SLB Limited Common Shares

Ladies and gentlemen, thank you for standing by and 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, 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, Leah. Good morning and welcome to the Schlumberger Limited Second Quarter 2021 Earnings Conference Call. Today's call has been hosted from Paris, following the Schlumberger Limited board meeting held earlier this week. Joining us on the call are Olivier Lepoche, 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'll 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 second 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 second quarter results, the near-term industry macro environment, and the outlook for the first quarter and the remainder of the year. Finally, I will share my perspective on how Schlumberger's position for sustained outperformance in this macro context. Stéphane will then give more details on our financial results, and we will open the floor for questions. Our second quarter results demonstrate very broad strengths in our core portfolio as we continue to fully capitalize on the short and long cycle activity recovery across divisions, operating environments, and geographies, both in North America and internationally. The combination of revenue quality, solid execution, and vastly improved operating leverage delivered our fourth consecutive quarter of margin expansion. Let me share with you some performance highlights during the quarter. Internationally, the depth and diversity of our portfolio enabled us to take hold of the recovery in the second quarter, restoring margins to pre-pandemic levels, ahead of the anticipated acceleration in these markets. In North America, we achieved our double-digit margin ambition, a key milestone in our 2021 financial targets. All divisions fully leveraged activity recovery to post sequential top-line growth and significant margin expansion, including production systems which reached double-digit margins during the quarter. Growth and margin expansion were led by reservoir performance and well construction, both posting growth internationally and in North America. Reserve performance growth was driven by the exploration and seasonal recovery, higher offshore activity, and new technology adoption, all of which resulted in sequential margin expansion in excess of 370 basis points. Well construction accelerated its rate of growth sequentially, outpacing recount growth both in North America and internationally with strong contributions from offshore basins. In U.S. lands, the division grew more than 30%, double the sequential recount growth rate over the quarter. This does not only reflect enhanced market participation, but also improving revenue quality. And cash flow finally from operation was $1.2 billion, enabling us to begin deleveraging the balance sheet this quarter. In addition to the impact of operating leverage, there were two contributing factors to this financial outperformance. the offshore activity mix, and second, technology adoption. The offshore rebound in the second quarter was led by high single-digit deepwater activity growth, particularly in Brazil, and also included mid-teens growth in exploration and appraisal activity across Europe and the Middle East. This market condition presented a favorable mix and resulted in higher revenue quality for both reservoir performance and well construction. In addition, as customers commit to future offshore development activity, we received significant deepwater awards for one subsea business line, resulting in a doubling of the booking volume versus the prior quarter and a year-to-date book-to-bid ratio exceeding 1.5. The other contributing factor is increasing new technology uptake. The rate of adoption of our latest generation technology increased by one-third during the quarter and included, in particular, transition technologies, digital, and fit-for-basin solutions, which benefited all divisions and most basins. This is a clear recognition of the performance impact our technologies generate for our customers, and it gives us increased confidence in the contribution of technology adoption toward margin expansion in this upcycle. In addition, we continue to advance our digital and new energy strategies, extending the reach of our digital platform with a number of key agreements and awards. as customers forge ahead with their digital transformations. And in New Energy, we continue to progress all of our ventures, including the recently announced strategic collaboration with Panasonic North America to develop our new battery-grade lithium production process in Clayton Valley, Nevada. Finally, during the second quarter, we announced our commitment to achieve net-zero greenhouse emissions by 2050. I am very proud to lead the first service company that has set a net zero ambition that includes scope-free emissions. We have laid out an approach to climate change that is science-based, aligned with the 1.5 degrees Celsius target of the Paris Agreement, and is built on a comprehensive near-term roadmap to achieve our goal, with interim milestones in 2025 and 2030. As a company that prides itself on technology innovation, we aim to net the balance of emissions we produce in 2050 with carbon-negative action. These plans also include the launch of our transition technology portfolio to support our customers on their journeys to net-zero, such as the avoidance of flaring with ORAWAREN technology and the track record of SINARA CO2 membrane separation technology, as you have seen in this morning's release. A net-zero ambition at the launch of transition technology is an opportunity to contribute to the decarbonization of the industry, building true innovation, a resilient future that delivers higher carbon higher value, and lower carbon. Overall, I am very pleased with our revenue quality, solid execution, and enhanced market participation both in North America and internationally, and most importantly, the translation of all of these elements into another successive quarter of margin expansion. I want to thank here the entire Schlumberger team as they continue to execute and deliver outstanding performance for our customers and our communities despite COVID impact in several parts of the world. Next, I would like to share my view on the macroeconomic environment supporting our industry. While the rise of the COVID-19 Delta variant and resurgence of related disruption could impact the pace of economic reopening, recent market projections continue to affirm an improving global economic outlook. Global GDP growth is now expected to approach 6% in 2021 and more than 4% in 2022, which will continue to drive a progressive recovery of oil demand. This outlook is supported by recent oil demand debates, which reflect the anticipation of wider vaccine-enabled recovery, improved mobility, and additional fiscal stimulus in large economies through the second half of the year. Looking further out, the IEA projects that global oil demand will reach 100 million barrels per day and surpass pre-COVID levels by the end of 2022, in the absence of further policy change. If oil prices have elevated levels, the supply response to this demand recovery is developing broadly as anticipated. Indeed, this combination has resulted in a call on short-cycle production as well as an uptick in long-cycle projects reflected in UFIDs and encouraging recovery in both offshore development and near-field exploration activity through the second quarter. In North America, this supply response is reflected in a recount and factory trends which sustained some growth through the first half of the year. Private operator led activity growth, which resulted from the acceleration of duck completion and increased ring activity to replenish duck inventory. By contrast, the embrace of capital discipline by the public operators is highlighted by the recount still being significantly below the Q1 2020 total, despite the BTI price exceeding pre-pandemic levels. In this context, despite a solid activity growth outlook, we maintain our view that the North American market will be structurally smaller than in previous cycles as a consequence of capital discipline and industry consolidation. Moving to international markets, the deficit of investment needed to deliver the required oil supply represents a sustained growth opportunity, particularly in the low-cost advantage basins. We remain constructive on the structural pull on international supply and the resulting activity impact. This was already visible in the second quarter, with a strong seasonal rebound and offshore recovery despite the impact of COVID disruption in part of Asia and in the Middle East. This also marked the second consecutive quarter of international recount growth. Looking further out, we see favorable conditions for durable investment growth driven by the combination of action by NOCs, internationally focused investment by public E&P operators, and the expectation of continued supply discipline by OPEC+, all in response to the steady evolution of demand. The current pace of international tendering, contract awards, and increasing book-to-bill ratio support this view. Against this backdrop, Schumers is extremely well positioned, both in international markets and in North America. Our market exposure is biased to accretive growth. And with a series of new contract wins, our leading digital and fit-for-basing technology portfolio, and our performance strategy, we will create value for our customers and deliver industry-leading returns. Turning to the third quarter outlook. In North America, we see another quarter of growth, albeit somewhat moderating, in U.S. land, led by private operators and horizontal oil drilling, and a seasonal recovery in Canada. North America offshore will remain resilient, albeit with the hurricane season in view. Moving to the international markets, positive growth momentum is expected to continue through the third quarter across all areas. Short-cycle activity will be augmented by longer-cycle project startups. In this context, directionally, we expect our global third-quarter revenue to grow by mid-single digits, led by reservoir performance and well-construction divisions, while our pre-tax segment operating margins should further expand by 50 to 100 basis points. With this outlook for the third quarter, we remain confident in achieving double-digit international growth in the second half of 2021 when compared to the second half of 2020. As a consequence, an absent further COVID setback in operational recovery, we now foresee full-year revenue growth both internationally and in North America when excluding the impact of the latest situation. With activity recovery ahead of us through the third quarter and strong signal for durable recovery beyond that, we cannot clearly see a path to the end of our full-year EBITDA margin expansion guidance for 2021. Looking further ahead, the fundamentals remain very favorable, with a growing economic rebound, supportive oil prices, and a demand and supply outlook all representing a set of unique conditions that will support an exceptional growth cycle. Furthermore, this cycle will be broad-based across geographies and operational environments, land, offshore, North America, and particularly international markets. The second quarter was a strong indication of the future outlook and a testament of our restored earnings power under these conditions. In summary, I'm very pleased with our strong second quarter results across our entire portfolio, which demonstrates the effectiveness of our strategy in delivering our long-term financial ambitions. I will now pass the call to Stéphane.