Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Schlumberger Earnings Conference call. At this time all participants are in a listen only mode leaders there will be an opportunity for your questions and instructions will be given at that time if.
You should require assistance. Please press Star then zero as a reminder, this conference is being recorded I would now like to turn the call over to Simon Farrant, Vice President of Investor Relations. Please go ahead.
Good morning, Good afternoon, good evening and welcome to this I'm, sorry limited Twentytwenty earnings go.
Today's call is being hosted from Houston for him to somebody say limited board meeting held earlier this week.
Joining me on the cool and they're going to push Chief Executive Officer, and Stephanie Guy Chief Financial Officer.
For todays agenda, and maybe I will start with the cool with his perspectives on the quarter and our updated view of the industry macro after which Stephane will give more details on our financial results then we'll open up for questions.
As always if all the again I'd like to remind participants that some of those statements were making today are forward looking.
These massive involve risks uncertainties that could cause actual results to differ materially from those projected in these statements are.
I'd refer you to our latest 10-K filing and all the FCC filing.
I comments today May also include non-GAAP financial measures additional details and reconciliation to the most directly comparable GAAP financial measures can be found that I've been caught a press release, which is on our website now I'll turn the call over to live yet.
Thank you Simon good morning, ladies and gentlemen.
Oh, everyone is safe and the wet.
This morning, I'm getting to governments on three topics.
While Q1 performance.
Well matching todays increasingly difficult operating environment.
And now we see the outlook for the second quarter.
Before I do that I.
I would first.
Like I think there's room as it people around the world well demonstrating grates resilient.
I'd activity.
I'm very proud of halting of what they have achieved in the first quarter.
Despite the complications from the <unk> 19, I'll break the delivered strong organizational that's almost 12 Dick Walter.
We kept very close to walk us among other classes develop.
Able to maintain wayside to formations, we only minimal disruption across a few countries.
The feedback I've received former customers has been both positive and appreciative of our promotional performance.
Despite the difficult to yield the situation and the do it.
The which all people have been walking Q1 was <unk> one of the best quarter dump self service quality and actually the best quarter ever in safety, except for the fall.
Let's start with the best but keep in all first quarter was up.
So as you don't have about four months given that could be 19 relate the disruption and there are didnt bucks of the old pies collapse.
Did you about earnings of 25 cents best their own motion initial apologia no expectation.
The quality always characterized by the usual combination of seasonally bucked, the northern hemisphere, and the sequential decline with product and softer says.
I will go through all the analytic Walter activity started to decline in several basis June Judy plus another drop in oil supplies and the increasing shines.
Pulls by probably 90.
The most sitting back within North America lands, where customers where.
Do we act, we push up 17% get it got.
You don't business segment, and then what characterization, but when you closed the quarter sequentially down 20%, partly on seasonal effect, but also as a consequence of custom updating this commercially and exploration spending ended up out of the quarter.
The margin decline on the absence of significant multi cloud software licenses said, we exploration mix and lower contribution from discretionary soft assets.
The heating revenue declined sequentially on seasonal effects and the collapse in North America late in the quarter, but the spread resilience with margins flat sequentially, although operational execution and I'll focus the underperforming business units as well as continued success in uptick there is you access the strategy.
Well, Jim revenue declined on lower activity in international markets and weak if yes with it.
Well I'd put it your margin decline hundred basis points, driven by the weaker international activity. The success of all one steam scared to feed cottage in North America, much resource to market needs and optimize our operational footprint.
I'm, a little venue was seasonally lower and suffered from the exposure of the short cycle business in North America.
It doesn't look I'm on what we knew was also lower as we hope that manufacturing steady and Malaysia in response to local restrictions to mitigate the spread of there could be 19 virus.
Despite these negative effect.
I'm on margin increased sequentially, driven largely by this quarter's favorable mix into onesubsea portfolio.
Looking at North America land in more detail.
Timey acceleration, if I'm not cut as you put pick that margins from excessive sequential decline.
We began the quarter, having scale, one steam fleets to feeder markets, which wasn't any now utilization and minimal flex Columbia gaps.
However homes, all pies begun to collapse in much customer rapidly drop rigs and flight crews.
Hello, well construction completion activity decreasing the technology mix switched from driving performance through saving costs.
We have acted RPD by sticking frac fleets to protect our margin and I'd reduce capacity by more than 27% and reduce our capex plan by 60% by the end of the quarter.
Yeah, well costs, our international revenue gross 2%.
At year on year, or 4% when accounting for the 2019 business divestiture.
Growth was as you don't in Kishimoto markets across Russia on Central Asia, Saudi Arabia and borrowing.
Hi, This is John Australia, Northern Middle East, Latin American, though and so when Denver.
Our first quarter cash flow from operation more than doubled year on year to 784 million as a result.
It's in the focus on collections and our resilience in key international markets.
Let's talk about what we are doing to protect the company and I will focus on cash liquidity and its strengths of our balance sheet in a period of hi, uncertainty as a death and extends our Nicola various impact on global oil demand remains unknown.
First and after an index review of the possible outcome. So the new although we are facing where bed the very difficult.
But this is say decision to reduce I'll give you done by 75%.
This would protect our cash and liquidity into current environment, while giving us greater flexibility going forward.
We continue to exist I can jump capital stewardship, well it telling the ability to balance any kept a return to shareholders as proportional condition evolve.
Second we have reduced capital investment program by more than 30% of cost Capex, if yes and the decline.
Well, so when you see our research and engineering investment by more than 20%.
The second quarter to reflect the necessary adjustments to our 2020 domestic addition pull up.
Further we had accelerated increase our structural cost reduction in North America in alignment with the scale to feed strategy initiated during the fourth quarter adjusted for the new on that.
As a result, well well unfortunately had to reduce our workforce in North America by close to 15 on other people doing the first quarter.
We continue to decisively inclement structural change during the second quarter, both North America and internationally to align our cost base with them to see better chop them and civil now if activity outlook.
We full understanding that the base and scale of decline you sit uncertain, but would be more abrupt than doing any recent downtown.
Finally, we have also take an exceptional top probably measure to conserve cash by limiting photos across many thought of organization, both in North America, and internationally and by reducing propositions for executive team and for the board of directors.
Does that have this action will present, a significant step towards protecting the company cash and liquidity in the face of the significant uncertainties.
I believe that our response, so far has been swift and effective as demonstrated by our margin and cash flow performance during the first quarter, while providing service to all of our customer with unique because you don't and performance across all basis.
So if I will discuss the strength of our balance sheet access to liquidity and capital investment program in more detail in few minutes.
Before that let me give you our perspective for the second quarter.
Despite the recent agreements by the world's largest all producer to get pollution Q2 is likely to be the most uncertain and disruptive quarter that the industry as ever seen.
Well, therefore, not in a position to provide guidance for the next quarter as we phase two degrees of uncertainty beyond the CV impact of all demand complexion and delivered of community or price.
First it is very difficult to model or predict the frequency of magnitude there could be 19 disruption on field operations.
So again it is too early to judge the impact of recent OPEC plus decision on the level of international activity as well as it Sip acquisition on storage lebel globally, and the related risk of production shut ins.
Let me however, shell view on the key activity trends, starting with North America.
We anticipate both rig activity and flight completion activity to continue to decline sharply during the second quarter to reach a sequential decline of 40% to 60%, which much rubbish. The full year budget that just on guidance share by most operators in North America lab.
This will represent the most severe decline in drilling and completion activity in a single quarter in several decades.
Internationally, we see a less severe sequential decline as some long cycle of show and land development market should remain relatively resilient and will partially offset the explosion activity the up as well as the expected activity adjustments that will result from the OPEC plus decision.
Your next January at this time and excluding the seasonal rebound of league activity in Russia and China.
The international head count is expected to decline by low to mid teens sequentially.
However, this will vary greatly by basin and pick estimates.
We have been successful during the first quarter in providing new market Weve residence and performance, we anticipate relying on this success and will fully leverage our unique international franchise to retain optimum activity mix going forward.
As the quality of lapse, and we get more clarity on the timing and shape of them on recovery.
And better understand the Opex plus the implementation and compliance will be able to discuss outlook for the civil and as of the year with you.
Let me conclude by reinforcing the enormity of the task ahead, you will require level of response and death or resilience that have yet to be fully realize.
The actions we have taken so far I've been focused on those things we can control import taking obviously is.
Clear priority on cash and liquidity in an uncertain industry and global environment.
We continue to take the steps necessary to protect the safety and health of our people and puts you on be shown to be the performance partner of choice for customers.
The future funniest repos difficult challenge for people and for the environment, but continues to offer unique opportunity I believe that does as you know some performance of our people uptick there as you did a ship.
And our financial strength, we clearly position us for success as it is through rebounds from this unprecedented downtown.
On to use the fun.
Thank you Olivia.
Good morning, ladies and gentlemen, and thank you for participating in this conference call.
First quarter earnings per share excluding charges and credits was 25 cents.
This represents a decrease of 14 cents sequentially.
And five cents when compared to the same quarter last year.
During the quarter, we recorded $8.5 billion of pretax charges.
Driven by current market conditions and valuations.
These charges primarily related to goodwill intangible assets and over a long lived assets.
Our search this charge is almost entirely non cash you can find details of its components in the epic use at the end of our earnings press release.
These impairments were or recorded as over the end of March.
For the first quarter results did not include any benefit from reduced depreciation and amortization expense as a result of these charges.
However, going forward.
Precision and amortization expense will be read use by approximately $95 million on a quarterly basis.
Approximately 45 million service will be reflected in the production segments.
The remaining 50 million will be reflected in the cooperate and over line item.
The quarterly after tax impact of these reductions is approximately six cents in India stones.
I will now summarize the main driver of our first quarter results I will not doing too much detail as we'll leave you already provided some key highlights, but I will spend more time updating you on our liquidity position.
Overall.
Our first quarter revenue of 7.5 billion dollar cost decreased 9% sequentially.
Pretax segment operating margins decreased 181 basis points to 10.4%.
Sure.
First quarter reservoir characterization revenue of 1.3 billion.
Decreased 20% sequentially.
While margin decrease.
859 basis points to 14%.
The sequential drop was a combination of seasonal effects and the early signs of customer.
Tailing discretionary expenditures.
Drilling revenue of 2.3 billion decreased 6%, while margins were flat at 12.4%.
Approximately half of that revenue decline was due to the divestiture of our fishing and remain deals tools business at the end of the fourth quarter.
Production revenue of 2.7 billion decreased 6% sequentially and margins declined 98 basis points to 7.8 persons.
Cameron revenue of 1.3 billion decreased 10%, while margins slightly increased by 57 basis points to 9.7 vessels.
Our effective tax rates, excluding charges and credits was 17% in the first quarter.
As compared to 16% in the previous quarter.
Please note that it is going to be challenging to provide guidance around our effective tax rate going forward as discussed in farewell detailed in the effect you at the end of our earnings release.
Let me now turn to our liquidity.
During the first quarter, we generated $784 million of cash flow from operations.
As Olivier mentioned this is more than double what we generated during the same quarter last year.
We spent $407 million on Capex and invested 163 million in asset performance solutions or 80 years products.
We completed the sale of our interest in the Mendolia sort of look in Argentina during the quarter.
The net proceeds from this transaction.
Combined with the proceeds we received from the divestiture of a smaller ABTS project.
Amounted to about $300 million.
Looking for.
After considering the Argentina divestiture and reduction in the rest of our project portfolio.
Our MTS investments for the full year will not exceed 500 million.
With this.
As well as the significant reduction of our operating Capex engage during the quarter, our total capital spend for Twentytwenty.
Including eight years and multi client will now be approximately $1.8 billion.
This represents close to 35% decrease as compared to 2019.
On the balance sheet sides, we took a series of steps during the first quarter to reinforce our liquidity position.
First we ended the quarter with total cash and investments of $3.3 billion.
While these cash balance is higher than what we generally like to carry.
This was a conscious decision and I am very comfortable with considering the current situation.
Our net debt increased by only a $171 million during the quarter.
Closing at 14.3 billion.
Which is more than 1 billion lower when the level we were out.
Sure.
During the first quarter, we issued 400 million euros of notes due in Twentytwenty seven.
And another 400 million euros of notes due in 2051.
These notes carry a weighted average interest rate of 2% after being swapped into us dollars.
We also renewed during the quarter, our revolving credit facilities.
He is committed facilities amount to a total of six point $25 billion and do not mature until between February Twentytwenty free and February 2025.
We ended the quarter with $2.7 billion of commercial paper borrowings outstanding.
Therefore.
After considering the $3.3 billion of cash on hand, we had $6.8 billion of liquidity available to us at the end of the quarter.
In addition.
We entered last week into another committed revolving credit facility for 1.2 billion euros.
This is a one year facility that can be extended at our option for up to another year.
We can also upsize the facility for syndication.
To date, we have not grown on this facility.
Finally.
Our short term credit ratings.
Which are critical to maintain our privileged access to the commercial paper markets well just recently reaffirmed by both.
Standards and ball and with this.
In light of our available liquidity and the values actions undertaken during the quarter our debt maturity profile over the next 12 months is quite manageable.
We only have $500 million of bonds coming due in the fourth quarter of this year.
And another 600 million coming due in the first quarter of 2021.
Our preference.
He is to refinance these obligations with new bonds markets permitting.
To close let me come back to what is probably the most important this season of the quarter as it relates to capital allocation.
In recent environments, our strategic priority is obviously on conserving cash and further protecting our balance sheet.
To be sent we have taken the prudent decision.
To reduce our quarterly dividend by 75%.
The revised dividend still supports our shareholder value proposition.
By maintaining both the Hell field and a reasonable payout ratio.
As we navigate as we navigate views in certain times.
It also allows for prudent organic investments.
While maintaining the sale of discipline required under the capitals toward she'd program that we have committed to.
Finally.
It gives us flexibility to adjust our capital return policy in the future.
Wherever through increased dividends or stock buybacks, when operating and business conditions improve.
I will now turn the conference call back.
Thank you Stephanie Thank you for its clarification, so ladies and gentlemen, I think we will open the floor for QNX.
This point.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press. One then zero on your telephone keypad, you will have a cure acknowledgment that your line has been placed in Q. Once again, one zero to place your line into the question Q and our first question is from James West with Evercore ISI. Please go ahead.
Good morning, Olivia instead of on.
Good morning, James.
So olivier.
In terms of capital allocation strategy going forward I know, we have the dividend cut today, which is clearly a prudent.
Move in light of the current environment, although we're going to stabilize.
And figure out how does this market unfolds here in the next quarter. So how do you think about capital allocation through this downturn.
Previously you guys were counter cyclical.
Getting into SPM, you've obviously disbanded that so I doubt that.
Area of capital, but how are you thinking about the allocation of capital.
So James.
As you know we have as part of the strategy FCM, our capital stewardship program and I've got a strategy step and happening at under that umbrella. We we did have him oh priority for our capital allocation.
And our cash from free cash flow from operation typically will be directed towards three buckets. The first want to maintain and support our ongoing operation.
And that's part of what we do in essential under strict capital allocation model Capex. The second one being if you see to maintain the sayings our balance sheet and to address the debt level.
That we need to maintain the white ratio and finally the dividend.
Any excess cash beyond that I think will be directed towards either business opportunity that represent an accretive returns to our capital under new pull them off capital to our chip or return.
Distribution to the shareholder in the form of.
Buyback or in the form of future increase of.
That's the way we will continue to use the framework on the this under these conditions.
Stefan you want to add anything you could probably thinking okay.
And our next question comes from the line of Sean Meakim with Jpmorgan. Please go ahead.
Thank you good morning.
Good morning show.
So maybe just a follow on to that so good to hear the updated thoughts around capital allocation can we then maybe just dovetail into thinking about sources and uses of cash.
The balance sheet has a pretty front loaded maturity cadence over the next couple of years. So.
The $4 billion that Youre keep on the balance sheet from the reduction the dividend that certainly will help.
You close the bacteria services.
Operator, we lost a we lost sure yes, one moment please.
I apologize Michigan. Please go back ahead. Please go ahead with your question I apologize.
Sure can you hear me now.
Yes, we can.
Great. Okay, sorry about that so the main questions about sources and uses of cash.
The balance sheet maturity cadence is pretty front loaded through 2023 and should be great to hear about how you think about.
Sources and uses last couple of years to address that part of the balance sheet. Thank you.
Hi, good morning, everyone. Thanks for question.
For for the upcoming.
Maturities a at least in the next 12 months as I said, we are pretty well spaced and the amounts are quite reasonable. So so really what we will do is our objective is to refinance those maturities, we have new bonds or if cash from it we will pay down some of that that to maintain the credit rating that we are targeting.
And what we are targeting is really to ensure a but we keep a strong investment grade credit in viz, a envies cyclical environment. So service will really be the way we will deal with the we've de upcoming maturities. The buttons on your question, where we have shown we we have been on a continues.
Basis, we have been using bonds to refinance.
The batteries that are coming I think we did the as you head.
Stand today, we are the two new two new bone that way sued the doing the during the first quarter in euro that were swept back to Dora and I think we add on that on a longer that's part of our program and this was reviewed during the the Finance Committee and there wasn't a lot I agree that approved by the board going forward to refinance a large amount and.
Andy and go after the bond market.
To address those.
Confidence with.
The comps investment.
Grade we have that would be success, we know tapping in those markets.
And our next question is from Angie Sedita with Goldman Sachs. Please go ahead.
Thanks, Good morning, good afternoon.
So it's we're Olivia on standby, maybe you could talk further about the cost cutting.
Thank you for some parameter potentially around the dollar size of the cost cutting and the decree that it is fixed versus variable.
Yes, certainly in certain segments are impacted more so than other than beyond.
Q3, Q4 thoughts around decremental margin.
You have quite a lot a andrew good morning.
So I think it.
Well first I think how alistair quite generic in in the statement I will make on purpose because the thing days a lot of uncertainty into the level of outlook at activity wise in the second half of the year, where things on the someone a quarter will land at this quarter in North America, and we have taken action to address.
And high size organization, and I talked about a 40% to 60%. So you can understand that the.
Organization will be adjusted to was that that pants, and I think it will affect a more or less a across all our old product line.
The wet once team will be certainly Oh, hi size on the high end of that of that a framework and the we'll certainly have to execute faster a this strategy of hi sizing of scale to feed as we call it and.
When talking about the structure costs and the fix structure cost and that's why we will put some some effort to make sure that there there is structure on the four basin and the hub concentration were putting fall one steam in the next few months, we'd be addressed first and foremost in parallel with the zeibel cost.
Action that we are taking so north America is fairly.
Very clear because activities detection and drop of activities are already already went on the street internationally I think advise a lot from from one from one geography to the next and I still lot of uncertainty partly.
So the decision by the National Company, a two year to get a the extent of wish that we cannot so well more predominant approach internationally, but we are as well exhibiting there and during both the structure fixed structure and as well as viable a in the coming weeks. So to give you a number I don't think there's a number.
We can quote, though we keep evolving but they will be blackley to be a in excess of one bid on that are throughout two just talk about compensation going forward on an annual basis and this number we certainly change as we go for so what do you know we continue to follow the curve as we call it.
Albeit this year, it's a steeper and a it will be faster and we're addressing both fixed and the viable as we have done in previous downturns.
Our next question is from Scott Gruber with Citigroup. Please go ahead.
Morning shot.
I wanted to touch on working capital given your end market forecast, how should we think about working capital is there any way to dimension that potential benefit to cash this year or potential range of where days outstanding to land at the end of the year in any lessons learned from the last cycle that can help the working.
Capital cycle.
Yes, Scott, we indeed, they expect to see our working capital winding down over the next few quarters as activity reduces.
Now the magnitude the but working capital release. These is dependent on several factors of course and probably the most significant youre asking about lessons learned here is the pace of cash collections, we receive from our customer also immediately as we saw the media environment a detailed.
Operating we refocused our entire organization on cash collections and you have seen the early signs of visa through our cash flow performance in Q1. So now as much as we are working to prevent it we could see payments being delayed a over the next few quarters, but we will we will keep the very close eye on this.
Now we may see some offsets to the to the positive working capital effects from a restructuring cash costs as we continue to address the our structure on that but definitely we will see from.
Normal working capital a trend we see a release.
And next we have a question from Bill Herbert with Simmons. Please go ahead.
Good morning, two questions related to operating cash flow first I'll hit the working capital one again.
Typically in a downturn.
Your international customers are slow pay if not everybody and looked at 2015.
It was a consumer of cash of $500 million or close to it will be a source of cash or consumer cash and then secondly, your guidance with regard to depreciation I.
I think I heard you say down $95 million from what Q1 or Q4. Thank you.
Yeah. So on the on on the working capital you're right. The first year of the previous downturns, we did have a consumption from from the receivable and.
Again, we'll try to prevent vis a we know the hotspots and a and we keep a close eye on it but its they are some places where where payments can be delayed for sure.
On the DNA, then, yes, I did say $95 million its pretax obviously and it's the compared to a the first quarter of issue.
So the $95 million lower DNA going forward.
From Q1 Twentytwenty reference.
Next we go onto a question from Kurt Hallead with RBC. Please go ahead.
Hey, good morning.
Okay.
I'm sorry.
Thank you for all the color so far in difficult environment I want to follow up on a couple of specific.
First on reservoir characterization.
Substantial declining embarking in the first quarter here and one is get a sense as to what may have been driving that and the whether or not that is now a new sustained kind of margin dynamic reservoir characterization.
So the girls I think the reason why we had such a margin decline is due to your two factor the first.
These are on.
The fact that we had a severe topline decline of 20% sequentially. That's not unusual about it was on the low side of what we are on a high side, while we typically see seasonally and I think that they come out the associated with this.
Secondly, a there were a few disruption during the quarter that added to the the cost that cannot be recovered during the during the quarter and further maybe the most important one thing is that the decision by the operator to staff.
He.
Tightened purse in the later part of the quarter did impact.
What is typically making the quarter a in the first quarter, which is the cells of multi client license licensing and also the a discretionary software. So the Q1 is typically a low quarter for managing in a reservoir characterization seasonal effect.
But this was compounded by a the severity of of the curtailment of spent in the latter part in the last six weeks other quarter that impacted the what typically contribute positively.
Q1 quarter or any quarter, which is the the and of the quarter sells for software for multi client. So we expect we expect these two we continue indeed, however, we expect the the season I sit on effect to recover some somewhat albeit the exploration budget.
We'll be a will be lower by about 40% from last year, that's the estimate from our engagement with the customer.
Okay.
And then my follow up question would then be on camera in that context margins. There were fairly strong I think we can all expect that orders and ideas and everything will wind up being pushed to the right.
So I guess my question would be more along the lines projects that are in backlog.
Uh huh.
How should we think about the margin progression in Cameron.
The rest of the euro bonds.
There was.
Yes, two factor that didn't France, a one positive on one negative the quarter and one of them. We will continue so the the negative effect that impacted the that come on margins related to the short cycle back in North America declining more than we anticipated and these declines we continue without taking action to you.
To maintain a alter your.
You can pull the decremental on that aspect and the second factor was a favorable mix in the Onesubsea a long cycle business. So the mix of this will continue going forward we expect.
This to be slightly declining in the second quarter, because we'll see more a decline in North America as was cleared highlighted in DISA any school and the fiber mix of Onesubsea will not repeat in the same magnitude for the next for next quarter. However, we still feel.
The long term backlog, we have in Onesubsea and to some extent in the New awards, we got in a in normally the drilling we support the sustaining the margin somehow in the in the long term.
Okay, great. Thank you.
And next question from David Anderson with Barclays. Please go ahead.
Thanks, Good morning, Libbey two questions on in the US good morning, two questions on the international front there.
You highlighted spending being down 15%. This year, it's obviously really complicated, though so many moving parts in there and you don't have a ton of customer visibility, which are totally appreciate but I. Just wonder if you could just kind of talk about the different buckets that you're seeing out there you've got onshore offshore versus middle East versus Latin America, Everything's kind of moving at different rates could you just kind of give us.
Our thoughts generally and how you feel different moving.
All the different parts moving and then secondarily, if you could just kind of dig in on kind of middle East, Russia, and China help us kind of collectively how big is that part of your business I'm, especially you give me a percentage number but just kind of just give us a sense because I would think that would be kind of the more stable part of your portfolio over the next 12 to 24 months.
Yes, as you correctly said the Dave I.
I think there is a lot of moving buff.
The recap projection that we are using as a proxy for future activity I think keep moving a moving to the rights or keep declining okay and we have seen that in recent weeks I think we stabilized during the second quarter due to the I'm the decision that the some opex plus member we take.
As the outcome of of their commitment will get clearvale, but this being said as we commented before when you exclude Russia, and China, a which have a seasonal effect in the second quality suburban when extra that the ER. The decline of rig activity is is.
Low to mid teens sequential decline of rig in shutdown a the viability of that buys a lot I, we said at the some of the West Africa Europe.
And to a lesser extent Gulf of Mexico, getting more impacted than a with a get in some of the land a middle east activity or even shallow offshore Australia or Qatar offshore that will actually go up so there's a lot of moving part as you said, but generally speaking.
Their pocket of residence that are either linked to long term gas oil development offshore and onshore and.
Some of it could be like in Indiana, and some of it could be Qatar gas offshore some of it can be a deepwater australia or shut off shore or could be a could be land land, Russia. All this is making a pocket of residents that you are trying to benefit from well we either have strong.
Very strong market position, so that should serve size in Russia in Qatar offshore for example, and will exploit and leverage this during the second quarter and some of it what we will be I'm trying to push in our performance to you I get the most out of the the activity. So that's a mix going forward, so pockets of up and down.
And that would keep evolving a so that's the best I can share this moment.
I appreciate that and maybe just a follow up question on your Hps portfolio.
Last time, we went through all this we had some issues theres more oil oil price exposure than I think a lot of us.
Can you just talked about I know that portfolios lot smaller today, but how much is tied to the oil price versus the fixed tariffs and I know payments. So it's kind of a question we have and maybe courses comment on where Ecuador is right now when you think operations could resume there. Thanks.
During the question David So on the oil price exposure is about harder for a NPS revenue is on fixed tarriff on service fee, while the over Hyalofast. Some element of indexation tall order gas prices on that the latter part a good portion is already.
The contractual minimum even with the oil prices we had in the in the first quarter also the lower oil prices, we will not make it worse.
All in all when you're when you take all of his into account, we're not talking about a significant direct impact on a our earnings at the lower prices of today. So it's not a it's not a significant effect on your second question.
Regarding Ecuador, I don't think it's really appropriate for me to to speculate on what a specific us do mills will do from a payment standpoint.
However, our total receivable balance in Ecuador was a was below 500 million at the end of March and we received the timely payments during the quarter on so we will be watching these very closely but.
But so far the quarter was in line.
Thanks, gentlemen, appreciate it.
And our next question is from the line of Chase Mulvehill with Bank of America Securities. Please go ahead.
Hey, good morning.
Well, yes.
Yeah. So just wanted to ask real quickly about you know cobot 19, and obviously you know the impacts of these haven't today, but if we think longer term.
How do you think that the Kogan 19 will impact how you operate over the medium to longer term I guess kind of what I'm asking here is do you expect maybe.
To accelerate any remote operating or automation initiatives or or maybe think about how you.
Oh on your supply chain, if you try to have it less concentrated or maybe a less reliant on China or anything like that so just kind of structurally do you see any changes over the medium to longer term as a result of what's happening for coordinating.
Yeah very good person chase. So let me first come under the way, we did react and we did a act and support operation our customer during this period. So we actually put in place for.
From mid January Afula cars. This management team looking at all aspects of false first and foremost looking at the way we're protecting.
The head for people and managing the she bought two logistics supply chain and manufacturing and we Oh, we did that for the last the last three months now a going from scale across all organization and by doing that we started to mitigate and understand the alternate a path we have.
Really six we set up to seven source and or better understand the risk we were having toward some supply exposure beaten shine hours, where in the world and actually we had no disruption.
The disruption we had about related to shut down.
State all government mandated in Malaysia, or anybody that we could not offset but aside from this were actually showing extremely good residence on the really six on the movement of people as we have lot of a lot of people that are.
And every country local and a and we don't we do not the pump as much as some of our peers and or some of the operator onto your flying Timo International commuter in most of the country level operate. So we are extremely good resilience, we do not let our customer down in any in any rig mobilization oil.
Any product delivery at this point, so I think outlets you don't from a multiplicity of channel. We have used for the second sourcing and the residents are diversity and edge, we have enough supply and manufacturing I think has been helping us now going forward you ought to their rights and I think we accelerated our remote operation and automation of some of our.
Provision in the light at the most of March we are the more than 60%.
Six zero, 60% of our drilling operation that add to that that were a using remote remote operation. So we have been exploding weve success, a the remote operation by reducing the footprint of our people on the excite adding very positive impact on the Jesse.
Had begun supporting them remotely we have an impact on service quality and providing efficiency and cost that a that benefit both the operator and ourselves. So this will continue will accelerate wherever and external platform internally and we are well she platform externally monoclonal 72.
Yup.
Our drilling Pascagoula hemo, the provision and automation a this is accelerating as we speak. Another example, a China is a as we were deploying delta you have umass in that into the earning press release for Woodside, a were getting the request to accelerate due to the could redirect.
I can accelerate the depending on the cloud based infrastructure, so that the asset team digital southeast.
Of our customer could work from home and have the full access to their data and today to their portfolio show sounds application, we're able to the broad access right and I would be great satisfaction and success and this has been a use as an example going forward. So yes, it will be a it will be a differentiation as well.
Going forward.
All right appreciate the color well one quick follow up obviously globally, we're starting to see some some producing wells being shut in and obviously, that's probably going to accelerate over the next couple of months due to but as we think about you know these these wells that are shut in and as they come back online could you talk to you know the impact.
That the service activity impacted the revenue.
That could impact your business as these wells are having to be brought back online maybe the back half of this year kind of early in the next year.
It's difficult to say it says I think first I think it's difficult to judge the magnitude of the number of shut ins it will depend on how fast and how much they will be an excess of supply going into topping the the so Asia storage tanks. So I think it depends on or is that why the bumps on the location, but generally speaking, yes, I think every well that you shut.
I mean, when is put back needs to get to be of what our management scaling and stimulation activities. So that will favor the service activity at large whenever it comes back on the campaign of offer resurfacing, those wells and providing intervention and stimulation a two year.
To make them back here flowing at the maximum capacity so that will indeed, the push Steve if I may.
Perfect as we exit a this a very difficult paradigm, we start to recover the full capacity of the oil oil producing fields.
Awesome. Thank you I'll turn it back over.
And our next question is from the line of George O'leary.
Occurring Holt. Please go ahead.
Good morning.
Just wanted to start off on the.
Morning, just want to start up on that offshore side from the not short perspective, shallow and deepwater rig count.
Activity begins this downturn kind of at lower levels are well off prior cycle peak.
Wondering if you could provide any color on how we should think about schlumberger is offshore exposure entering that downturn versus prior cycles, whether as a percentage of revenue just some kind of ballpark way to think about offshore exposure for real.
As you said I think the we have not recovered far from it the level of activity, we have deepwater before the the previous downturn a the deepwater population of hope floating floater market has been a recovering maybe 10% to 20% from the fourth that's about it for the last the last three years, there was being there's been more rebound.
Albeit not fully recovered on the shallow shallow water market. So obviously this is be part of our international portfolio as a as is key to the industry.
I see it fall I think I believed that the the deepwater will decline as much as the shallow, albeit I think it will not decline for this and magnitude that did add in the last downturn. There is not so much to leave and quite a few large project that active today that will that will come.
To nutri, our to operate so I see both shallow and deepwater declining in the months to comment I think the indication and the number I shared before a double double digit to mid teens decline sequentially apply to both actually a and I think.
We will we will manage it but I don't think that it would be the same magnitude far from it battery for deepwater.
Okay. That's very helpful color. Thank you and then secondarily just.
Aside from now, having Cameron and unfold and you guys sold the marine seismic vessels businesses.
A lot of changes and you guys had been doing kind of yeoman's work to structurally change the business and become more fixed cost Capex light.
What notable way should we think about lets schlumberger portfolio being different I am more resilient entering this downturn versus prior down cycles.
Think a measure part of it will come from a I exposure in a in a in North America, where we have made a decision to accelerate the new strategy.
Scott defeats and also asset light technology access that's a major element of our resilience in this downturn that will impact positively.
Our former second I will say there is additional strategy that I think we have invested into the last downturn to give us the benefit and certainly that will be leverage with what has happened with remote operational automation and combination of executing our asset light, particularly in North America, and any I would say hybrid in.
Basic and some of it will be in overseas and the recycling in shallow elsewhere, while we will accelerate our technology access asset light strategy.
And digital will complement this so I believe that going forward, we will gain better resilience for Mike exposure.
And support from the tone and asset light with dignity excess.
Thank you Andy.
And next we have a question from Chris Hoy with Wells Fargo. Please go ahead.
Thank you good morning, I wanted to ask about the international margin side. So if you look back to the last downturn 2014, plus margins it looks like held in quite well in the first year after the decline in activity.
But then there was a pretty meaningful decline in 2016 as that your reflected more you know the new work that was awarded at lower prices and.
Also cost absorption going into this one if we assume a similar setup where most of the work that still happened in 2020 has been already awarded but in 2021. It would be new work I think it's a little bit different in that there's less pricing again, but potentially less cost available to cut as well could you maybe walk through.
How the margin profile going forward might compare this time around compared to last time.
Yeah, it's difficult to your arm to come up until we as I said earlier, we get a better clarity on the second half of the exact mix of international adjustment as well as we get more clarity on the when they could be 19 causes is getting an exit a city exists. So that it will it will give us better indication on 2021.
Outlook, but this being said and you pointed out a yourself I think there's much less passing concession and a two year to concede in this cycle. So that will we get that EBITDA for different profile of of margin.
A margin compression going forward I believe that we'll be able to fair better in this cycle through cycle.
Margin compression that we have had in the in the previous one due to a lesser a exposure to price decline for one to a better efficiency, including some element of digital in our ability to operate and flex operating a.
Operating capacity with the activity and Oh, we say also possibly below his EDI and in some some of the market that we mentioned before where we have a stronger position.
Okay. That's helpful and if I could get on a quick follow up.
In the release you commented on how many fleets have been reduced in North America through the end of March I'm wondering if you can give any color on how much further you might have cut at this point and there's a lot of speculation that that fleet count in North America might go extremely low just curious if you can give any color on what you're seeing just had leading edge there.
Yeah, we're seeing the the factory going going lower veilleux, but I think I'll throw off.
We anticipate we'd still be above 100 holder fleet, we believe going forward now not recover from that going forward, we see some other arguing that the fleet count would go as low as 50 or 60 for the full market. We don't believe this would be a case at least to what we see an indication we have and we are aiming to maintain a.
10 to 15 or 10 to 12 fleet as a minimum operating into that environment and to a two of them aktiv and they bring them to our fifth strategy add to the basing we favor onto the customer we believe alco guys in the performance we bring.
Okay. Thank you.
Okay.
And ladies and gentlemen, we have time for one final question from Connor Lynagh with Morgan Stanley. Please go ahead.
Hi, Thanks, good morning.
Morning Gotta.
I'm wondering if you can you help me reconcile it seems like based on your sequential activity commentary and your full year commentary.
That you expect the vast majority.
Actions to occur in second quarter is that correct in it that correctly, both North America International markets.
Yeah thing at the current assumption with visibility we have I think a there is a sharp decline as I said this quarter is the worst Tampa of decline right that the industry I think PCB, where I've ever seen a in North America, clearly and internationally, possibly a they will be further adjustments in the in the second half of the euro and in some.
Market International market as well as maybe final a rounding in in North America, but I believe that the most decline is happening this quarter and we stabilize over the summer. So yes, I think the indication we gave nothing I certainly.
Helping us to be a with lesser decline and more stable environment from the exit rate of Q2 into the second half at this point.
Okay. That's fair in that context. It certainly seems like you guys proactive cost management, thus far but relative to historical Decrementals should we think about second quarter being a bit higher usually just given all that's going on.
Mitigating our how would you think.
I think a commenting on the as I said earlier, giving you a gun on summer on second quarter from the topline first.
It's difficult because international markets as a level of disruption treaty factor sense possible on the on the big disruption due to have friction for that could be 19, a combined with some decision on the off change attack refer some national company that we'd have to adapt the new effect plus a little ticket.
He is making the topline very difficult to predict in the second the second quarter and when he comes to the bottom line I think the abruptness of the adjustment.
Can be and will be cope with to some extent in North America, but the lag into the ability to use a cost in not in internationally is not the same due to many many many factor answer the dycom, although in the next quarter, we certainly be not be a as good as we obviously down in a in a downturn now through the sale.
Michael.
We do cycle I think ambition is to feel better for the reason I mentioned before but in a second quarter I think it would be a messy quarter.
A large from activity, a petition and and and the ability to.
To adjust our cost structure or to react and to leverage the opportunity. We have also to you uplift and get the most wednesdays and opportunity to go upside and they will be upside.
Got it thanks very much.
Thank you. So I believe with this I think we need to ER, we need to close so let me conclude by reiterating some key takeaway from a from this call.
Firstly I believe that the company performed well during the first quarter, despite very challenging environment with Exelon resilience and performance across operation Pascal International market and a very respectable financial result, partnering the cash flow from operation.
I feel very proud of this room as a team we have delivered these under such stressful conditions.
Secondly, as we were presented were going uncertainty on global economic outlook and the fact that they are rating commodity price we acted swiftly.
Reducing our capital spent program significantly accelerating our scale to fit strategy approach North America, and picking exceptional merger to protect our cash and liquidity for the second quarter and beyond.
Thirdly, and after Indepth review of forward looking scenario, we decided to adjusted EBIT onto new level as a prudent capital management decision, providing us with liquidity and financial flexibility, we need considering the significant uncertainty in the quarter to call.
Finally, as we navigate this unprecedented industry downturn, we continue to price rise key element of our strategy, namely the capital stewardship initiative to protect the company financial strength the fit for basic strategy to increase the performance impacting key basins for customers and caters to enable the finalization and finally.
The acceleration of the industry. These two transformation to support higher fees, some sheet efficiency gains in operation for customers and for our own success.
Hi, everyone stay safe and healthy.
Thank you for your attention.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
[laughter].
Okay.
Okay.
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We're sorry your conference is ending now please hang up.