SLB Limited Common Shares

Ladies and gentlemen, thank you very much for standing by and welcome to the SLB Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions. You may press 1 then 0 to place your line into the question queue. You may remove yourself from queue by repeating the same 1-0 command. As a reminder, this conference is being recorded. I would now like to turn the conference over to the SVP of Investor Relations and Industry Affairs, James McDonald. Please go ahead.

Thank you, Leah. Good morning, and welcome to the SOB Second Quarter 2023 Earnings Conference Call. Today's call is being hosted from Paris, France, following our board meeting held earlier this week. Joining us on the call are Olivier Lepuche, Chief Executive Officer, and Stephane 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 the 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, James. Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I will cover three topics. I will first review a few of our financial highlights from the quarter. Next, I will discuss the positive momentum we are seeing in the international and offshore markets. And third, I will share the exciting progress we are making in digital before concluding with our outlook for the third quarter and the full year. Stéphane will then provide more details on our financial results, and we will open for your questions. Our second quarter results continue to demonstrate the strength of our portfolio and our strategic positioning in the most attractive, accurate, and resilient markets. This is translating to financial performance, and we closed the first half of the year with solid growth across revenue, earnings per share, free cash flow, and expanded EBITDA and pre-tax segment operating margins. International revenue continued strong growth momentum, increasing 21% year-on-year as we captured broad growth across all divisions and geographic areas. Second quarter revenue increased by more than 20% year-on-year in 14 of our 25 international units. Most notably, Saudi Arabia, UAE, Mexico, Guyana, Brazil, Angola, Caspian, and India all grew more than 30% over this period. This rose our highest year-on-year international incremental operating margin over the last three years, and it underscores the breadth of our portfolio that I continue to emphasize. SLV growth, SLV global reach, shields us from regional fluctuation, as we have recently seen in North America, and gives us the ability to seize opportunities wherever they arise. This is a true differentiator for our business and positions us for long-term up-performance. Following the remarks I shared in our earnings release this morning, I would like to reflect on a few notable highlights from the quarter. The bold growth characterizing this upcycle continues internationally. This was pervasive, and we were very pleased to see all divisions and geography grow revenue and expand margins sequentially. In North America, we continued to increase our revenue, highlighting our agility across the land markets and the expanded activity in the U.S. Gulf of Mexico, solidly outperforming the recount. Our focus on the quality of our revenue continues to support our margins. Sequentially, we expanded our free tax segment operating margins. This was fueled by our strong international operating leverage, increased technology adoption, and positive pricing trends that stem from inflation-driven contract adjustments and tight service capacity. And with higher earnings and improved working capital, our sequential cash flow from operation grew considerably, and we generated free cash flow of nearly $1 billion during the quarter. I want to thank the entire SLB team for their hard work and exceptional performance, delivering value for our customers and our shareholders throughout the quarter. Now, let me take a moment to touch on the macro environment. As we have projected for the past few quarters, the international and offshore markets continue to exhibit strong growth as North America has moderated. This is playing to the strengths of our business as international revenue represents nearly 80% of our global portfolio and offshore comprises nearly half of that. As the growth rate shifts further towards international, these market conditions are driving the breadth, resilience and durability of this upcycle and creating new opportunities for our business. Let me describe where this is taking place. In the international markets, the investment momentum of the past few years is accelerating. This is supported by resilient, long-cycle developments in Guyana, Brazil, Norway, and Turkey, production capacity expansion in the Middle East, notably in Saudi Arabia, UAE, and Qatar, the return of exploration appraisal across Africa and the Eastern Mediterranean, and the recognition of gas as a critical fuel source for energy security and the energy transition. In the Middle East, this is resulting in record levels of upstream investment. From 2023 to 2025, Saudi Arabia is expected to allocate nearly $100 billion to upstream oil and gas capital expenditure, a 60 percent increase compared to the previous three years, as they invest to obtain a maximum sustained production capacity of 13 million miles per day by 2027. Several other countries in the region have also announced mature increases in capital expenditure that extend beyond 2025. Furthermore, we continue to witness a broad resurgence in offshore driven by energy security and regionalization. Operators all over the world are making large-scale commitments to hasten discovery, accelerate development times, and increase the productivity of their assets. This is resulting in increased infill and tieback activity in metro basins, new development projects both in oil and gas, and support for new exploration. With this backdrop, We anticipate more than $500 billion in global FID between 2022 and 2025, with more than $200 billion attributable to deepwater. This reflects an increase of nearly 90% when compared to 2016-2019. These FID investments are global, taking place in more than 30 countries, and we are seeing the results with new projects in offshore basins across the world. This is reflected in many contract awards highlighted in the earnings press release, notably in Mexico, Brazil, and Turkey. These contracts, in addition to many others, are building a strong foundation of activity outlook decoupled from short-term community price volatility. Moving forward, we expect further growth to be led by accelerating activity in well construction, new opportunities for reserve performance in exploration appraisal, expansion for production system in subsea, and digital will enhance it all. In our business and industry as a whole, the increased adoption and integration of digital technologies remains one of the most significant opportunities for growth. Indeed, our industry generates massive amounts of data, and by capturing that information and turning it into trusted and actionable insights, we can make energy production more accessible, more affordable, and more sustainable. This is a critical moment for our industry, and there are three digital trends concurrently shaping its future, clearly setting the path for a higher-value, lower-carbon outlook. First, the adoption of cloud computing at scale. For geoscience workflows, this is supporting significant productivity gains for geoscientists and engineers across asset development teams. This is happening at a time when our industry is compelled to accelerate the development cycle and de-risk both subsurface and surface uncertainties. We continue to benefit from this trend in the adoption of our Delphi cloud-based digital platform, delivered through a flexible and personalized software-as-a-service SaaS subscription model, with the cumulative number of users in global customer organization growing 60% year-on-year to 5,400. As we shared in our earnings press release, Petrobras and INAP are only just two examples of customers deploying Delphi enterprise-wide with the aim of fundamentally changing how they work across the EMP value chain. Second, our industry is unlocking the power of data at scale. A single well can produce more than 10 terabytes of data per day. And this doesn't even begin to touch on the total amount of upstream data across exploration, development, and production workflows. The adoption of open data platform across the industry is liberating data for artificial intelligence AI applications at large, at scale. SLB is benefiting from and driving this trend through both data foundation and AI deployment. We are seeing early success with the commercialization of our enterprise data solution powered by Microsoft Energy Data Services. This offering delivers the most comprehensive capabilities for subsurface data in alignment with the emerging requirements of the OSDU technical standard. And we are witnessing tremendous success with our innovation factory, where we have developed more than 100 AI solutions with more than 80 customers since 2021. All of them with rich domain content in addition to generic AI capabilities. Third, digital operations are gaining in maturity, transforming the way operators develop and utilize assets. From automation to autonomous operation across both well construction and production. We are clearly seeing an inflection in the deployment of digital operation with significant impacts on efficiency, carbon footprint, and performance. Today, customers are accelerating the adoption of our neural autonomous solutions, with Kuwait Oil Company and Petronas both using these technologies to reduce manual operations while increasing performance, enabling draining consistency and rig time savings. Similarly, our partnership with Cognite as a platform for unlocking access to production operations, is gaining momentum in the industry, as exemplified with the current contract highlighted in our earnings release. Finally, we continue to deploy Delphi Edge Agora technology to deliver real-time insights directly within operations from connected hardware, where data is generated and processed with AI at the edge. We currently have more than 1,400 connected assets deployed, doubling year on year. SLB is positioned to fully harness this positive market condition, as well as our technology and digital leadership to drive financial outperformance and margin expansion. We're progressing in our journey to double the size of our digital business between 2021 and 2025. And the trend I've just discussed are reinforcing our confidence in the outcome of our strategy execution. I will now describe how we see the rest of the year progressing. After a positive first half, we remain confident in our full-year financial ambitions and our visibility into a significant baseload of activity that reinforces our 2023 full-year forecast and our growth ambition beyond. We continue to expect year-on-year revenue growth of more than 15% and adjusted EBITDA growth in the mid-20s. Turning specifically to the third quarter, we expect revenue to grow by mid-single digits in the international markets, with all international geographical area growing sequentially, led by the Middle East and Asia. In contrast, North America revenue will be slightly down. Before focus on the quality of revenue, harnessing operating leverage and further technology adoption, we expect global operating margins to further expand by more than 50 basis points sequentially. This will result into the highest EBITDA margin we have seen in this cycle. I will now turn the call over to Stéphane.