SLB Limited Common Shares

Good morning. My name is Megan and I'll be your conference operator today and would like to welcome everyone to the fourth quarter and full year 2025 SLV earnings call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, 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.

James R. Thank you, Megan. Good morning, and welcome to the SLB fourth quarter and full year 2025 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 Stephane Begay, 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. For more information, please refer to our latest 10-K 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 fourth quarter and full year earnings 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 today. I will begin by reviewing our fourth quarter performance, followed by an update on market conditions and the unique opportunities we see developing for our business. I will then share outlook for the first quarter and expectations for the full year 2026. Stéphane will then provide additional details on our financial results. And finally, we will open the line for your questions. Let's begin. We ended the year with strong operational and financial performance in the fourth quarter, achieving sequential revenue growth, margin expansion and substantial cash flow generation. This performance reflects the breadth of our portfolio and the impact of our strategy in a challenging macro environment. Sequentially, revenue increased by 9%, driven by high single-digit growth internationally and mid-teens growth in North America. Excluding Champagnex, organic revenue increased by 7% internationally and 6% in North America. We saw sequential growth across all our geographies for the first time since the second quarter of 2024. This demonstrates that global upstream activity has stabilized, with key markets showing early signs of a rebound. This helped us to deliver approximately 500 million of organic revenue growth this quarter, in addition to a roughly 300 million contribution from ChampagneX, resulting from an extra month of consolidation. Let me briefly discuss a few highlights from the quarter. First, we benefited from stronger end product sales in production systems globally. higher exploration data cells, and strong demand for digital operation across all areas. Second, activity increased across the Middle East, led by Saudi Arabia, and with momentum in UAE due to a combination of sustained gas development and increased oil field intervention activity. Third, we delivered strong results across Asia, with increased activity in Western Asia, East Asia and Indonesia as this market continues to benefit from offshore gas development. Notably, this quarter also marked the return of growth in Saudi Arabia and across sub-Saharan Africa with flat revenue in Mexico. These three basins actually accounted for the entire organic revenue decline in the full year of 2025. And directionally, we expect activity in this market to improve as we move toward 2026. Turning to the divisions, in the fourth quarter, production system and digital led the way, where reservoir performance was up slightly and well-construction revenue was steady. The strength in production system was driven by increased demand for production chemicals, artificial lift, and process technology and solutions, as well as backlog execution, completions, and one subsidy. When excluding the Champagnex contribution, This division still grew by double digits sequentially and maintained its momentum with several contract awards during the quarter, as you can see from today's highlights. Digital also continued to grow at a healthy rate, driven by strong growth in digital exploration with year-end sales in the Gulf of America, Brazil, and Angola, as well as robust increase in digital operations and platform applications. Digital annual recurring revenue surpassed $1 billion, reflecting year-on-year growth of 15%. We also announced several exciting digital milestones in the fourth quarter, including launching Tela, an Atlantic AI system purpose-built to transform the upstream energy sector, and forming a partnership with AdNoc to launch an AI-powered production system optimization platform. These underscore the opportunity for AI to continue to reshape industry operations. Meanwhile, in reservoir performance, sequential growth was a result of increased stimulation activity in the Middle East and Asia and higher intervention activity in Europe and Africa. In water construction, high offshore drilling activity in North America and Europe and Africa was offset by declines in some land markets. Additionally, our fourth quarter revenue benefited from resumption of pollution in the APS projects of Ecuador. Overall, our fourth quarter results are a positive indication of the opportunity that lies ahead. I want to thank the entire SEB team for delivering excellent performance for our customers throughout 2025 and finishing the year on such a strong note. Turning to the market environment, near-term oversupply may continue to exert downward pressure on commodity price throughout the first half of 2026, while elevated geopolitical uncertainties should provide a price floor. ENP operators are therefore expected to remain cautious and to backlog their 2026 budget. As supply and demand continues to rebalance into 2027, conditions will likely support a gradual recovery in upstream investments with activity in key international markets and offshore deployers exiting 2026 at a higher level than 2025. Indeed, economic growth, increasing population and large-scale manufacturing and infrastructure investments, partially in the U.S. and China related to AI, will inherently drive more demand in both oil and gas. Coupled with the natural decline of existing oil and gas assets, we believe this will be the key drivers for the rebalancing of supply and demand. In the meantime, our customers are focused on delivering the lowest cost incremental bias. This means capturing efficiencies at scale. And in our view, That requires more technology, more integration, and more digital solutions. Today, operators are increasingly prioritizing performance assurance across the asset lifecycle, reducing development timelines, and accelerating optimization through digital solutions. SLB is uniquely positioned to deliver value in this environment by integrating equipment with intelligent and autonomous digital capabilities to reduce downtime, improve efficiency, and increase productivity as witnessed by the rapid uptake in our digital operations. Additionally, pollution recovery has emerged as a critical domain for value creation, not only in brownfield and mature assets, but also across greenfield developments and tiebacks. This is not an either-or proposition between CAPEX and OPEX, but an opportunity to increase our share of CAPEX spend and capture OPEX wide space with new solutions. With SLB's expanded production portfolio, including the addition of Champonnex, we are uniquely positioned to meet the developing demand in the production space. Globally, the international markets are stabilizing and trending upwards directionally, with Latin America and Middle East and Asia leading the rebound in 2026. regionally middle east continues to represent the largest international market with positive in that investment outlook indeed there is a resurgence of oil production across the region given by opec plus policy while gas remains a strategic priority to meet regional demand and long-term capacity expansion in 2025 we witnessed double digit growth in the united arab emirates iraq kuwait which was more than offset by the decline in saudi arabia in 2026 The Middle East market will be characterized by rebounds in drilling and walkover activity in Saudi Arabia, with recounts potentially returning to early 2025 levels by the end of 2026. And this has already begun. Offshore also continues to present compelling long-term growth opportunities for SLB, particularly in deep water, where we expect activity to inflect toward the end of 2026 as white space subsides. With one subsea, we have the unique ability to combine subsea processing capabilities, digital solutions, and SLB's integrated port-to-process expertise across subsea intervention and integrated wall construction to create differentiated value for customers. Specific to the subsea market, more than 500 subsea trees are expected to be awarded across 2026 and 2027, about 20% higher than 2025 run rate. And this is an opportunity we aim to capitalize on. In 2025, one subsea was about approximately $4 billion in subsea bookings, and we see a path for cumulative bookings exceeding $9 billion over the next two years, supported by this tendering activity. Finally, we're excited about the strong progress in our data center solution business, since it launched less than two years ago. This year, we plan to expand our range of offering, our customer base, and the geography we serve, paving the way for future growth. The opportunity is growing faster than anticipated. and we expect to exceed the year at the quarterly revenue run rate of $1 billion per year. Overall, SLB is clearly positioned to fully benefit from a rebound in international activity as supply-demand rebalance, supported by ongoing investments for oil capacity, gas expansion projects, and a constructive long-term outlook for deepwater. Regional activity dynamics will further reinforce this favorable directional trajectory beginning in 2026. Let me now share outlook for the year. The headwinds we face in 2025 in certain markets may become tailwinds for our business this year. We anticipate this will translate into higher fourth quarter revenue exit rate in 2026 compared to the fourth quarter of 2025. For the full year, assuming all price remains range bound in the high 50s, to low 60 range, we expect 2026 revenue to be between $36.9 billion to $37.7 billion. In North America, we will benefit from the addition of seven months of activity from Champonnex, stronger offshore activity tied to customer plans, and accelerated growth in data centers, while upstream land activity will continue to decline year on year. In international markets, revenue is expected to trend upwards over the year. resulting in a slight year-over-year increase. Growth will come from Latin America and the Middle East and Asia, while Europe and Africa is anticipated to decline slightly. Let me now describe how this dynamics will unfold across the divisions. In digital, revenue is expected to go at the same pace as 2025, driven by digital operations. Production system will increase, mostly benefiting from a full year of Champagnex revenue. Reservoir performance will be flattish, while well construction will decline slightly. Revenue in the all-over category will be flat year-on-year, considering the loss of revenue from the divested Parisseur asset will be offset by growth in the data center solutions. This revenue outlook translates into adjusted EBITDA between $8.6 billion to $9.1 billion, with margins remaining in line with full-year 2025 levels. With visibility into another year of strong cash flow, we will return more than $4 billion to shareholders in 2026 through the combination of the increased dividend that we announced this morning and share repurchase. Turning to the first quarter, we anticipate revenue to decline by high single digits sequentially, similar to the prior year, due to outsized year-end product sales and project milestones in the production system in the prior quarter. We also expect adjusted EBITDA margin to decrease by 150 to 200 basis points versus the prior quarter. This seasonal dip will be followed by a rebound of activity during the second quarter with further expansion into the second half driven primarily by international markets. Finally, before I hand over to Stéphane, let me briefly touch on Venezuela. SLB is the only international service company actively operating in Venezuela today. as we are delivering a diverse set of services for NIOC under their license. With nearly a century of experience in Venezuela, we did maintain active facilities, equipment, and local personnel on the ground. Historically, we have been the only country, and we remain confident that with appropriate licensing, safety parameters, and compliance measures in place, we can rapidly ramp up activities in support of the oil and gas industry in Venezuela. We are excited, and we are already receiving a lot of inquiries from our customers. I will now turn the call over to Stéphane to discuss financial results in more detail.