outcome, resetting the company's competitiveness significantly. and enabling us to operate with resilient margins in a structurally smaller market. Now let me turn to the short-term outlook. Given the uncertainties regarding the pace of economic and oil demand recovery, the range of activity outcomes for the second half of the year is still wide. However, with what we know and see today, we expect the global activity decline to recede into a soft landing in the coming months, absent further negative impact from COVID-19 on economic recovery or escalating reactivity disruption. In the North American market, there is an uptick of duck completion activity in the U.S., contrasted by the slow but continued decline on both land and offshore reactivity. The fractal bound is expected to last until the seasonal decline at year-end, provided commodity pricing remains stable. International activity outlook appears mixed due to the seasonal effect across the different basins. However, it's still indicative of slight sequential contraction for drilling activity during Q3, particularly for deep water and exploration. While with this combined North American international activity outlook and based on our position in the respective markets, we anticipate revenue to remain essentially flat sequentially on a global basis. with a slight positive uptick internationally, offset by flat to low single-digit decline in North America. In this context, and absent of any new setback due to COVID-19, we expect EBITDA and operating income to grow and the respective margins to expand during Q3 above and beyond the positive impact of impairment charges. These margins will benefit from the combination of incremental restructuring cost savings during the second half of the year, tailwind from recovery of activity in Ecuador, and continued execution of our capital stewardship strategy. While we continue to navigate the trough of this cycle, we are actually setting an inflection point in our margins performance ahead of the recovery and despite the backdrop of a significantly smaller market size. Cash flow performance in the coming quarter will continue to benefit from the tailwind of our aggressive capital spend adjustment, focus on working capital efficiency, and incremental cash savings from our restructuring program. Our ambition in the second half remains positive free cash flow despite anticipated severance payments. Put another way, in a flattening activity outlook for the next two or three quarters, Our ambition is to execute on the path of visible margins recovery and robust free cash flow regeneration as we transition into 2021. We embarked on a new strategy less than one year ago, but market conditions created a catalyst to accelerate the restructuring of the company to align with our performance vision. The early results of this strategy execution are already visible in our operational performance, our financial results, and in alignment with the new industry landscape. Our mid- to long-term financial targets remain intact and clearly focused on returns. I believe that the steps accomplished during the quarter not only solidify our vision, but also created a clear path to restore margins and returns performance despite a structurally smaller market. And now I will hand the call to Stéphane, who will discuss Q2 financials and the impact of our cost out program in a bit more detail.