SLB Limited Common Shares

Good morning, my name is Sarah and I will be your conference operator today and would like to welcome everyone to the second quarter SLB 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 one again. 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, Sarah. Good morning and welcome to the SOB Second Quarter 2026 Earnings Conference Call. Today's call is being hosted from London, following our board meeting held earlier this week. Joining us on the call are Olivier Le Peuch, Chief Executive Officer, and Stephane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause the results to differ materially from those projected in these statements. 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 second quarter earnings press release, which is on our website. With that, I will turn the call over to Olivier.

Thank you, James. Good morning, ladies and gentlemen. Thank you for joining us. Today, we'll begin with our second quarter performance. Then I will discuss the evolving macro environment and strategy growth areas for SLB. And finally, I will close by sharing our outlook for the third quarter and how we will exit the year. Stephane will then provide additional details on our financial results, and after that, we'll open the line for your questions. Let's begin. This was a solid quarter for SLB, marked by broad-based international growth and rebound in North America. Excluding the Middle East, growth will increase sequentially across all divisions. This was supported by higher offshore activity in Latin America, including Brazil, Guyana, and Mexico, in Europe and Africa, across Scandinavia and Nigeria, and in Asia, including China, Indonesia, India, and Australia. Additionally, we saw a rebound in U.S. land, with higher sales of production chemicals, artificial lifts, and valves, driven by strong demand for production and recovery solutions. In the Middle East, we continued to navigate the conflict during the second quarter, while maintaining our focus on protecting our people and facilities across the region. Activity resumed in several countries, although operations in Iraq remained constrained by security challenges. While uncertainty persists, we continue to work closely for our customers to gradually restore activity. That said, returning to full activity will take time, and the pace of recovery will vary by country, customer, and operating environment. Turning to the divisions, I was very pleased with the continued momentum in production systems and digital. In production systems, growth was supported by higher demand in offshore lifts, valves, surface production systems, and production chemicals, as well as stronger subsidy activity, particularly in North America and Latin America. This reflects clear and durable customer priorities, improving production, enhancing recovery, and extending the life of existing assets, which are fully aligned with our increased focus in the core toward production and recovery. Production Systems' adjusted EBITDA margins returned to above 20%, supported by strong execution. Champonnex also continued to provide accretive margins to production systems despite facing cost inflation in chemicals. Notably, Champonnex delivered sequential margin expansion for the third consecutive quarter. Digital also delivered very strong results, supported by a favorable business mix. This included higher exploration data licenses and transfer fees, in Brazil and Indonesia, which helped digital adjusted EBITDA margins to reach approximately 35% for the quarter. Additionally, annual recurring revenue increased by 15% year over year. As we shared during our Digital Investor Day last month, the future of our industry is digital. We are confident that the key growth drivers highlighted at the event, digital operations and AI, will continue to build strong momentum across the industry. You can see several examples of recent customer contracts and deployments in the quarterly highlights, including in today's earnings press release. Meanwhile, revenue in world construction and reservoir performance declined slightly as a result of activity disruption in the Middle East. However, the impact was largely offset by stronger activity in North America and across other international markets. Data center solutions also continued this strong growth trajectory. Revenue increasing 33% sequentially and 80% year-on-year. Growth was supported by the addition of new hyperscaler customers and a broader scope of offerings as we evolved beyond manufacturing into data center design, engineering, and system integration, as exemplified by the recent announcement with Meta. All in all, this was a strong quarter against a difficult backdrop with solid financial results and steady progress in our strategy execution. I want to thank the entire SLB team for delivering these results in a very dynamic market. I continue to be impressed by your performance, your innovation, and your commitment to our customers. Now let me turn to the macro environment, which continues to evolve following the disruption in the Middle East. There are several structural drivers of upstream investment that have been heightened by the conflict in the Middle East. These include the replenishment of commercial inventories and strategic reserves that have been depleted during the conflict, increased efforts to diversify supply and the development of domestic resources to strengthen long-term energy security. These priorities support a favorable investment backlog across both short- and long-cycle markets, and they are bringing a renewed focus on exploration to unlock new reserves and on increasing production recovery from existing assets. In this context, we expect a range-bound community environment that is constructive for upstream investment. Indeed, inventory replenishment and the need to rebuild spare capacity should provide support at the low end of the range. And at the same time, higher price would encourage the development of new supply, while unlocking new opportunities for our business. Let me now turn to regional activity dynamics. The market is starting to exhibit the characteristics of an upcycle. International and depot activity is growing, supported by the fundamentals I have just discussed. According to third-party reports, final investment decisions for long-circle projects are expected to increase by approximately 30% year-on-year in 2026. This will support higher exploration spending and upstream capex growth across dipolar markets during the second half of 2026, led by Africa. And we expect a more meaningful impact in 2027, with growth extending to Latin America, the Mediterranean, and Asia. North American land will remain tied to short-circuit market dynamics, including community price, inventory level, and the pace of restocking. Our position in North America has been strengthened by ChampionX and by the increasing need for technology innovation in production and recovery. In the Middle East, we should impact as largely transitory. Restoring production to prior levels will require higher service intensity, partially in-way intervention, along with increased equipment demand, infrastructure repairs, and realigned shipping logistics. Based on these conditions and our exposure to international deepwater and exploration, production and recovery, and digital, our outlook for our business into 2027 is compelling. Against this backdrop, SAP's strategy remains closely aligned with our customers' highest investment priority. In the core, this includes restoring production capacity, developing advantageous resources, including deepwater, and Improving Capital Efficiency. Beyond the core, digital remains both a key enabler of performance and a powerful growth platform for SLB. Data and AI will increasingly touch every part of the upstream lifecycle. Advantage is that digital is grounded in deep domain expertise and connected to real-field operations. By embedding intelligence to the workflows that matter most, from subsurface interpretation and well-delivery to production optimization, and Autonomous Operations. Finally, we are accelerating our data center solution strategy around three priorities. Diversifying our customer base, expanding internationally and increasing the scale and scope of our offerings. This quarter, we deliver on our strategic pathways, adding new IP escalator customers to our portfolio, diversifying our end markets across Canada and Asia and expanding our capabilities to include design, engineering and system integration. At the same time, We continue to leverage our off-site fabrication capabilities to scale up in response to accelerating demand and to compress delivery time for our customers. Our differentiated capabilities have resulted in our backlog growing ahead of expectations, with new contract awards, strong customer engagement, and international expansion. This momentum gives us the confidence that we will finish this year strong as we have previously guided, and we now foresee the data center solution will exit 2027 at an annualized revenue run rate exceeding $2 billion. But this is just the start. Our ambition is to become an industrial technology partner to the data center industry. And our expanding role in design and integration provides us a platform to have adjacent capabilities, including decarbonized power and cooling solutions. These are natural extensions of our domain expertise in process engineering and complex energy systems. and given the pace of market development we can accelerate this strategy further through partnerships and acquisitions. Examples of this include our recent alliance with Liberty Energy that will combine SLB modular infrastructure solution and global market reach with Liberty behind the meter power generation system in addition to our pilot reformat for next generation geothermal power development to support future data center demand. are exciting steps toward becoming a critical infrastructure partner for the AI economy. Together, these strategic investments offer us a broader and more resilient growth profile for the future, anchored in the core, accelerated by digital, and expanded through data center solutions. Let me now turn to our outlook for the third quarter, followed by our preliminary view of the fourth quarter. Turning to our third-quarter outlook, our base case Assumes a gradual recovery in Middle East activity, consistent with the pace we observed toward the end of the second quarter, as we continue to remobilize operations across the countries affected by the conflict. Based on this trajectory, we expect global sequential revenue growth between 3 and 4%, with adjusted EBITDA margin expansion of approximately 75 basis points. At the division level, We anticipate revenues of the core divisions to increase sequentially in the low to mid-single digits, while digital revenue is expected to grow in the low single digits. The heightened tensions recently observed in the Middle East have not had a major impact on our current activity. However, we have developed a downside scenario to help model the potential impacts of the ongoing geopolitical volatility. In the event of a significant re-escalation that disrupts ongoing remobilization efforts, and results in flat sequential Middle East revenue, we estimate third quarter revenue would be approximately 150 million lower than our base case assumption. This would translate into an adjusted bid headwind of approximately 75 million. The impact of this downside scenario would be concentrated primarily in the well construction and reservoir performance divisions. Looking ahead to the fourth quarter, our preliminary outlook assumes that Middle East activity reaches between $2.1 and $2.2 billion, or approximately 95% of the revenue achieved in the fourth quarter of 2025. Based on this assumption, and supported by deep water momentum in the typical year-end digital and product sales, we would expect fourth quarter revenue to surpass $10 billion, representing approximately 5% growth year-on-year. We also expect adjusted EBITDA margin to be approximately 24%, in line with the fourth quarter of last year. While this outlook remains dependent on certain conditions, Pramale wrote that to limit this conflict, view it as an encouraging indicator of the underlying strengths of the business, and believe it will position us well to deliver a solid growth in 2027. I will now turn the call over to Stephane to discuss our financial results in more detail.

Thank you, Olivier, and good morning, ladies and gentlemen. Second quarter earnings per share, Excluding charges and credits was 55 cents. This represents an increase of 3 cents sequentially and a decrease of 19 cents when compared to the second quarter of last year. During the quarter, we recorded 3 cents of merger and integration charges, primarily related to the ChampionX transactions. Overall, our second quarter revenue of $9 billion increased 3% sequentially despite severe disruptions in the Middle East. Strong performance in Latin America, Europe and Africa, U.S. land, and Asia more than offset the decline in the Middle East, where revenue fell 13% sequentially to $1.66 billion. Despite the headwinds from the Middle East, our pre-tax segment operating margin increased 49 basis points sequentially, and our adjusted EBITDA margin increased 83 basis points sequentially. As it relates specifically to the Middle East, while the revenue shortfall was close to our expectations, we took some temporary cost actions to alleviate the detrimental effect on our earnings. As a result, the sequential impact on our earnings per share was slightly below the low end of the $0.06 to $0.08 range that we originally indicated for the second quarter. Let me now go through the second quarter results for each division. Second quarter digital revenue of $697 million increased 9% sequentially, driven by higher digital exploration revenue and higher sales in platforms and applications. Digital pre-tax operating margin of 27.8% expanded 683 basis points, while adjusted EBITDA margin of 34.7% increased 860 basis points. These increases were due to higher sales of exploration data licenses and transfer fees, as well as improved profitability in digital operations and platforms and applications. Reservoir performance revenue of 1.6 billion declined 2% sequentially, while pre-tax operating margin of 14.9% decreased 121 basis points. These decreases were primarily due to operational disruptions related to the Middle East conflict. While construction revenue of $2.7 billion decreased 2% sequentially, primarily as a result of the disruptions in the Middle East, partially offset by higher drilling activity in Latin America. The pre-tax operating margin of 15.2% was essentially flat sequentially, as lower profitability in the Middle East was offset by improved profitability in North America and Latin America. Finally, production systems revenue of 3.8 billion increased 7% sequentially. Driven by higher revenue from One Subsea, as well as increased sales of artificial lift, valves, surface production systems, and completions. Production systems pre-tax operating margin increased 138 basis points to 15.5%, primarily due to improved profitability in one subsea and artificial lift. Margin also benefited from the accretive contribution of ChampionX's production chemicals and Artificial Lift Businesses. Now turning to our liquidity. We ended the quarter with net debt of 8.7 billion. We generated 1.4 billion of cash flow from operations and free cash flow of 716 million during the quarter. This represents a 739 million increase in free cash flow compared to the last quarter. which is largely due to seasonal improvements in working capital, including the absence of the annual employee incentive payouts in the first quarter. Consistent with our historical trends, we expect our free cash flow in the second half of the year to be materially higher than in the first half on improved earnings, higher customer collections, and lower inventories. Capital investments inclusive of CAPEX and investments in APS projects and exploration data were 643 million in the second quarter. For the full year, we still expect capital investments to be approximately 2.5 billion. During the quarter, we repurchased 648 million of our stock and still expect to repurchase a minimum of 2.4 billion for the full year in line with 2025. Lastly, we are still targeting to return more than $4 billion to our shareholders in 2026 through a combination of dividends and stock buybacks. I will now turn the conference call back to Olivier.

Thank you, Stephane. I believe we are now ready for the questions session. Thank you.

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. We ask that you please limit yourself to one question and one follow-up. Thank you. Your first question comes from Scott Gruber with Citigroup. Your line is open.

Yes, good afternoon on your end, Olivier and Stephane.

Yeah, good morning. Good morning, Scott.

Thank you. We all appreciate the guidance on 3Q and 4Q, given the moving pieces. You mentioned the Middle East getting back to, I think it was 2.1 to 2.2 billion in 4Q, 95% of last year. How much of a step up is that from 3Q? And how do you see the other geomarkets stepping up in 4Q? If you can unpack that, that move to 10 billion. And as we start to think about 2027, Is that $10 billion a good run rate to think about the potential for your top line in 2027, so-called something close to a $40 billion top line run rate next year? Is that reasonable?

I think I will not comment on this point on 2027, but I can comment on Q4 and what it means for the setting and accompanying outlook that we see. First, to comment very broadly on the On the Q3 sequence and the Q4 sequence, obviously Q4 step-up from the third quarter will be characterized by a combination of factors, the first being the further Middle East recovery that will indeed, we believe, step up and the assumption will reach up to 95% of last year Q4. The second factor will be the usual year-end sales into digital and production systems and finally data centers. But underlying all of this, as we will expect to grow sequentially both in North America and international at that stage, are the fundamentals of the market that I believe give us a business outlook that is very compelling, that combines not only the rebound on Middle East that will continue, but also the setting up of the offshore deepwater environment that will add to it and the strengths we have developed into production recovery. to come into benefits in short cycle. So it will be a long and short cycle exposure, long cycle to deep water, short cycle to production recovery, and the kick of the Middle East recovery developing at scale in the fourth quarter and continuing throughout 27. So indeed, it is highly compelling, adding to the secular trends of digital and to the significant strength and scale that we are forcing in data center going forward.

And Scott, to clarify your specific question on the Middle East, just to put the numbers back together. So first, Q2 actual revenue in the Middle East was $1.66 billion. And we have assumed in our base case scenario where the global revenue grows between 3% and 4% sequentially, that the Middle East will recover gradually in the third quarter. If it doesn't, if current escalation sees the ongoing mobilization, that Middle East revenue would be $150 million lower than in our base case, and it would bring it back to more or less the level of Q2. So that gives you the range where it could end up in the third quarter.

Well, I appreciate that, Collar. And then my follow-up is on exploration. You're witnessing a nice pickup currently in your data library sales, and I would assume kind of across, you know, wireline, et cetera. How are you thinking about the durability of the exploration cycle? Is this, you know, just a reaction to higher crude prices? Or do you think we'll see a multi-year, you know, improvement in exploration activity, you know, given the need for the industry to, to locate new reserves as shale production growth slows and in order to improve the diversity of supply given the Middle East conflict. Just your thoughts on the durability of the exploration cycle would be great.

Yeah, I think indeed the fundamental first are favorable and constructive for the global exploration and it's driven by energy security. by the exporting national resource and to the need for certain, if not the majority of the customer, to replace their reserve and to bring and build a long-term portfolio that includes deepwater, highly valuable resource. So we see that exploration cycle and appraisal is developing nicely, and I think we see this not being a trend of one quarter, but a long-term trend that we support reserve replacements across different basins, both in frontier, in infrastructure-led exploration, deporter, but also in some land operation to further secure eventual development in some regions. So we see this as an underlying strength, and we have the portfolio to match it. We have the Reserva Performance wireline portfolio with unique differential technology that are being used on the vast majority of the high-value wells, expression wells that happen. We have the digital offering, both in our platform and application, but also obviously into our expression data as it was highlighted this quarter. And we are introducing new technology in well construction, including alpha sites, which is the latest generation of our jousting tool. that provides the best performing tool to place exploration well in the spot for maximum success. So we believe we are very well placed to benefit from this global trend.

Great. I appreciate the call. Thank you. Thank you.

Your next question comes from James West of Melius Research. Your line is open.

Thanks. Hi, Olivier, Stephane.

Thanks.

Good morning, Dave. So, no problem. Olivier, I wanted to just hone in on the Middle East situation. Obviously, people want to get back to work. We want to see a recovery post conflict. You've probably been in the region recently, and I'm sure you're in touch with everybody in the region. What's the level of urgency to get things flowing again, get back to work, get drilling activity and production activity going? I know you've talked about 95% of fourth quarter last year levels, but what do you think we look like after we get back to activities?

No, clearly we see that the engagement level and frequency of engagement for customers in recent weeks and days actually is increasing and to secure mobilization resources to plan and to tailor solutions to the recovery of the wells that have been shut or to plan for accelerating the deployment of resources to do the infiltrating to catch up and expand capacity. And I think it varies from country to country. are more concerned and are constrained by security. But we have seen activity restored and starting to be strengthening in UAE, in Qatar, to a certain extent in Saudi. And I think these are the signs that I think activity is being built gradually. We have not seen a massive impact in the recent conflict re-escalation as we have seen in the last 12 days. and customers are eager to restore production and hence they are looking for solutions for well intervention. They are looking for solutions that can assure that the shutting well can be restored and the solutions that fit the production recovery solution or the intervention solution can be deployed at scale in the coming weeks and coming months. So yes, activity engagement is happening and I think we are getting the strong signal that Aside from re-escalation and worsening of the conflict as it stands today, we see a gradual recovery unfolding in the third quarter.

Okay, great. And then maybe to hone in a little bit more on the exact nature of the work you think you'll see initially, I'm assuming it's going to be a lot of production-related work. Is that a fair assumption that it will be A lot of interventions and a lot of the ChampionX business getting active first before we see kind of new welds rolling?

I think I see threefold and three vectors of activity. One, indeed, the combination of production recovery that includes when intervention includes ChampionX. Capability that includes cultivating intervention to restore or to kick wells back into production. I see also digital being considered being a new catalyst. This crisis being on occasion a catalyst for accelerating digital deployment to unlock the potential of existing wells and to assure best performance. And we are being involved in several contracting regions to make it happen. and finally for the company and the region or the country that can mobilize rigs for infiltrating and expansion of capacity going beyond the intervention, going beyond restoring production and accelerating capacity to respond to the lost supply in the last few months.

Great, thanks Olivier.

Thank you James.

Your next question comes from David Anderson with Barclays. Your line is open.

Hi, good morning, gentlemen. So an improving offshore business is clearly an underlying theme for you this quarter. FIDs this year have already surpassed full-year 25. These water recounts higher as well. I would think you'd have better visibility here than just about any other part of your business for 27. So kind of the question I'm just wondering is, should we at least see double-digit growth in offshore next year from both production side with one subsea and higher activity in well construction?

I think directionally it's fair to say that the acceleration of the FID we see finally setting in place this year and the pipeline of it growing next year that will set the tone for indeed a deepwater activity that will certainly grow directionally well into next year. We have set an ambition, as you know, that our subsea booking will reach $9 billion over two years and hence... Thank you very much. on the whole mobilization and timing of mobilization throughout the second half of this year and throughout next year and the exact timing of FID that are still dependent upon all parties and including the host country to find agreement. And this will still push or pull some FID approval here and there, but we see significant activity already starting in Africa, West Africa and East Africa in the coming months. We see Mediterranean to be a nice setup in 2027. We see East Asia following the FID and some compact world to be also very prolific for gas development. And we continue to see Latin America from Brazil to Guyana and Suriname to continue to grow and to be an engine of growth. And not forgetting the mature basin of North Sea, Norwegian sector and the and Gofav America that continue to look for a capital efficient solution including boosting as you have seen some announcements and continue to develop at pace the proven reserve and focus on the infrastructure-led development. So you combine all of this you have a setting that is highly favorable that was in the making and that to some extent this crisis created the The catalyst to secure and accelerate going forward as energy security exploiting resource has become a priority and gas development continues to be a driver as well.

I appreciate the color there. If I could make my second question more of a macro question here. On the Middle East, you had mentioned production is going to take longer to return. I think that's a little bit controversial. I think the broader market seems to think that production comes right back very quickly within a couple of months. Can you tell us why you think that's going to take a little bit longer? Is that certain countries that are a little bit different? I know we're talking about this intervention work and everything happening. If you could just provide a little bit more detail on what you're seeing at the ground level and why you've come to that conclusion.

Yeah, we believe that it will not be prudent to assume that the things will restore in weeks. And we believe that the condition that has not met yet, and particularly around security in some countries, specifically Iraq, and for pollution capacity in Kuwait will not necessarily give in short term the capability to unlock and come back to the full production, not only talking about the export capacity from the straits, or pipelines. So I think this would take time now. The well intervention and the capacity that many countries have to restore, yes, it will take weeks and months. And yes, as we exit this year, certain countries will already be well on their way to have restored full capacity, if not being on their way to expand capacity beyond. And I think we know that. It's a mix, and I think here I cannot do more than comment on grading the mix from the ones that are untouched, like Oman, or the ones that are severely damaged, like behind Iraq and Kuwait, and in between UAE and Saudi Aramco. So you put all this into a different phasing, and depending on the mobilization resource, you'll have a grading of recovery, of production, but yes, gradually it will improve. and gradually will be over weeks, months or quarter depending on the conditions that are set and depending on the resolution of the conflict will pan out to be always positive in my opinion and always gradually growing going forward. But it's very difficult to pinpoint a time where this will intersect the previous capacity or the previous production total. Okay.

Appreciate your thoughts. Thank you.

Thank you.

Your next question comes from Neil Mehta with Goldman Sachs. Your line is open.

Hey, good morning, Olivia and team. I really appreciate all the color you provided around data center opportunity set and the path to $2 billion of exit rate revenue. I guess there are a couple components around it, but for those of us who have probably spent less Time on these modular systems. Can you just simplify what exactly is the product that you're providing here for every part of the data center and what's the value add to customers? And then can you just talk about how we should think about the economics of this? I would imagine it's a little bit lower EBITDA margin, but higher free cash flow conversion. So just thinking about the economics and then helping us simplify what the product offering is.

Yeah, so I think to keep it simple and to explain how did we develop the right of play into this market, I think you have to undertake for two or three years, and I think we have realized that we could deliver high quality, high reliability, modular construction equipment off-site to package this modular equipment destined towards the server hall of the data center, destined towards the cooling equipment of the data center, and then package this with modular construction so that they are delivered from an off-site, large-scale manufacturing site to the diversity of the data center site in any state or ultimately in any country. So the benefit brings to the upper scale, it brings a reliable, scalable, and value assurance of delivering at a shorter lead time Flexibly across different data centers. We have delivered, as we noted into the one announcement we did last week, 1.3 gigawatts of various equipment capacity across more than 20 or 30 different data centers from one single site of manufacturing large scale. And that's the beauty of it. So the value proposition and economics from the hyperscaler is that it's It provides reliable delivery at a shorter lead time, and it can demonstrate scalability for any data center in any state. So it brings simplicity, it brings quality, and I think that's what we built on, and it's both for several infrastructure or cooling solutions. And it's built on a capability that we can transfer from our engineering process engineering capability Both the logistics, the manufacturing, and the engineering capability, and we are starting to add design capability to it, as you have seen from the NVIDIA announcement. Future fitting of equipment, commissioning equipment as well, as you will see into the meta-announcement that we have made. So, all in all, very interesting capability for the hyperscaler, and something that they look for, and we are getting a lot of requests and a lot of pull, actually.

So now, Neil, on the financial profile of this business, to your question, yes, from a pure margin standpoint, this business is currently not accretive to SLB's overall margins, but of course it's very accretive to top-line growth and very accretive to earnings growth. And as you alluded to, it is a capital-light business model that we have, and the type of contract and contractual terms we have result into very strong free cash flow generation. So we are quite happy to see the earnings growth and the free cash flow of this business.

And maybe you can unpack the new announcement here around the gigawatt data center in Canada with Meta. How many more opportunities like that are there And can you give us a sense of what are the constraints to scaling this business? I would imagine the demand for prefab work is enormous. So what is the constraint? Is it the facility size and tree port, for example? What's the limitation?

I think we have been able to scale this beyond what we had planned originally by expanding, by improving, by optimizing, and by starting to scale within the constraints or the computes we have set. but for the specific Canada setup that we are preparing with META. We set up a sister center If you like, sister campus to what we have done in Shreveport. We know how to start from scratch easily. This is, relatively speaking, low capital intensity and we'll be ready to scale this because we have the lesson learned. We have done it at scale. We're having quite a capacity every month from the Shreveport campus, so we'll expand this into Canada. and we will continue to do that as a new business, a new project unfolds. And in this particular case, we are doing a little bit more than just delivering module. We are fitting the module in place onto the data center. We are commissioning these and we are passing into the level of system integration design that expand our capability set and prepare us for the next project award. Thank you.

Your next question comes from Arun Jayaram with JP Morgan. Your line is open.

Yeah, Olivier, good morning. I was wondering if you could talk a little bit more about your Middle East pipeline. We've seen a number of, call it tender announcements from some of your OFS peers in Saudi Arabia and Iraq. And I was wondering if you could just talk a little bit about Your pipeline of potential opportunities and maybe just general relative positioning in light of some of these awards.

I feel very good about our position in the Middle East. First, we have built quite a backlog of contracts in the last 18 months, including the Moutriba Award, including some awards in Saudi, in Iraq, in UAE. that we are and in Kuwait that we're executing and part of our backlog and we feel very good about those those wins and those contracts that were and we believe that we have maintained it's not reinforced in most of the country our market position and you'll expect more awards to be coming in the coming weeks or coming months that will solidify our market position so again We are proud of what we are delivering to our customers in the Middle East. We have a lot of fit for basing capability that are in place, that are recognized. We have a pretty large integration capability set in Saudi and other, including in Kuwait or in Iraq, that I think we are leveraging. And we are more and more successful with our digital capability in the region. And the current recovery of Middle East is calling upon Our production and recovery capability, one intervention, chemistry and production solution that we can fit for the market. So we are very pleased and you see the size and the scale of our business today and we are not concerned about leaving behind an opportunity and we will have a nice growth in the second half of this year as we have guided and we expect this to only expand into 2027.

Got it. My follow-up, offshore, clearly a theme with this print. Olivia, I was wondering maybe you could give us a little bit of an update on the One Subsea JV. We did notice quite a number of awards this quarter. You mentioned the $9 billion order ambitions. How is SLB evolving Your product and solutions capabilities within the JV. Love to hear more about that.

No, I think we're indeed very happy with the momentum that we are seeing in one subsea JV. I think we're benefiting from the portfolio we have. I think the The portfolio that includes now what we needed to expand to be having a more complete portfolio of trees and manifolds and umbilicals, as you have seen, that I think that complements what we used to have in one system before. So I think we have a more comprehensive portfolio that addresses all the basins. and the makers competitive all the basins have a fit solution for all the water condition and all the geology and all the characteristics of the fluids, gas or oil assets that we are addressing. In addition, I think we continue to see significant momentum in our processing solution and we have seen some recently announced award on the boosting solution. and we continue to work with customers in the domain of production recovery to link the future recovery capability of their reserve with processing, subsea processing capability that we have that are unique. So we continue to develop processing to differentiate, we continue to develop digital capability and we continue to standardize and modularize our solution to make it more effective for deployment and to be more competitive into the standard trees. and Manifold Solutions. So again, we are successful across different basins in Africa, in Asia, in Latin America, while continuing to build on our legacy Gulf of America and the North Sea. And you have seen that we have also strategically entered into alliance with Econo and BP particularly to develop and to work side by side in early fit and design to optimize the SEPC architecture to leverage the long-term solution that we foresee could unlock more economics for the customer and to position ourselves for life of feed solution. Life of feed solution is the last part where we are investing. to find a solution to intervene those wells and done some acquisition in that sense and also continue to work with partners like CEPC7 to provide end-to-end allowance solution for development or for intervention going forward. So very pleased with progress and certainly at the right time in this deep water cycle rebound. Great, thank you. Thank you.

Your next question comes from Derek Podizer with Piper Sandler. Your line is open.

Hey, good morning. I wanted to ask about your margin outlook. So morning in the core, you know, one subsea Champion X, some of the synergy pulls through there. Well, construction held up really well. just thinking about this margin momentum as you head into 2027 off that 24% EBITDA margin that you stated for your expectation for fourth quarter this year. So maybe just talk towards the core as far as momentum you're seeing into next year.

So on the one subsea side, if you remember, we had a few transitory issues and startup costs in the first quarter. And the good news is that the margins increased in the second quarter. This is why you see production systems increasing margins as well. So in the second half, One Subsea will continue to increase margin as well. So it's a gradual increase throughout the quarters for One Subsea. You mentioned Champion X as well. and as Olivier indicated, we are quite happy to see quarter after quarter ChampionX margins continuing to increase despite some inflationary pressure we have on chemicals that mostly come from the Middle East conflict by the way. But regardless, because synergies are unfolding, we continue to see ChampionX margins increasing. and Well Construction. Yeah, true. Despite the severe disruption in the Middle East, they managed to hold the margins flat because we had a good mix of activities in Latin America and North America. So you put all this together, you of course will have end of year sales in digital as well. Digital is always recording the best quarter margins in the in the fourth quarter. So that's what will get us to this more or less the same level in Q4 as we were in Q4 of last year, around 24%. Got it.

That's great. That's helpful. And then maybe sticking on digital, very solid quarter growth across all four of your subsegments. I understand expiration can be a little lumpy for the year, but clear adoption and momentum across the other three segments It's this dynamic you really laid out for us at the recent digital day. Maybe if you could talk to us about some of your recent wins and really the primary drivers behind that growth and how you see adoption evolving over time.

I think you have seen in the prepared remarks and reiterating what we have said, and others during the digital market day. I think digital operation and AI will be the key level of growth and dynamic and adoption in the market. But in addition to this, our platform approach from Delphi to Lumi to Agora, which is our AI platform, and Sela, which is our AI platform, I think are combining to give us the I would say the comprehensive different shared offering that I think is attracting market award and I think you have seen the diversity of what you have announced across the different geographies, across the different customer landscape and we expect this to continue because we see practical, we see we can help customer create value through digital solution, be it in the geoscience planning cycle or be it in operation, particularly in drilling operation, we are seeing a lot of success. Thank you very much.

Great. Thank you for all the comments. I'll turn it back.

Thank you. Thank you.

Your next question comes from Keith Mackey with RBC. Your line is open.

Hey, thanks and good morning. We've been hearing more about conversations happening in Venezuela. You also announced a framework agreement with PDVSA recently. Can you just discuss how that agreement is important to growing your business in Venezuela and just what is happening there more broadly and when you think that it could start to become a little bit more of a major contributor?

I think first, I wanted to give a word to the situation in Venezuela. Unfortunately, a few weeks back, there was an earthquake that really shattered the situation. We have been working already in-country for the last two years. Scaling our resource, scaling our capability, working under the Orphic License with an IOC, Chevron, and I think having a large scope to support them. And we have used this to continue to develop our capability, to continue to prepare for the recovery, and to work side by side with the new entrants that are preparing a re-entry at scaling to the country. So this year it means that we are securing contracts, we are securing a work scope, with international companies that either were there or that are reinforcing their position in country. And we are accompanying them into preparing and planning and mobilizing resources as we speak with significant scale-up that will happen during the next few months to give us a significant opportunity Exit rate that will enter at the center 2027 with multiple customers and multiple contracts that will shape 2027 in a significant growth curve compared to where in 25 and where we are in 26. So As a reminder, I think we used to have more than 3,000 people. At the peak, we used to generate visibly more than $1 billion in this country. Difficult to say when we will reach this level, but it's clear that having the dynamic of reinvestment under the right condition will support high growth, and we are positioning ourselves very well, and we already are securing the contract and the additional work scope beyond what we have done for the last two years. to scaling 26 H2 and to scaling 27.

Okay, appreciate the comments there. And just maybe stepping back a little bit on the FID comment, so 30% increase in long cycle FIDs and bodes well for 2027. Can you just comment generally on The revenue conversion to SLB of FIDs of this nature, does it generally lead to multi-years of growth and what is the time lag between an FID and sort of when your revenue off that might peak?

The only good answer to this is it depends. I think depending on the FID, depending on the port of contract, depending on the position we earn on that FID, I think Between any FID and the first well-drilled, I think there is typically at least 12 months. And the FID are typically these days 2 to 3 years as a minimum, if not 3 to 5 years depending on the number of wells, the number of subsidiaries, and the number of phases of those projects. So between contract award and first revenue, A few quarters and then the duration of any of this FID deepwater is typically to the order of two or three years as a minimum and typically they come in phases as the customers are prudent in the way they plan and scale this large deepwater investment and hence this deepwater goes to two or three phases typically that last in excess of five to six years and hence create momentum for the years to come. So that's where it is.

Perfect. Yeah. Sounds like we're setting up for multi-rep cycle offshore. Thanks for the color. Appreciate it.

Thank you.

Your next question comes from Sora Pant with Bank of America. Your line is open.

Hi. Good afternoon, Olivier.

Good morning.

Olivier, I want to touch on the Middle East a little bit. It's kind of a two-part question, but these are some of the recent teams we have been hearing. So first part is on the pricing dynamics in the Middle East. There was a little bit of noise around some LSDK contracts being awarded. I know that's a pretty old mature business model in the country, right? But maybe just talk to the broader pricing dynamics in the Middle East that you're seeing. And then the other part of the question is around the logistics disruption and the cost inflation that we saw early in the conflict. it sounds like things might be getting a little better as you learn to live with it you sort out your supply chain everything rewires and your costs start to moderate a little bit but maybe if you can touch on those two points it'll be a pricing dynamic and then just the cost setup and if that's improving as we go forward yeah indeed and building on your second part of the question first i think indeed we are learning how to

Here, just as I said in my prepared remarks, the logistics and the supply, and localize the logistics and the supply differently to prevent and to avoid some of the excessive costs, and at the same time to continue to operate and provide business continuity and efficiency into the scalable solution that we'll buy as we mobilize back within every country. So this will fade away, and as we gradually recover, we'll put this behind us. and I think we'll have an impact, we'll gradually remove this impact. Now from the pricing, pricing has been generally speaking globally a headwind in 2026 and particularly in large competitive tenders, be it in integration, in stimulation and subsidies has been something that has been with us. Now as the market is tightening, as the market is starting to mobilize for additional growth, additional capacity, naturally and gradually the outlook will improve. as capacity will tighten and then we expect this to be something that will not necessarily be a headwind as we go forward in 2027 and beyond.

Fantastic. No, Olivier, that's good. Kala, I want to just switch here a little bit towards your data center solution business. Just on the point you made about widening your scope, trying to capture a bigger portion of the pie, you noted for the Canada Data Center, you would be doing engineering and design, and then I think thermal management, decarbonized power would come later on. But maybe just give us some context on what portion of the overall data center spending is addressable for HLD right now, and where do you think that can go, and how can you capture that organically versus inorganically?

I don't think we'll have time to go into detail and to explain this. Thank you very much. and I think the time is, I don't want to, the time will continue to grow obviously as we expand the scope, but the sky is the limit at the moment and I'll go for it.

Right, okay, okay. Fantastic Olivier, let's turn it back. Thank you. Thank you.

Your last question comes from the line of Mark Bianchi with TD Cowan. Your line is open.

Thank you very much, Saurabh. caught me having this question that I had. But maybe, Olivier, you could talk a little bit more on the point to get to the 2 billion run rate. How much of that currently sits in backlog, and how much do you need to go get? And maybe you could talk a little bit more about the pipeline of opportunities, maybe how many different projects you're looking at. Does it include other parts of the Other parts of the equation besides the cooling that you're talking about?

First, to keep it simple, I think the backlog is already in place to support this $2 billion more. So that gives us a possibility to chase for more and to perform our future and to high-grade and continue to develop our scope from design to expanding our capability set. and to try to participate to design and start to expand as well so now it's already in the pipeline that's the reason why we are feel confident to announce it now we will continue to build We continue to explore, we continue to work with the different customers we have secured in the last six to nine months to explore how we can develop this further, how we can add value and not only scale in manufacturing but also scale into the product and the technology offering that can optimize the performance of those data centers and expand beyond the inner side of the data center to then start to touch the cooling loop I will now turn the call over to SLB for closing comments. Thank you. Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following reflections. First, the market is beginning to exhibit the characteristics of an upcycle. The need to replenish inventories, diversify supply, develop domestic resources, and rebuild spare capacity is supporting increased customer investment across both short- and long-cycle markets. This will drive higher activity, with deepwater in particular expected to accelerate into 2027. Combined with the increased activity that we require to restore production capacity in the Middle East as conditions allow, these dynamics create a compelling outlook for our core business. Second, we continue to capture exciting growth beyond our core. Our digital and AI solutions are becoming increasingly critical to our customers' operations, while data center solutions are expanding our reach into critical infrastructure for the AI economy. are gaining momentum, extending our capabilities into new markets and creating additional revenues for long-term growth. And third, we're well positioned to capture the opportunities ahead. Our leadership in international and deep water, combined with our expanded capabilities in pollution recovery, aligns SLB with where our customers have direct investment. And as a sacrifice, we expect this position to translate into differential growth and performance. With this, I will conclude today's call. Thank you all.

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