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, we will conduct a question-and-answer session, and instructions will be given at that time. Should you require assistance, please press star, then zero, and we will assist you offline. As a reminder, this conference is being recorded. I would now like to turn the conference over to the Vice President of Investor Relations, N.D. Madhu Amazia. Please go ahead.

Thank you, Leo. Good morning and welcome to the Schlumberger Limited First Quarter 2021 Earnings Conference Call. Today's call is being hosted from Houston, following the Schlumberger Limited board meeting held earlier this week. Joining us on the call are Olivier Lepuche, Chief Executive Officer, and Stéphane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be 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 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 first quarter press release, which is on our website. With that, I will turn the call over to Olivier.

Thank you, Andy. And good morning, ladies and gentlemen. Thank you for joining us on the call. In my prepared remarks today, I will cover three topics. Our first quarter results, our progress on our performance strategy, and finally, our outlook for the second quarter and second half of the year. Stéphane will then give more detail on our financial results and we will open the floor for questions. The first quarter of 2021 was a strong step forward. The quarter unfolded as we anticipated, with acceleration in North America activity and momentum continuing to build in the international markets, aside from the usual seasonal effects. We executed very well within that context. We expanded our global operating margins for the third consecutive quarter, and free cash flow was once again solidly positive. Here are some highlights in support of this performance. World construction sustained growth sequentially, and in North America, outpaced U.S. land recounts demonstrating enhanced market participation in the recovery. Reservoir performance grew when adjusted for the one-steam divestiture. Digital and integration delivered another strong quarter with resilient margins on track for our full-year targets. In North America, execution of our returns-focused strategy drove strong margin expansion, fully aligned with our double-digit margin targets. And in international markets, despite severe seasonality and relative exposure in Russia and China, we continue to grow across geographies. In this environment, as the industry prepares for an upcycle, performance matters. and decisions on contract awards and capacity allocation are increasingly driven by technology and execution. We are very pleased with the outcome of several international multi-year contract awards, specifically in the Middle East and offshore, building a pipeline that will support growth in 2022 and beyond. We are determined to drive performance differentiation, leveraging our fit for best in technology and digital capabilities. This combination benefited our integration performance, with our largest LSTK operations achieving a 6% improvement in drilling efficiency during the quarter. This strong start of the year, characterized by resilient revenue, sequential margin expansion, and positive free cash flow, positioned us very well to meet our full-year financial ambitions and to deliver our balance sheet. I want to congratulate the entire Schlumberger team. We delivered strong execution for our customers, having positioned us for the growth that is now underway. Next, I would like to comment on three elements of our performance strategy that present further opportunity for growth in this upcoming cycle and beyond. Digital, sustainability, and true emerging new energy. Starting with digital, 18 months ago, we stated our ambition to lead the digital transformation in our industry and to significantly grow new digital revenue streams. I want today to update you with our progress. Our digital strategy is a platform strategy, leveraging unique and open platforms, Delphi, OSDU, and Agora. Since launching our core Delphi platform, we have significantly expanded its market reach, from Google Cloud to Microsoft Azure, and more recently, using IBM Red Hat technology to enable hybrid cloud and offer fit-for-basing cloud solutions, as highlighted this morning in our collaboration with Yandex. We'll continue to execute on this platform journey, to expand the choice for our customers, and to support our three digital business streams, workflow, data, and operations. First, we offer our customers the opportunity to transition their technical workflows from the desktop to the cloud to realize productivity gains from Delphi workflow integration, collaboration, and access to scalable cloud computing. Our market leadership on the desktop position us very well to capture this market. In the last 18 months, Our customers have increasingly transitioned to the cloud, resulting in 50% growth of our contract backlog and a tenfold increase in full-time Delphi users. As we expand our cloud-native application and enable additional workflow within Delphi, we expect increased adoption across our customer base, resulting in steady growth of our digital workflow revenue. Second, recognizing that data is the key to unlock the industry digital transformation. We work with the industry OSDU forum to open source and contribute the underlying DelphiDAT data ecosystem, helping to establish OSDU as the industry standard. An essential step to liberate data at scale for AI applications and to enable multi-vendor interoperable technology. In this context, we recently partnered with Microsoft to offer Azure customers access to our OSDU enterprise data management solution. We will augment this offering with additional AI capabilities and will also expand our geographical reach. The market potential for this data business stream is very significant, as it underpins every customer digital transformation, as exemplified by our recent announcement with Equinor. Third, Our customer operations represent a unique opportunity to realize the promise of asset and field digital solution. We designed an open IoT platform, Agora, to enable edge applications, complementing our Delphi platform operational workflows and integrating with our partner, Sensia. Using Agora and Delphi, we are deploying digital operations solutions for drilling and production, both with our customers and as part of our integrated projects. This digital offering can significantly impact our own operations, as was demonstrated this quarter in the Ecuador project and in our main LSTK operations, and also greatly benefit our customers. Our ambition is to establish critical market share in this wide space and accelerate collaboration with industry partners to further its adoption. These three digital business streams, workflow, data, and operations, built on open platforms, are supporting our digital growth ambitions. We are very pleased with the progress on our platform foundation with the adoption by a broad set of customers and are confident in the success of each business stream as we execute our roadmaps. Moving now to sustainability, we are strengthening our commitment to action, particularly as the industry face a decarbonization mandate and all leaders have reaffirmed commitments or advanced stronger goals in recent days. As it relates to climate action, this goes beyond reducing our own greenhouse gas emissions. As we believe, there is a significant opportunity for our technology and operating practice to decisively impact and accelerate the industry's decarbonization effort, as well as contribute towards emission reduction goals around the world. Our technology portfolio includes solutions that help our customers eliminate flaring, reduce fugitive methane emissions, and leverage automation and digital surveillance to reduce environmental impact. This technology focus on low carbon impact will be an increasing element of differentiation for Schlumberger in the future. An example that resonates with our customer is the complete electrification of offshore production systems. As outlined in our earnings release with the BP project for subsea electrification, this is the next offshore frontier. And it will also pave the way to full digital enablement. Beyond our industry, our CCS partnership with Lafarge Holcim and the Bioenergy CCS project in Mandota, California, are examples of cross-sectors initiatives aligned with climate actions. Specifically, Instrument Agile New Energy will reach milestones in the sector where we are participating across the energy transition. Hydrogen, lithium, CCS, geothermal, and geoenergy. During the quarter, we established and accelerated new ventures, formed strategic partnerships, and gain market exposure and are progressing in de-risking technology for upscaling. We'll continue to build out a new energy portfolio through the year, and we will keep you updated on our progress. We are extremely proud of the tangible results we have realized in only a short time, as it clearly outlines the power of the Schumacher brand and the potential of this new chapter for the future of the company. Turning to the outlook. Upward revision in global economic forecasts, growth forecasts by the IMF, and positive demand forecast adjustment by both IEA and OPEC reinforce the transition into a demand-led recovery, which will strengthen through the second half of 2021, absent new setbacks in vaccination rollouts or easing of lockdown. Against this backdrop, we are increasingly confident in our full-year activity outlook, In North America, in the second quarter, we see sustained activity growth in U.S. land and a seasonal rebound of North America offshore being partially offset by the Canada breakup. As our first quarter results have shown, particularly in well construction, our new mix and sizable exposure in the North America market will increasingly contribute to our results. Moving to international markets, activity growth will broaden in the second quarter with the seasonal recovery in Russia and China, augmenting continuing growth in Africa and the Middle East, while Latin America should remain resilient. In addition, the offshore recovery will continue in the second quarter, including the gradual return of exploration and appraisal in key international markets. The depth and diversity of our international franchise give us great exposure to this market expansion, especially in well construction, and reservoir performance, which will lead in the second quarter. More broadly, we anticipate all divisions to grow sequentially at different pace, and margin expansion to be led again by reservoir performance and well construction. In light of this, directionally, we expect total second quarter revenue to go in mid-single digits, and our operating margins to further expand by 50 to 100 basis points. Looking further into the second half of 2021, in North America, the pace of growth is expected to moderate on budget exhaustion and seasonal effect, but could surprise to the upside, resulting in four-year growth when excluding the impact of diversity. In the international markets, our confidence in the second half outlook has been strengthening, based on the latest international recount trends, capex signal, and customer engagements. International activity will broaden and accelerate in the second half, impacting short to long cycles, both on land and offshore, including deep water activity in the most advantaged offshore basins. The magnitude of these leading indicators, combined with upward revisions to global economic growth and demand recovery, present the potential for an even stronger inflection than initially anticipated for the second half of the year. Therefore, we have greater confidence in the previous guidance of a double-digit increase in international revenue in the second half when compared to the same period last year. And absent of a setback in a post-pandemic recovery, we foresee an upside for full-year growth internationally, resulting in a stronger footing as we enter 2022. In the context of this top-line growth and the steps we took to reset the earnings power, we are confident that we will fully realize our operating leverage to deliver our full-year ambition of 250 to 300 BPS margin expansion year over year. We expect to continue expanding during margins during the recovery to support increasing cash flow throughout the year. We should provide subsequent leveraging opportunity. Now I would like to pass the call to Stéphane.