Schlumberger N.V.

simply press star followed by the number one on your telephone keypad. You may remove yourself from the queue by pressing star two. As a reminder, this call is being recorded. I will now turn the call over to James R. McDonald, Senior Vice President of Investor Relations and Industry Affairs. Please go ahead.

Thank you, Megan. Good morning and welcome to the SLB first quarter, 2025 earnings conference call. Today's call is being hosted from Houston following our board meeting in the Middle East last week. Joining us on the call are Livia 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. Certainties that could cause our results to differ materially from those projected. For more information, please refer to our latest 10K filing and other SEC filings, which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our first quarter earnings press release, which is on our website. Finally, in conjunction with our proposed acquisition, SLB and Champion X have filed materials with the SEC, including a registration statement for the proxy statement and prospectuses. These materials can be found on the SEC's website or from the party's websites. With that, I will turn the call over to Olivier.

Thank you, James. Ladies and gentlemen, thank you for joining us on the call this morning. I'll begin by discussing our first quarter performance. Then I will provide updates on the evolving macro and I will manage our business in this uncertain environment. Stephane will then provide more details on our financial performance and we'll open the line for questions. Let's begin. As you have seen in our earnings press release this morning, it has been a soft start of the year. In addition to the typical seasonal activity decline in the Northern hemisphere and the absence of year-end product and softer sales, upstream investments has remained constrained by the oversupplied oil markets. This has been amplified over the past few weeks with additional economic uncertainty stemming from the acceleration of supply raises by OPEC plus and recent type announcement. Again, it's more challenging backdrop. I was proud to see our teams continue to deliver for our customers and we finished the year, the quarter, by achieving further adjusted in the time out in expansion year on year. Overall, across the business, first quarter revenue decreased by 3% year on year as our strong results in North Jamaica were more than offset by lower revenue in the international markets, attributed to a combination of lower drilling activity in Mexico and Saudi Arabia and a steep decline in Russia. Excluding declines in these three countries, international revenue was steady year on year and we achieved double digit growth in a number of markets including the United Arab Emirates, North Africa, Kuwait, Argentina and China, as well as a solid performance in Europe and Scandinavia. Altogether, this resulted in international recount at performance. Turning to North America, we delivered positive results driven by the offshore market with higher sales of both digital and subsea pollution systems. There was also continued growth momentum in our data center infrastructure solution business in this region. However, this growth was partially offset by lower drilling revenue in US land due to weak efficiency gains. Next, let me discuss the performance of our divisions. In the core, pollution system continued to lead the way with steady revenue growth and further margin expansion. Customers continue to demonstrate strong demand for surface pollution systems, completion and artificial list. And this late cycle business is becoming more profitable with margins increasing by 197 basis points year on year, supported by a favorable activity mix, execution efficiency and conversion of improved price backlog. Specific to subsea, we ran constructive on the market outlook with a significant pipeline of projects planned over the next couple of years. I was pleased to see margins in this area expand materially compared to the same period last year as a result of strong execution and the realization of cost synergies within our subsea, one subsea joint venture. The result of our performance, revenue was slightly down year on year and margins were significantly impacted by challenges on several new projects that resulted in startup and operational costs overruns. We continue to see strong demand for unconventional stimulation in international markets, including the United Arab Emirates and Argentina. However, this was fully offset by lower evaluation and exploration activity as a result of lingering white space in deep water. In well construction, we really declined year on year due to lower drilling activity across both North America and international markets. Despite this decline, I was pleased to see that one third of our international units actually grew year on year in the first quarter. In digital integration, growth was entirely driven by digital, where revenue grew 17% year on year as customers continue to embrace digital technologies and solutions. Customer accelerating the adoption of digital and AI solutions to extract further efficiency and performance across the upstream life cycle, both in planning and in operations across development and production. In our earnings press release, you can see several examples of customers adopting our digital solutions. Finally, as an update on our progress beyond oil and gas, we continue to experience positive momentum in the low carbon market, driven by capture acquisition, as well as in our data center infrastructure solution business. Combined revenue from CCS, geothermal, critical minerals and data center solution is on pace to visibly exceed $1 billion in 2025. Overall, I'm proud of the performance our team delivered this quarter. And I want to thank the entire SMB team for their hard work and commitment to customer success. Next, let me discuss the micro environment and our SMB is adapting accordingly. The industry is navigating global economic uncertainty stemming from the supply demand imbalance and recent dive announcement. In this environment, commodity prices are challenged. And until they stabilize, customers are likely to take a more cautious approach to near time activity and discussionary spending. Beginning with the supply demand balance, we expect to see new supply enter the market as OPEC plus has announced plan to increase their production beginning in May. This comes at the time where the macro economic picture remains uncertain due to global trade concerns, which have the potential to result in lower liquid demand than originally expected for the year. Second together, this factor are resulting in uncertain market background. At this point, we expect global upstream investment to decline compared to 2024, with customer spending in the Middle East and Asia being more resilient than other regions across the rest of the world. Against this uncertain backdrop, we remain focused on what we can control. We'll continue to execute our strategy, deliver differentiated performance for our customers, carefully manage costs and remain committed to returns to shareholders. In the core, remain positive on the long-term fundamentals for oil and gas. And we will continue to deepen our partnership with our customers throughout the last second of the assets. This includes an increase in phases on the production recovery market, or we expect to unlock new growth potential and long-term resilience through opportunity for technology development. In digital, customers are investing in solution to reduce cycle time, improve performance and drive efficiency. And we continue to pursue opportunities in AI cloud computing and digital operations. Today, we are seeing the decoupling of digital investment from upstream spending and this will increasingly represent a unique and exciting opportunity for our business. In our business, Beyond Oil and Gas, we'll continue to capitalize on low carbon market with our new energy offering, particularly in carbon capture and geothermal while harnessing adjacencies as we have demonstrated with our rapidly growing data center infrastructure solution business. Let me quickly elaborate on our data center business. Over the past two years, we have engaged up our scalers whom we partner with in digital to unlock new opportunities for business through development of data centers. This has attended a significant contract award for the provision of manufacturing services and modular coding units with which we are currently fulfilling. Based on our performance and unique capabilities, we are also gaining access to new opportunity pipeline and we are expanding our technology offering with low carbon solution to serve new potential customers. Overall, this is a very exciting and fast growing market driven by AI demand and expected to contribute to our diversified exposure Beyond Oil and Gas in the coming years. Beyond our operational performance, we also have been on a journey of cost optimization and process enhancement. And moving forward, this will support our mission to protect margins despite softer customer spending. What matters in this environment is our ability to continue to generate strong margins and cash flows. They are resilient returns to shareholders and come out stronger. Our first quarter results demonstrate our ability to do this. And I believe that the combination of our strategy and cross-actions will help to protect our business moving forward. As a result, we are committed to return at least $4 billion in returns to shareholder in 2025. Now, before I hand over to Stefan, let me quickly share our guidance for the second quarter and the rest of the year. Specific to the second quarter, assuming there is no further escalation of tariffs and that oil price remains approximately at current levels, we expect revenue to be flat secondarily, including excluding Champion X with an adjusted EBITDA margin expansion between 50 to 100 basis points. Looking at a full year, while a number of different scenarios could materialize, including tariffs and OPEC plus actions. Assuming oil price remains similar to current level, we expect flat to mid-single digit revenue growth in the second half of the year compared with the first half, excluding Champion X. This will be supported by a combination of the seasonal activity uptick, new startup in the border, and further growth in our digital and data center business. And under these conditions, we also expect further margin expansion. Look, I know there is a lot of uncertainty in this market, but we have been here before. We are operating from a strong position and have a clear priority of preserving margins while generating robust cash flows. Our broad exposure is providing resilience against uncertainty and short cycles in weakness, as you have seen in our results today. And I'm confident that our people, our technology leadership, and our financial strength, we clearly position us for long-term success. I'll now turn the call over to Stefan to discuss our financial results in more detail.

Thank you, Olivier. And good morning, ladies and gentlemen. First quarter earnings per share, excluding charges and credits, was 72 cents. This represents a decrease of three cents when compared to the first quarter of last year. We recorded 14 cents of charges during the quarter. This included 11 cents of charges in connection with our cost out program that we initiated last year, and three cents of merger and integration charges related to the Champion X and Acre Subsea transactions. Overall, our fourth quarter revenue of 8.5 billion decreased 3% -on-year. International revenue decreased 5% -on-year, largely driven by reduced activity in Mexico, Saudi Arabia, offshore Africa, and Russia. North America revenue increased 8% -on-year due to higher digital and subsea production system sales, as well as strong growth in our data center, infrastructure, and solutions business. Companywide adjusted EBITDA margin for the first quarter was 23.8%, up 18 basis points -on-year. Pre-packed segment operating margin was 18.3%, representing a 60 basis point decline -on-year as two of our four divisions experienced lower margins, partially mitigated by the effects of our cost out program. As we navigate the current market dynamics, we will continue to exercise cost discipline, and we will align our resources with activity levels in the coming quarters as necessary to protect our margins and cash flows. As it relates to tariffs, the evolving landscape clearly introduces uncertainty, which makes it challenging to fully assess their impact at this time. Broadly speaking, we are partially protected by our activity mix with approximately 80% of our revenue derived from international markets, as well as by our diversified supply chain network that includes in-country manufacturing and local sourcing. However, parts of our operations are still potentially exposed to increasing tariffs, primarily from imports of raw material into the US in our production systems division, as well as exports from the US subject to retaliatory tariffs. Under the current tariff framework, the majority of the impact is on import and export flows between the US and China. So any resolution or conversely escalation between those two countries can significantly impact the tariffs we may be subject to. While those discussions are taking place, we are taking proactive steps to mitigate the potential impacts. This includes reviewing how to further optimize our supply chain and manufacturing network, as well as diligently pursuing all applicable exemptions and drawbacks. We are also actively engaging with customers to recover our tariff induced cost increases through contractual adjustments. We have made progress on all these fronts in the last two weeks, and we are stepping up those actions across the organization as we speak. As the second quarter progresses and ongoing trade negotiations continue, we will hopefully gain better visibility of where tariffs may settle and the extent to which we will be able to mitigate their effects on our business. Let me now go through the first quarter results for each division. First quarter, digital and integration revenue of one million increased 6% year on year, driven by 17% growth in digital revenue. This growth was partially offset by lower APS revenue due to a temporary pipeline disruption that impacted production in our projects in Ecuador. While this issue has been resolved, it did cost us one cent of earnings in the quarter. Digital and integration margin of .4% expanded 380 basis points year on year, entirely due to improved profitability in digital. Reservoir performance revenue of 1.7 billion decreased one percent year on year. A strong unconventional stimulation and intervention activity was offset by lower evaluation and exploration activity. Margins of .6% declined 311 basis points as compared to the first quarter of last year, due to the less favorable activity mix, as well as project startup costs. Well construction revenue of three billion declined 12% and margins declined 71 basis points year on year. On significantly lower drilling activity, Mexico and Saudi Arabia alone represented approximately two thirds of the revenue decrease. Finally, production systems revenue of 2.9 billion increased four percent, while margins of .2% grew 197 basis points year on year. These results were driven by the resilience of our portfolio in production and recovery activities, and were augmented by significant revenue growth in our data center infrastructure solutions business. Now turning to our liquidity. During the quarter, we generated 660 million of cashflow from operations, a significant increase compared to the first quarter of last year. We generated positive free cashflow of 103 million, despite the payment of annual employee incentives and the seasonal increase in re-disables, due to continued capital discipline and working capital management. Despite the uncertain economic environment, we expect our cashflow generation to remain strong and to grow throughout the year, consistent with our historical trends. Capital investments, inclusive of CAPEX and investments in APS projects and exploration data, were 557 million in the first quarter. For the full year, we are still expecting capital investments to be approximately 2.3 billion, excluding any impact from the anticipated closure of the Champion X transaction. Our net debt increased 2.7 billion sequentially to 10.1 billion. This increase largely reflects the 2.3 billion we spent on our accelerated share repurchase transaction during the quarter. This ASR transaction was completed in April and resulted in us reducing ultimately our shares outstanding by a total of 56.8 million shares. 47.6 million of each shares were received in the first quarter, while the remaining 9.2 million shares were received in April. The ASR transaction, together with the dividend increase denounced last quarter, will allow us to meet our commitment to return a minimum of 4 billion to shareholders in 2020. Let me conclude with an update on our pending M&M transactions. While these transactions are obviously taking more time to complete than initially anticipated, we are pleased with the progress made during the quarter and continue to work towards successful closure. As it relates to Champion X, as we announced a couple of weeks ago, the United Kingdom Competition and Markets Authority has agreed to consider our proposed actions to address their concerns as part of their phase one review. We will continue our collaboration with the UK and other regulators towards an anticipated closing in the second quarter or early third quarter of 2025. With respect to our over pending transaction, we now expect the divestiture of our interest in the Palliser APS project in Canada to close in the second quarter. I will now turn the conference call back to Olivier.

Thank you, Stephane. I think, Megan, we are ready for taking the questions from the floor. Thank you.

We will now begin the Q&A session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of David Anderson with Barclays. Your line is open.

Thanks. Good morning, Olivier. How are you? Good

morning, Dave.

How are you? So we've heard from a number of other service companies this week on the outlook. So some have been more sobering than others, but I think we're starting to frame sort of some of the potential outcomes for international North America for the rest of the year. You said upstream spending, you're expecting to decline this year, but I was hoping you could maybe clarify a little bit how you see international North America from here at these oil prices. And how does this factor into your guides of mid single digit growth in the second half of the year, in which you have a very different mix than your peers?

No, absolutely. No, thank you. Thank you, Dave, for the question. Indeed, I would like you to clarify. So as you know, and as we have highlighted in your prepared remarks, global upstream spend will be down here on here, and with higher decline than originally anticipated. There is no argument against that, nor against the current public data in the penalty of the type impact itself. It's already slowing down. What is important is how SLB's position against this backlog. And now we see more downside exposure in NAM than international market in this negative revision. But first, if we look at NAM and our position there, we are now tied to the regional fact sheet. And actually we are long enough for digital and in production in this market. And furthermore, we have data center solution there. So I think if you look at it, our exposure here has been three factors due to a strategy we initiated about five years ago. And we're hoping now the benefit of having better resilience against the short cycle exposure we have as part of NAM because our offshore production market exposure, digital and now the new business. Even excluding the data center infrastructure solution, our year on year would have been growing, year on year proving that resilience is in place for now. Now flipping to international, we see less exposure or less decline proportionally, directionally than in North America. As the resilience as I said of Middle East and Asia, including offshore, including on commercial, including gas, we continue to play a role into holding better this market. So we have the right exposure offshore, we have the right exposure in gas internationally, partly on commercial. We are growing as you have seen our digital and production recovery remain a nice exposure we have across the globe. Speaking of which, I believe that the upcoming acquisition and integration of Champagnex will not only enhance resilience, but improve our mix in North America and give us a further digital and further offshore exposure across the world as well. So I feel good about where we are in the second and I think just wanted to reconcile a bit why we have maybe have a different performance going forward we expect.

Great, thank you. Very much appreciate on the different mix here. I wanted to focus on one of your kind of core countries, Saudi Arabia. You mentioned it got off to a bit of a slow start this year. We recently heard another re-come, I just talked about another rig being dropped. Can you talk how you see Saudi playing out kind of from here for the rest of the year? On the one hand, do you think conventional oil activity maybe picks up later this year with these OPEC barrels coming back in the market? And then you have the unconventional natural gas activity ramping up. So I guess I'm wondering overall, should we start to see sort of more sustained growth from Saudi starting later this year and into 2026? A lot of moving parts here if you could help us understand those.

Thank you. A lot of moving parts indeed. And I think again, you have to step the clock back to what happened last year. I think an adjustment of the ambition from 13 to 12 MSC that has led to a steep decline of activity that is translating into what we are seeing today year on year on our rig related activity. Now, when it comes to this year and next, I think indeed the priority of the kingdom clearly to stabilize the production and to be able to respond to this OPEC plus pool as they materialize in short term at least, and to continue to execute that gas ambition to go 40% of the gas and beyond by 2030. And as such the gas land and unconventional gas will remain a priority that will see and receive further activity increase. Now, is there pending further reduction to adjust to the level of activity to adjust the community price like other countries will do? Possibly, but I think directionally, the commitment to long-term gas, the commitment to maintain and activity that relates to maintaining this 12-minute by LEM MSC will indeed represent likely an uptick as we go into 2026 for Saudi. So that's what you expect. So yes, a lot of moving parts, but our exposure there is we love our position in Saudi. I was just recently here with a few more members visiting the kingdom and I think had the opportunity to measure firsthand the engagement, the, I would say the proximity we have and the feedback and our performance that is still out. And I think we long to like to keep it that way and thank the team for what they are delivering on the difficult market condition. But yes, I think I believe that the worst is beyond us from decline and if there is some adjustment this year I believe that the gas led growth will help us rebound going forward.

Thank you very much, Olivia. Thank you.

Thank you. Your next question comes from the line of Scott Gruber with Citigroup. Your line is open.

Yes, good morning. Morning. I wanted to ask, morning. I want to ask about what, even the margin level you think you could defend in a modestly weaker market year and year previously with the cost restructuring it felt like you were targeting to defend 25%. It looks like, take the margin slightly north of 25% in the second half to get there this year. But do you think you can get the even margin back to the 25% level in the second half, excluding the impact of Champion X?

I think excluding the Champion X and excluding escalation of price. I think, I believe that if we assume that the scenario condition we have put out but all price remaining in check with current, approximately current level and the balance we gave on the growth in the second half and the leverage we'll have and the realization of our cost out program, the digital effect and the rest. We'll have the ambition to grow our margin in the second half and we'll try to keep ambition to approximately 25% for the full year. That's something that we'll ambition but the tariff is the big question mark. And I think if the tariff were to stay or escalate from where they are, obviously the impact you would have as Stefan described, I think we'll have a, we'll represent the headwind to this margin expansion in the second half.

I appreciate the call. And then turning to digital, how do you think about the cadence of digital growth in this environment? On the one hand, digital is obviously an efficiency enabler, I think in that vein it could accelerate. But on the other hand, there is some exploration spend, some discretionary spend within the digital mix. How do you think about the resilience of digital growth in this environment and should we continue to think about that high teams growth rate for the year?

I think this remains our mission. We believe that I think this secular trend of digital adoption in the industry is actually accelerating. Now there will be some discretionary decision, there will be some pressure on there, there will be some project that will be reconsidered. But overall, I think we believe that the realization of the efficiency gain, both productivity for the, and effectiveness for the planning, digital sounds workflows and the direct impact on the performance of the cost of ownership for operational workflows, I think is still playing out and resonating very well for customers at the time they want to extract efficiency. So against the global upstream capex, I think as we commented in the previous question that we declined on here, we are still seeing need to IT clearly growth into our digital business driven by this secular trend that we are fully capturing. Our technology strategy and our platform strategies clearly playing out. And you have seen the diversity of the world that we get different customers, different regions, geo sounds operation progress we are making with many customers across the world.

So I appreciate the color, Olivia. Thank you.

Thank you,

Scott.

Thank you. Your next question comes from Aaron Jerram with JP Morgan. Your line is open.

Yeah, good morning. Olivia is wondering if you could elaborate on SLB strategy kind of to diversify the portfolio, you know, beyond oil and gas. I think you've made a great point. You mentioned you're in pace to exceed maybe a billion dollars of revenue this year versus I think 850 last year, but maybe talk about some of the steps you're taking there and some of the longer term growth potential.

No, thank you, I think, yes, I think we have initiated about three to four years ago strategy with new energy. I think the major aspect of that, that will continue to impact us in short term three ways. First, CCS where we took a position to acquire Capturee. And I think we have a SLB Capturee venture. I think is the capture technology that I think we have a full active project and many projects in the field that will continue to materialize and create a growth pattern going forward. So this combined with our sequestration adjacent to the core capability in exploration and characterization of this reservoir sequestration capability. I think it's leading to a visible growth on our CCS only success and this will continue. So we don't see the pattern slowing down. We see this as a long term market position we want to continue to own and grow. Geothermal starting from commercial geothermal has been something that has been getting more focus and more adoption for customers. And now there is a lot of pilot on the new generation on next generation geothermal that is being highly supported by the new administration, partly in the US. I believe this is also something that we continue to grow. And finally, I will mention the lithium direct lithium extraction where I think the pilot we had successfully completed last year. The first pilot at scale in the US, I think is again resonating very well with the critical minerals priority of the current administration. And we see this in South America, we see this in Saudi where we're actually passing into a pilot as well. So this is successful and separately, you have seen that data center is something that we have used, I think the relationship, the engagement we had to position ourselves as a provider of manufacturing capability, manufacturing services, as well as modular cooling solutions for the data center. And the success is great. And I think I'm very pleased with the progress of the team. We have a plant in Louisiana that is serving this business and we have large compact that we are fulfilling. And that has been an hour of growth in North America and we expect it to continue going forward this year and next. Clearly, so yes, the ambition is to go from the 850 plus to be more than one billion dollar when we put all of this together. And we're not expecting to slow in 26, but to continue to accelerate.

Great, that's helpful. Maybe my follow up is for Stefan and maybe just to maybe clarify some of the outlook comments. My team tried to estimate what your outlook comments would translate into 2025 EBITDA. We're getting to somewhere between 8.4 to 8.5 billion. I don't know, Stefan, if you could maybe give some color if that makes sense. And maybe the clarification is how are you treating Palliser and some of the tariff related impacts in terms of the full year outlook?

So, Aroum, we will stick with revenue only guidance for the rest of the year as Olivier mentioned, the growth assuming current oil price more or less stay at the current level. So we stick with revenue. We think it's premature to give you an EBITDA for the second half and hence for the full year. And some of the reason is indeed the tariff, the application of tariff. We think giving you a number on tariff at this stage would not be useful for financial modeling. Unfortunately, we'd love to, but it's quite difficult. But as I said, we are partially shielded by domestic manufacturing and sourcing, but it is clear if it stays that way, we will have an impact. We will try to mitigate it. And we are already doing that for optimization of supply chain and for ultimately trying to pass the impact to customers. What matters at the end is that we are still seeing margin expansion in the second quarter, despite tariff being effective now. And this is to the tune of 50 to 100 basis points, as we mentioned for Q2 sequentially. And for the second half of the year, margin expansion, assuming again that oil price stay more or less at this level, we will have growth in H2. And this will come with margin expansion, but quantifying that margin expansion H1 to H2 would not be the right thing for us to do today.

Totally understand. Thanks a lot, Stefan. Thank you. Thank you.

Thank you. Your next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open.

Yeah, thanks team for all this color. So as you think about Champion X, recognize there's some limitations about what you can say around this, but where are we in terms of the gating items at this point? It does feel like we're in the end zone here, but curious, the red zone, but curious what your perspective is on what remains outstanding and confidence around closing.

Yeah, I think as Stefan did come on his prepared remarks, I think we are very pleased with the progress we made very recently, particularly the UK CMA authorities and obtained that they have accepted that we go into remedies, extension of phase one through remedies as it has been commented, and they have accepted remedies. So now to walk through these remedies and implement them as soon as effectively we can. And that's a reason why we have increased our confidence to conclude the end of the quarter or early next quarter. Now the other outstanding, I think Norway is known to be outstanding. And I think we have been engaged very effectively the last few days and few weeks with the Norwegian authority. And I believe as well that the thing we are, as we commented, going to a full year resolution there. So that's the reason why we maintain our confidence into the end of this quarter or early next quarter.

Yeah, thanks. Olivier, we'd love you to share your thoughts on the macro, particularly from the supply side. You spent a lot of time all around the world. Where do you expect activity if we're in a lower commodity price environment to be dialed back? Or do you think it's relatively price inelastic? Is there a price level at which point you see activity particularly cut back? Just your perspective on the near term macro, and then also your perspective on the long term macro, because you've had an under investment view that ultimately long term that's gonna catch up here. Does this just reinforce that?

Yeah, I think starting with the long term, maybe it's easier. I believe that the position of oil and gas to feed the energy mix of the world and progress and driven by different demands, be it the global south, be it the AI, or be it the electrification, I think will continue to pull for the long term. And this combined with the natural decline that is pressing on many basins, as you've seen, will continue to call for replenishment and maintaining if not increasing the growth of investment that we see today. So long term the view is intact, and I think the role of offshore to address this, the role of the commitment of execution to capacity expansion in the Middle East, the role of gas, partly to security of gas supply in Asia, and the development of unconventional and international to address this. I think it will continue to be the area of growth that we foresee long term to remain. And I'm not talking even digital here. Now in short term, I think it's very difficult to get, but I think generally speaking, the short cycle activity will be the first exposed. And America has quite a few area of short cycle starting with the US land. And I think this will be the first that certainly will have the most impact. Internationally, I think the residents, as we mentioned of Middle East, many countries are committed here, relatively independent of oil price for their capacity expansion, and the UAE, be it Kuwait, and activity in some other part of the country around Middle East will continue to stay, and or if not accelerate. Asia, driven by energy security, will also have resilience, and then by deep water activity there, offshore deep water activity there that is strong, and not talking about China, that is holding the activity because they're based on a five year plan, not necessarily on oil price of today. So you come out of this, you still have quite a few exciting pockets of growth, geographically, and you have some circular trend digital, you have increased production recovery, and you have international internationally that will continue to be out of growth. So yes, there are opportunity to capture, and there are ways to offset the decline of the short term decline we expect into the total cap expense.

Yep, thanks, Olivier.

Thank you. Your next question comes from the line of Roger Reed with Wells Fargo. Your line is open.

Yes, thank you, and good morning. Good morning. Maybe if we could, Olivier, just you were mentioning deep water there. We certainly, well, it didn't sound like exploration was an uplift for you in Q1. We certainly seen the industry start to lean into exploration a little more. And I was just wondering if you could kind of take us around the world a bit on where we are seeing things pick up. I mean, West Africa's looked good, certainly Latin America, ex-Mexicas continue to look pretty good, South America. And then I was just curious, anything else on that front?

Yeah, I think the reserve replacement ratio is still what drives the IOCs and many large independent and some critical NOCs to continue to explore. And we have seen a rebound in commitment to exploration the last 18 months. I don't see a changing directionally, although there will be some discretion taken by some customers, and we have to go one customer at a time to review this. But directionally, I think the need for replacing reserve for my majors and the need for developing long-term oil or long-term gas play in Asia or in the offshore basis at large, I think remains intact. And I think you have seen it translate into a FID that we expect to be piling up in 26, 27, that will impact the subsea business going forward. But yes, exploration is not over. And exploration takes two forms. Exploration, I think three forms, I would say. One is the near-field exploration in metro basin, go from Mexico or even Brazil or the North Sea, including the Norwegian sector. And then you have the frontier basin, beat Namibia, beat Suriname, beat part of Asia, Indonesia particularly, that are seeing new, fresh exploration investment. And finally, you have the other way to explore, which is digital exploration. And I think this is what we are benefiting from as well, a lot of reprocessing, a lot of activity for data processing, and hence we are exposed to those. So yes, I think that the exploration will remain healthy, but this year, I may suffer from discretionary decision and from some lingering white space, as we call it in deep water.

Appreciate that. The other question I had, just because it was called out as part of this order, things softer in Russia. Ironically, there was an article in the press today implying that Russia activity was at a multi-year high in the first quarter. So a bit of a juxtaposition there, it's just, did you give us any more insights on what you're seeing there?

I think I will restrict my, I become an experimenter from Russia because we have taken this position to implement sanction and critical control of activity there. And this is what has led to a deep decline in Russia. And we expect this to continue as we continue to restrain and take every measure to sanction technology access and technical support to our team.

Appreciate that, thank you.

Thank

you. Thank you. Your next question comes from the line of Steven Gungaro with CIFL, your line is open.

Thank you, good morning everybody. I was wondering, as you talked about the outlook and I was sort of focused on the production segment here, can you talk a little bit about your views on the resiliency of that business versus other parts of the company and maybe even the margin stability or contribution to margin expansion you see coming from that segment as we go through the year?

I mean, I will not come on directionally on the margin. I think we don't provide guidance on margins on our divisions. However, I think the strengths of the production system, division I think is stems from the adoption of this technology and the success we have in market position across the globe, both internationally in North America. There has been a growing market in North America, US land particularly lately. So I think we have a market share, market gain, market position due to technology. We have fit technology, we have a unique electrical competition technology, we are unlocking some efficiency in performance on our lift and we have some success in subsea processing that is in combination giving us this distraction into this market. So that's the first. The secondly, I think, as you said, we expect that the long cycle side of this production system will be more resilient against this market uncertainty as we see and some of the short cycle, sort of about performance. If we maintain our performance as we have in the US land market, I think we will maintain our market position or go against the tide and be able to grow in those markets. So I feel confident about the ability of the production system to grow this year and to gain market position or to leverage the long cycle exposure, particularly for success. So I feel confident, but I will not comment on the margin. We are confident that the team is executing very well and as we contribute to protecting our margin and contribute to margin expansion going forward.

Great, thank you. And then the second question I have was around your confidence in free cash generation for the year. I mean, you're obviously committed to returning a significant amount of cash. How do we think about you sort of stress testing that against the uncertain macro and sort of preservation of cash and balance sheet versus returning capital? Like, is there a stage at which you slow that down or your confidence is pretty high?

So first, thanks for the question, Stephen. So we did start the year on cashflow as we expected even a bit better, as I mentioned, and we are still quite confident that it will follow the pattern we usually see every year and it will increase significantly in the following quarters. And the second half is really when we make the majority of the free cashflow for the year. So yes, you're absolutely right. We do stress testing. H2 is uncertain as we said in the lower activity scenario, which is not the best case today, but in case commodity pricing drop further, we would actually expect headwinds on earnings to be partially offset by lower working cap requirements that would provide quite a buffer. So in many cases, we believe actually our free cashflow for the year will continue clearly to support our commitment of minimum 4 billion returns to shareholders. So we are confident on our cashflow and we are confident that clearly this commitment is not going to change.

Great, thank you.

Thank

you. Thank you.

Thank you. Your next question comes from the line of Keith Mackey with RBC Capital Markets. Your line is open.

Hi, good morning. Just wanted to start out maybe on the margins now. Olivier, without commenting on segment margins specifically, certainly we did see production systems and digital up nicely year over year, which seem to support the business very well, but can you just comment on the strategy from here relative to what you're seeing in the cycle in terms of where ultimately the business goes relative to what we're seeing as the cycle being a later cycle in the general oil and gas market and just how you think that all plays out with the different segments and being a more cross, cross E&P lifecycle business?

Yeah, I believe the strategy we have first and foremost to continue to, I think, leverage the market position we have. They're just the strategy we had in the NAM as I mentioned. I think it's fit for this market condition going forward. We believe that exposure internationally, very diverse broad exposure, both offshore and gas exposure including unconventional digital and production, as you mentioned, I think we continue to support and production is, I would call it production recovery. And I think that includes element of our reserve of performance division as well as our production system division. I think we will have resilience going forward. The drilling, as you have seen, I think is more directly linked to the rig activity that I think in this uncertain environment has and we continue to be getting downward pressure. But I think from, as you commented earlier, from the margin, we will continue to anticipate like cross action and continue to extract efficiency from our organization to partially offset this and continue to focus on maintaining a margin. So we believe that, as we said, the mission remains intact to protect our margins with all the commentary and provision of oil price and type. I think ambition remains intact that in this mix, we believe that digital growth and the growing success we're in production system and containing the margin pressure on the reserve performance and well construction will result into maintaining and protecting a margin as much as we can, excluding type as we commented.

Yeah, appreciate the comments there. Maybe just one more on tariffs. I know the situation is certainly incredibly fluid, but does the guidance that you've provided imply continuation of existing tariffs that are on or can you help us think about those pieces a little bit more?

Well, for the second quarter, absolutely. It's assuming current tariff unchanged, but 50 to 100 basis point margin extension sequentially includes the current tariff framework. And again, for the second half, it will depend on the final tariff framework, which we all know will change in one way or another. So the margin extension will fluctuate based on that. Okay, thanks very much. Thank

you.

Thank you. Your last question comes from the line of Dan Cutts with Morgan Stanley. Your line is open.

Hey, thanks a lot. Good morning. Good morning, Dan. Morning. So I was maybe hoping we could dig in a little bit deeper on new energy across your kind of five pillars. And I guess the, I don't know if you want to call it the six pillar with the data center infrastructure. But I think you guys have done a great job of quantifying the opportunities around data center infrastructure and kind of get the sense that among the five other pillars CCUS is maybe the largest. But as you think about your $3 billion, 2030 new energy revenue target, how do you think about the contributions across those five pillars? Where do you see kind of the more or less growth potential, more or less contribution? Any card you can share there would be great. Thank you.

Yeah, we're not ready to, we're not here to come out necessarily as an update on our $3 billion ambition for new energy. But indeed, I think CCUS all in as I call it, okay, both the sequestration and all the services including digital that we have there will be a large component of that, okay, clearly. Joe Turnbull has quite a good momentum. And I think it's too soon to say whether the unconventional or next generation Joe Turnbull as he's being pursued both in Europe and in the US with the support of the authority everywhere. I think we'll unlock and give us the second leg of growth clearly, too early to say. The lithium as I commented, I think is a smaller opportunity, but I think it's quite exciting. And we are getting a lot of inbound requests to use the pilot and to test against the critical mineral ambition that many of our prospect customer have, be it the mining company or be it a few company that are formal and yards that are stepping into that business. And the other gen is more next decade ambition that we have and the same for energy storage, I would say. And that the center I think the ambition we have is continue to consolidate and leverage the success we have with this engagement we have developed and success growth that we have developed and expand towards low carbon solution that are the need for decarbonizing the power source of this data center as well as providing effective cooling and support some manufacturing capacity deploy and deliver these data centers. We will have at the end of this year, they supported more than 15 data center solution across the US. So that's quite something we're proud of. So again, you can see all of this as a sum of business that it would grow at a higher rate than the oil and gas sector for the years to come. And it is again adding to the resilience and to the ability we have to navigate the difficult time as we have today and keep extracting growth or resilience across the ocean.

Awesome, that's all really helpful. And then maybe a quick one just on the APS on the asset performance solutions business. I'm sure the highest priority is kind of giving the palisade deal across the finish line, but how do you think about the remainder of that portfolio? My understanding is that the Ecuador asset which is kind of fairly oil levered is the biggest remaining or perhaps only remaining component. Is that something that you guys could potentially be divesting at some point in the future or is that an asset that you're planning on keeping? Just wondering how you think about the APS portfolio moving forward following the Palisade transaction. Thank you.

Yes, so indeed following Palisade will only be left with Ecuador and it will remain that way. And in Ecuador we have three projects and as we explained in the past, these projects are quite different from equity positions such as we have in Canada. They are more like service contracts with the local NOC, with the operator. So you are actually closer to our core business here. The only difference if I may say that we are paid in production equivalent through a barrel instead of an invoice for services. So at this stage, it's quite economic. These projects are providing a lot of cashflow for the company. They are providing good profitability. So considering the nature of the projects, they are likely to stay at least for, they have a finite contractual term actually which we can negotiate and extend with our customer. But at this moment, for the next few years, you have to assume they will stay within our portfolio.

Understood, thank you both very much. I'll turn it back.

Thank you.

Thank

you, Dan.

Thank you.

So ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways. First, while the market outlook remains uncertain, SAB's position to demonstrate resilience through our strategy, leveraging a global reach, innovation capabilities, differential digital offering, diversification beyond all ambience and disciplinary cost management. Second, we are confident in our ability to continue generating strong cash flows despite the evolving market dynamics. And we remain focused on protecting margins and committed to increase return to shareholders in 2025. And finally, we look forward to creating value for our customers, partners and shareholders in the coming quarters. With this, I will conclude today's call. Thank you all for joining.

This concludes today's conference call. You may now disconnect.