Q4 2020 Schlumberger NV Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Schlumberger Earnings Conference call. At this time all participants are in a listen only mode. Later, there will be and opportunity for your questions instructions will be given at that time should you require assistance. Please press star.
And then zero as a reminder, this conference is being recorded I would now like to turn the conference over to the Vice President of Investor Relations and D model Amaze Yeah. Please go ahead.
Thank you Leah good morning.
And welcome to the Schlumberger limited fourth quarter, and full year, 'twenty and 'twenty earnings call.
Today's call is being hosted from Houston, and putting the Schlumberger Limited Board meeting held earlier this week joining us on the call Oh leave you and the Bush Chief Executive Officer, and Stephane <unk> Chief Financial Officer.
Before we begin I would like to remind all participants that some other statements we'll be making today are forward looking.
Martha and involve risks and uncertainties that could cause our results to differ materially from those projected and these statements I. Therefore refer you to our latest 10-K filing and our other SEC filings. Our comments today May also include non-GAAP financial measures additional details and reconciliation to the most directly comparable GAAP financial measures can be.
Sales in our fourth quarter press release, which is on our website with that I will turn the call over to Eddie here.
Thank you Andy and good morning, ladies and gentlemen, thank you for joining us on the call.
And my prepared remarks today I will cover three topics, starting with our fourth quarter performance and my perspectives on what you accomplished in 2020.
Thereafter, we shall view of the 'twenty 'twenty, one outlook and the ambition we have set at the start of a new growth cycle.
Stephane will then give more details on our financial results and we will open the floor to questions.
First let me start by thanking the women and men of Schlumberger for their residents and outstanding performance and an exceptional year. This.
So she measured teams significantly improve both safety and service quality.
Two strong foundation of our performance strategy, Despite COVID-19 adversity.
In fact, these performance proved to be a critical differentiator for our customers and.
Allowing us to strengthen our market position.
And this contributed to ending the year on a very strong note and I'm extremely proud of the results in the fourth quarter and our momentum headed into the new year.
And the fourth quarter, we delivered solid sequential revenue growth in both North America, and the international markets and in all four divisions.
We're also recorded another quarter of sequential margin expansions.
And cash flow from operation before severance was more than 1 billion.
The recovery and in international markets and offshore battery deepwater us commence and wasn't broke with more than half of our international and business unit posting sequential growth, including most in.
EMEA region.
Oh sure long secular exposure and Sabah Baltic positions in the short cycle market combined to deliver these peer leading sequential international and Gulf ahead of rig activity.
And North America, we posted strong double digit organic growth and sequential margin expansion, both onshore and offshore.
Notably and land, our construction and so face she stem golf exceeded pressure pumping and App based head count.
This underscores the strength of our market position and breadth of services supporting shared activity and complementing our partnership with EBIT going forward.
Well you know this was a very strong fourth quarter and while we demonstrated escape of a market exposure the strength of our international franchise the reset of our.
Earnings power and a very solid free cash flow conversion.
Now let me give you my perspective on what we had achieved last year.
First in line for a returns focused strategy and as a response to the unit price.
We restructured the company and nobody.
And in North America, we scaled to fit and I think I did a portfolio.
Internationally, we organize around key basins addressed underperforming business units and concoct and divested Argentina EPS asset.
These actions have reset our protein or <unk> and we.
Exiting 2020 with EBITDA margins restore two 2019 levels.
And through 'twenty and 'twenty, one will be built on this earnings power and <unk> expand our margins.
So Goldman recapitalize and growth drivers for the future positioning and our new divisions and head of the Rico recycled aligned refocused and my work flow and key drivers in the new industry landscape.
The digital transformation and positive the mandates for sustainable and nowhere cabins operation and the priorities for step change in production recovery maximizing reservoir performance and well construction integration and efficiency.
And digital I'm, particularly proud of our achievement in 2020, both internally and externally.
Well industry digital platform strategy, while enabling digital transformation at scale and looking significant value and leading innovation across the digital Dominion our industry.
This is further demonstrated by the highlights in our release this morning, which includes entrepreneurs wide deployment AI partnership and expanding use cases of our digital platform as.
And as a result digital what the most casino and the four business. During 2020, only second to subsea long cycle and is this is set to initiate and accretive Gulf cycle from 2021.
Third, we launched <unk>, new energy and to establish market positions and develop differentiated because I'm blanking technology and municipal law or Zillow Cobham, you and AG Gaba.
And as you've Andrew.
Our new and energy portfolio is very diverse and includes venture and Idaho Jean.
And so you see U S lithium geothermal and Geo and energy.
As you have seen in this morning's earnings release, we announced significant progress since your synergy and gender and factory has made progress in every new energy venture and 2020.
And they're big enough to scale ultra prepare entering commercial agreements for these non show during 2021 and essential step in a clear ambition to positions to measure other forefront of new and sustainable and as your technology in the coming years.
And you and as he is a platform for long term growth and we will be making more announcements on these ventures over the coming weeks and months.
Finally last year, we accelerated on engagement with customers to provide solutions for the decarbonization of oil and gas operations and.
And reinforced our commitment to improving our ESG performance.
Specifically, we progress on the adoption of both day, CFT and <unk> to increase the transparency of our environmental disclosures has it taken to the high grading of our routine and the CDP climate change program assessment to a peer leading hey Morris.
We're also delivered a 15% reduction of our scope, one and two <unk> emission intensity within one year well on our path to our stated 2025 emissions prediction Gould.
Now I'd like to share some of our view on the 2021 outlook.
Absent of the new setback in the pandemic control and economic recovery, we see constructive Michael divers developing through the course of the year.
And the near term disciplined Opex plus supply actions are supporting oil price and what it both classes levels, while demand is projected to bring it up to 12% per year.
The exact magnitude and scale of demand inflection will be driven by the pace of global vaccine rollout easing of Lockdowns and coordinated economic stimulus through 2021.
In North America, we anticipate continued momentum and has pumped up to 2021 inland markets as activity continues to build up towards menthol flavors.
Both and well construction and completions.
However, our U S pollution will still be visibly Bureau, <unk> production levels.
Continued capital discipline, and the impact of consolidations will cap the spending level.
And rate of growth may slow in the civil and half due to budget exhaustion.
As a consequence, we anticipate growth and none to be in the mid teens when contrasted with the run rate of discipline and half of 2020, excluding one steam.
In this scenario and as it Marc as the market starts to rebalance the court on the international and supply would increase and we do expect to see and acceleration of the international recovery, both short and long cycle. After the seasonal dip in the first quarter.
Thus in 'twenty and 'twenty, one we anticipate the international activity to be built from the second quarter and and the signaling and half of the year to exceed second half of 'twenty and 'twenty by double digits.
This is Mike Colby is very favorable to <unk>, both in North America and internationally.
We expect all divisions, including reservoir performance on a pro forma basis, excluding one steam to post full year incremental growth compared to the second half of 'twenty and 'twenty.
With the golf connectivity across the different divisions shaped by the non international and mix and the relative exposure to short Andrew.
Long cycle markets.
Building on this combined Nam and international activity recovery, our new operating leverage we support a very significant EBITDA margin expansion in 2021.
We've and ambition to achieve 200 to 300 bps 250 to 300 bps improvement versus full year, 'twenty and 'twenty and consequently, visibly above 2019 margins.
And North America. This ambition will be supported by restoring and double digit margins in 2021 as a result of our strategic actions combined with the strength of our offering a set of course are pumping and strong contribution from our Shaw business unit and <unk>.
And I suddenly with more than 80% of Aruba, and you're coming from the markets that we would expense activity momentum we see the combination of other will long and short cycle mix, the breadth of our market exposure and our unique fit for basin technology assets.
Key drivers for margin expansion throughout 2021.
I will now pass on to Stephane to discuss our financial results in greater depth.
And.
Thank you Olivier and good morning, ladies and gentlemen.
Fourth quarter earnings per share excluding charges and credits was 22.
This represents an increase of six cents sequentially and a decrease of 17 cents when compared to the same quarter of last year.
Overall, our fourth quarter revenue of $5 5 billion increased 5% sequentially.
This revenue growth was equally driven by our North America and international businesses.
The sequential international growth of 3% is especially notable considering the seasonality effects, we experienced in Russia and the fourth quarter.
We indeed saw tangible signs of recovery in several key offshore markets.
Company wide adjusted EBITDA margins for the fourth quarter increased 73 basis points sequentially to 21%, which is back to our full year of 2019 level.
We have reached this milestone earlier of and what we had previously committed to.
This performance translated into sequential incremental EBITDA margin of 34%.
Which illustrates our improved operating leverage following the restructuring of the company.
During the fourth quarter, and we completed two key previously announced transactions.
The divestiture of our North America, low flow business and the contribution of our Wednesday, and North America pressure pumping business to Liberty oilfield services.
We look forward to working alongside liberti to maximize the value of our partnerships as the activity in North America land rebounds.
As of yearend, we have completed more than 90% of our ongoing restructuring program that will permanently removed $1 5 billion.
Cash costs on an annual basis.
The early signs of recovery and the international offshore markets combined with the high grading of our North America portfolio and the near completion of our restructuring efforts will all support strong margin expansion in the future as the industry recovery unfolds and.
In particular, we can count on the strength of our international business.
Which despite the very challenging macro backdrop in 2020 generated EBITDA margins of close to 24% on a full year and basis these margins offset to improve going forward.
Let me now go through the fourth quarter results for each division.
Fourth quarter, and digital and integration revenue of $853 million increased 13% sequentially, while margins increased 507 basis points to 42, 4%.
These increases were driven by strong EPS results and Ecuador, as well as higher digital solutions and multi client sales internationally.
Reservoir performance revenue of $1 2 billion increased 3% sequentially.
This increase was driven by higher one steam activity in North America.
Wednesday and revenue during the fourth quarter of 274 million increased 25% sequentially.
This increase was partially offset by seasonality and Russia and lower activity in the middle Eastern Asia.
Despite the improved North America revenue margins decreased 84 basis points to 8% largely driven by Russia.
While once teams and margin did improve and the fourth quarter and they were still highly dilutive to both North America and reservoir performance margins.
In fact, our fourth quarter reservoir performance margins.
Would have been approximately 400 basis point higher excluding Wednesday.
Well construction revenue of $1 9 billion increased 2% and margins increased 42 basis points to 10% due to increased activity in North America, Latin America Africa, and Middle East and Asia.
Actually offset by seasonality and Russia.
And finally.
Production systems revenue of $1 6 billion increased 8% sequentially as international and North America revenues increased 7% and 11% respectively.
Margins increased 82 basis points to 9% due to higher revenue contribution from subsea.
And improved profitability in soft phase production systems.
Now turning to our liquidity.
During the quarter.
We generated $878 million of cash flow from operation and $554 million of free cash flow, despite making 144 million of severance payments.
Excluding the significant severance payments, we made our full year and 2020 free cash flow margin is very close to double digits.
This gives us the confidence that we will achieve our ambition of double digit free cash flow margin in 2021 and in turn and bigger.
To begin deleveraging the balance sheet, which is a top priority for us.
For the sake of clarity with double digit ambition and includes the effects of changes in working capital as well as any severance.
Our net debt improved sequentially by 46 million, despite an unfavorable currency impact of 223 million.
Net debt at the end of the year was $14 9 billion a year on year increase of $753 million.
Approximately 600 million of this increase is due to changes and exchange rates that impacted our foreign currency denominated debt.
Currency movements are fully hedged and therefore will not result into any incremental net cash outflow.
During the quarter, we made capital investments of 324 million Mr.
And this amount includes capex investments and Aps projects and multi client.
For the full year 2020, we spent $1 5 billion on capital investments.
In line with our capital stewardship program for 2021, we are expecting to spend between one five to $1 7 billion on capital investments.
The Capex portion of these investments is expected to be towards the lower end of our previous guidance of 5% to 7% of revenue.
I will now turn the conference call back to Olivier.
Thank you Stefan.
I think we are ready for taking the question from a formal review.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press one and then zero on your telephone keypad and you will hear acknowledgment that your line has been placed in Q and you may remove yourself from the queue by pressing one zero again.
And our first question is from the line of James West with Evercore ISI. Please go ahead.
Hey, good morning, and Jan.
Morning, James.
Good morning Zone.
Olivier International It seems to me like it's accelerated and maybe a bit faster than we had talked about previously and it sounds like you're growing more optimistic law and the outlook for the second half and certainly for 'twenty, two and 23.
And probably what youre seeing with tenders and you guys have a truly differentiated position and the international markets and maybe could you touch on both your differentiated position.
But also kind of what you're seeing in terms of central growth profiles over the next several years and international.
Well. Thank you James So indeed, I think as you have seen we reminded everyone that we will see you will have seen the trough for international market.
And the first quarter and we expect that these to start rebounding and the fourth which is what we have delivered this was against a.
Our rig count that actually went down and I think a way.
Yeah use the breadth of our offering both short and long cycle. The exposure, we have which is very broad day divers to offset some of their complexion and in some some part of the international market and realize some some gain or cash on market position.
To offset and realized what we have delivered so I believe that first and foremost the breadth of our offering short and long cycle.
Our performance.
Is agnon Asia by customers, and giving us the opportunity to and coach or gain share when activity comes back the fundamental of our Oh fall.
Market push internationally and finally, we believe that our technology offering fit for FIFA based and technology digital.
Our unique attributes that our customers recognize and are ready to allocate share to have access to this technology and to leverage and to gain efficiency going forward.
So when you look now going forward on the long term outlook.
We are indeed, we see that the market will accelerate beyond the inflection point that we see in the first quarter that is a seasonal dip.
And then we expect and anticipate that we could reach or exceed double digit on the edge due to HQ or on an exit to exit.
Right and then we anticipate that this will continue and <unk> been strengthening in 'twenty, two and 'twenty three.
Right, Okay, very good and then Olivier a big uptick in her big surge and digital margins sequentially is that something that is that kind of margin profile expected to continue or.
Is that kind of a blow off the top of the fourth quarter.
And your sales and things like that and it might moderate colored for them and it's already a really high margin business and a great business for you guys.
But how how should we think about that margin profile going forward.
No first I think that let me comment briefly on the on the fourth quarter. Our results. Indeed, the force Cola result of the digital and integration and divvy.
Division It was a combination of very strong EPS execution.
Great.
T cloud sales that came from the shear zone effect of into account sales during the fourth quarter and international.
And and and success and our diesel.
Yes.
Going forward and you see beyond this exceptional performance, we still are confident that we'll be able to maintain on a <unk>.
Full year basis.
30% also margins for the division of.
Integration and digital going forward.
Okay very good thanks Olivier.
And next we have a question from David Anderson from Barclays. Please go ahead.
Oh, Hi, good morning Olivier.
Sort of a slight.
Different from what the way James can I ask a question on the international side. So if we if we think that 2023, we're going to see global oil demand largely recover.
Kind of curious how you see the cadence of the different international markets, each market's a little bit different I'm, just wondering how you see.
And which ones do you think come out first which ones come back a little bit later could you just sort of maybe just provide a little a little color around the different regions and as you see it from here.
I think it's difficult to decipher the sell through day.
And granularity out are up to 2023 on the how the market recover per region, but globally speaking I think they would be and the name of our short and long cycle. So we believe first that the region that were the most impacted and and Latin America is one and I will have a recovery.
Growth that will come maybe maybe first because it's a combination of short and long cycle. We believe that the short cycle that exists in middle East with February net that region.
Both and short and midterm and we believe that our Russia and Asia as well, we will benefit and we believe that a later in the cycle from the civil NAV for this year and later the offshore market at large and we'll start to benefit from long term growth.
I think it's a very difficult to give a granular view of all of this I think the short cycle, we benefit from from sometime later this year and the long cycle will be accelerating we believe and 22 and 23.
Okay understood and on the digital side, you've talked about digital being a core part of your growth strategy and next couple of years.
And you talked about digital solutions and software increased internationally I'm, just curious as to what type of demand pull you're getting from customers is just further penetration of Delphi and <unk>.
And getting the platform the customers or is this new applications. You had mentioned a number of countries and I wish I didn't normally think about in terms of digital adoption, Russia, Scandinavia and the like can you just kind of talk about what that customer poll is these days on digital and maybe how you think they could evolve over the next couple of years.
Very good good question.
Dave I think.
The police and as multi assets and I would say this.
And that is pull from customers that are willing to step change and efficient sale day, one the workflows.
And hence gained productivity into their planning and development.
And the evaluation of reservoir potential and this is creating a pool for our workflow solutions with customers, which where we are building on our desktop solution and then and then creating a transition to the cloud to gain scalability and productivity and collaboration so that's the first pool and the second breweries around and looking to data customers load looking way.
Is to extract more value from the data that they own and hence they are looking for exploiting AI and ml tools that the industry can provide them for this this is always the U a.
Platform that the industry has adopted for which we contributed our sales the design of this ecosystem and we are getting customers to pull us and you have seen one example in our release this morning with <unk>.
With IQ.
In the Middle East, where the goal is to create AI solution.
And with outlook and we feel good 42 to deploy and the cloud in the region for and knock a and not to benefit from this from these data insight and suddenly we see customer putting into digital operation and trying to create a step change into the way they execute their drilling and.
Well construction or the existing extracting efficiencies from the existing assets. So these other three boost we see and we are offering that correspond to each and you have seen that the OMB announcement. This morning is mostly on the on the first and the second on the workflows and the data and you have seen some announcement.
We'd last quarter and this quarter onto the digital operation. So we see customer and all region, having an interest into expanding from the desktop to the cloud for our flu unlocking the value of their data to the cloud and through new digital solution, including OSU and reaching out to our operation.
And looking to edge application.
And automation and application of AI to operation So D C.
And we see this across multiple.
Our region and and all the customer type.
Thank you.
And our next question is from the line of Angie Sedita with Goldman Sachs. Please go ahead.
Thanks, and good morning.
Morning.
And so nice to see the strong incremental margins in Q4 weighted related digital day impressive contributor also I appreciate the guidance around margins for 'twenty. One I thought you said 250 to 300 basis point margin expansion and 21 versus 'twenty I believe and the comment and maybe you can observe and battery pulled out.
Okay, and then you can discuss that and call that part about apart a little back on the biggest driver of this expansion is that change at all predominantly our other divisions and maybe thoughts across the divisions as far as margin and then around North American margin timing of when you think potentially you could reach that double digit level.
Yeah. Good question, Andrew Let me bring clarification back and what we said this morning in the prepared remarks, our ambition for 'twenty and 'twenty. One is to expand margin by 250 to 300 bps, Ohio day market condition.
All of us.
Between 2021 and full year 2020.
And this would exceed vis vis the 29 net in 2019 margins on a full year basis.
So we see this will be driven by three factors first the full benefit of our restructuring efforts, where we have realized at the end of 'twenty 'twenty, one and 90% of our one five.
Permanent and structural cost reduction so they'll need to impact of our portfolio high grading and North America that would actually allow us in the current market condition to reach or exceed double digit in North America in 'twenty and 'twenty one.
And finally for me incremental margins from our international franchise, where we expect the combination of efficiency measure, including digital and these.
Total operation for all and operation.
The combination of the flower market mix, if I may and the strength of our people based and technology to differentiate and gives us the edge and hence our growth of our margin internationally.
So when you combine and all of this this would give us this margin visible margin expansion year on year of 2250 to try and bps or above visibly the 2019, despite being significantly down on top line.
<unk> Division by Division, we anticipate actually from the run rate of <unk> from.
For the full year.
All division to actually expand margin.
On a full year basis.
And I think this is not only digital I think a reservoir performance by the.
Exit of one steam will as Stephane did come out in his prepared remarks get the benefit from that as it.
As the margin mix and and will further expand well construction due to efficiency and market Marc as Rolf will also get benefits and income model and Patricia and digital as I commented before we're established itself at a high 20 or 30% margin for the full year.
So I hope it does it does fly Fi.
Are you the margin mix and <unk> and the drivers for the six months.
No. That's very helpful. I really appreciate the detail of it and so maybe we could talk a little bit about new energy. Obviously, you have a lot of initiatives that are and currently announced and apparently and more to come but maybe you could specifically talk about the and can it can be and hydrogen and the opportune day around electrolyze her and then thermal energy and and.
And maybe the timeline and what are the biggest opportunities that is amongst the two.
Okay, and so im not sure that that will have I will take the time to come on and each and every one of these so let me comment briefly on the agenda. So indeed <unk> is eventually we have creative partners, including a researcher arms of the.
And friends to indeed industrialize commercialize.
Solid oxide electrolysis technology that is set to be changing and EBITDA the usual efficiency of this.
And it clouds are used for garena, diligent and pollution and the market towards 2030 to give you a sense is expected to be about 70 gigawatts of installed capacity of electrolyze, there that needs to be installed and the world globally.
<unk> ambition to be parked spinning tourist markets and create and capture share and that market through our solution. Our solution will be delivered this.
And as Electrolyze, our capacity to the market sometime using in a waiver for EPS ability ensure and shoe sales and most of the time used to produce allergen, so ambition and led us to develop this across the next day or the next few years and milestones speaking about this will be too.
<unk> demonstrated this in the coming quarters and deliver some prototypes to our partners that will use it and should we sell or in adolescent and pollution and from that point on.
And the next two or three years make a decision a critical decision to build and expand into a into a large scale manufacturing to respond and take share and to this market. So each of these venture that we are entering into east.
Using the same.
The same British steps approach, where are we investing in technology, we test the market with partners and we then and the risk.
<unk> and and the video sales for scale.
That's.
The approach driving not entering into large capital intensive project, but leveraging our domain subsurface domain expertise and that is very applicable for Ccs, where applicable for geothermal and leveraging our technology interest radiation.
And capability that is very applicable for all of this venture and finally, leveraging our global footprint. So that we can work with partners everywhere and the world and respond to the energy transition on a global basis.
Thanks, Olivier I'll turn it over.
Thank you.
Our next question is from Scott Gruber from Citigroup. Please go ahead.
Yes, good morning.
Morning, Scott.
So I wanted to come back to the international recovery question and ask it a slightly different way.
Think about.
The U S. The U S and has transitioned from growth mode to call it maintenance plus mode and when I think about the rest of the world and the most markets abroad, we're closer to that maintenance mode pre pandemic with a few exceptions in there, but Olivia how do you think about what this means for recovery potential on a multiyear basis.
And over the next few years.
How close could be activity set abroad, yet to the pre pandemic level.
Given kind of the starting point.
Where we were kind of from a margin maintenance mode and many of these countries pre pandemic.
Yeah. Thank you Scott I think if we assume and take that put it is that the market indeed will converge towards a maintenance mode and in the U S. We have to remember that through this crisis. The U S production has gone down by 2 million bile.
And if we assume that the next two or three years will not give us the.
And <unk> activity.
Activity intensity and investment to recover this 2 million bile what will happen is that these two non by we'd have to be supplied internationally and the market share of supply will change in February international and market.
When you equate this and assume that the old demands will go back to two day in 2019 level.
By 2023, and some are predicting earlier by 2022, three and this weekend the condition to.
Two for the <unk> spend internationally to actually match the 2019 by 2022 and 25 latest ryzen, hence it much I put this is that we can return.
EBITDA of 2019 in the pair of 2023 to 2025 and as we will benefit from this market rebounds international from now to 2020 free So that's up with this going forward is that.
The market supply share.
Will you able and slightly with February international and we will as a consequence, our international activity to 100% or more in the next two or three years.
And that makes a lot of sense.
And maybe just a little bit of color on AR and working capital and 21.
Should be somewhat other headwind not necessarily a bad thing.
Flex demand recovery, but just how should we think about it either in terms of.
And aggregate number or.
And on and intensity basis, and we wanted to give you some color on that.
Days days.
Days outstanding for other key items.
Got it I'll take this stephane.
And if you look at 2020 actually our cash flows only benefited from a very modest though working capital release. So conceptually if you look at the at growth and 2021, and we don't see a big working capital increase and there will be some as activity grows but oh.
Working capital intensity ease and advertise so we will we will try to keep this to do.
Minimum and at the same time, we will benefit from the full year effects of all our cost out program, which are all cost savings and the discipline on capex. So we don't see walking GAAP as a as a big headwind, we will be able to to offset this with the underlying cash flow performance and and get force relative is Debbie.
And the free cash flow margin in the in 2021.
I appreciate the color. Thank you.
Okay. Thank you.
And our next question is from Sean Meacham with Jpmorgan. Please go ahead.
Thanks, Good morning.
Yeah morning.
So back to DNI margins, if you don't mind.
A lot of moving parts here in 2020, given what happened in Ecuador.
You touched on some of the drivers and the sequential improvement in <unk> and was also up 900 basis points year on year. So can you, maybe just unpack, which and the drivers are what are the biggest components of that delta.
Digital was at Aps efficiencies, and streamlining and does that and for helping and squaring the difference between historical and now the expected plus 30% trajectory going forward.
I think it's a it's a mix of both I think you pointed out.
To the components I think we expect going forward that the contribution of EPS operating at the.
And I wish we first very strong performance, we have improved our performance significantly and that are in this we are increasing back the digital as a component of this going forward and we expect to publish contribution of this maintaining EPS performance.
To the level that.
And we have seen and last quarter, we divested some investment and Aps as well that has helped us improve the margin of Aps and the future growth and to spur growth and margin accretion from digital recombined to maintain this level of debt.
And lunch and here the high twenty's or the <unk>.
Yes.
Thanks for that I appreciate that and then if we just think about the drivers of the 250 300 basis points of improvement and margin year on year and 21.
How much would it be attribute to.
Pulling out one stem.
And then.
And the divestments and.
And just year on year improvement, let's say, a full year of production and Ecuador.
The impact of Aps, we take those two components out how much enhancement is there for the rest of the portfolio and then it may not be a calculation and having to say offhand, but trying to think about aside from those two big items.
I'm trying to see how much of the rest of the portfolio is improving on a margin basis. Thanks to the rest of the cost efforts.
So naturally the few items as you mentioned, we do of course helped.
The margin, but when you look at the global margin.
Taken together.
Those three items.
And that's met Valuers.
The margin.
And tailwind is mostly from from the cost out program actually optimizing and resetting our earnings power and from the Incrementals on the international activity and the mix you've seen our international margins, even on a full year 'twenty business, which was and the debate the best are pretty high so most of the demand.
And the expansion come from there and cost out program.
We are a little bit of help from the factors you mentioned on a global basis.
That's helpful. Thank you.
Next we go to Kurt <unk> with RBC. Please go ahead.
Hey, good morning.
Good morning, Kurt.
Thank you for all the color so far so Olivier the question a question I have a follow up and again on the international front since it's a major point of emphasis.
It seems like your commentary with respect to the offshore recovery is.
Notable in the context of that.
And your other peers and it really explicitly referenced that so two things and I'm kind of curious as to.
What what you are seeing from the customer base, that's giving you that level of conviction.
And specifically highlight a highlight that and then second.
And given the fact that your peers haven't really explicitly stated it and would lead.
And I believe that you have some unique opportunities that your peers may not.
No. Thank you I think let me first comment.
On the actual results and I think the actual results. Indeed, if you look at the the very specific country device specific basin, where we have the growth.
To further.
The show you need to as we call them that had growth in the fourth quarter sequentially well offshore Julien.
From here not to Brazil from a.
From a the old other price around the world, where we had and West Africa. The draw. So that that is the fact that and indeed, we can attribute this to our market position and our market share that we have and benefit from and those markets are.
Clearly and I think we had we other than a couple of them may including agree or not other out year on year going from Q4 2019, So we had some and.
Detraction to these.
And I think that came from the market did rebound and deepwater deepwater was in Q4 other than in Q3 and demo rig actual rig count it was offset by some other activity going down or slowing down and in the fourth quarter, but I think the offshore deepwater specifically was up now going for.
And we don't see a setback to that to that trend and a side from the the deep seasonal effect onto the first quarter and we see that this will rule going forward. If we look at our projection.
Deepwater is actually to again the the.
And the rigor that will benefit the most in 2021 going forward.
Into the teens and time of a year on year projection by Comcast with shallow that we would only see single digit as well as land. So when you combine the lobbies that give us the our market position establish and demonstrated during the fourth quarter and our anticipated rebound for long cycle that we've seen.
And the contract out there for the for the deepwater and give us the.
And the confidence that offshore will contribute meaningfully to our international rebound and second half.
Okay. That's great. That's great color and then my follow up is going to be on the on the new energy front and you were very.
And for Dave about the.
The things that you have going on right now I'm kind of curious right as investors look at opportunities to participate and.
And the energy transition and companies like yourselves and participate in net energy transition I Wonder if you can give us some general senses and what you think the total addressable total addressable market could be for the services and technology and the partnerships that you are currently involved in and say over the course of the next three years.
Five years.
Any insight on that would be really helpful.
Yes, I think.
And I will to give you bear venture I think we will give ourself a the next few weeks and months to prepare communication total view on that front and for.
And for sure before the <unk>.
I think we will come with.
Much better.
And for all of you on the way, we participate but needless to say that each and every other venture we bought space as is very significant potential on total addressable market I think we're here.
Having the ambition to create a division that will <unk>. The full division of the we currently have within the decades, and we believe that the market for each of others and Cc U S. Geothermal energy or lithium is very significant so I don't want to go into any detail, but I think I'll just mention and give you. The example of the 17.
Net of Electrolyze, our capacity that we will have to be installed within the next 10 years that gives you a sense of what is happening there will be 800 million tons of Ccs that will have to be captured BT and non yen and dedicate are in projects that will work that will work with emitters to create condition to capture and <unk>.
<unk>, <unk> and <unk> and lithium oxide as well for the high density.
Our battery will withdraw significantly and in dedicated come so each and every of this venture as a <unk>.
Unique and fast growing top and now the reason why we are we at and maybe unique in our position to this first we have a domain that is relevant and expands into this about arena and Ccs and and geothermal second nothing we have a track record of interest radiation and development of technology at scale and <unk>.
Third I think we know how to partner and deliver technology and deploy technology.
And solution everywhere and the world with any partners and you will see announcements coming in the next few weeks and two months and will illustrate that at scale.
That's great. Thank you somewhat early pre COVID-19.
Oh, you're welcome.
And our next question is from Chase Mulvehill with Bank of America. Please go ahead.
Hey, good morning, everybody.
I guess, if we could kind of talk about <unk>, a little bit and kind of maybe give us some color, maybe directionally or if you want to quantify.
Maybe what you think kind of North America revenues would be up or down if you back out one stem and then maybe some color around international revenues and then maybe the margin progression, obviously youre pulling out one Stan.
And then you put and the equity income from Liberty. So just trying to help us maybe directionally on EBIT margins as well.
Sorry, if I understand your question and collected jet chose you are asking for the first quarter. Some kudos on the first quarter I think we have a motion in our prepared remarks, and and our earnings release that we anticipate after a strong quarter to usual.
And then the deep part of the international market, we see that every year and we have seen it for the last 10 years and we don't see the difference. This year I think we don't see it as a pronounced a deep but we see it other usual.
Marc.
And she was an effect that we see affecting our Russia affecting and some of the.
China or offshore market and the first quarter.
And when it comes to.
North America, I will I will again differentiate between offshore and that will Ah that will transition from a quarter, where we delivered some subsea and some multi clients.
Significant impact on our first quarter on our fourth quarter falling into the first quarter, whereas in the land market activity as we mentioned, we foresee a contingency of of activity pick up that will transition from the cotton and the growth rates, we have seen and are in the law.
Last part of last year and that will continue and we see these are growing at the same rate.
Both owned.
And on completion activity.
Okay, and then on the margin side, you know as you pour once day amount do you think that.
Margins can hold flat or be higher on a quarter over quarter basis.
The margin that we'll see the on the on the revenue deep do we love of course, EBITDA decremental, but it will not be as pronounced as as we have normally indeed because of the.
Of the of the Wednesday may affect going into Q1, particularly for non sold the non margin of course will not decrease and and overall, we should be able to maintain and overall the same level of margin.
Okay.
And then pre Covid.
You were talking about divestitures, you were working on to land rigs and then Matt.
Message that.
Aps and Canada.
It would be entertained over the medium term.
And now that the macro conditions are getting a little bit better could you kind of update us on your view on some of these divestitures.
So we are we are of course pretty much still walking on these fronts and.
Whereas on the rigs are.
We are still looking at.
Transactions and in Australia, and then and are in the Middle East we have some progress there, but nothing to disclose at this stage, it's a bit of a different form other than what we had looked at before but it's still it's still on the books regarding Canada, Our EPS project there called <unk>.
The macro environment is indeed getting a.
Quite better.
At this asset and we are we have a lot of interest building up so.
We think there is value to be extracted there and I think we'll be in a position even probably to launch a formal process, sometimes and in the next few months. So lots of interest and are in Canada, and hopefully will result into a <unk>.
And do something good happening this year.
Okay, perfect I'll turn it over thanks.
Thank you.
Our next question is from Marc Bianchi with Cowen. Please go ahead.
And thank you.
Maybe just circling back to the line of questioning around the first quarter lot.
A lot of moving pieces with one stem and and such.
Could you maybe comment on how you see first quarter shaping up relative to consensus I see EBITDA of about $1 billion right now for consensus.
I think as we said I think we see this season and impacting there.
The seasonal impact affecting our international.
We see the effect and positive effect of the non effect.
And one theme and overall I think.
We looked at we looked at the full year more than and the first quarter. We are confident that the margin from operating margin will be steady as we punch and a first quarter. Despite a minimum deep pumps is unaffected international offset partially by the North America.
Okay. Thanks for that Olivier.
The other thing that struck me was Capex. So you mentioned the Capex would be at the low end of the 5% to 7% range, but on a on an absolute basis and the mid points up a bit but your overall revenues down a bit I understand there's a P. S and multi client maybe you could break those out for us and expand a little bit more on how you see capex shaping up over the course of the year.
Sure. So so really as a reminder, and we are we are really looking at the capital investments altogether right. The Capex portion as you mentioned.
And multi client and and there in 2020, we spent $1 5 billion the wrong. It was quite a reduction from 2019 a.
And 45 golf and the reduction.
And more than what the revenue reduce the actual lease with intensity reduced and in 2020. So we start from a very low bases and we may maintain and maintain it around the $1 five but we want to to leave ourselves a little bit of room to capture all the growth we are starting to see particularly in the international markets.
Want to be ready to deploy capex in the and the most lucrative markets and we don't want to Miss the opportunity, but we will monitor and modulate accordingly, but we will stay within the one five to $1 7 billion as it relates to Capex only yes, I think it will be.
It will be closer to 5%.
With the current equipment the capacity, we have and the capital efficiencies. We have a we have realized but we leave a little flexibility we will monitor all but we'll stay within the range. We stated for total capital investment.
Okay, well thank you.
Yeah.
Yep.
Sorry.
And we'll continue to exert our capital discipline and as you know so we'll make a we want to give ourselves optionality and so our guidance, but we will.
We will keep our agility and extracting efficiencies from our from our existing fleet to make sure we minimize.
The capital spend going forward and we are here we are indeed.
A firm and two are being in the low end of our <unk>.
And 5% to 7% for the Capex aspect of our capital.
Yep. Thank you very much.
And our next question is from Connor Lynagh with Morgan Stanley. Please go ahead.
Yeah, Thanks, I kind of line and returned to the digital and integration business a little bit so.
Very much appreciated that you disclosed the value of the contract I think a lot of people are trying to figure out how to think about the market for for this business I guess, what I'm wondering if you could frame as is given that size of the contract.
Is this a is this a small contracts and relative to the opportunities that youre looking at it the mid sized contracts and the large contract how should we think about if you continue to expand your customer base, how that can roll through and then are there any additional.
Yeah.
Go ahead.
Go ahead sorry.
And we've got an interruption here go ahead Chris.
Yeah, I'm, sorry can you hear me now yes.
Yes, we couldn't hear your answer to this point go ahead.
Okay. Thank you.
So basically the question is can you frame the size of the OMB contract.
And I'm curious you know relative to the size and you've disclosed there.
And how significant is this contract relative to the opportunities that youre looking at and can you help us understand the lifecycle of a typical contract with a customer and digital and integration.
Is this is this a relationship and evolves and grows over time and can you quantify maybe how significant that opportunity could be.
Great question.
But I think you'll.
You'll see we are very proud of this large.
And surprise the prolonged contact that.
We are in line with Ah, We fund V and we work with them over the next few quarter to all of our <unk> solution and case unique AI workloads that we would accelerate and and step change their productivity efficiency for their own operation.
But.
This I think too.
Do you realize that this is a large contract is just.
Also to compare the scale of some of our customer and we're working for.
And the compact size can be much much more significant than the one we have just announced nothing the rights and the range of contact will we.
We are engaged roofing and with our customer is very broad from a customer that are willing to get access on the months to some simulation compute all the costs and what other willing to do a full transition of all of their workflows data and I'm surprised solution to the cloud similar to what our and visa is on gauging.
First is Asia is is abroad.
Our portfolio of what we are engaging with customers. So.
To give you an example of entering days more than there is minimal and one example, and it will go from from single men under our investment too.
A large multi hundred million dollar over a long term contract so the typical to.
And to be gone engagement includes a transition.
And <unk> that will transition the data condition. The workflows and then includes <unk>.
Transition to the SaaS model.
<unk> as a service or data as a service.
For the long run so this typical compact a five or 10 years and include the transition and then and exploitation part of the contract.
Okay.
That's very helpful and I guess, maybe you could help us understand.
You know I think typically these types of contracts have you know maybe relatively breakeven or at least lower margin profiles at the beginning and then expand over time.
Should we think about that for you guys. I mean, if it were and sort of early days for some of these digital initiatives is there a margin tailwind that we should expect.
No I will not come on that's why I think it's it depends on every contract and the commercial condition when negotiating with customer and there is always obviously, a technology investment and we have been doing for the last the last five years and we continue to invest in technology and every project and every commercial engagement is different and so it's very difficult to make any projections any and.
Trends I believe that we gave for EBITDA vindication of the highly accretive margins and we believe that this is true and holding true for the entire portfolio, we have and would not want to come and projector contract by contract.
Okay. Okay understood, maybe just to sneak one more and here just.
Just to continue to enhance our digital initiatives do you feel that you need to step up your capital expenditure or your research and development at this point are achieved.
Achieve some of the goals that you've laid out specifically the doubling.
And that business efforts over time.
No and we believe that we have created a very significant investment and the last five years. When we created a foundation of this day.
She and I go I always do you foundation, while working with partners to amongst the capability of this foundation as bad on the other announcement and we made with IBM and the collaboration we have with Google and Microsoft and.
And we'll continue to always partners continue to spend and allocate a large portion of our engineering effort into into this and we believe that through our cover to cut the grass.
But then that we have announced going forward.
Thanks very much.
No you're welcome canola and so I believe that.
It's time to and start to close I think we're running out of time or the other clock. So thank you everyone and I think to conclude I would like to offer three takeaways.
First the strength of our results during the first quarter, the last quarter and predict on a very broad performance improvement across divisions, both North America and internationally speaks volumes about our market positioning and the effectiveness of our strategy execution during the year.
Our son in 'twenty and 'twenty, one from a position of strength, having and reset our earnings power and return potential.
Second with the gradual return of demand throughout 2021, we anticipate North America activity to continue consolidating towards sustaining predictions and.
And international activity rebounds to broaden and accelerate and the second half.
This aligns very well with the evolution of our portfolio and North America and.
With our established international and market positions.
And should lead all divisions to post income auto growth in 'twenty and 'twenty, one when contrasted to the second half of 'twenty and 'twenty and for the company to expand full year margins significantly above 2020, and visibly ahead of 2019.
Third our strategic execution is credit platform to capitalize on growth drivers and the new landscape as we witness the beginning of a new chapter in our industry.
The shutdown, where digital is an imperative for industry and efficiency, the shutdown, where innovation and technology would impact your development assets performance and pollution recovery and a shutdown where industry residence will be defined by sustainability and lower carbon footprint.
We are prioritizing our investments towards these goals drivers and at the same time, we've continued to accelerate our expansion into new energy venture to prepare for the future.
Ladies and gentlemen, we are Haynes untying ourselves and are delivering financial results ahead of our state and ambition and our companies and our new performance journey with attractive yet because you don't see them and very exciting growth prospect and.
And beyond our core industry.
Thank you very much.
Thank you and ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You.
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