Schlumberger N.V.

Ladies and gentlemen, thank you for standing by. Welcome to the SLB Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question, please press 1, then 0. 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 Senior Vice President of Investor Relations and Industry Affairs, James R. McDonald. Please go ahead.

Thank you, Leah. Good morning, and welcome to the SLB fourth quarter and full year 2023 earnings conference call. Today's call is being hosted from Houston following our 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 for the most directly comparable GAAP financial measures can be found in our fourth 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 discuss our fourth quarter and fully our results, highlight a number of achievements, and share our thoughts on the outlook for 2024 and our financial ambitions. Stéphane will then provide more detail on our financial results and we'll open the line for your questions. Let's begin. The fourth quarter was an impressive conclusion to the year's financial results. We grew revenue both sequentially and year-on-year, and we achieved cycle-high margins and cash flows during the quarter. Our strong performance was fueled by the international and offshore markets and was supported by robust sales in digital and integration of the hacker subsea business. Throughout the year, we witnessed continued growth in international and offshore markets, where customers are focused on enhanced production and capacity additions. We've also seen further investments in digital technologies for planning and operational efficiency. This is driving growth today and presenting opportunities into the future. The international shift in investments has accelerated during the year. with fourth quarter revenue growth driven by the Middle East and Asia and Europe and Africa, where we continue to benefit from long cycle developments, capacity expansions, and exploration of result activities. Specific to offshore, we delivered a very strong fourth quarter as we grew our legacy portfolio and harnessed a strong performance from our one subsea zone venture. On this note, I would like to extend my thanks to the entire hacker subsidy team who have joined us three months ago and have already contributed very well to our strong year-end results. Exiting the year, our international revenue and margins reached new cycle highs, marking our 10th consecutive quarter of year-on-year double-digit revenue growth on the international front. and we delivered exceptional free cash flow of $2.3 billion in the quarter. Next, let me reflect on our accomplishments for the full year. We fulfilled our full-year financial ambitions, growing revenue by 18%, surpassing our revenue growth target for the year, and achieving adjusted EBITDA growth in the mid-20s. Additionally, we generated $4 billion in free cash flow, our highest since In the core, across production systems, reserve of performance and world construction, we grew revenue by more than 20%, and extended pre-tax operating margins by almost 300 basis points. This was driven by strong activity internationally and offshore, new technology deployment, and strong product sales. Notably, we achieved our highest ever revenue in the Middle East. led by impressive growth in Saudi Arabia, the United Arab Emirates, Egypt, and the East Mediterranean. Offshore also continued this positive momentum, led by remarkable growth in Brazil and Angola, and very solid increases in the U.S. Gulf of Mexico, Guyana, and Norway. This was supported by the contribution from the acquired hacker Subsibusness, which enabled us to expand in certain markets, mainly in Norway and Australia. Additionally, our feed-for-bass business model continues to deliver differentiated value in North America, resulting in revenue growth outperforming the recount. In digital, we continue to witness the adoption of our digital workflows and data AI platform as customer work to enhance efficiency and returns by integrating our connected and autonomous trading data and AI solutions. We now have more than 6,000 Delphi users, and have generated 125 million compute hours, both representing more than 40% growth year-on-year. As a result, we achieved full-year digital revenue of more than $2 billion, with our new technology platforms comprised of cloud, edge, and AI growing at a CAGR of 60% since 2021. In new energy, we forged new partnerships and made new investments in capture technology for carbon capture and storage. We are seeing very positive momentum in space. And we are actively participating in more than $400 million of CCS tenders globally. Additionally, in geothermal and geoenergy, we are partnering with government agencies in the Middle East on lower carbon electricity and in Europe on zero carbon heating and cooling solutions. As we advance our three engines of growth, we also continue to deliver for customers and stakeholders by achieving our lowest recordable injury rate and highest level of operational reliability on record. This is also reflected in industry surveys, where we are growing customer satisfaction through performance and value creation. reduce our emission density across scope one, two, and three on the path to achieving our 2025 emissions reduction commitment. Moving forward, we are well positioned to capture further growth, and I look forward to building on this strong success in the year ahead. I want to thank the entire CLB team for delivering these impressive results. Turning to the macro, the characteristics of breadth Resilience and durability that have defined this cycle remain fully in place. This continues to be supported by the imperative of energy security to meet rising global demand, confirming our belief in the longevity of the cycle. After a year of demand growth in 2023, we anticipate further growth in 2024 that will continue to support the ongoing multi-year investment cycle. In international markets, growth momentum is set to continue. with more than two-thirds of total investment taking place in the Middle East offshore and gas resource place. In the Middle East, growth will be led by Saudi Arabia and the United Arab Emirates, which continue to commit significant investments to increase production capacity in both oil and uncommercial gas, followed by Iraq and Kuwait. Meanwhile, in Asia, countries such as China, Malaysia, Indonesia, and India are leading new gas exploration and development. And across our international basins, we anticipate strong activity led by Brazil and followed by West Africa and Australia. Looking across this wide base load of activity, a significant portion is taking place offshore, where capital expenditure will continue that growth momentum in 2024. As a result, the rig count will continue to rise, mainly in the Middle East and Asia, responding to a strong FID pipeline in both shallow and deep water. All in all, we see the potential for more than 100 billion global offshore FIDs in both 2024 and 2025, underscoring the enduring strength of the offshore markets and supporting a very favorable subsea outlook for years to come. In this context, Although geopolitical tensions persist in several regions, we do not expect any significant impact to activity in 2024, absent further escalation. Additionally, although we have witnessed short-term commodity price fluctuate over the past few months, long cycle investment in the Middle East offshore and gas markets remain decoupled from short-term pricing, which will continue to support the resilience of these markets. In North America, Following a noticeable moderation of activity in the later part of 2023, we anticipate capital discipline to continue. Consequently, investment levels will be sustained at 2023 exit rates with minimal increase in activity as a region focused on sustaining its record output from last year. This will drive further adoption of technology as operators aim to further improve efficiency and recovery rates. Now, let me explain how we expect these factors to drive our performance in 2024. In the international markets, we expect full-year revenue growth reaching the mid-teens, led by the Middle East and Asia and Europe and Africa. This growth will take place both onshore and offshore, with offshore benefiting from our newly formed one-subsea joint venture, which enters the year with close to $4.5 billion of subsea production system backlog. we expect to deliver more than $4 billion in additional SEBSI bookings in 2024, opposing an increase of more than 25% year-on-year as the market continues to expand. For clarity, when excluding the impact of hacker contribution and the expected decline in Russia, we expect double-digit international growth for the year. Meanwhile, in North America, although activity has moderated, We expect full-year revenue growth, reaching the mid-single digits, driven by our technology leverage portfolio in both US land and the US Gulf of Mexico. Turning to the divisions, we expect all core divisions to grow, led by production systems and reservoir performance. Digital integration is also expected to grow, with digital growing in the high teens, primarily driven by new technology platforms, while APS remains flat. Directionally, we expect further margin expansions driven by tight service capacity internationally, pricing, and increased technology adoption. This will result in year-on-year EBITDA growth in the mid-teens. With continued growth in earnings, our proven ability to generate cash, and confidence in the long-term outlook, we are pleased to announce that the Board of Directors have approved a 10% increase in our quarterly dividends. and will also increase our share repurchase program in 2024. Combined, we are targeting a return to return more than $2.5 billion to shareholders in 2024, an increase of more than 25% compared to 2023. Looking to the first quarter, we anticipate the typical pattern of activity beginning with the combined effects of seasonality and the absence of year-end digital sales. As a result, On a year-on-year basis, we expect first quarter revenue growth in the low teens and EBITDA growth in the mid-teens. This will be followed by an activity rebound in the second quarter and further acceleration of growth in the second half of the year, particularly in the international markets. This will support the ambition we have set for the full year revenue and earnings growth. I will now turn the call over to Stéphane.

Thank you, Olivier, and good morning, ladies and gentlemen. Fourth quarter earnings per share, excluding charges and credits, was 86 cents. This represents an increase of 8 cents sequentially and an increase of 15 cents when compared to the same period of last year. We recorded 9 cents of charges during the fourth quarter of this year. $0.06 related to the devaluation of the peso in Argentina, and the remaining $0.03 related to merger and integration costs associated with our acquisition of the hacker subsidy business, which closed at the beginning of the quarter. We anticipate that we will incur additional charges as integration activities continue over the course of 2024. Our full year 2023 revenue of 33.1 billion grew 18% year-on-year. While this revenue is roughly the same as the pre-pandemic level of 2019, our adjusted EBITDA in 2023 in absolute dollars was 22% higher. As a result, our full year 2023 EBITDA margin of 24.5% has expanded 430 basis points over this period on a similar revenue base. This highlights the high grading of our portfolio over the last few years, our significantly improved operating leverage, and our favorable market position, particularly internationally and offshore. Fourth quarter revenue of 8.99 billion increased 8% sequentially. with the acquired hacker subsidy business accounting for approximately 70% of the increase. Fourth quarter pre-tax operating margin of 20.8% improved 52 basis points sequentially and 101 basis points year-on-year. Adjusted EBITDA margin for the fourth quarter of 25.3% was 95 basis points higher than the same period of last year. I will now go through the fourth quarter results for each division. Fourth quarter digital and integration revenue of $1 billion increased 7% sequentially, with pre-tax operating margin expanding 197 basis points to 34%. This growth was due to increased digital revenue across all areas, led by the Middle East and Asia and Europe and Africa. Reservoir performance revenue of 1.7 billion grew 3% sequentially, primarily due to increased activity internationally, mainly in the Middle East and Africa. Pre-tax operating margin increased 88 basis points to 21.4%, representing the highest level of this cycle, driven by higher activity and improved pricing. While construction, revenue of $3.4 billion was essentially flat sequentially, as international growth of 2% was offset by a decline in North America revenue, resulting from lower U.S. land recounts. Pre-tax operating margin increased 35 basis points sequentially. Lastly, Production systems revenue of 2.9 billion increased 24% sequentially, largely due to the acquired hacker subsidy business. Excluding this effect, revenue grew 4% sequentially due to strong international sales. Pre-tax operating margin expanded 153 basis points to 15%, its highest level this cycle. on higher sales of midstream artificial lift and subsea production systems looking ahead to the full year of 2024 we expect continued margin expansion in our core driven by sustained operating leverage a favorable geographic mix and pricing tailwinds in our digital and integration division We expect margins to remain approximately at the same level as 2023, as digital margins will increase due to the accelerated adoption of our new technology platforms, while APS margins will decrease as a result of higher amortization expenses. All in all, as mentioned by Olivier, strong year-on-year revenue growth and continued margin expansion we result in adjusted EBITDA growth in the mid-teens in 2024 when compared to 2023. Now turning to our liquidity. We generated 3 billion of cash flow from operations and 2.3 billion of free cash flow during the fourth quarter. This exceptional performance resulted in full-year free cash flow of 4 billion, which is the highest level we have achieved since 2015. This was due to a combination of very strong year-end receivable cash collections, increased customer advances, improved inventory terms, and the receipt of a prior year tax refund. As a result of this exceptional free cash flow performance, we reduced our net debt by $1.4 billion during the quarter to $8 billion. This represents our lowest net debt level since the first quarter of 2016. Capital investments, including CAPEX and investment in APS projects and exploration data, were $742 million in the fourth quarter and $2.6 billion for the full year. Looking ahead, we will continue to be disciplined as it relates to our capital investments. Despite the continued revenue growth, our 2024 capital investments will remain at approximately the same level as in 2023. Finally, during the fourth quarter, we repurchased 1.8 million shares of our stock for a total purchase price of 100 million. For the full year, we returned a total of 2 billion to shareholders in the form of dividends and stock repurchases. Our continued capital discipline, combined with the confidence we have that 2024 will be another year of strong cash flow generation, will enable us to increase our returns to shareholders in 2024. In this regard, when combining the increased quarterly dividend that we announced today with increased share repurchases, we are targeting to return more than 2.5 billion to our shareholders in 2024. I will now turn the conference call back to Olivier.

Thank you, Stéphane. Ladies and gentlemen, I think we will start the Q&A. So, Léa, back to you.

Thank you, ladies and gentlemen. Once again, if you would like to ask a question, you may press 1, then 0 on your telephone keypad. And first, we go to the line of James West with Evercore ISI. Please go ahead.

Hey, good morning, Olivier and Stefan. Good morning. Good morning. So, Olivier, I'm curious to hear your thoughts. Clearly, you're looking for another year of pretty strong growth in EBITDA and revenue. But it seems to me like we've got a lot of, you know, particularly deep water rigs that are going to start turning to the right here very soon. and particularly in the second half, and there should be an exit rate that's even higher than that type of growth as we go into 25. I think, is that a fair assumption, or am I getting ahead of my skis here in terms of kind of what the overall market opportunity is going to be as we step through this year and get into the 25, 26-stop period?

No, that's correct. I think, James, thank you for laying out the theme of offshore. I think offshore is a distinct attribute of this cycle. I have really already delivered in terms of total activity visibly beyond 2019 and includes both shallow and deep water that have both grown visibly in the last 24 months. Shallow mainly driven by addition of rigs that we continue to see coming in the Middle East and the Asia region, and deep water across all the deep water basins. And we anticipate, albeit at a more moderate rate for deep water than shallow, the rig activity to continue to increase and the exit rate of 24 to be above in terms of rig counts offshore recount, total offshore recount, the exit rate of 23. As a benefit, I think both the offshore activity and the deep water, where we have the benefit of the scale with our subsidy venture, will benefit. Hence, we continue to see growth, not only in 24, but running out to 25 and beyond. As I said, the total FID rate for offshore keeps being 100 billion dollars for each of 24 and 25 and this is not only supporting activity next year and 25 but support longevity of offshore investment beyond so we are we remain very constructive on that environment and yes we see the exit rate to be above the last December in 12 months from now

Okay, perfect. That's great to hear. And then maybe a quick follow-up in terms of CapEx. I don't know if, Stefan, if you want to take this one, but CapEx seems to be, it seems like you're going to keep it at the same type of level that it's been, that it was in 23, but there's going to be a lot more activity. And so does that number eventually need to move higher? And when it does, if it does, Do you still believe that you can maintain this 5% to 6% of revenue per CapEx dollars ratio?

So look, James, yes, we are still growing, going into 2024 and beyond, but this level of capex we spent in 2023 we think remains adequate for this year as well. You have to think about the mix of activities as well amongst our divisions, so we think we can very well address the... the upcoming growth within this envelope without having to increase normally throughout the year, unless growth is much more than expected. But we are comfortable with this, and we will remain, indeed, within our guidance, and it's actually the low end of our guidance on the CAPEX side. Okay. Got it. Thanks, gentlemen.

Thank you.

Our next question is from David Anderson with Barclays. Please go ahead.

Great. Thank you. Good morning, Olivier and Stefan.

Good morning, Dave.

Hi. So maybe we can start off with the Middle East here. So another double-digit sequential quarter out of MENA, clearly an enormous runway of activity in front of you in the next several years between unconventional gas and the number of capacity expansion projects underway. My question is how you see top line versus margins evolving. Can you maintain this pace of growth in the region in 24, or are we getting close to capacity in terms of the number of rigs available, service equipment, even E&C capacity here is pretty tight over there. I guess conversely, should we start seeing margins expand further as contracts reprice due to tightness? I noted that the tendering of stuff in Iowa was delayed by nine months. I'm wondering maybe there's some sticker shock from pricing. So perhaps this is already underway, but just a little bit more details in terms of capacity and pricing in the Middle East, please. Thank you.

Yeah, no, thank you, Dave. I think we have been very pleased with the activity and the way we have been able to turn this activity growth in the last 18 months. in the last 12 months, particularly into revenue, benefiting from our strength on the ground in the Middle East. I think I would characterize beyond the capacity expansion and on commercial gas, which is a dual benefit for activity, I would also characterize the activity in the Middle East to be very broad. It's not two countries leading this, it's almost every country. in the region that will see further activity and will derive from it further revenue growth. So we are not at capacity. We don't see an infection down of our revenue growth potential in the region. Benefiting from our technology, market position with each and every national company in the region, and the capability for integration to harness the power of our technology to performance for our customers and delivering higher revenue from rate of activity. So we are confident. When it comes to capacity, yes, equipment capacity and everybody has been disciplined in the region and hence we have been responding and benefiting from pricing in the last 18 months. And as a consequence, our margins have expanded in the region and have supported what we have seen as our international margin expansion year on year and have been a driver for margin expansion internationally. And we expect this to continue as we execute 2024. But again, it's a long duration cycle, both by the nature of the investment decoupled from short-term investments. pricing on commodity. So we remain very confident about our market position first, on the market outlook, and our ability to differentiate to performance, integration, technology, and then continue the success in 24 and 25, and again, well into the second half of the decade.

Yeah, a long way from the peak. That's pretty clear, at least in that part of the region. I was wondering if we could shift over on the digital side. I noticed there were a number of comments in the release today regarding increasing digital adoption by your customers. I was hoping you could expand on that a little bit. Is that simply about customers using Delphi more, or as they get more comfortable with it, is a certain application gaining traction? Is there any metrics you can give us in terms of year-over-year usage from your bigger customers? And I'm also just kind of curious, in order to grow digital revenue by essentially 50% over the next two years, Is this primarily coming from an increased digital adoption of existing customers, or do you also need new customers to get to that target?

Okay, let me come back first on some metrics that I think we have highlighted into my opening remarks, and I think this relates to the adoption of Delphi, indeed, adoption of a number of users, use of cloud compute on our Delphi platform, and use of additional edge or AI technologies capability that we offer to our customers, the combination of which, as I said, has grown 60% in the last two years on a CAGR rate, and the adoption metrics that we share, both the number of users and the number of hours of complete power that we serve to our customers on the cloud have been growing by 40%. So, yes, the adoption is growing, both measured by As I always said, one customer at a time that transitioned from our legacy desktop offering to our cloud. And by expansion of our workflows, data, AI capability that we offer to existing or new customers. So it's a combination of transition of the existing customer to the cloud. and adoption of data and AI capability because we are offering now a platform that the industry is recognizing and adopting. And finally, and maybe one of the most exciting part that adds a dimension of growth, is the digital operation, both drilling and production digital operation. You have seen some of the announcements that have been highlighted in recent weeks and months. And last week, further alignment with a partner to accelerate drilling automation and autonomous systems. So the drilling adoption on the operation production with our partner Cognite. and this is supplementing, I would say, the core growth of transitioning our GeoSounds customers from desktop to the cloud. So you have a three-dimension. You have the cloud transition with existing customers and adoption of new customers coming to SaaS solution. You have the data and AI. It's a new market. It's a It's a rebirth of the data management that scaled within the cloud and AI, unlocking the power of data to AI in our industry, and finally digital operation. These three trends are supporting our growth ambition both this year and next year, and this spans all the customer segments across the globe, and you keep seeing some enhancement of customer adoption on our solutions.

Thank you very much. Appreciate it.

Thank you.

Next, we go to Scott Gruber with Citigroup. Please go ahead.

Yes, good morning.

Good morning, Chuck.

I want to touch on transition technologies. You noted over a billion dollars in sales. And I realize a lot of these are new and focused on emissions reduction. And I believe that the bucket there is separate from new energy. Correct me if I'm not accurate. Well, Olivia, I wanted to ask about the outlook for these technologies and the growth of sales of these technologies as the uptake by customers around the world seems pretty strong. Can you speak to the multi-year outlook and is the cadence of growth for transition technologies additive to the growth rate from the core?

No, I think you are correct first in stating that this is distinct from our focus on the five themes that we have in New Energy and distinct from the CCS I mentioned where we have a lot of success in geothermal. And it represents a portfolio of technology that we have, that we are developing, that we are promoting to our customers that have a distinct lower emission carbon intensity compared to existing or legacy technologies. and have a net effect on our customer for their scope one or their scope three, upstream as we call it, emissions, but also have the characteristic to bring efficiency. So customers looking for low cost, low carbon outlook, and continue to adopt this technology by contrast with alternate technology that exists in the market as they deliver not only lower carbon, but also deliver higher efficiency, which are the way we characterize this technology. So yes, we are very pleased with the adoption. Some technologies are very unique. like our almost zero-carbon cement solution. Some solutions are really game-changing, such as some of our processing, subsea processing solutions that are having a net impact on the carbon footprint of subsea operations. Some technologies are disrupting for the future, such as electrical full subsea and electrical full completion technology. And hence, we are seeing accelerated adoption of this. And finally, we say that we are also seeing, following the COP28, much more interest into our methane emission management solution. And you have seen the announcement we made with ENI supporting them as a global company to make an assessment and be assessing their emission intensity from METEN and proposing abatement solutions. So this is a mix of technology that will continue to be growing in our technology mix and that supports our ambition for a sustainable future and a balanced planet, but also aligned with our customers on lower carbon, lower cost futures.

I got it. Appreciate that color. And then, Stéphane, one for you. You know, appreciate the cash return target for 24. Can you also provide some broader color, you know, on the cash conversion rate? The working capital release in 4Q was very impressive. So curious about the working capital outlook for 24, tax rate, et cetera.

Bonjour, Scott. So, Luke, yes, we were also very pleased with the With the fourth quarter and full year free cash flow, and indeed in the fourth quarter, it's coming almost entirely from the working capital. So now we do expect, as I said, 2024 to be another very strong year of growth. of free cash flow, and it will show the same quarterly pattern we usually see. So in the first quarter, the working capital will clearly increase. We have the payment of annual incentives to employees, as you may know, and then we'll have the reversal of certain exceptional items that occurred in the last quarter of 2023. So we'll see the effect in Q1 as usual, but then this will be followed by a gradual improvement in subsequent quarters in line with what we observed this year. So hopefully we can have another very strong finish of the year in 12 months from now and deliver a strong performance as well.

Got it. Thanks, Steffen.

Thank you. Thank you.

Next we go to Luc Lemoyne with Piper Sandler. Please go ahead.

Hi, good morning. Olivier, you noted the bookings and backlog at 1 sub C. And last call, you talked about some of the commercial and operational objectives. And I wanted to see if you could just talk about how customer engagement and dialogue has progressed with the enhanced offering you now have.

Thank you, Luke. I think we'll have a piece first with the first quarter of 2021. the subsea jump venture we have with Acre and Subsea 7. I think the results speak for themselves. I think it was a direct contributor to the PS, the production system, performance in the fourth quarter, both on the top line and the margins. So we're very pleased. And I think, as I said, I could not be more pleased than this. Now, going forward, I think our objective continues to be to expand to extract more value through synergy and to fully seize this deep water offshore cycle that is in full-fledged happening and where we see, as I said earlier, a strong outlook. So our priority is to benefit from integration capability and as you have seen that you have announced some alliance and one of them with BP where I think customers are approaching us, organizing that our subsea integration capability across the SPS and surf are augmented by ability to deliver and understand the reservoir as well as deliver well construction. So hence, opportunity to have integrated asset development, integrated tieback delivery, and more opportunity in the space that is fully integrated subsea and beyond to extract better economics and to extract more importantly, equally importantly, a higher recovery combining our reservoir subsurface domain expertise, our well placement, and our subsea boosting and processing capability all combined to extract and create a little bit of more value for subsea market going forward from economics and from production recovery. So that's where we see trends coming and we have a portfolio that is unique with the portfolio particularly on the boosting and processing and tie-back capability that is unmatched on the market. And we have digital reservoir technology on our core portfolio that complements this and help and will support this alliance integration capability. So I can only be pleased with the prospect ahead of us and the feedback from all customers so far is very positive on our capability.

All right, got it. Thanks, Olivier.

Thank you, Luc.

Our next question is from Sarab Pant with Bank of America. Please go ahead.

Hi, good morning, Olivier. Good morning, team. Good morning. Olivier, maybe I want to touch on exploration a little bit. You talked about that on the call today. You highlighted Asia. I think you talked about China, Malaysia, India, some of the other countries exploring for gas. I know you've talked about exploration in the past. So we are seeing a at least a little bit of a tangible recovery happening on the exploration side. Maybe you can expand on that a little bit. What do you expect over the next couple of years on both the gas and the oil side? And just maybe remind us how impactful that is for SLB.

Yeah, thank you. I think, yes, we have commented before that we have seen resurgence and rebound of expression activity in the last two or three years. This cycle has added expression activity back to the cycle, and I think it has been driven by the desire to find a new gas reserve to respond to the gas supply security concerns and also it has benefited from the continued exploration of oil around the existing offshore hubs in the form of infrastructure-led exploration and also in the new frontier replicating the success that Exxon had in Guyanine overbases. So when you look at it from where it's happening, what is unique in this cycle, it's happening everywhere. We have exploration activity, mostly offshore. That's where I think the the actual success of new reserves have been mostly. And in all offshore basins, both shallow and deepwater, infrastructure-led exploration in existing mature deepwater markets and in new frontier. So you have seen new frontier happening in Namibia. You have seen new frontier in Suriname, in upcoming Brazil equatorial margin. You have exploration in the east or west Columbia side. You have furthermore in West Africa south. And you have what is maybe a little bit new this cycle, more exploration coming back in Asia, from India, as I said, to Malaysia, China. And I think this is what constitutes a little bit of the unique cycle. It's broad. and it is here in my opinion to stay because the economics of offshore have improved significantly over the last couple of cycles and attributes of reserve both gas and oil with low carbon intensity and and the ability to deliver a long plateau of production is unique. So access to offshore acreage, better economics, better quality of potential geological reserves have all driven this and we have increased the success and we have exposure in Reserva Performance with Reserva Performance evaluation segments that are benefiting from it and has introduced technology that are really in high demand like Aura and we have a lot of exposure obviously as well in the digital segments with our seismic data capability processing and our digital geoscience offering that both benefit from this as a consumption. We are pleased with the market position we have, and we believe that this exploration appraisal is here to stay because it's very broad, diverse, and across many basins, partly in offshore.

Fantastic. Okay, no, thanks, Olivier. Thanks for the detail. I have one very quick follow-up, if I may, on the Middle East side. I know you talked about that on the prepared remarks in the Q&A early on, but... Just to go back to that, I think one thing you noted in the press release was that you expect the record Middle East growth to continue beyond 2025. If you can elaborate a little bit, Olivia, on what gives you the confidence, the line of sight beyond 2025. Maybe part of that is just the gas side of things, not just oil, right? But elaborate a little bit on the line of sight you have beyond 2025 on the Middle East.

Yeah, I think first you have to realize that the capacity expansion program announced by the multiple countries that have made their commitments extends from 27 to 30 plus, 30, 35 or 40 from the last country that have expanded this. And hence, I think the capacity will continue to be seen addition both land and offshore to respond to that capacity expansion. Gas, I think, is here for the long in the Middle East for two reasons. First, there are gas reserves that are really at a very good economic point, partially in Qatar, and will continue to present an energy feed to the global gas market, but also unconventional. Reserves are seeing significant investment, and we expect this to actually grow fast in the coming years. in two or three countries that are focused on gas. So the commission of this is giving us the confidence that the record ever investment that we have seen last year in Middle East will continue in 24, 25, and has potential to expand well into the second half of the decade.

Fantastic. That's very helpful, Olivier. Thank you. I'll turn it back. Thank you.

And our next question is from Neil Mehta with Goldman Sachs. Please go ahead.

Yeah, good morning, Olivier, Stefan. A couple questions for me. The first is on EBITDA margins. Congrats on crossing that 25% EBITDA margin mark. How should we think about the margin path in 2024? And if you think about the upside and downside factors that could drive you on that metric, how should we think about that?

Clearly we see upside in 2024 and continued margin expansion as we expressed earlier. Really, I'm sure you will back calculate, but our guidance of mid-teens EBITDA growth in absolute dollars will be achieved with revenue growth, but clearly with margin expansion across our core and in digital, as I mentioned. So yes, we continue to see margin expansion. We have great operating leverage. We have pricing tailwinds in our backlog and new technology adoption. And this is pushing margins together with the favorable mix, as you well know, offshore is, uh, is helping, uh, margins as well. So it's, uh, it's, it's subside, uh, it's continuous upside from now on.

Okay. Yeah. It does sound like geomix operating leverage pricing, a lot of different factors there. That's helpful. And then in terms of, uh, North America, I recognize there's a smaller business for you, but, uh, you indicate in the comments, you expect North America to grow in 2024, despite, uh, weaker rig count and activity. Can you talk about what's driving that and how you're able to outperform in the face of a tougher North America macro? And where are you seeing the technology adoption from a customer perspective?

No, we are very pleased with our performance in North America in retrospect in 2023 as we visibly outperformed the rig count and we were able to grow in NAMM sequentially visibly, and we expect indeed to continue to outperform the market, and it comes from multiple factors. The mixed factor of exposure we have, with great exposure in Gulf of Mexico as well as East Canada and Alaska, we will see a potential of further technology adoption and giving us the benefits of our mix, but also in the U.S. land market, I think we had a transition to a fit and feed for basin and a technology leverage focused portfolio in US land and to some extent in Canada. And we have seen this as a success with adoption of some really unique drilling technology, in particular digital CCS, giving us the tailwind. to outperform the market in 2023, and we see this continuing now. The priority for customers remains clearly efficiency and recovery in the U.S. land market, and hence more efficiency on the drilling well construction side, more recovery, use of digital, use of ESPs and also low carbon when it matters, will continue to make an impact and serve us very well. And the U.S. Gulf of Mexico and other offshore markets performance to integration, performance to execution in reliability of our execution, I think will continue to be paramount for our customers. And as long as we continue to deliver at this level, we'll get rewarded with market position and contract and pricing. And hence, we'll be able to outperform the recount, hence our guidance. up to reaching the mid-single digit in 2024 against the market outlook. Thanks, Olivier. Thank you.

Next, we'll go to Arun Jayaraman with JP Morgan. Please go ahead.

Yeah, good morning, Olivier. I wanted to get your thoughts on what you're seeing in the international markets in terms of perhaps you could compare and contrast the spending behavior you're seeing from the NOCs versus the IOCs?

No, thank you, Haroun. I think if I was to characterize at the highest level, I think that we have seen significant traction in the last two years and rebound of investment internationally by the international company. with a delay coming from the contractual nature and also from the investment execution decision from national company. We anticipate national company to actually grow faster as we turn into 2024, led in particular by the Middle East region with leading NOCs clearly going. But I think the momentum we have gained, which was leading the pack to some extent in the IOC in 2023, we expect due to the nature of our mix offshore exposure, still a very solid expression of results for a few of them, will continue to give us momentum in the IOCs internationally. And I will not forget about the international independents that have a market position, particularly in some offshore markets, and they are continuing to execute on their plan. And so we are pleased, and I think we are looking forward to the national company accelerating their, relatively speaking, their growth in 2024 compared to the IOCs.

Great. And my follow-up, Olivier, at the Analyst Day in 2022, you highlighted a target of $3 billion in new energy revenue by the end of the decade. Does that even give us a sense of where you're at in terms of that path, that journey, and maybe some of the areas where you're seeing the most traction today?

I think as you mentioned, Remember, and I'm just resetting the scene for everyone, I think we have identified five domains in which we believe we have adjacency, we have potential, and we have a technology portfolio belief to bring to market and disrupt and participate in energy at scale, CCS, geothermal, geoenergy, energy storage, critical mineral, and energy and hydrogen, that all of them have different horizons of growth and different scale potential for us. So we have been, for the last two or three years, seeding investments, developing organically and inorganically technology position. We are very pleased with the momentum in CCS and geothermal, going ahead of our expectation in terms of for CCS sequestration studies and participation to exploration in this market. And geothermal by its growth potential going beyond the established basins. So we believe that our Our $3 billion target will be a combination of organic growth on this adjacent market and inorganic development into the non-addressed adjacent market. And we believe that CCS likely to be leading in terms of potential contributor to this ambition, followed by likely hydrogen starting to be in a position that will more impact later part of the cycle in the next decade. So we feel confident by the early investment we are making, and we feel confident by the development of the market, the support of the incentive across many regions. and the early stage of success in CCS particularly as we execute this.

Great. Thanks a lot.

Thank you. My apologies. We have time for one more question. That is from Roger Reed with Wells Fargo. Please go ahead.

Yeah, thank you. Good morning. Congratulations on the quarter. Olivia, I'd like to follow up a little bit on the last question on the spending, you know, IOCs and OCs, international EMPs, as you mentioned. You know, we generally want to, let's say, look at the oil strip or assume a flat oil price. If spending is going to increase second half 24, you know, a fairly positive outlook, as you showed, you know, kind of 25 and beyond, you know, Would you characterize overall reinvestment by the industry as still too low? In other words, we don't need a higher oil price to get higher spending and investment. Or would you say we are simply dependent on oil prices? I'm just kind of curious the way you're looking at it from a, you know, I guess productive capacity these companies and countries need. and where they sit on excess capacity today versus that oil price outlook.

I think I will turn it a little bit upside down and realize that our operators are looking at the national company IOCs. They're looking at the demand that will continue to grow throughout the decade. and realize that if they continue to execute on the capital discipline, they need to accelerate the supply coming from international markets to fulfill this demand that will continue to grow and will put more pressure on the demand-supply balance. So some of them are responding to capacity expansion programs. Some of them are responding by accelerating the exploration appraisal or the development of existing international accruage that they have and development. So that's what we see. It applies to both for oil and gas. And gas is being more driven by regional dynamics on either consumption or gas security access with Asia or with East Mediterranean Sea. to feed Europe, Asia for energy security and domestic consumption. Both these factors are driven by demand. The economics are, at the current level, still favorable for long cycle investment. The price of offshore international developments The economics have improved through the cycle. The benefits of efficiency, integration, technology have turned into making the offshore investment more attractive for the long run. Hence, it has re-attracted investments. I will not try to comment on the industry needs more or less. I think the industry is certainly having the incentive today and have put a program in place with the FID pipeline that confirm that it is attractive, it will be met with demand in the long outlook, and our confidence into the longevity of the cycle internationally and into the breadth and resilience across oil and gas of the investment profile we are seeing from our operators.

No, thanks for that. And then the follow-up question that kind of ties into that, obviously a meaningful dividend raise here and a consistent increase in the dividend from the COVID era. But as you look forward, recognizing it's the board that decides the dividend, but How should we think about the dividend evolving back to the sort of 2014 to 2019 era when it was substantially higher than today? I know there have been some changes, acquisitions and share count and all that, but whether it's an aggregate dollar dividend or per share metric, how do you think about the dividend within the overall framework here?

Thanks for the question, Roger. Really, the way we look at it is it goes beyond the dividend. We prefer looking at the total payout to shareholders, including buyback. So the dividend itself, yes, 10%. We're happy we can do this. We're happy it was approved by our board. It's on the back, of course, of the strong free cash flow generation we had in 23, and our confidence we can maintain. replicate that in the future but we want to go at the at the right pace so that it remains sustainable in the future and we we can do more dividend increases in the future as long as they are reasonable but again total payout is what we are focusing on we are increasing it from 2 billion in 23 including buybacks to hopefully more than 2.5 in 2024. So if you back-calculate this, of course, with the new amount of dividend, that means a minimum of $1 billion of share buybacks. And as the year evolves, we will review that every quarter, and we'll address that potentially above the $1 billion minimum as relevance.

Great. Thank you.

Thank you.

And ladies and gentlemen, I'll turn the conference back to Olivier Lepouche for closing comments. Please go ahead.

Olivier Lepouche Thank you, Leah. Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways. First, our fourth quarter and full year 2023 results underscore SLB's differentiated ability to generate returns throughout the cycle. We delivered strong revenue growth and free cash flow above expectations and continue to expand EBITDA and operating margins. With momentum across our three engines of growth and our returns-focused strategy in place, we will continue to build on this success in the year ahead. Second, the macro environment remains very compelling for our business, with investment and activity predicated in the international and offshore basis. Combined with tight service capacity and an emphasis on performance and digital, we are well positioned to expand our lead by delivering exceptional value to our customers. Finally, I remain very confident in our strategy and impressed by the outstanding performance of our teams. I am fully confident in our ability to deliver our 2024 financial targets and continue increasing shareholder returns. I look forward to sharing our progress with you throughout the year. With this, I will conclude today's call. Thank you all for joining.