Q2 2021 Schlumberger NV Earnings Call

[music] on your conference will begin momentarily please continue to hold.

Yeah.

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 an opportunity for your questions and instructions will be give.

And at that time, if you should require assistance. Please press Star then zero and we will assist you offline. As a reminder, this conference is being recorded I would now like to turn the conference over to the Vice President of Investor Relations N D. Mario Emilia. Please go ahead.

Thank you Peter.

Good morning.

And welcome to the Schlumberger Limited second quarter 2021 earnings Conference call.

Today's call is being hosted from Paris, putting the Schlumberger Limited Board meeting held earlier this week.

Joining us on the call are Olivia, let Bruce <unk>, Chief Executive Officer, and Stephane <unk> Chief Financial Officer.

Before we begin I would like to remind all participants that some of the statements we'll be making today are forward looking.

These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements.

Therefore, we 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 on reconciliation to the most directly comparable GAAP financial measures can be found in our second quarter press release, which is on our website with that I will turn the call over to Olivier. Thank you Randy and good morning, ladies and gentlemen, thank you for joining us on the call.

In my prepared remarks today I will cover 3 topics.

Our second quarter results, the near term industry macro environment and the outlook for the first quarter on the remaining other data.

Finally, I will share my perspective on our <unk> position.

For sustained outperformance in this macro context.

Dan will then.

More details on our financial results and we will open the floor for questions.

Our second quarter results demonstrate very broad strength in our core portfolio as we continued to free capitalize on the short and long cycle activity recovery across divisions operating environments and geographies, both North America and internationally.

The combination of revenue quality, 3 the execution and vastly improve apart in the Reg delivered a fourth.

Consecutive quarter of margin expansion.

Let me share with you some performance highlights during the quarter.

Internationally, the depth and diversity of our portfolio enable us to take hold of the recovery in the second quarter is doing margins 2 people anemic levels ahead of the anticipated acceleration in this market.

In North America, we achieve our double digit margin ambition, a key milestone in our 2021 financial targets.

All divisions Frito privileged activity recovery to post sequential top line growth and significant margin expansion, including production systems, which is which reached double digit margins during the quarter.

Growth and margin expansion were led by our performance and well construction, both posting growth internationally and in North America.

Our performance growth was driven by the exploration and seasonal recovery higher offshore activity and new technology adoption all of which has occurred in second from a margin expansion in excess of 270 basis points, where construction accelerated its rate of growth sequentially outpacing head count growth both North America.

And internationally with strong contribution from offshore basins.

U S land the dividend grew more than 30% double the sequential headcount growth rate over the quarter.

This does not only reflects enhanced market participation, but also improving moving liquidity.

And cash flow finally from operation was $1.2 billion, enabling us to begin deleveraging the balance sheet this quarter.

In addition to the impact of operating leverage there were 2 contributing factors to this financial performance first the offshore activity mix and second technology adoption.

The offshore rebound in the second quarter was led by high single digit deepwater activity growth bartering in Brazil, and also included a mid teens growth in exploration and appraisal activity across Europe and limit the list.

These market conditions present, a favorable mix and resulted in higher revenue quality for both performance and well construction.

In addition, as customer commit to future offshore development activity, we receive significant deepwater awards for 1 subsea business line visiting on a doubling of the booking volume versus the prior quarter and a year to date book to bill ratio exceeding 1.5.

The other contributing factor is increasing new technology uptake the rate of adoption of our latest innovation technology increased by 1 third during the quarter and included in vascular transition technologies digital and fit for basin solution, which benefited all divisions and most basins.

This is a clear recognition of the performance impact of technology to generate for our customers and it give us increased confidence in the contribution of technology adoption to our margin expansion in this up cycle.

In addition, we continued to advance our digital and new energy strategies, extending the reach of our digital platform with a number of key agreements and awards as customer forged ahead with their digital transformations.

On the new energy, we continue to progress all of our ventures, including the recently announced strategic collaboration with Panasonic North America to develop on new battery grade lithium production process.

Clayton Valley, Nevada.

Finally during the second quarter, we announced our commitment to achieve net zero greenhouse emissions by 2050.

I'm very proud to lead the first service company that offset net sales ambition that includes scope 3 emissions.

We have laid out on our approach to climate change that is sales based along with the 1.5 degree Celsius target of the price agreement and is built on a comprehensive near term roadmap to achieve our goal with interim milestones in 2025 and 2030.

As a company that prides itself on technology innovation, we aim to net the balance of emission we produced in 2015 with Gaba negative action.

This plan also includes the launch of our transition technology portfolio to support our customers on their journeys through net deal such as the avoidance of flaring with our on technology and the Coca Cola Sin <unk> membrane separation technology as you have seen in this morning's release.

And then the ambition on the launch of transitions technology is an opportunity to contribute to the decarbonization of the industry.

Moving to innovation are hesitant on future that delivers higher cabin.

Higher value and lower carbon.

Overall, I'm very pleased with our revenue quality solid execution enhance market participation, both North America and internationally and most importantly, the constellation of all of these elements into another successive quarter of margin expansion.

I want to thank here the entire Schlumberger team as they continue to execute and deliver outstanding performance for our customers and our communities. Despite COVID-19 impact from several part of the world.

Next I would like to share my view on the macroeconomic environment supporting our industry.

While the rise of the COVID-19 that Avaya and assurance software related disruption could impact the pace of economic group operating result market projections continue to affirm and improving global economic outlook.

Global GDP growth is now expected to approach, 6% in 2021 and more than 4% in 2022.

We should continue to drive a progressive recovery of oil demand.

This outlook is supported by recent oil demand abates, which reflect the anticipation of wider vaccine enabled recovery improved morbidity and additional fiscal stimulus in large economies through the second half of the year.

Looking further out the IEA projects that global oil demand will reach 100 million barrels per day and surpassed pre COVID-19 levels by the end of 2020 in the absence of a policy change.

Full price elevated levels distributor response to this demand recovery is developing broadly as anticipated in.

Indeed this combination has resulted in a call on short short cycled a petition as well as an uptick in long cycle project reflected in <unk> and encouraging recovery in both offshore development and near field exploration activity through the second quarter.

In North America distributor response is reflected in the rig count and Frac fleet trends, which sustained strong growth through the first half of the year.

Private operator of lab activity growth, which resulted from the acceleration of the completion and increased drilling activity to replenish that inventory.

Mike on class the embrace of capital discipline by the public operators is highlighted by the rig count.

<unk> significantly below the Q1.2020 total despite the DTI price exceeding pre pandemic levels.

In this context, despite a solid activity growth outlook, we maintain our view that the North America market. We've restructured is smaller than in previous cycle as a consequence of capital discipline and industry consolidation.

Moving to international markets, the deficit of investment needed to deliver the required all supply robin on the sustained growth opportunity, particularly in the low cost advantage basins.

We remain constructive on our structural put on international supply on our reserving activity impact. This was already visible in the second quarter with a strong seasonal rebound and offshore recovery. Despite the impact of Covid disruption in parts of Asia and in the Middle East.

This also marked the second consecutive quarter of international rig count growth.

Looking further out we see favorable conditions for global investing on growth driven by the combination of action by nurses internationally focused investment by public E&P operators and the expectation of continued supply discipline by OPEC plus.

Or in response to the steady evolution of the month.

The current pace of international Tendering contract Awards, and <unk> book to Bill ratio support this view.

Against this backdrop <unk> is extremely well positioned both international markets and in North America on.

Our market exposure is biased to accretive growth.

And with the city of new contract wins, a leading digital and FIFA based on technology portfolio and our top almost cottage strategy will create value for customers and deliver industry leading returns.

Turning to the third quarter outlook.

In North America, we send over a course of Gulf, albeit somewhat moderating.

In U S land led by private operators and always on total drilling and a seasonal recovery in Canada.

North America offshore remained resilient, albeit with the hurricane season in June.

Moving to the international markets.

The growth momentum is expected to continue through the third quarter across all areas short cycle activity will be monitored by longer cycle project startup.

In this context Directionally, we expect our global third quarter revenue to grow by mid single digits led by reservoir performance on well construction divisions, while our pre tax segment operating margins should further expand by 50 to 100 basis points.

With this outlook for the third quarter, we remain confident in achieving double digit international growth in the second half of 2021, when compared to the second half of 2020.

As a consequence and have some further COVID-19 setback in a partial recovery.

Now for the full year revenue growth, both internationally and in North America, when excluding the impact on divestiture.

With activity recovery ahead of us through the third quarter and strong signal of a durable recovery beyond that we cannot clearly surpass <unk> handle for full year EBITDA margin expansion guidance for 2021.

Looking further ahead the from some of those remain very solvable, if a growing economic rebound supportive oil prices and on demand and supply outlook or representing a set of unique conditions that we support on exceptional growth cycle.

Furthermore, the second would be broad based across geographies and operational environment land offshore North America, and particularly international markets there.

The second quarter was a strong indication of the future outlook and a testament of our historic earnings power under these conditions.

In summary.

I am very pleased with our strong quarter second quarter results across our entire portfolio, which demonstrates the effectiveness of our strategy in delivering our long term financial ambition.

I will now pass the call to Stephane.

Thank you Olivier and good morning, ladies and gentlemen.

Second quarter earnings per share was <unk> <unk>.

This represents an increase of 9 <unk> compared to the first quarter of this year and an increase of 25.

When compared to the same period of last year, excluding charges. There were no charges or credits recorded during the first or second quarters of 2021.

Overall, our second quarter revenue of $5.6 billion.

Increased 8% sequentially.

North America revenue increased 11% sequentially, while international revenue increased 7%, both outpacing respective rig count growth.

Pre tax operating margins were 14, 3%.

And have now increased fourth quarter on renewal.

<unk> represents the highest margin since the fourth quarter of 2015.

Notably margins expanded sequentially across all 4 divisions.

This performance was driven not only by the seasonal rebound in the northern hemisphere.

And also a favorable revenue mix as a result of increased offshore activity new technology adoption.

And increased exploration and appraisal activity.

Companywide adjusted EBITDA margin of 21, 3% for the second quarter.

<unk> increased 118 basis points sequentially.

And is the highest since the third quarter of 2018.

I am very pleased with this margin performance, which reflects the benefit of significant operating leverage we have created through the combination of the high grading of our portfolio and on.

Our cost reduction program.

This performance also gives me the confidence that we will continue to increase margins in the third quarter and beyond.

Let me now go through the second quarter results for each division.

Second quarter on digital and integration revenue of $817 million increased 6% sequentially, while pre tax operating margins increased 147 basis points to 33%.

These increases were primarily driven by strong digital solution sales.

Reservoir performance revenue of $1.1 billion increased 12% sequentially.

This revenue growth was entirely driven by higher international activity, which resulted in international revenue, increasing by 14% margins expanded 373 basis points to 13, 9%.

Largely due to the seasonal recovery in the novel on the midyear and increased offshore exploration activity as well as favorable technology mix in the middle East in Africa.

Well construction revenue of $2.1 billion increased 9% sequentially, while margins increased 209 basis points to 12, 9%.

These improvements were driven by strong performance, both in North America and internationally.

U S land revenue grew by over 30% significantly outpacing the increase in rig count international activity increases beyond the seasonal rebound as many countries experienced double digit revenue growth.

Finally production systems revenue of $1.7 billion increased 6% sequentially and margins increased 146 basis points to 10, 2%.

These increases were primarily driven by higher activity in Europe Africa, and North America.

Now turning to our liquidity.

During the quarter, we generated $1.2 billion of cash flow from operations.

And positive free cash flow of $869 million, despite severance payments of 7.2 million.

The amounts included the receipt of the 477 million U S federal tax refund relating to prior years.

This refund helped support our deleveraging efforts during the quarter.

In this regard.

Our gross debt decreased by $861 million during the quarter.

We have begun to execute on our commitment to deleverage as demonstrated by the early redemption in June of all $665 million of notes that were coming due in September.

We also repaid $246 million of commercial paper during the quarter.

Net debt decreased sequentially by $632 million to $13 billion.

West level since the fourth quarter of 2017.

During the quarter, we made capital investments of 351 million. This amount includes capex investments in EPS projects and multi client.

For the full year on 2021.

We are still expecting to spend between 1.5 to $1.7 billion on capital investments.

In total during the first half of 2021, we generated over $1.6 billion of cash flow from operations and over $1 billion of free cash flow.

These amounts are fully expecting to increase in the second half of the year consistent with historical trends.

As a result, we remain confident in our ability to achieve double digit free cash flow margin for the full year of 2021 and beyond.

This will allow us to continue to deleverage the balance sheet and provide us with flexibility in our capital allocation.

1 last night.

We're highlighting is that during the quarter.

We replaced our $750 million credit facility with a new 3 year $750 million.

Sustainability linked revolving credit facility.

The terms of this facility are aligned with the interim emissions reduction targets disclosed as part of our net zero emissions commitment announced this quarter.

This is a first for Schlumberger and further demonstrates our commitment to fully participate in the de carbonization of the industry.

I will now turn the conference call back to Olivier.

Thank you Stefan I think we are ready to open the floor for <unk>.

Questions. Thank you. Thank you.

Ladies and gentlemen, if you would like to ask a question. Please press..1 then zero on your telephone keypad, you will hear acknowledgment that your line has been placed in Q.

You wish to withdraw your question you May press, 1 zero again.

And our first question is from the line of James West with Evercore ISI. Please go ahead.

Hey, good afternoon Olivier Dumont.

Good morning, James.

So olivier.

Really strong performance and execution in the second quarter.

Kind of across the board.

Really from a margin performance I thought.

What's the sustainability of this type of margin improvement as we go through the back half of this year and in particular, probably up from 22, when things really get going and the cycle really takes off.

Yeah. Thanks, Thanks, James Youre correct I think we are very proud of this margin expansion I think there are several factors that will allow it first on the second quarter. On then project. How we believe we have sustainability of margin expansion. So first and foremost I think the performance was led by.

Moving to expansion and revenue growth I think are available for us.

Worked out to be at or ahead of our expectation both internationally and in North America, I think credit to our team credit to the customer Centricity, the new organization and our performance.

Secondly, I think the we have seen a significant effect of our operating leverage as well as the operational efficiency playing in full light during the quarter and we expect this to be the base of our margin expansion for the quarters to come. So this was in full display in all divisions and has led to these cyclic on margin expansion, particularly in the service led.

Our performance and where construction.

Thirdly the nominee.

Entity as I recall it was led by <unk>.

Activity favorable activity mix coming from the seasonal rebound in some basins some region and that included an offshore mix that was favorable to those to the division as well as well as their <expletive>.

Exploration appraisal uptick mid teens exploration appraisal offshore quarter on quarter during the second quarter. So when you combine these dcs or presenting on a revenue mix quality that I think is unique this was implemented by technology adoption tenures and options linked to our fit for basin solution for customer that they're seeing.

Success digital as you heard during the remarks prepared by Stephane and lately.

New technology transitions transition technology portfolio combination of which is creating revenue quality that has been impacting favorably on margins.

Lastly, and this was on the notable not noticeably in North America, We had a couple of green shots on pricing on well construction that also selling to be organized so project. This fall I think the seasonal rebound, we not always EBITDA every quarter.

The unique exploration appraisal uptick mixed that we got also will not repeat but you can count on on.

On us to leverage the future growth and industry, both in North America and internationally do you see the operating leverage.

And the operating efficiency we have.

If our mix.

And the technology adoption that should fuel on margin expansion going forward.

Right, Okay, well certainly provided a good glimpse into what the.

Renewed earnings power of Schlumberger is a breath, if we get that on digital for a second because it's kind of a league zone at this point.

The technology adoption.

Seems to be continuing to be strong and maybe accelerating margins grew a bit ahead of what we were expecting.

What is your outlook there on the digital side.

As we as we go through the next few quarters, especially again at on until 'twenty, 2 and 'twenty 3.

I think the progress we've made this quarter was twofold first.

<unk> on our platform strategy, we continue to complete the platform foundations.

<unk> shipped the enablement that give us.

Expanded market access such as what we are using from the IBM Red hat technology to access hybrid clouds and unlock if you are if you like about 1 further.

The receivable market by this average cloud and in country solution, we provide and I think we have made much progress there on I think we are in the eighth on the ninth inning, if you like on the on the.

Platform readiness for full.

It's kind of beaten expansion and we made progress on the adoption of <unk> as you have seen some announcements and we continue to progress on the holding out for accounts that have already adopted Delphi, hence our revenue.

On the Delphine on new technology of digital was significantly accretive to our growth significant accretive to DNI and hesitant into margin expansion flow through that was visible. This quarter. So that will not continue the same every quarter. It depends on the seasonality on on the specific but expect expect the direct direction.

Larry to continue to grow.

Okay, great. Thanks for that.

Thank you James.

And our next question is from David Anderson with Barclays. Please go ahead.

Hi, good afternoon, Olivier So clearly we're starting to see the international upstream market starting to pick up as you noted double digit increases in many countries I noticed you didn't mentioned, Saudi which I would expect to start pickup in the coming months. So when do you think that piece falls into place and how do you see the cadence from middle East activity through the end of this.

And kind of what does that mean for 'twenty 2 growth I would think it kind of at this point I'd be surprised if growth wasn't up at least double digits internationally, especially with the positive commentary around offshore just wondering if you could comment please.

Yes first in short term I would like to reiterate my.

Positive commentary on on the second quarter growth. It was all basins. All division internationally said was that it was broad and inclusive of middle East now in the context of the middle East in particular, the growth was maybe more muted on less aggressive and less accretive to the overall growth than than over based internet a couple of reasons for that in the first 1.

Foremost reason is relating to the supply constraints that are still outstanding on our Bakken assets muting. Some of the short cycle connectivity that we could have expected to rebound faster so on a going forwards.

A couple of factors that will play probably short term and midterm short term there will be a relief of some of the supply constraints that will continue to inch up the short cycle activity, including Saudi day.

There is a commitment in middle East for a gas development and I think Qatar was the first to expand their commitment and we have benefited greatly from the rebound in activity for the last.

We'll have quarters in this will extend also to couple of accounts, including Saudi and lastly, as we turn into 2022.

You have heard some signal from couple of country and GCC that have signaled that they will.

<unk>.

Production capacity increase.

Increase.

To fulfill their opportunity to gain share as the day will be a pull on international supply. So this will result from 2022 and combination of short cycle gas development and non cycle.

Across that region, and hence they will catch up and they will certainly be a region that we lead the activity growth fund will support it.

Second I'll follow up double digit year on year at 2 <unk>.

Next year into a strong growth.

Going forward finally, if I had to make a comment on this I think you may have seen some contract wins and contract awards in the Middle East and we believe that on top of this activity growth, we have the potential to outperform and then than getting a further tailwind to our growth going forward.

So if we look a little bit further out.

Kind of talk Big picture about EBITDA exceeding 2019 levels with only about 50% of that lost revenue coming back just wondering if anything has changed in that view either in terms of the timing of that growth come at that revenue coming back or the EBITDA levels is there anything sort of changed.

And that kind of longer term view that we're thinking about.

No obviously with the results. We just delivered we are increasing our confidence in our ability to reach an expense on margin going forward as the cycle unfolds.

So starting with the next 2 or 3 years, we see now a strong case for.

<unk> floor as as an activity growth with an upside scenario, we see that the contract wins in the market position, we have will benefit us to pull from this additional growth going forward and.

The operating leverage the activity mix, including offshore and technology adoption and growing digital we all came to the conditions as they come on earlier to expand on margin. So the ambition we have set to recover the net EBITDA.

With less than half of them about half of the revenue.

We at <unk> are.

Still valid.

Our mid cycle ambition to expand the margin visibly.

<unk>.

Great. Thank you live here.

Thank you.

Next we have a question from Chase Mulvehill with Bank of America. Please go ahead.

Hey, good morning, everybody I.

I guess the first question.

Good morning Olivier.

First question, just kind of wanted to ask about inflationary pressures.

The supply chain seems to be tightening across.

The industry.

We're hearing about raw material cost inflation.

So maybe if you could just take a moment and talk about your ability to kind of control the supply chain.

Control calls alright, either pass along cost on.

Net side and also on the camera side as well.

No I'd say, it's a very valid question and it's something that we are observing some facts on some trends that is materializing. Some index and this is going up but I believe that the toolbox, we have and.

Professional and very expense organization, we have in our planning and supply chain and manufacturing organization that are used to manage some inflationary pressure as allow us to mitigate and edge.

Inflationary pressure and contain correct contained cost inflation into.

On the roofs.

Now when and as this happens and.

On the specifics on <unk>, so specific material, we are engaging with our customer using the contact time. So we have.

To elaborate on adjustment and we have done so success through several customers. So we are confident that the combination of.

Supply chain capability to it.

Global and local leverage and the customer Centricity engagement approach, we have ability to.

Sit and discuss commercial terms give us.

Give us the ability to support this and continue to try for a while then expand our margin.

Awesome.

A quick follow up here.

Probably for us.

We think about free cash flow, obviously, it's going to be accelerating.

As you get into 2022, you'll be doing deleveraging as you talked about.

And on some debt.

But at what point should we think about incremental cash coming back to shareholders, probably a dividend first and then maybe buybacks, but is there a certain leverage ratio.

We should be looking at or thinking about you guys targeting.

Before you kind of think about increases.

Yes, yes, so we chase we do have a target leverage ratio at this stage it is.

Going down to less than 2 times net debt to EBITDA now with strong cash flow performance and the EBITDA expansion.

We are quite confident that we can achieve these targets sometimes by the end of 2022 now we will of course need to continue investing in our core business to fully reap the benefits of its growth cycle, but this will be done with the same discipline, we are exercising today and within the target range of.

5% to 7% for the operating part of our Capex, excluding EPS in multi client account.

Accounting for this however, we will still generate significant excess cash flow throughout the growth cycle.

This is of course very good news it gives us optionality in our capital allocation.

Equally to execute our strategy and to fund on new horizons of growth.

Now whether it relates to our core portfolio our expansion into digital on new energy.

Any new investment will be looked at on the strict lengths of all return based capital allocation framework beyond that.

We will continue to review our shareholder on distribution policy.

Based on the sustainability of cash flows and potential exceptional cash inflows for example proceeds from divestitures.

Divestitures. So this is where we will tickets.

Alright, perfect I'll turn it back over thanks, everybody.

And our next question is from Scott Gruber with Citigroup. Please go ahead.

Yes, good afternoon, great quarter.

Thank you Scott.

So just 2 quick clarification questions.

The 10% free cash conversion rate relative to revenues, we should be including the tax refund. When we think about the conversion rate for the full year GAAP correct.

Yes, you should actually but you have a few offsets not necessarily in the same quarter on but we continue to to pay severance payments.

I'm talking about offsets to the tax refund Scott So we continue to pay.

Severance payments with the tail end of the process is finished but we're still payments coming so when you put all of it together on the tax refund is not.

Is not fully year plus now.

Excluding the <unk>.

Exceptional items going opposite way tax refund and sovereigns, we can actually still generate.

10% plus free cash flow margins, we should be exiting now that we have the tax refund for sure.

Got you.

Yes.

On.

On the on market.

Surprised to see the well construction share gains in the U S is simple and profitable.

Was that kind of all on 1 Patrick.

Marc.

Oil prices, possibly as well.

Moving to pay up with new technology.

The continued share gains potential onshore weather welcomes platform.

Even in light of.

Projects will drag on the <unk>.

Are you seeing gains with private.

We will give some color on U S shale potential will be great.

No no.

<unk> Scott, we're very proud of this achievement and let me give you the 3 drivers for it.

In terms of top line growth first and foremost performance in the way we execute on Athene has led from cementing drilling.

Drilling a bit.

Market share gains with both profit and with.

Operators public operators in the U S. The second factor is that as you remember as part of our North America strategy people that we did initiate 2 years ago, we accelerate our technology access, giving access of fit for basin technology to some local DD company debt.

Then using hunting or buying equipment and using it to serve their local customers.

Most of the year, if not exclusively private.

So this has been growing and quarter on quarter on this is helping us to reach market and expand our market share beyond what we could do to our service.

And finally as I mentioned in my in 1 of my response earlier, we had some gunshots well.

Our performance 1 is high demand our directional drilling equipment was seen as unique to U 2 delivery curve and so we.

We could extract some some pricing plus and premium circulation of these 3 delivered these 30 plus.

Quarter on quarter top line delivery far outpacing the rig count growth. So there are some exceptions as always but I would expect that the dynamic and directionally. This to continue going for a positive market share gain.

From a impressive good to hear thanks for the color.

Thank you.

Next we go to Connor Lynagh with Morgan Stanley. Please go ahead.

Yes. Thanks.

I wanted to ask about labor, obviously, you have to take the challenging decision to reduce your workforce dramatically last year.

Curious as we as we now look back towards growth, how well positioned are you to to capitalize on on the market demands do you do you have excess labor do you need to hire substantially and I'm, particularly curious in international regions, where you may have some more logs.

Long cycle constraints on that.

Yes, it's a very good question on it's something that we're working out.

We continue to make progress, but I think in a nutshell I think.

The step change with leading some of the operational environmental personal practice, including digital operation is giving us.

What's needed response.

The first a peak of this cycle without deploying the.

Same.

Russell set as we had in the past tense getting direct efficiency gain as we mobilize and go with the cycle going fall then already initiated some.

Some geographies, where we had more on double digit growth as I mentioned, we had access to some resource that we on boarded.

During the quarter to respond to the contract we are winning so the long cycled actually nature of international who will give us a bit more long term visibility.

To this to this condition handset market.

Our market approach is to target.

Specific geographies and business line, where we believe we can be generating accretive returns on growth and prepare for its mobilizing you had the resource on moving resources to address those so I think we haven't mobile access to talent, we are using lots and at scale. This remote operation. So it is a challenge for us to respond to.

High demand, but we believe that we have no partner on the operational.

On them on to to make it a success.

Thank you that's helpful context sort of similar question, but on the deal or equipment side of things basically I am wondering if you could.

Based on your expectations for how much activity will grow over the next call. It 6 to 12 months as you look on some of the more differentiated markets and the more consolidated supplier markets middle East offshore et cetera.

Do you feel that there is adequate equipment.

<unk> continued growth beyond that point do you feel the capacity will be tightening significantly just a free.

Okay, Sir thanks.

I think in the early part of the cycle I think.

We will use an industry would use the excess supply that came from the compression of activity that came through the last 2 years.

But again, we have damaged professionalize or are planning and supply organization and.

From the come on to the asset that we have to deploy I think we are trying to take a long term view and scenario based view on on a future looking beyond the 12 months horizon and on starting to prepay on put some options. So that we can respond to this growth going forward too early part will not net.

The steady Kate tightness, but the mid cycle for sure before the mid cycle. This.

This will create the conditions for tightening supply and hence some pricing condition.

Thank you I'll turn it back.

Thank you.

Next we go to Neil Mehta with Goldman Sachs. Please go ahead.

Morning team. The first question is around portfolio optimization.

You guys can weigh in on how Youre thinking about the path for asset monetization. Thank you.

Canada, maybe the middle East what are the opportunities and how large could that market be for first 1 a day.

So look Neil Hi.

As it relates to the to the divestitures.

We disclosed last quarter.

Ips assets in Canada, It's both are progressing as planned by the way also in Canada, we have more than 10 parties.

It really looking at the information in our data room, and we plan to receive first round offers by the end of next months. Good news is that the economics keep on improving so we are hopeful we can achieve.

A successful transaction.

<unk> Likewise progressing we are negotiating with the short listed bidders we have.

<unk> well do the diligence on it's going as planned.

So I think really these other 2 divestiture loans you know that we have over equity positions, where we have options for monetization in the future.

Such as obviously the artistic but this is something we will do.

On the timing on the magnitude will look at in the in due time.

Okay, Great and then I appreciate the comments you made on Saudi broadly, but maybe you could just step back and talk about OPEC plus including.

Other regions within within that cartel or.

Outside of OPEC, how are you seeing activity trends here.

What role do you think Schlumberger sort of play in terms of.

Building out capacity that they are talking about.

I think first we have.

So privileged market position.

With most of the Nlcs in this Opex plus consortium.

We have seen across the broad.

Spectrum of these <unk>.

You'll see the activity.

Activity starting to build back.

Seasonal rebounds.

Playing strongly in Russia, and we expect as I said this short cycle to recover for the next.

2 to 4 quarter as the demand will be lifted.

The constraints will be lifted and we see that more than 1 or 2 countries you would actually commit to this.

<unk> cash.

<unk> extension and we have the footprint we have.

The relationship we have the fit for basin too.

Our leverage and then to respond to this capacity buildup and this growth opportunity in those from Russia to <unk>.

I feel confident that this market share pursuits that.

As the market comes back from.

From 'twenty 2 'twenty 3.

We'll be giving us an opportunity to leverage our market position and move up.

Thanks, Patrick.

Thank you.

Next we go to outgrow in Jan Ram with Jpmorgan Chase. Please go ahead.

Yes. Good morning, maybe just a follow up to Neil's question on Lcs.

I guess you are seeing some positive activity trends from the Nlcs and would you characterize these activities. Thus far is just more regarding sustaining capital requirements or are you seeing any potential mix shift in terms of increasing.

Productive capacity.

Again, we did note some increases I guess on the exploration side in terms of your revenue base.

Yeah, I think as I commented before you have to distinguish firstly, the gas and the oil market and on gas market. I think the activity has been more sustained and has seen a significant commitment to accelerate the north field developments on extension. So that has been very positive and we have the benefit of that exposure and the gas remain.

Steady and supported elsewhere.

On the oil mix, but in short term is mostly short cycle in anticipation of the supply.

Constraints relief and for 2 or 3 of the country that passed back to the persistency. They have already made public commitment that we will.

They would expense and they will.

Possible at scale into the pasta was 3 balance if you like of.

The supply an aspect to the capture of international share supply.

Into 2020 free so that will mean.

The plan that will materialize from planning from contacts and from execution into 2022.

Great Great Olivier you recently provided some longer term outlook comments for new energy, citing called the 10% kind of growth CAGR as you help your clients Decarbonize.

Was wondering if you could give us some thoughts on maybe the baseline for that long term forecast and areas of your transition a technology portfolio that youre seeing perhaps the greatest traction as.

As we sit here today.

Yes, let me first clarify on are not mixed in the same on that.

Same umbrella the new energy portfolio that we have developed with our purpose to create a new chapter beyond.

On a GAAP plus about skating to the energy transition from idle Gen..2 Ccs and June LG on our lithium as you have heard.

From the transition technologies that we believe are very pertinent to the decarbonization of our oil and gas industry, helping our customer to reduce their footprint footprint to reduce <unk> emissions and in this context, we are.

We are focusing on flaring elimination our addiction.

And you are using impacted on the Ohio wireline technology to avoid returning to free.

To the surface and burn and dispose proved true to train and due to the reservoir characterization and testing in city, if you like and Thats a unique technology that has significant impact on both efficiency and on the Seo to footprint for everyone using it.

And we are looking at are maintained.

Milton emission detection and containment and we are looking at as you have seen in the press release this morning.

Also the.

C C.

<unk> membrane that offset by our performance for larger as gas treatment. If you want to do 2 this year to secure and capture so you have these 2 aspects of that.

The transition technology will combine to play and most of the customer Amit asking us whether we can help them and have a conversation on engagement on too.

Methane detection flaring or other techniques that any net to reduce significantly the footprint of Cotwo every operation on their scope 3 attributes like in addition to their scope 1 direct emission and then independencia and that that will be part of our technology growth victory adoption in the quarters to come.

And then longer term, we will build on our new energy portfolio that we are building and then Hans we have.

I need to build this we will grow at scale from <unk> to Ccs.

And bioenergy with sales use for the heating and cooling buildings.

2 lithium production if the pilot that we are initiating and a contribution from Panasonic.

It gives us the opportunity to do so so those are 2 different avenue for growth short term and long term.

Thanks for the fulsome answer I appreciate it.

Thank you.

Next we go to Tommy Moll with Stephens. Please go ahead.

Good morning, and thanks for taking my questions.

On a good morning Tommy.

I wanted to start on your digital on integration margin.

Your second your incremental this quarter was with a notably higher versus the trend in it and an impressive 1 at that.

Fair to say that the full year for 2021 ought to be shaping up above the 30% type of range that we talked about last quarter.

And then.

As you look beyond is there any kind of through cycle or a normalized way you would frame the incremental margin opportunity for us there.

So so look to me as it is shaping up to be slightly above.

The 30%.

At this level. We are we are happy on the way we felt it built on in Q2.

As a bit of seasonality actually.

On the software and maintenance sales.

Which are lower in Q1, so it's kind of normal to see a nice uptick between Q1 and Q2. So however throughout the year on a full year basis, yes will be.

It will be a bit above 40% now this is the kind of margins, which.

Throughout the cycle, which is a fixed cost business so as we accelerate.

The deployment of our digital solutions and the adoption improves.

We could see margins.

Increasing from there so.

It's quite a healthy business and it is why we are focusing on it basically.

Thank you that's helpful on and I wanted to follow up with a big picture question on your new energy strategy.

If you think about from a strategic standpoint.

You're the largest.

Service.

You are the largest platform globally with with the oil and gas incumbent.

What if any advantages does that confer on you vis vis some of the smaller pure plays attacking some of these markets the scale on the customer relationships that you have.

And then if you also think about the other side of the equation where.

On their cost of capital May in fact be much lower than yours. So you potentially have a different algorithm by which you decide how to allocate capital across these opportunities. So how do you think about when to put capital to work versus.

When the when they ask may be a little bit too rich in and Youre going to preserve dry powder for another opportunity.

No very good question I think first first and foremost I think let me highlight that I think 2 different I'll say factor that will indeed leverage our current platform first is the global deployment capability. We have we can industrialize and ship technology and deploy technology anywhere in the world.

And we have done through 4 from on an 80 or 90 years and I think our ability to.

2.

Cash franchise in a big country from technology develop century, or we develop locally I think is something that is unique and athene that differentiate from many of the pure play.

The relationship we have in our customer base, we have today.

We will be cash.

Cash on Lee and I think we'll be in a sense of the SEC as well customer have an opportunity to participate on some of the downstream operation where they have.

Carbon capture on Blue androgen opportunity will be on a positive for us to continue to work with that customer base on expense and at the same time. Some of these companies are turning into integrated energy company that will also participate that scale in the same market as we do so that relationship would be useful, but I will more.

I will say highlight the global deployment capability now.

When it comes to capital allocation capital deployment I think.

Difficult to pinpoint too specific here I think we will again.

<unk> continued to mature this this venture prepare for scale as we start to.

I will say progress on our milestones price on our partnership and progress on our business model on the supply chain model that are quite different from the 1 we expense today and then in that context, we will make.

Capital allocation.

Decision.

And to be accretive to our long term growth and to our returns.

Thank you I appreciate it and I will turn it back.

Thank you.

And ladies and gentlemen, our final question comes from Marc Bianchi with Cowen. Please go ahead.

Thank you.

Olivier you mentioned the return to a 100 million barrels of of consumption.

And sort of a share shift from from North America, and international where the oil is coming from I'm curious if you think that.

The international activity needs to surpass 2019 levels to deliver that much oil and what you think the timeline is to get there.

I think in short term the rebalance would it be mostly mostly due to the release of the.

On a spare capacity that exist now if you look at the current production of the U S, which is 1.5 billion by about about below.

In U S land below what it was in early 2020. These GAAP has not yet been bridge and I think GAAP do not expect this to be breached as we exit 2022, so they will be on income out of oil supply.

Paul on international market that the market can.

It can deliver today, but for sustainability in 'twenty, 3 and 'twenty 4 the market will have to commit.

Capacity and.

This is a reason why in middle East some of our country Uct's future commitment capacity and this is the reason why you see the return of Shaw and the commitment of <unk>, We have 50 day Friday about.

Already.

Today, we expect to be 100 Friday, most of our diamond offshore at the end of the year disease free.

2% more than it was last year and the trajectory towards 150 on over 50% and comment after that so now going forwards and expanding beyond I would expect within the next 2 to 3 years, obviously with this dynamic and the pull on international transfer plywood Kate the flow of activity too rich.

And or exceed the level of 2019 activity within that timeframe.

Okay, great very helpful.

Separately on you.

You mentioned EPS a couple of times on the.

In the press release.

It sounds like maybe activity has ramped a bit in Canada, where you have a bit more oil price exposure I'm just curious how investors should think about the sensitivity to oil price from EPS at this point and then if you do have a successful transaction and solve the business just how material of a.

Shortfall on cash flow with that create just needs to be what we're seeing right now.

I'll take this question so look the actually the activity sales didn't really change in activity here is more measured in terms of.

Production of call. So we did have a bit of a.

A nice windfall on on increased <unk> in the second quarter from from our Canada said, but it's in the Grand scheme of things, it's not material.

In Ecuador, Oh by the way at this level of durability.

Tariffs on either a fixed or when we are valuable we are capped and we have passed that GAAP. So there's very little.

Sensitivity to oil price.

At this level besides besides Canada.

Now.

It makes it a very good time to actually.

It is our assets right at.

It does generated cash flow.

Lately because of the oil price on the investment level, we put in.

Historically, it's a net assets that requires quite a bit of capex and.

So when we when we close the transaction, which we don't see a big.

The big impact on on cash flow and we will get of course.

Hopefully a very good proceeds from the transaction.

Okay wonderful thank you very much.

Thank you speaker.

Speakers I'll turn the conference back over to you for closing remarks.

Thank you very much.

To conclude the call I would like to leave you with.

Key takeaways.

First the second quarter results clearly demonstrates both the strength of our market position vascular internationally with sequential growth in all divisions and basins and.

And our significant operating leverage resulting in more than 200 basis points of operating margin expansion internationally with all divisions contributing significant for sure.

So on the activity and customer trends observed during the quarter reinforce our conviction and an increasingly probable outlook 2 broad recovery across all basins and operating on balance and with a much improved contribution from new technology adoption.

Third and have some further COVID-19 setbacks impacting activity on economic rebound.

We're confident that the momentum for this upcycle, both North America and internationally will continue during the second half of 2021 and will lead to another quarter of growth and margin expansion.

As a consequence, we remain confident in our second half guidance shared previously for international growth and have increased our confidence in our full year margin expansion and cash flow generation.

Finally, as we look farther Ed the condition assets from exceptional growth cycle in response to the call for supply in 2022 and future demand growth in subsequent years.

This will increasingly February international supply impacting land and offshore short and long cycle globally.

Ladies and gentlemen, our returns focused strategy international footprint digital decarbonization, and new energy strategic initiatives.

Highly differentiated and we support our outperformance ambition throughout the cycle and beyond as we continue to write a new chapter for the company.

Thank you very much.

Yeah.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

[music].

[music].

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 an opportunity for your questions and instructions will be given at that time. If you should require assistance. Please press Star then zero and we will assist you offline 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 the module Amaze Yeah. Please go ahead.

Thank you Dan.

Good morning on.

Welcome to the Schlumberger Limited second quarter 2021 earnings conference call.

Today's call is being hosted from Paris, putting the Schlumberger Limited Board meeting held earlier this week.

Joining us on the call are leaving the Bush Chief Executive Officer, and Stefan became Chief Financial Officer.

Before we begin I would like to remind all participants that some of the statements we'll be making today.

Forward looking.

These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements.

Therefore, we 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 found in our second quarter press release, which is on our website with that I will turn the call over to Olivier. Thank you Randy and good morning, ladies and gentlemen, thank you for joining us on the call.

My prepared remarks today I will cover 3 topics.

So don't cut our results.

Near term industry and macro environment and the outlook for the first quarter on the reminding all of the data.

Finally, I wish I had my perspective on our streamers is positioned for.

For sustained outperformance in this context.

Dan will then give multi tenants on our financial results and we will open the floor for questions.

Our second quarter results demonstrate its very broad strength in our core portfolio as we continued to fully capitalize on the short and long cycle activity recovery of course divisions operating environments and geographies, both North America and internationally.

The combination of revenue quality, 3 day execution and vastly improved operating leverage delivered a fourth.

Consecutive quarter of margin expansion.

Let me share with you some performance highlights during the quarter.

Internationally, the depth and diversity of our portfolio enable us to take hold of the recovery in the second quarter cash.

Margins 2 people on the Knick levels ahead of the EBITDA acceleration in these markets.

In North America, we achieve our double digit margin ambition, a key milestone in our 2021 financial targets.

All divisions free registered activity recovery to post sequential top line growth and significant margin expansion, including predictions he steps, which is which reached double digit margins during the quarter.

Growth and margin expansion were led by his or her performance and well construction, both posting growth internationally and in North America.

But from all the growth was driven by the exploration and she's on recovery, hi, offshore activity and new technology adoption all of which has happened in sequential margin expansion in excess of 270 basis points when construction accelerated its rate of growth sequentially outpacing head count growth both North America.

And internationally with strong contribution from offshore basins.

U S land the division grew more than 30% double the second total head count growth rate over the quarter.

This does not only reflects enhanced market participation, but also improving moving liquidity.

And cash flow from operation was $1.2 billion dollar, enabling us to begin deleveraging the balance sheet this quarter.

In addition to the impact of operating leverage there are 2 contributing factors to this financial outperformance first Youll show activity mix and second technology adoption.

The offshore rebound in the second quarter was led by high single digit deepwater activity growth factoring in Brazil, and also included a mid teens growth in exploration and appraisal activity across Europe, and the middle East.

As market conditions presented a favorable mix and resulted in higher revenue quality for both because of our performance and well construction.

In addition, as customer commit to future offshore development activity will receive significant deepwater awards for 1 subsea business line visiting on a doubling of the booking volume versus the prior quarter and a year to date book to bill ratio exceeding 1.5.

The other contributing factor is increasing new technology uptake the rate of adoption of our latest generation technology increased by 1 third during the quarter and included in vascular condition technologies.

Digital and fit for basin solution.

Which benefited all divisions and most basins.

This is a clear recognition of the performance impact our technology to generate for our customers and it give us increased confidence in the contribution of technology adoption to our margin expansion in this up cycle.

In addition, we continued to advance our digital and new energy strategies, extending the reach of our digital platform with a number of key agreements and awards as customer forged ahead with their digital transformations.

On your energy, we continue to progress all of our ventures, including the recently announced strategic collaboration with Panasonic North America to develop on new battery grade lithium production process and Clayton Valley, Nevada.

Finally during the second quarter, we announced our commitment to achieve net zero greenhouse emissions by 2050.

I am very proud to lead the first service company that offset our net sales ambition that includes scope 3 emissions.

We have laid out on our push to climate change that is sounds based aligned with the 1.5 degree Celsius target of the price agreement and is built on a comprehensive near term roadmap to achieve our goal with interim milestones in 2025 and 2030.

As a company that party sell contiguous innovation, we aim to net the balance of emission we produced in 2050 with Cabo negative action.

These plants also includes the launch of our transition technology portfolio to support our customers on their journeys to net deal such as the avoidance of flaring with Wawa in technology and a tactical have seen a few to membrane separation technology as you have seen in this morning's release.

And that's the ambition on the launch of positions technology is an opportunity to contribute to the decarbonization of the industry bridging.

Moving to innovation are hesitant on future that delivers higher carbon.

Volume and lower carbon.

Overall, I am very pleased with our revenue quality solid execution enhance market participation, both North America and internationally and most importantly, the constellation of all of these elements into another successive quarter of margin expansion.

I want to thank here the entire Schlumberger team as they continue to execute and deliver outstanding performance for our customers and our communities. Despite COVID-19 impact from several part of the world.

Next I would like to share my view on the macroeconomic on balance supporting our industry.

While the rise of the COVID-19 that divergence and assurance software related disruption could impact the pace of economic group operating result market projections continue to affirm and improving global economic outlook.

Global GDP growth is now expected to approach, 6% in 2021 and more than 4% in 2022, we should continue to drive a progressive recovery of oil demand.

This outlook is supported by recent oil demand debate, which reflect the anticipation of wider vaccine enabled recovery improved morbidity and additional fiscal stimulus in large economies through the second half of the year.

Looking further out the IEA projects that global oil demand will reach 100 million barrels per day and surpassed pre COVID-19 levels by the end of 2022 and the absence of a policy change.

Full price up.

Net debt levels distributor response to this demand recovery is developing broadly as anticipated.

Indeed this combination has resulted in a call on short short cycled a petition as well as an uptick in long cycle project reflected in <unk> and encouraging recovery in both offshore development and near field exploration activity through the second quarter.

In North America. This strip. Our response is affected in our rig count and Frac fleet trends, which sustained strong growth through the first half of the year.

Private operator led activity growth, which resulted from the acceleration of the completion and increased drilling activity to replenish that inventory.

Mike on cost the embrace of capital discipline by the public operators is highlighted by the rig count still.

Being significantly below the Q1.2020 total despite <unk> price exceeding pre pandemic levels.

In this context, despite a solid activity growth outlook, we maintain our view that the North America market. We've restructured is smaller than in previous cycle as a consequence of capital discipline and industry consolidation.

Moving to international markets, the deficit of investment needed to deliver the required all supply rolling on to sustained growth opportunity, particularly in the low cost advantage basins.

We remain constructive on our structural put on international supply on a visiting activity impact. This was already visible in the second quarter with a strong seasonal rebound and offshore recovery. Despite the impact of Covid disruption in parts of Asia and in the Middle East.

This also marked the second consecutive quarter of international rig count growth.

Looking further out we see favorable conditions for durable invest on growth driven by a combination of action by nurses internationally focused investment by public E&P operators and the expectation of continued supply discipline biotech price.

All in response to the steady evolution of demand.

The current pace of international Tendering contract Awards, and a book to Bill ratio support this view.

Against this backdrop <unk> is extremely well positioned both international markets and in North America are.

On market exposure is biased to accretive growth.

And with the city of new contract wins, a leading digital and FIFA based on technology portfolio and on top of almost cut his strategy, we will create value for customers and deliver industry leading returns.

Turning to the first quarter outlook.

In North America, we send over quarter sales growth, albeit somewhat moderating.

In U S. Net led by private operators in horizontal drilling and a seasonal recovery in Canada.

North America offshore remained resilient, albeit with the hurricane season.

Moving to the international markets positive growth momentum is expected to continue through the third quarter across all areas.

Short cycle activity will be monitored by longer cycle project startup.

In this context Directionally, we expect our global first quarter revenue to grow by mid single digits led by our reservoir performance and well construction divisions, while our pre tax segment operating margins should further expand by 50 to 100 basis points.

With this outlook for the third quarter, we remain confident in achieving double digit international growth from the second half of 2021, when compared to the second half of 2020.

As a consequence and have some further COVID-19 setback in a partial recovery, we now foresee free revenue growth both internationally and in North America, when excluding the impact on divestiture.

We have activity recovery ahead of us through the third quarter and full signal of a durable recovery beyond that we cannot clearly surpassed 2 day handle for full year EBITDA margin expansion guidance for 2021.

Looking further ahead the from some of those remained wafer level with a growing economic rebound supportive oil prices and the demand and supply outlook or representing a set.

Our unique conditions that we support on exceptional growth cycle.

Furthermore, the second will be broad based across geographies and operational environments land offshore North America, and particularly international markets.

Second quarter was a strong indication of the future outlook and a testament of our historic earnings power under these conditions.

In summary on.

I'm very pleased with our strong quarter second quarter results across our entire portfolio, which demonstrates the effectiveness of our strategy in delivering our long term financial ambition.

I will now pass the call to Stephane.

Thank you Olivier and good morning, ladies and gentlemen.

Second quarter earnings per share was <unk> 30.

This represents an increase of 9 <unk> compared to the first quarter of this year and an increase of 25.

When compared to the same period of last year, excluding charges. There were no charges or credits recorded during the first or second quarters of 2021.

Overall, our second quarter revenue of $5.6 billion.

Increased 8% sequentially.

North America revenue increased 11% sequentially, while international revenue increased 7%, both outpacing respective rig count growth.

Pre tax operating margins were 14, 3%.

And have now increased fourth quarter on the neuro.

<unk> represents the highest margin since the fourth quarter of 2015.

Notably margins expanded sequentially across all 4 divisions.

This performance was driven not only by the seasonal rebound in the northern hemisphere.

Also a favorable revenue mix as a result of increased offshore activity new technology adoption.

And increased exploration and appraisal activity.

Companywide adjusted EBITDA margin of 21, 3% for the second quarter.

Increased 118 basis points sequentially Andrew.

Is the highest since the third quarter of 2018.

I am very pleased with this margin performance, which reflects the benefit of significant operating leverage we have created from the combination of the high grading of our portfolio and our cost reduction program.

This performance also gives me the confidence that we will continue to increase margins in the third quarter and beyond.

Let me now go through the second quarter results for each division.

Second quarter on digital and integration on revenue of $817 million increased 6% sequentially, while pre tax operating margins increased 147 basis points to 33%.

These increases were primarily driven by strong digital solution sales.

Reservoir performance revenue of $1.1 billion increased 12% sequentially. This.

This revenue growth was entirely driven by higher international activity, which resulted in international revenue, increasing by 14% margins expanded 373 basis points to 13, 9% largely due to the seasonal recovery in the northern hemisphere and increased offshore.

In exploration activity as well as favorable technology mix in the middle East in Africa.

Well construction revenue of $2.1 billion increased 9% sequentially, while margins increased 209 basis points to 12, 9%.

These improvements were driven by strong performance, both in North America and internationally.

U S land revenue grew by over 30% significantly outpacing the increase in rig count International activity increase beyond this is on a rebound as many countries experienced double digit revenue growth.

Finally production systems revenue of $1.7 billion increased 6% sequentially and margins increased 146 basis points to 10, 2%.

These increases were primarily driven by higher activity in Europe Africa, and North America.

Now turning to our liquidity.

During the quarter, we generated $1.2 billion of cash flow from operations.

And positive free cash flow of $869 million, despite severance payments of $72 million.

The amounts included the receipt of the 477 million U S federal tax refund relating to prior years.

This refund helped support our deleveraging efforts during the quarter.

In this regard.

Our gross debt decreased by $861 million during the quarter.

We have begun to execute on our commitment to deleverage as demonstrated by the early redemption in June of all $665 million of notes that were coming due in September.

We also repaid $246 million of commercial paper on during the quarter.

Net debt decreased sequentially by $632 million to $14 billion.

The lowest level since the fourth quarter of 2017.

During the.

We made capital investments of 351 million. This amount includes capex investments in EPS projects and multi client.

For the full year on 2021.

We are still expecting to spend between 1.5 to $1.7 billion on capital investments.

In total during the first half of 2021, we generated over $1.6 billion of cash flow from operations and over $1 billion of free cash flow.

These amounts are fully expect it to increase in the second half of the year consistent with historical trends.

As a result, we remain confident in our ability to achieve double digit free cash flow margin for the full year of 2021 and beyond.

This will allow us to continue to deleverage the balance sheet and provide us with flexibility in our capital allocation.

1 last factor.

We're highlighting is that during the quarter.

We replaced our $750 million credit facility with a new 3 year $750 million.

Sustainability linked revolving credit facility.

The terms of this facility are aligned with the entire emissions reduction targets disclosed as part of our on net zero emissions commitment announced this quarter.

This is a first for Schlumberger and further demonstrates our commitment to fully participate in the decarbonization of the industry.

I will now turn the conference call back to Olivier.

Thank you Stefan I think we are ready to open the floor for <unk>.

Thank you. Thank you.

Ladies and gentlemen, if you would like to ask a question. Please press..1 then zero on your telephone keypad, you will hear acknowledgment that your line has been placed in Q. If you wish to withdraw your question you May press, 1 zero again.

And our first question is from the line of James West with Evercore ISI. Please go ahead.

Hey, good afternoon Olivier on.

Good morning, James.

So olivier.

Really strong performance and execution in the second quarter.

Kind of across the board.

And really from a margin performance I thought.

Whats the sustainability of this type of margin improvement as we go through the back half of this year and in particular properties up from 22 with when things really get going and the cycle really takes off.

Yeah. Thanks. Thanks, James you are correct I think we're very proud of this margin expansion I think there are several factors that will allow it first on the second quarter. On then project. How we believe we have sustainability of margin expansion. So first and foremost I think the performance was led by.

Moving to expansion and revenue growth I think over to go fast.

Worked out to be at or ahead of our expectation both internationally and in North America, I think credit to our team created a customer Centricity day, new organization and our performance.

Secondly, I think the we have seen a significant effect of our operating leverage as well as the operational efficiency playing in food light during the quarter and we expect this to be the base of our margin expansion for the quarters to come. So this was in full display in all divisions and has led to these cyclic on margin expansion, particularly in the service led.

Here's our performance and where construction.

Thirdly, the Albany.

Entity as I recall it was led by <unk>.

Activity favorable activity mix coming from the seasonal rebound in some basins some region and that included an offshore mix that was favorable to those 2 day division as well as well as the as.

Exploration appraisal uptick mid teens exploration appraisal offshore quarter on quarter during the second quarter. So when you combine these dcs or present in our revenue mix quality that I think is unique this was supplemented by technology adoption than usual options linked to our fit for basin solution for customer that they're seeing.

Success digital as you heard during the remarks prepared by Stephane and lately.

New technology transitions condition technology portfolio combination of which is Kenny havili quality that has been impacting favorably on margins.

Lastly, and this was on the notable noticeable in North America, We had a couple of green shots on pricing on well construction that also selling to be recognize so project. This fall I think the seasonal rebound will not always be there every quarter.

The unique exploration appraisal uptick mixed that we got also will not repeat but you can count on.

On us to leverage the future growth and industry, both North America and internationally do you see the operating leverage.

And operating efficiency, we have.

So our mix.

The technology adoption that should fuel our margin expansion going forward.

Right Okay.

I would certainly provided a good glimpse into what the.

Renewed earnings power of Schlumberger is a breath, if we could touch on digital for a second because it's kind of on the league zone at this point.

The technology adoption seems to be continuing to be strong and maybe accelerating margins were a bit ahead of what we were expecting what is your outlook there on the digital side as.

As we as we go through the next few quarters, and especially again at on time.

Moving to in 'twenty 3.

I think the progress we've made this quarter was twofold first.

<unk> on our platform strategy, we continue to complete the platform foundations.

Partnership the enablement that give us.

Ex solid market access such as what we are using from the IBM Red hat technology to access hybrid clouds and unlock if you are if you like about 1 third of the addressable market by this hybrid cloud and in country solution, we provide and I think we have made much progress there on I think we are in the 8 on the ninth.

If you like on the on the <unk>.

From a readiness for full scale beta and expansion and we made progress on the adoption of <unk> as you have seen some announcements and we continue to progress on the holding out for accounts that have already adopted Delphi, hence our revenue on the density on a new technology or digital was significantly accretive to our growth.

Significant accretive to DNI and hesitant into margin expansion flow through that was visible this quarter. So that will not continue the same every quarter. It depends on the seasonality on on the specific but expect expect the direct directionally to continue to grow.

Okay, great. Thanks Olivier.

Thank you James.

And our next question is from David Anderson with Barclays. Please go ahead.

Hi, good afternoon Olivier So clearly we're starting to see the international upstream market is starting to pick up as you know.

On a double digit increases in many countries.

Just you Didnt mentioned, Saudi which I would expect to start picking up in the coming months. So when do you think that piece falls into place and how do you see the cadence from middle East activity through the end of this year and kind of what does that mean for 'twenty 2 growth I would think it kind of at this point I'd be surprised if growth wasn't up at least double digits internationally, especially with the positive commentary around.

Round offshore just wondering if you could comment please.

Yes first in short term I would like to reiterate my.

Positive commentary on on the second quarter growth. It was all basins. All division internationally. You said was it was broad and inclusive of middle East now in the context of the middle East in particular, the growth was maybe more muted on less aggressive and less accretive to the overall growth then.

Then over basins and add a couple of reasons for that in the first and foremost reason is relating to the supply constraints that are still outstanding on the Bakken assets muting some of the shops ex connectivity that we could have expected to rebound faster so on a going forward there.

Total factor that will play favorably shutdown and midterm short term there will be a relief of some of the supply constraints that will continue to inch up the short cycle activity intriguing Saudi.

There is a commitment in middle East for a gas development and I think Qatar was the first to expand that can be done and we have benefited greatly from the rebound in activity for the last.

We'll have quarters in this will extent also to couple of accounts, including Saudi and lastly, as we turn into 2022.

You have heard some signal from couple of country and GCC that have signaled that they will.

<unk>.

Production capacity increase.

Increase.

To fulfill their opportunity to gain share as the day will be a pull on international supply. So this will result from 2022 and combination of short cycle gas development and non cycle.

Across that region, and hence they will catch up and they will set the EMEA region that will lead the activity growth and will support.

In second half or double digit year on year and next year into a strong growth.

Going forward from.

Ali if I had to make a comment on this I think you may have seen some contract wins and contract awards in the Middle East.

And we believe that on top of this activity growth, we have the potential to outperform and then than getting a further tailwind to our growth going forward.

So if we look a little bit further out.

Kind of talk Big picture about EBITDA exceeding 2019 levels with only about 50% of that lost revenue coming back just wondering if anything has changed in that view either in terms of the timing of that growth come at that revenue coming back or the EBITDA levels is there anything sort of changed.

And that kind of longer term view that we're thinking about.

No if youll see with the results. We just delivered we are increasing our confidence in our ability to reach an expense on margin going forward as the cycle unfolds.

So starting with the next 2 or 3 years, we see now a strong case for.

The ability at floor as as an activity growth with an upside scenario, we see that the contract wins in the market position, we have will benefit us to pull from this additional growth going forward and.

The operating leverage the activity mix, including offshore and technology adoption and between digital we all came to the conditions as they come on earlier to expand our margin. So the ambition we have set to recover the net EBITDA.

With less than half of them about half of the revenue rec.

We at <unk> are.

Still valid.

Our mid cycle ambition to expand the margin visibly.

<unk>.

Great. Thank you live here.

Thank you.

Next we have a question from Chase Mulvehill with Bank of America. Please go ahead.

Hey, good morning, everybody I.

I guess the first question.

Good morning, Olivier first question, just kind of wanted to ask about inflationary.

Larry pressures, obviously supply chain seems to be tightening across the industry, we're hearing about raw material cost inflation.

Maybe if you could just take a moment and talk about your ability to kind of control the supply chain.

And control cost alright, either pass along cost on.

On the Oss side and also on the camera side as well.

No I'd say, it's a very valid question and it's something that you observe in some facts on some trends that is materializing. Some index in this is going up but I believe that the 2 books, we have and.

Professional and very expense organization, we have in our planning and supply chain and manufacturing organization that are used to manage some inflationary pressure as allow us to mitigate and edge.

Inflationary pressure and contain correct contained cost inflation into.

On the roofs.

Now when and as this happens and.

On the specific salary sticks are specific material, we are engaging with our customer using the contract terms, we have to leverage on adjustment and we have done so success through several customers. So we are confident that the combination of.

Supply chain capability to it.

Global and local leverage and the customer Centricity engagement approach, we have ability to.

Sit and discuss commercial terms give us.

Give us the ability to support this and continue to try for a while then expand our margin.

Awesome.

A quick follow up here.

Probably pause.

When we think about free cash flow, obviously, it is going to be accelerating.

As you get into 2022, you'll be doing deleveraging as you talked about paying down some debt.

But at what point should we think about incremental cash coming back to shareholders, probably a dividend first and then maybe buybacks, but is there a certain leverage ratio.

We should be looking at or thinking about.

Guys targeting.

Before you kind of think about increases.

Yes, yes, so we chase we do have a target leverage ratio at this stage it is.

Going down to less than 2 times net debt to EBITDA now with strong cash flow performance and the EBITDA expansion.

We are quite confident that we can achieve these targets sometimes by the end of 2022 now we will of course need to continue investing in our core business to fully reap the benefits of its growth cycle that we.

We'll be done with the same discipline, we are exercising today and within the target range of <unk>.

5% to 7% for the operating part of our Capex, excluding EPS in multi client.

Accounting for this however, we will still generate significant excess cash flow throughout the cycle.

This is of course very good news it gives us optionality in our capital allocation.

Equally to execute our strategy and to fund on new horizons of growth.

Now whether it relates to our core portfolio our expansion into digital on new energy.

Any new investment will be looked at on the strict lengths of all return based capital allocation framework beyond that indeed, we will continue to review our shareholder on distribution policy.

Based on the sustainability of cash flows and potential exceptional cash inflows for example proceeds from <unk>.

Divestitures. So this is where we will take it.

Alright, perfect I'll turn it back over thanks, everybody.

And our next question is from Scott Gruber with Citigroup. Please go ahead.

Yes, good afternoon, great quarter.

Thank you Scott.

So just a quick clarification question to start.

On the 10% free cash conversion rate relative to revenues, we should be including the tax refund. When we think about the conversion rate for the full year is that correct.

Yes, you should actually but you have a few offsets not necessarily in the same quarter on but we continue to to pay severance payments.

I am talking about offsets to the tax refund scope. So we continue to pay.

On severance payments with the tail end of the process is finished but we are still payments coming so when you put all of it together on the tax refund is not.

Is not fully year plus now.

Excluding.

Exceptional items going opposite way tax refund and sovereigns, we can actually still generate.

10% plus free cash flow margins, we should be exiting now that we have the tax refund for sure.

Gotcha Gotcha.

Yes.

Hello.

Price to see the well construction share gains in the U S is simple profitable was that carnival on 1 platform.

Higher oil prices from a possible while loans.

Pay up with new technology.

The continued share gains potential onshore, we welcomed platform or elsewhere, even in light of.

Projects will drag on the <unk>.

Are you seeing gains with private label.

Some color on U S shaking potential would be great.

Yeah, No absolutely Scott, we're very proud of this achievement and let me give you the 3 drivers for it.

In terms of top line growth first and foremost performance in the way we execute on Athene has led to free.

Cementing drilling directional drilling a bit.

On a market share gain with both private and with.

Operators public operators in the U S. The second factor is that as you remember as part of our North America strategy people that we did initiate 2 years ago, we accelerate our technology access, giving access of fit for basin technology to some local.

The company that then.

And then using hunting or buying equipment and using it to serve their local customers.

Most of the year, if not exclusively private.

So this has been going and quarter on quarter on this is helping us to reach market and expand our market share beyond what we could do to our service.

And finally as I mentioned in my in 1 of my response earlier, we had some gunshots well.

Our performance went as high demand on <unk>.

On drilling equipment was seen as unique to 2 delivery curve and so.

We could extract some some pricing plus in premium so the conversion of these 3 delivered this 30 plus.

Quarter on quarter top line delivery far outpacing the day count growth. So there are some exceptions as always but I would expect that the dynamic and directionally. This to continue going forward packet market share gain.

From a impressive good to hear thanks for the color.

Thank you.

Next we go to Connor Lynagh with Morgan Stanley. Please go ahead.

Yes. Thanks.

I wanted to ask about labor, obviously, you have to take from the challenging decision to reduce your workforce dramatically last year.

Curious as we as we now look back towards growth, how well positioned are you to to capitalize on on the market demands.

Have excess labor do you need to hire substantially and I'm, particularly curious in international regions, where you may have some more.

Long cycle constraints on that.

Yes, it's a very good question on it's something that we're working out.

To continue to make progress, but I think in a nutshell I think.

The step change we did in some of the operational environmental personal practice, including digital operation.

There is opportunity to response.

The first peak of this cycle without deploying.

The same.

So Seth as we had in the past tense getting direct efficiency gain as we mobilize and go with the cycle going fall then already initiated some.

On some geographies, where we had more on double digit growth as I mentioned, we had access to some resource that we on boarded during.

During the quarter to respond to the contract we are winning so the long cycle actually nature of international who will give us a bit more long term visibility.

To this to this condition, hence our market.

Our market approach is to target.

Specific geographies and business line, where we believe we can be generating accretive returns on growth and prepare for its mobilizing ahead. The resource on moving resources to address those so I think we are in a mobile access to talent, we are using lots and at scale. This remote operation. So it is a challenge for us to respond to.

High demand, but we believe that we have no part and on the operational.

On them on to make it a success.

Thank you that's helpful context sort of similar question, but on the deal or equipment side of things basically I am wondering if you could.

Based on your expectations for how much activity will grow over the next call. It 6 to 12 months as you look on some of the more differentiated markets and the more consolidated supplier markets middle East offshore et cetera.

Do you feel that there is adequate equipment.

<unk> continued growth beyond that point do you feel the capacity will be tightening significantly free.

Okay, Sir thanks.

I think in the early part of the cycle I think.

We will use in the industry would use the excess supply that came from the compression of activity that came through the last 2 years.

But again, we have damaged professionalize, our planning and supply organization and.

From the come on to the asset that we have to deploy I think we are trying to take a long term view and scenario based view on on a future looking beyond the 12 months horizon and on starting to prepay on put some options. So that we can respond to this growth going forward too early part will not net.

The steady Kate tightness, but the mid cycle for sure before the mid cycle. This.

This will create the conditions for a tightening supply and hence some pricing condition.

Thank you I'll turn it back.

Thank you.

Next we go to Neil Mehta with Goldman Sachs. Please go ahead.

Morning team. The first question is around portfolio optimization.

How do you guys weigh in on how you're thinking about the path for asset monetization. Thank you.

Canada, maybe the middle East what are the opportunities and how large could that market be for first 1 less day.

So look Neil Hi.

As it relates to the to the divestitures.

We disclosed last quarter.

Ips assets in Canada, It's both are progressing as planned by the way so in Canada, we have more than 10 parties.

It really looking at the information in our data room, and we plan to receive first round offers by the end of next months. Good news is that the economics keep on improving so we are hopeful we can achieve.

A successful transaction.

<unk> Likewise progressing we are negotiating with the shortlisted bidder on they have.

<unk> well do due diligence on it's going as planned.

So I think really these other 2 divestiture loans you know that we have over our equity positions, where we have options for monetization in the future.

Such as obviously brought this stake but this is something we will do.

On the timing and the magnitude will look at them in due time.

Okay, Great and then we appreciated the comments you made on Saudi broadly, but maybe you could just step back and talk about OPEC plus including.

Other regions within within that cartel or.

Outside of OPEC, how are you seeing activity trends here.

What role do you think Schlumberger sort of play in terms of.

Building out capacity that they are talking about.

I think first we have a.

So privileged market position.

With most of the emphasis in this opex plus consortium.

We are seeing across the broad.

Spectrum of these.

See the activity.

Activity starting to build back.

The seasonal rebound.

Playing strongly in Russia, and we expect as I said this short cycle to recover from the next.

2 to 4 quarter as the demand will be lifted.

The constraints will be lifted and we see that more than 1 or 2 countries you would actually commit to this.

<unk> cash.

<unk> extension and we have the footprint we have.

The relationship we have the fit for basin too.

Average and then to respond to this capacity buildup and this growth opportunity in those from Russia to <unk>.

I feel confident that this market share pursuits that.

As the market comes back from.

From 'twenty 2 'twenty 3.

We'll be giving us an opportunity to leverage our market position and move up.

Thanks, Patrick.

Thank you.

Next we go to ruin GRM with Jpmorgan Chase. Please go ahead.

Yes. Good morning, maybe just a follow up to Neil's question on NFC.

I guess you are seeing some positive activity trends from the Nlcs and would you characterize these activities. Thus far is just more regarding sustaining capital requirements or are you seeing any potential mix shift in terms of increasing.

Productive capacity.

Again, we did note some increases I guess on the exploration side in terms of your revenue base.

Yeah, I think as I commented before you have to distinguish firstly, the gas and the oil market and on gas market I think the activity has been more sustained and has seen a.

Our significant commitment to accelerate the north field developments on extension. So that has been very positive and we have the benefit of that exposure.

On the gas remained steady and supported elsewhere.

The mix between short term is mostly short cycle in anticipation of the supply.

Constraints relief and for 2 or 3 of the country that passed back to the as you can see they have already made public commitment that we will.

They would expense and they will.

Possible at scale into the pasta was 3 balance if you like of the.

The supply in mass spec to the capture of international share supply.

Into 2020 free so that will mean.

The plant that will materialize from planning from contact.

And from execution into 2022.

Great Great Olivier you recently provided some longer term outlook comments for new energy, citing call. It a 10% kind of growth CAGR as you help your clients Decarbonize.

Was wondering if you could give us some thoughts on maybe the baseline for that long term forecast and areas of your transition a technology portfolio that youre seeing perhaps the greatest traction as.

As we sit here today.

Yes, let me first clarify on not mixed in the same on that.

Same umbrella the new energy portfolio that we have developed with a purpose to create a new chapter beyond.

On a GAAP plus about skating to the energy transition from idle Gen..2 Ccs and June energy on lithium as you have heard.

From the transition technologies that we believe are very pertinent to the decarbonization of our oil and gas industry, helping our customer to reduce their footprint to footprint to reduce net <unk> emissions and in this context, we are.

We are focusing on flaring elimination of addiction.

And you are using impacted on the overall wireline technology to avoid turning the fruits.

To the surface and burn and dispose at crew training and due to the reservoir characterization and testing in <unk>, if you like and Thats a unique technology that has significant impact on both efficiency and on the Seo to footprint for everyone using it.

And we are looking at maintained.

Milton emission detection and containment and we are looking at as you have seen in the press release this morning.

Also the.

<unk>.

<unk> membrane that are super performance for larger gas treatment. If you want to do to do still to secure and capture so you have these 2 aspects of that.

The transition technology will come on line to play and most of the customer Amit asking us whether we can add them in.

Congratulation on engagement on to meet.

Methane detection flaring or other techniques that any net to reduce significantly the footprint of Cotwo every operation on their scope 3 attributes like in addition to the scope 1 direct emissions and then independencia and that that will be part of our technology growth sector of adoption in the quarters to come.

And then longer term.

Built on a new energy portfolio that we are building and then Hans we have.

I need to build this we will grow at scale from <unk> to Ccs.

And by on energy with sales used for the heating and cooling buildings.

On to Leach on pollution is the pellets that we are initiating and a contribution from Panasonic gives us the opportunity to do so so those are 2 different avenue for growth short term and long term.

Thanks for the fulsome answer I appreciate it.

Thank you.

Next we go to Tommy Moll with Stephens. Please go ahead.

And thanks for taking my questions.

On a good morning Tommy.

I wanted to start on your digital on integration margin.

Your second your incremental this quarter was with a notably higher versus the trend in it and an impressive 1 at that.

Fair to say that.

Full year for 2021 ought to be shaping up above the 30% type of range that we talked about last quarter.

And then.

As you look beyond.

Are there any kind of through cycle or a normalized way you would frame the incremental margin opportunity for us there.

So so look to me as it is shaping up to be slightly above the.

The 30%.

At this level. We are we are happy on the way we felt it built on in Q2.

There is a bit of seasonality actually.

On the software and maintenance sales.

Which are lower in Q1, so it's kind of normal to see a nice uptick between Q1 and Q2. So however throughout the year on a full year basis, yes will be.

It will be a bit above 40% now this is the kind of margins, which.

Throughout the cycle. This is a fixed cost business so as we accelerate.

The deployment of our digital solutions and the adoption improves.

We could see margins.

Increasing from there so.

It's quite a healthy business and this is why we are focusing on it basically.

Thank you that's helpful. And then I wanted to follow up with a big picture question on your new energy strategy.

If you think about from a strategic standpoint.

You are the largest.

Service.

You're the largest platform globally with with the oil and gas incumbent.

What if any advantages does that confer on you vis vis some of the smaller pure place attacking some of these markets the scale on the customer relationships that you have.

And then if you also think about the other side of the equation where.

On their cost of capital and they in fact would be much lower than yours. So.

Do you potentially have a different algorithm by which you decide how to allocate capital across these opportunities. So how do you think about when to put capital to work versus.

<unk>.

When the when they ask may be a little bit too rich and youre going to preserve dry powder for another opportunity.

No very good question I think first first and foremost I think let me highlight that I think 2 different I would say factor that will indeed leverage on our current platform first is the global deployments capability. We have we can industrialize and ship technology and deploy technology anywhere in the world.

And we have done through for homeowners and 80 or 90 years and I think <unk>.

T K.

<unk> franchise in a big country from technology developed century, or we develop locally I think is something that is unique and athene that differentiate from many of the pure play.

On the relationship we have on our customer base, we have today.

We will be.

Cash on Lee and I think we'll be in a sense of the SEC S, where our customer have an opportunity to participate on some of the downstream operation where they have.

Carbon capture or blue androgen opportunity will be on opportunity for us to continue to work with that customer base on expense and at the same time. Some of these companies are turning into integrated energy company that will also participate at scale in the same market as we do so that relationship would be useful, but I will more.

I will say highlight the global deployment capability.

When it comes to capital allocation capital deployment, I think it's very difficult to pinpoint 2 specific here I think we will again.

Continue to mature this this venture prepare for scale as we start to.

We see progress on our milestones price on our partnership and progress on our business model on the supply chain model that are quite different from the 1 we expense today and then in that context, we will make the appropriate capital allocation.

Decision.

To be accretive to our long term growth and to our returns.

Thank you I appreciate it and I'll turn it back.

Thank you.

And ladies and gentlemen, our final question comes from Marc Bianchi with Cowen. Please go ahead.

Thank you.

Olivier you mentioned the return to a 100 million barrels of of consumption.

And sort of a share shift from from North America, and international where the oil is coming from I'm curious if you think that.

The international activity needs to surpass 2019 levels to deliver that much oil and what you think the timeline is to get there.

I think in short term the rebalance would it be mostly most it on to the release of the on.

On a spec capacity that exist now if you look at the current production of the U S, which is 1.5 b.

By about above below.

In U S land below what it was in early 2020. These GAAP has not yet been bridge and I think GAAP do not expect this to be breached as we exit 2022. So they will be on income out of oil supply that we reported on international market that the market can.

Can deliver today, but for sustainability in 'twenty, 3 and 'twenty 4 the market will have to commit.

Capacity hence.

This is a reason why in middle East some of our country Uct's future commitment capacity and this is the reason why you see the return of offshore and the commitment of <unk>. We have 50 if idea about.

Really.

To date, we expect to be 100 Friday most of them on offshore at the end of the year. This is 50% more than it was last year and the trajectory towards 150 on a 50% income and after that so now going forwards and expanding beyond I would expect within the next 2 to 3 years, obviously with this.

Dynamic and put on international supply will create the flow of activity too rich and or exceed the level of 2019 activity within that timeframe.

Okay, great very helpful.

Separately on <unk>.

You mentioned EPS, a couple of times on AR and.

In the press release.

It sounds like maybe activity has ramped a bit in Canada, where you have a bit more oil price exposure.

Just curious how investors should think about the sensitivity to oil price from Aps at this point and then if you do have a successful transaction and solve the business just.

How material of a shortfall in cash flow with that create just needs to be what we're seeing right now.

I'll take these questions. So look the actually the activity sales didn't really change in activity here is more measured in terms of.

Production of corn, so we did have a bit of a.

Have a nice windfall on.

On the increase the <unk> in the second quarter from from our Canada said, but it's in the Grand scheme of things, it's not material.

In Ecuador, Oh by the way at this level of stability.

<unk> on either a fixed or when they are valuable we are capped and we have passed that GAAP. So there's very little.

Sensitivity to oil price.

At this level besides besides Canada.

Now.

It makes it a very good time to actually.

It is our assets right at.

It does generated cash flow.

Lately because of the oil price and the investment level, we put in.

Historically, it's a net assets that requires quite a bit of capex.

So when we when we close the transaction, which we don't see a.

The big impact on on cash flow and we will get of course.

Hopefully a very good proceeds from the transaction.

Wonderful thank you very much.

Thank you speakers I'll turn the conference back over to you for closing remarks.

Thank you very much.

So to conclude the call I would like to leave you with few key takeaways.

First our second quarter results clearly demonstrate both the strength of our market position vascular internationally with sequential growth in all divisions and basins.

And our significant operating leverage resulting in more than 200 basis points of operating margin expansion internationally with all divisions contributing significantly.

So on the activity and customer trends observed during the quarter reinforce our conviction and an increasingly favorable outlook for broad recovery across all basins on operating on diamonds and with a much improved contribution from new technology adoption.

Third and up some further COVID-19 setbacks impacting activity on economic rebound, we are confident that the momentum for this up cycle, both North America and internationally will continue during the second half of 2021 and will lead to another quarter of growth and margin expansion.

As a consequence, we remain confident in our second half guidance sure previously for international growth and have increased our confidence in our full year margin expansion and cash flow generation.

Finally, as recover Ed the condition assets from exceptional growth cycle in response to the call for supply in 2022 and future demand growth in subsequent years.

This will increasingly favor international supply impacting land and offshore short and long cycle globally.

Ladies and gentlemen, our returns focused strategy international footprint digital decarbonization, and new energy strategic initiatives.

Highly differentiated and we support our outperformance ambition throughout the cycle and beyond as we continue to write a new chapter for the company.

Thank you very much.

Yeah.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.