Q3 2021 Schlumberger NV Earnings Call

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.

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.

I'd like now to turn the conference over to the Vice President of Investor Relations ND Maudemezia. Please go ahead.

Thank you, Dan, good morning. And welcome to the Schlumberger limited third quarter 2021 earnings conference call. Today's call is being hosted from the Schlumberger Bowl risks out there in Boston. Following the Schlumberger Limited board meeting held earlier this week. Joining us on the call are Oliver Le Peuch, Chief Executive Officer, and Stephan Biguet, Chief Financial Officer.

Thank you, Dan, good morning. And welcome to the Schlumberger limited third quarter 2021 earnings conference call. Today's call is being hosted from the Schlumberger Bowl risks out there in Boston. Following the Schlumberger Limited board meeting held earlier this week. Joining us on the call are Oliver Le Peuch, Chief Executive Officer, and Stephan Biguet, Chief Financial Officer.

Thank you, Dan, good morning. And welcome to the Schlumberger limited third quarter 2021 earnings conference call. Today's call is being hosted from the Schlumberger Bowl risks out there in Boston. Following the Schlumberger Limited board meeting held earlier this week. Joining us on the call are Oliver Le Peuch, Chief Executive Officer, and Stephan Biguet, Chief Financial Officer.

And welcome to the Schlumberger limited third.

Note that 2021 earnings conference call.

Today's call is being hosted from the Schlumberger Bowl risks out there in Boston.

Following the Schlumberger Limited board meeting held earlier this week.

Joining us on the call.

Chief Executive Officer, and Steve <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, uncertainties that could cause our results to differ materially from those projected in these statements. I, therefore refer you to our latest 10-K filing and our other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our third quarter press release, which is on our website.

These matters involve risks.

What uncertainties that could cause our results to differ materially from those projected in these statements.

I, therefore refer you to our latest 10-K filing and our other SEC filings.

Our comments today May also include non-GAAP financial measures.

Additional details and reconciliation to the most.

Directly comparable GAAP financial measures can be found in our third quarter press release, which is on our website.

With that, I'll turn the call over to Olivier. Thank you, Andy and good morning, ladies and gentlemen, thank you for joining us on the call. Prepared remarks today I will cover three topics our first-quarter results, our view of the near term, Michael and the exceptional growth opportunity ahead of us. I will then share some insights on the middle East and offshore markets and view of the 2022 growth outlook. Stephane will then give more details on our financial results and we'll open the floor for questions. The first quarter results further emphasize our returns focus, consistent execution and the advantage mix of our portfolio. Momentum was sustained and we delivered our fifth consecutive quarter of margin expansion, achieving the highest pre-tax operating margin since 2015 and cash flow from operations in excess of $1 billion.

Prepared remarks today I will cover three topics our first quarter results.

Our view of the near term, Michael and the exceptional growth opportunity ahead of us.

Then share some insights on the middle East and offshore markets and Treasury.

Of the 2022 growth outlook.

Stephane will then give more details on our financial results and we'll open the floor for questions.

The first quarter results further emphasize our returns focus.

<unk> execution and the adult age mix of our portfolio.

Momentum was sustained and we delivered our fifth consecutive quarter of margin expansion, achieving the highest pre tax operating margin since 2015 and cash flow from.

In excess of $1 billion.

Let me share with you some performance highlights from the quarter across our core digital and new energy. In our call. First margin expansion was led by well construction and it does have a performance where we've probably seen the sequential growth opportunity driving operating margins in both these divisions above mid-teens. The highest levels in the last three years. We're really quality improved boosted by favorable activity mix and higher new technology uptake that delivered strong margin expansion.

In our call.

First margin expansion was led by well construction and it does have a performance where we've probably seen the sequential growth opportunity driving operating margin.

Operation in both these divisions above mid teens.

Highest levels in the last three years.

We're really quality improved boosted by favorable activity mix and higher new technology uptake that delivered strong margin expansion.

Internationally, we recorded growth in all three areas with revenue up 11% year on year, consistent with the ambition of double-digit revenue growth compared to the second half of 2020. International margin further expanded exceeding pre-pandemic levels. The highest since 2018. In North America revenue growth was sustained albeit impacted by transitory supply logistics disruption. Margin also continued to expand with operating margins firmly at double digits.

Year on year, consistent with the ambition of double digit revenue growth compared to the second half of 2020.

International margin further expanded exceeding pre pandemic levels.

The highest since 2018.

In North America revenue growth was sustained albeit impacted by transitory in supply logistics disruption.

Margin also continued to expand with operating margins firmly at double digits.

Finally, we are pleased with the very sizable activity pipeline secured during the quarter to competitive tenders direct awards and contract extensions some of which include net pricing improvement. [inaudible] performance integration capabilities and technology.

All.

Percent nausea that performance integration capabilities and technology.

This will enhance our market position creating a long date of activity and a platform to further our new technology adoption and digital deployment strengthening our leadership as we enter an exceptional bull cycle. We are delivering on the promise of our performance strategy, which is increasingly impacting our top and bottom line results, both North America and internationally.

We are delivering on the promise.

This helped us almost strategy, which is increasingly impacting our top and bottom line results, both North America and internationally.

As the cycle accelerates, we will leverage our advantaged platform to capture the exciting growth and outperform the market and our goal going forward. Moving to digital we continue to [inaudible] our platform strategy quarter, expanding the offering to the acquisition of independent data services and a strategic investment in <unk> to further advance our digital technology offering and the adoption of AI solutions in our industry.

Moving to digital we continue to.

<unk> of our platform strategy quarter, expanding the offering to the acquisition of independent data services and a strategic investment in <unk> to further advance our digital technology offering and the adoption of AI solutions in our industry.

In digital production operations, we announced the partnership with Aviva to expand powerful edge and IT solution to defeat complementing our go off platform and sensor solutions.

<unk> solution to defeat complementing our go off platform and sensor solutions.

And then digital drilling we successfully completed the first fully automated 600 offshore at the Hebron platform for Exxon moving cut in Canada as you have seen in this morning's earnings release.

These achievements are a significant step for our industry, Australia offshore and signals and momentum opportunity to apply digital technologies to create a step-change in well construction safety, performance and carbon footprint.

<unk> significant step for our industry, Australia offshore and signals and momentum opportunity to apply digital technologies to create a step change in well construction safety.

For months and carbon footprint.

As shared recently, we are seeing the adoption of digital solution accelerating our industry and once we are in the early innings. We're excited about the prospect of conditioning the majority of our software customer base of over 1700 companies to our digital platform during the next few years.

Is this about the prospect of conditioning, the majority of our software customer base of over 1700 companies to our digital platform. During the next few years.

These growing adoption will generate an expanding set of digital revenue streams over a long horizon as we transition every customer to new digital solution for the data, workflows and operations.

Excited workflows and operations.

Moving to new energy, we advanced our portfolio by taking a position in stationary energy storage to a strategic investment in Avenue, a company with differentiated metal hydrogen battery technology. This represented new opportunity set and an expansion of total addressable market in a sector with significant growth opportunities.

In terms of total addressable market in a sector with significant growth opportunities.

Putting the success of the pellets in our technology started in France since two synergy a secured five commercial contracts in Europe. This is a significant achievement in the commercialization roadmap processes as a low carbon solution for heating and coding buildings contributing to global efforts in reducing emissions.

Putting the success of the pellets in our technology started in France since two synergy a secured five commercial contracts in Europe. This is a significant achievement in the commercialization roadmap processes as a low carbon solution for heating and coding buildings contributing to global efforts in reducing emissions.

And coding buildings contributing to global efforts in reducing emissions.

To conclude on this quarter performance, we once again demonstrated excellent progress in our strategy that cushion across our portfolio supporting outstanding results and I want to thank the entire <unk> team locally for delivering another strong quarter, but for their unwavering efforts to create enduring value for customers and our shareholders. Now I'd like to turn to the near term, Michael and a growth opportunity ahead of us.

Strong quarter, but for their unwavering efforts to create enduring value for customers and our shareholders.

Now I'd like to turn to the near term, Michael and a growth opportunity ahead of us.

The market fundamentals as improved steadily throughout 2021, especially over the last few weeks with gas price obtaining recent highs volturi at their lowest level in recent history regarding demand and encouraging trends in the pandemic containment efforts.

Throughout 2021, especially over the last few weeks.

What I am desk price obtaining recent highs volturi at their lowest level in recent history regarding demand and encouraging trends in the pandemic containment efforts.

This strengthening industry fundamentals combined reduction of OPEC, plus and continued capital discipline in North America are firmly established the prospect of an exceptional multi year <unk> ahead. In the international markets or regions are set to benefit from this highly favorable environment something not seen internationally since the last two best cycle.

Weeks.

It's an exceptional multi year <unk> ahead.

In the industrial end markets or regions are set to benefit from this highly favorable environment something not seen internationally since the last two best cycle.

This expansion will occur at different paces across different basins operating environments and customer groups. Good thing in a sustained multi-pronged growth cycle. Our broad exposure across these different dimensions puts us in an advantage position to fully sees this growth opportunity. For example, these Gulf inflection is already visibly underway in Latin America sparked by the resumption of exploition and utilization of long cycle [inaudible]. Our activities are strengthened throughout 2021 and revenue in this market is already at 2019 pre pandemic levels. Year to date revenue growth North America is up 30% with broad activity growth across multiple countries, including Argentina, Brazil, Ecuador and Rihanna.

Postbank customer groups.

Good thing in a sustained multi pronged growth factor or.

Our broad exposure across these different dimensions puts us in an advantage position to fully sees this growth opportunity.

For example, these Gulf inflection is already visibly underway in Latin America sparked by the resumption of <unk>.

<unk> and utilization of long cycle Diploma Opex.

Activity strengthen throughout 2021 and revenue in this market is already at 2019 pre pandemic levels year to date revenue growth North America is up 30% with broad activity growth across multiple countries, including Argentina.

And Brazil, Ecuador and Rihanna.

This growth is expected to strengthen further in the coming years due to ongoing long secular development campaigns. [inaudible] in the Middle East where activity has been more subdued in 2021 the market conditions are set for a matter of uptick of activity in the coming quarter. The combination of short cycle activity to meet supply commitments strategic all capacity expansion and the acceleration of gas development projects will result in a significant increase in investment throughout 2022 and beyond.

<unk> costs in the Middle East where activity has been more subdued in 2021 the market conditions are set for a matter of uptick of activity in the coming.

Our transceivers.

Combination of short cycle activity to meet supply commitments strategic all capacity expansion and the acceleration of gas development projects will result in a significant increase in investment throughout 2022 and beyond.

Our recent success in tender awards as detailed in our earnings release strengthened our market position and strong presence and commitment will benefit the most from this exciting outlook in the region.

Our market position and strong presence and commitment will benefit the most from this exciting outlook in the region.

In the offshore markets were also set for a strong resurgence this cycle. The activity grew for the third sequential quarter internationally and is expected to build on a notable increase in [inaudible] in the coming years. Advanced new technology digital and integration of driving performance impact of short.

Hey, good activity grew for the third sequential quarter internationally and is expected to build on a notable increase in development.

In the coming years.

Advanced New technology digital and integration of driving performance impact of short.

From discovery to well construction, production and recovery and are creating the conditions for offshore operators to invest with confidence in this cycle. North America, the [inaudible] in the Gulf of Mexico, where we have significant market presence will drive additional offshore growth as operator kept their eyes on the advantage of this prolific basin and its existing takeaway infrastructure and extract more value from the core upstream position through exploration and tie backs. Taking these factors together abroad offshore resurgence reserved from Ioc's building on that advantage hubs independence fast-tracking development under a recently acquired asset and MLC unlocking the gas and ore reserve recovery potential.

North America, the minimal assumption.

In the Gulf of Mexico, where we have significant market presence.

We'll drive additional offshore growth as operator kept their eyes on the advantage of this prolific basin and its existing takeaway infrastructure and extract more value from the core upstream position through exploration and tie backs.

Taking these factors together abroad.

Offshore resurgence reserved from Ioc's building on that advantage hubs independence fast tracking development under a recently acquired asset and MLC unlocking that gas and ore reserve recovery potential.

Our technology digital enablement and integration capability, a critical advantage in this market on balance and are resulting in significant new contract awards, both internationally and in North America. Finally, we're extremely pleased with our customer reception of our transition technology portfolio and the accelerated adoption of this technology that reduce the carbon impact of oil and gas operations. This portfolio is focused on [inaudible] emissions and electrification and is already helping customers decarbonize the fruition advancing our net zero ambition and strengthening our sustainability the ship in the industry. Some example of this impact are cited into highlights.

Our resulting in significant new contract awards, both internationally and in North America.

Finally, we're extremely pleased with our customer reception of our transition technology portfolio and the accelerated adoption of this technology that reduce the carbon impact of oil and gas operations.

This portfolio is focused on <unk> emissions.

And and electrification and is already helping customers decarbonize the fruition advancing advancing our net zero ambition and strengthening our sustainability the ship in the industry. Some example of this impact are cited into highlights.

Turning to the fourth-quarter outlook. Directionally, we anticipate another quarter of growth with an ambition for growth across all divisions. Growth will be led by production systems, and digital integration benefiting from a year and a priest compared by typical seasonality as our performance in well construction. This should result in an overall sequential growth rate similar to the prior quarter. With this fourth quarter outlook, we expect to reach our double digit international growth ambitions for the second half of 2021, when compared to the second half of 2020. It will also translate into full year revenue growth both internationally.

Directionally, we anticipate another quarter of growth with an ambition for growth across all divisions.

<unk> will be led by production systems, and digital integration benefiting from a year and a priest compared by seasonal.

Typical seasonality as our performance in well construction this should result.

In an overall sequential growth rate similar to the prior quarter.

With this fourth quarter outlook, we expect to reach our double digit international growth ambitions for the second half of 2021, when compared to the second half of 2020. It will also translate into full year revenue growth both internationally and in north.

And in North America after adjusting for the effect of divestiture. First quarter operating margin of recent highs our ambition is to sustain this level of margin performance in the fourth quarter.

<unk> first quarter operating margin of recent highs our ambition is to sustain this level of margin performance in the fourth quarter.

Consequently, on a full-year basis, we remain confident in obtaining the hands of our guidance of 250 to 300 bps EBITA margin expansion and mixing and foundation for expansion in the year ahead. Now I would like to close my prepared remarks, with our earliest view of 2022. Against the backdrop of the constructive on balance as described earlier.

Consequently, on a full-year basis, we remain confident in obtaining the hands of our guidance of 250 to 300 bps EBITA margin expansion and mixing and foundation for expansion in the year ahead. Now I would like to close my prepared remarks, with our earliest view of 2022. Against the backdrop of the constructive on balance as described earlier.

Its function and mixing and foundation for expansion in the year ahead.

Now I would like to close my prepared remarks, we fall earliest view of 2022.

Against the backdrop of the constructive on balance as described earlier.

Our confidence in the onset of an exceptional growth cycle is greenfield. Yes. At this early point in the planning cycle and absent of setback. Economic and political recoveries, we anticipate very strong global upstream capital spending growth.

Yes.

At this early point in the planning cycle and absent of setback.

Economic and political recoveries, we anticipate very strong global upstream capital spending growth.

This growth will impact or basin.

Every operating environment short and long cycle activity and all customer groups.

Groups North America.

We anticipate capital spending growth to increase around 20% impacting both the onshore and offshore markets.

Internationally growth momentum will strengthen and early indications point to strong capital spending growth in the low to mid teens driven by both short cycle activity.

For onset of multi year capacity expansion plans.

Sure performance strategy, we have strengthened our position across multiple dimensions.

If America, we have enhanced our market position and our bias to accretive both onshore and we benefit from strong growth offshore in the Gulf of Mexico.

And <unk> in the international.

National markets, where brick to multiyear pipeline of strong activity in the most politic basins that will lead the industry by responsible in oil and gas.

More importantly, we have enhanced our earnings growth potential significantly as demonstrated by multiple quarters of margin expansion in North America operating margins are prime to exit.

And at the highest level since 2015.

Which compete with the Fargo market position I just I've. Just described is an excellent platform for margin expansion.

Internationally. We're also set for purely the margin expansion as we exit 2021 with margin above pre pandemic levels.

The combination of.

The European growth and operating leverage we support durable margin expansion.

Additionally, through our fit for basin and transition technologies and capacity tightening, we see favorable condition for broader net pricing net gains in the coming years.

In both North America, and the international markets.

Finally, as a result of our digital platform strategy ongoing customer adoption, we anticipate an acceleration of our digital journey.

Sitting in attractive revenue and earnings growth.

Consequently, we expect margins to expand further in 2022 supporting material earnings growth potential and.

Any confidence in achieving our mid cycle adjusted EBITDA margin ambition of 25%, Ohio, and sustaining a double digit free cash flow margin throughout the cycle.

I will now pass the call to Stephane.

Thank you Olivier and good morning, ladies and gentlemen.

Fourth quarter earnings.

I encourage of share excluding charges and credits was <unk> 36.

This represents an increase of six cents compared to the second quarter of this year and an increase of 21.

When compared to the same period of last year.

In addition, we recorded in the first quarter of <unk>.

Gain relating to a startup company, we had previously invested in.

This company was acquired during the quarter and as a result, our ownership interest was converted into shares of the publicly traded company.

Overall, our first quarter revenue of $5.

<unk> increased 4% sequentially.

Pre tax operating margins improved 120 basis points.

215, 5% and have now increased five quarters in a row.

Margins expanded sequentially in three of our four divisions.

<unk> been.

With very strong incremental margin in both reservoir performance and well construction.

This performance was due to a favorable geographic mix driven by continued international revenue growth.

As well as a favorable technology mix, we've increased the exploration and appraisal activity.

<unk> and new technology adoption.

Companywide adjusted EBITDA margin of 22, 2% in the quarter increased 90 basis points sequentially.

It is worth noting that this margin expansion was achieved despite the well.

<unk> cemented disruptions in global supply chain systems, and inflation in select commodities and materials as well as in logistics.

Through our global supply chain organization, we are successfully engaging with our suppliers and customers to jointly navigates inflationary trends.

We are collaborating with our customers to optimize planning and where applicable to make the necessary adjustments through existing contractual clauses or negotiation.

As a result, so far we have largely been able to shield ourselves from the inflation effects.

As the growth cycle.

Nicole accelerates, we will continue to be proactive dynamically adjusting sourcing strategies.

And leveraging our diverse global manufacturing footprint and supply network.

Let me now go.

Through the third quarter results for each division.

First quarter digital and integration revenue of $812 million was essentially flat sequentially.

As lower sales of digital solutions were offset by higher Ips revenue.

Pre tax operating margins increased to 154 basis points to 55%.

Largely as.

As a result of improved commodity pricing in our Canada Aps projects.

With our well performance revenue of $1 2 billion increased 7% sequentially with.

This revenue growth was entirely driven by higher international activity.

Margins expanded 202 basis.

Points to 16%.

Largely due to higher offshore and exploration activity as well as accelerated new technology adoption.

Well construction revenue of $2 3 billion increased 8% sequentially due to higher land and offshore drilling both internationally and.

And in North America.

Margins increased 230 basis points to 15, 2% due to the higher drilling activity and a favorable geographical mix finally.

Production systems revenue of $1 7 billion was essentially flat sequentially while margin.

Margins decreased 27 basis points to nine nine vessels.

Now turning to our liquidity.

Cash flow from operation was once again strong as we generated $1 1 billion of cash flow from operations and free cash flow of $671 million during the quarter.

This represented a significant sequential increase when adjusting for last quarter was exceptional tax refund of $477 million.

We paid $42 million of severance during the quarter, excluding these payments.

The working capital impact on our cash flow was neutral despite the revenue.

Revenue increase.

This was driven by a very strong DSO performance.

We expect the fourth quarter to show another quarter of strong free cash flow generation.

Which positions us favorably to achieve our ambition of delivering full year double digit.

Free cash flow margins.

As a result of the strong cash flow performance net debt decreased sequentially by $588 million.

$12 5 billion.

During the quarter, we made capital investments of 399 million visa.

This amount includes capex.

Next investments in Aps projects and multi clients.

For the full year of 2021, we are now expecting to spend approximately $1 6 billion on capital investments.

In total during the first nine months of the year, we have generated over $2 7 billion.

Cash flow from operations and $1 7 billion of free cash flow.

As a result, we have been able to progress significantly on our commitment to deleverage the balance sheet. This is evidenced by the fact that gross debt has decreased by almost $1 5 billion since the beginning of the year.

Net debt as a ready to use is reduced by $1 4 billion during the same period.

Overall.

I am very pleased with our cash flow performance and the progress we are making towards strengthening the balance sheet. This will provide us with greater flexibility in our capital.

Here.

I will now turn the conference call back to Olivier.

Thank you Stefan.

So I think we are ready for the Q&A session.

Thank you, ladies and gentlemen, if you would like to ask a question. Please press. One then zero on your telephone keypad, you will hear acknowledged.

Knowledge that your line has been placed in Q U may also remove yourself from the queue by pressing one zero again.

One moment please for the first question.

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

Hey, good morning Olivia.

Morning, John.

So olivier.

Five sequential quarters.

Orders in a row of margin growth and really strong execution.

Do you think about or how are you considering or planning for.

Continued strong execution as revenue starts to really accelerate.

As we go into next year.

Thank you James for the question Indeed, we're very very proud and very satisfied with.

The last five quarters have demonstrated.

Ability to leverage.

Sure.

Restructuring offer high grading and the foundation of put in place during this reset.

<unk> operated in the last.

18 months.

Furthermore, I think the looking forward as the cycle unfolds.

There are two or three characteristics that are that will play favorably and that will help us continue to expand the margin as we have seen in the last quarter.

So first.

And believe that the market outlook will cut favorable market environments.

Exposing.

The basis, where we have strong position internationally.

And in particular bit resell offshore as I commented in my prepared remarks.

Secondly, I believe that.

Performance still matter and we met increasingly hence our technology offering fit for basin transition technology.

And integration capability will continue to make a huge impact will create that premium for service in both well construction reservoir performance and pollution.

<unk> system digital we see an acceleration going forward as you have seen that we have continued to evolve progress and mature our digital platform strategy in Europe in the last innings of developing this strategy on the platform on the foundations and we are now seeing increased adoption and acceleration and we expect that as.

As I shared earlier.

Earlier that this will be increasingly accretive to growth and earnings going forward and.

And finally.

As the revenue.

The activity both internationally and in North America will will increase.

This will tighten the market and credit conditions.

For pricing so when you combine this favorable market exposure.

The Coca Cola, we have the digital adoption that gives us a premium and a performance differences and integrated contact with digital we have the formula for.

Supporting our ambition for 25% or higher.

EBITA margin by mid cycle.

Right, Okay, great that's very helpful.

And then a follow up on that on the digital side business will be the first cycle, where you will see digital as a big part of the business.

As you alluded.

Alluded to widespread adoption will be happened yet.

See the growth cycle with that adoption. How do you think that plays out is it going to allow you to I mean, obviously margins will be part of it the velocity to grab more market share I mean, what are the what does digital do in an up cycle.

Especially a strong one like where projected.

I think.

I'd like to think that we are a result of our success and our investment in leadership momentum <unk> acceleration of diesel adoption by customers through.

Workflow data and digital portion of offering and you are seeing at MLR. This being announced every quarter and you will continue to see this unfolding.

Across the different customer groups and across different geographies. So this remains a critical growth in 2022 to our top line by the digital the digital offering we have.

The second aspect is the long tail effect beyond the second half.

I believe that.

The effect is certainly we lost.

The very significant size of our customer portfolio.

The fact that customer.

Going into it over the long run we are seeing multiple effect of revenue stream.

<unk> deployed across.

Typical quarters in which per year across the different customer group we are addressing.

And finally this is generating margins that are accretive to earnings and will be and continue to help us operate DNI.

Both 30% mature it and.

So we'll.

Adult into our ability to extract from digital.

Okay.

On our own operations, partially integrated performance, where construction was over four months.

The ability to extract more efficiency enhanced to expand and support margin expansion on those divisions.

Great very good thanks Louie.

Thank you.

Our next question is from David Anderson.

<unk>. Please please go ahead.

Hi, good morning.

I wanted to ask a couple of questions about the unconventional contracts that you announced in Saudi in Oman.

Could you just help us understand the pricing mechanisms. There are these lump sum as a baseline of stages per day and also just curious where you're sourcing all its equipment do you have all this equipment does it require.

With bark capital just talk a little bit more background on these contracts. Please thank you.

I think the this contract.

<unk> integrated complex.

We have been winning on our value proposition based on performance demonstrate the efficiency and ability to deploy technology that make an impact execution.

Required we do have the capacity in place we have demonstrated two pilots on oil tool engagement that we had before that you could deliver.

<unk> performance that the customers are expecting and we have passed it accordingly.

During the last the last few years that we have improved our ability to engage.

Digitalize operation and work with customers to get these integrated compact bitter SDK or other b to b.

Performing and delivering.

The margins in earnings we need so we will continue to extract value from from these from.

This call talked about.

First time, so we're very proud of Wingo is complex.

Just on performance they are based on technology and our team on the ground. They have done a great job of demonstrating we could take these contacts and create value for customers and our process.

And then in terms of the equipment required do you need to add equipment do you do you need to build out at all.

No. We have started to mobilize this equipment. So that we are already in place and obviously.

This will put equipment.

The place, where we have but we have the equipment in place and we're able to deliver upon the upon the committed contract. We have we are taking on both streamlining and Saudi.

Saudi.

And.

So.

My other question is around offshore youre seem to be a bit more optimistic than most on the offshore market you announced several awards recently are you confident enough to say we're at an inflection point you think in offshore spend which I would think would be quite accretive to your margins with higher utilization was subsea and also all the technology.

We have in well construction and then you also mentioned digital as well could you just kind of talk a little bit about maybe kind of how you're seeing this.

Unfolding over the next year or so.

Yes, I think.

Hey, Ben.

Constructive about the auction environment for a couple of reasons first because the social environment has been strengthening.

<unk> steadily for the last few quarters and Thats been the rig activity has been increasing lately and I think we have in the offshore international market gold being growing in the mid teens.

Year on year and edge to edge too. So that's proof that this activity converting to revenue opportunity.

I think the.

The offshore markets, both budget internationally have been going and rebounding in the last the last.

The full two to four quarter, but now looking ahead and looking at the activity, we see a lot of.

Leading indicator.

Firstly if.

If you look at the.

And actually if any of this year or if you look at a projection of.

<unk>.

Some of it with Max production recently showing.

Showing that it will be in excess of 100 billion.

Offshore RFID, most likely assumption by the end of this year and that will almost double next year.

Out of this 50% of that can be deepwater so.

Acceleration of EFI.

Back to the 2019 level that is on the horizon and that is a result of.

<unk> going to exploit that advantage basin and focusing on the hubs.

The national National oil company exploding and unlocking.

Oil and gas reserve.

But back to the supply and finally, there's been a lot of the.

Asset changing trading hands.

In the last in the last.

A few a few quarter in this.

Internationally independence.

Also pursuing accelerated in default.

We are exposed and the result of that these subsea backlog.

<unk> is growing well above one book.

Book to Bill ratio, and we will certainly be a go.

In year on year in excess of 30 or 40% of bookings from 2021 2020 to 2020 months. So we are.

Indeed.

Quite.

Quite positive and constructive and this plays very well to our portfolio. Because these were well construction reservoir performance in exploration and appraisal in large offshore complex arginine to benefit them. It was very visible during the third quarter. So you can take these as a proxy of the future.

Thank you Olivia.

One big one.

And our next question is from Chase Mulvehill with Bank of America. Please go ahead.

Hey, good morning, everybody.

Good morning, guys.

Good morning, I guess first thing kind of.

Macro kind of higher level question about kind of this investment cycle.

There seems to be this growing narrative out there that.

The oil and gas industry is going to continue to Underinvest. This cycle given the disciplined narrative of the E&P industry and also kind of this energy transition focus.

Obviously, you talked to more E&P.

E&P.

The oil and gas producers than probably anybody worldwide.

And so given the commentary that you expect exceptional growth in a multiyear cycle in the oil and gas industry.

Obviously.

Leads.

You to believe that there is not going to be this under.

Submit going forward. So maybe if you can kind of provide some color around this in thoughts around the disconnect between some investor perception that youre not going to see a reinvestment cycle.

Going forward.

I've been the commission set a.

It's a unique combination.

We are living with we're living with.

From the reserve.

On the investment.

In the last five to seven years at combined with.

A reset that's we are expensing industry during 2020.

And also.

And then if it is capital discipline not to ignore.

As America when you combine these and look at the <unk>.

The month outlook that we surpassed.

To the GDP growth.

<unk> for the next two or three years that we surpassed the 2019 level sometime.

A mixture I think the result of which will cater.

International supply.

Well Kate.

Mississippi for investment in our industry.

No.

The question is simple.

I don't anticipate a deficit of supply if there is no reinvestment into R&D, yes.

You have seen that.

Many.

<unk> have signaled that they are set to reinvest into their capacity going forward.

The AUC is concentrating on their advantage basins, there will not be the one leading the growth in the second but it would be the one pursuing still advantageous basis to generate the cash they need.

To transition to new energy the independence.

Taking benefit of this position.

We did some some.

<unk> assets and developing those assets, we foresee both in support of the entire industry to participate to the supply so I think.

The clinician asset.

I believe that this demand will have to be to be met with supply and discipline cannot come with inventory cannot come with only raising the opex spare capacity more will have to be built and C will cater activity growth in the coming in coming years and it.

It is not only a shopping in 2022.

And that is.

Talked about this capacity expansion in middle East.

Long term project that will have a long tail effect beyond the 'twenty two 'twenty three are lighter.

Okay perfect just one quick follow up just some clarification on your guidance.

Fourth quarter I think you said.

Margins was that flat consolidated margins or was that flat for each segment in other words, if you run the mix could actually margins because favorable mix could margins be up.

Now I will turn to change we don't disclose and we don't guide on down to the Cannula Division I think we are.

Thinking about.

Flattish.

Margin global margin.

And.

And his answer maintaining very high margin and exiting and exiting <unk>.

Mid teens globally for the company is operating margins and the same level of EBITDA margin. So that's the.

What matters for us is the heat rate.

And the implication of this exit rate as we enter 2022 plus.

Platform as a foundation for margin expansion going forward.

So the mix is.

Giving us this result of AV flato about.

Mid teens margin and that's what the ambition.

We're proud of this maintaining this level of margin.

Okay, perfect I'll turn it back over thanks, Luke Thank you.

Our next question is from Arun <unk> with Jpmorgan Chase. Please go ahead.

Yes, My first question is Olivier.

Three.

We have 1 billion barrels of productive capacity offline from OPEC.

And as the cartel methodically brings back this output caught in four it could be the increments.

Your thoughts is this creating any near term service opportunities for you and I was wondering if you could maybe elaborate on any shifts.

To form globally in spending from maintenance Capex type of spending to growth in productive capacity oil and gas and what this means for Schlumberger.

Yes, I think.

The OPEC plus will continue to reduce this income out of oil to the market.

To be behind behind the supply curve.

Beyond the demand curve.

We are continuing to see an increase of intervention activity short cycle activity.

It's starting to materialize in the in the <unk>.

In the OPEC plus.

The countries, where we are seeing mobilization of <unk>.

<unk>.

Similar.

<unk> as you have seen lifting and pollution lat-lons activity. So that's that's the effect on short second this will also include.

Rig mobilization to do some industry drilling.

Start to support this and come up with a bias for their country that have the capacity.

Stimulates expense fast and this return into more long cycle.

Both the gas development is accelerating and you have seen.

Jeff for announcements from Sony.

And the contribution of large cuts in the middle East and elsewhere as well as the commitment.

Two or three countries.

In the business, particularly around the expansion of production capacity.

<unk> capacity towards the ryzen of 'twenty, four 'twenty 'twenty seven depending on the country. So.

What you talked about as an impact on short cycle, but this is an underlying.

Activity growth.

Both coming from long cycle as well.

And our next question is from.

Ron do you have any follow up.

Okay.

We will move on and we'll go to the line of Connor Lynagh with Morgan Stanley. Please go ahead.

Yes. Thanks.

Just on the first point here I just wanted to return to Chase's question and just think through some of the dynamics in the fourth quarter here. So I would think with digital being an area that you called out is.

Particularly strong in the fourth quarter as well as some activity growth or youre expecting it would seem.

Assuming that supply chain issues aren't getting worse that you would naturally have some some expansion in the margin in the fourth quarter. So I'm, just curious what I'm sort of missing in that framework.

What type of issues.

We're accounting for.

No I'd say, it's a mix effect I think you have to account for two two.

Do you expect first production system that had some.

Logistics and supply related.

The delay in the delivery will have a sizable catch up in the fourth quarter in this.

<unk> segment, where we are very happy with that double digit margin and spread for margin expansion. This would be in the mix slightly dilutive to our to our margin overall.

And that will offset some of the what you could expect from digital fulfillment and while we expect a stronger stronger.

Our sales, but also you have to add to the mix. The fact that you are.

In going to the seasonal effect in northern hemisphere and to lower mix of exploration appraisal that would have an effect on our seasonality of performance.

It is.

Something that we that happens every year.

And where the first quarter is typically the high margin quarter due to this type of our offshore exploration or because of mix.

<unk> declined four one or two quarter before it rebounds strongly.

Every every spring so thats when you put this mix together your result into maintaining.

The margin at the level, we're putting which is something remarkable and entering 2022.

High ground.

That's helpful context, thank you.

Second one is a higher level question here. So you did have some integrated projects you disclosed in the press release.

As we think about this this portion of your business I mean, it certainly has been characterized by yourself and peers is probably the later area, where we're going to see pricing improvement, but I guess my question is effectively why.

It seemed to me that the service companies that can really execute that kind of large scale integrated work.

Work is a very short lift and it seems like theres a lot of value to be delivered to the customer from that type of contract. So why isn't this an area that we should be more excited about over the next year or two here.

No.

It does remain competitive due to the sheer size of this contract.

But until the capacity in the.

The market is.

His question is tightening I think you will see though the market remains competitive announcing <unk> compact, but our capital discipline.

Activity growing in all basins.

Is that due to credit condition for <unk>.

Tightening and hence a lifting under on the core pricing.

<unk> of our offering now we are still very satisfied with this these awards because we have demonstrated that we through integration.

Through technology, including digital and technical we have been differentiated in our ability to sustain.

Outbound.

Income from those compact MK devalue, we need to.

To elaborate the margins.

Alright, Thank you I'll turn it back.

Thank you and.

Next we have a question from Scott Gruber with Citigroup. Please go ahead.

Yes, good morning.

Good morning, Scott.

Good morning morning.

I was wondering if youre feeling better about your mid cycle, 25%, plus EBITDA margin target, which seems warranted given the backdrop here, but if I just look at consensus estimates at least the market believed.

It would take you a while to achieve so if you kind of extend consensus assumed.

<unk>, 10% annual growth in 'twenty, four 'twenty, five and extend it to 30% ish type of Incrementals.

The market is forecasting in 'twenty two 'twenty three.

It would actually take about five years to get to 25% plus EBITDA margin do you think you can outpace 30% incrementals.

Over the next few years and hit that 25% margin faster than five years.

I think firstly, it's not the amount of.

But when Eaton exceed this 25% of EBITDA.

We have been doing it robin that of being over 30% recently.

The market condition as we foresee.

See for going forward as I've commented earlier.

Level with the right basin and operating on bundled mix that is very low to me.

Margin margin mix.

I think there is adoption.

<unk> through integration and digital operation.

<unk> digital.

Denise senior operating the condition.

Before pricing kicks in.

Can you give us the.

The outlook of positive outlook and constructive outlook on leased so that would indeed.

Ambition to achieve this before five years.

Okay.

And do you think you can get there without much pricing the pricing.

As always you know take a while to kind of move across discrete products into into the bundled contracts and then kind of into your average selling price. You think you can get the other drivers and get there faster without much pricing.

Some of the some of our comments today.

Okay.

Putting and elevating the performance of all divisions to their highest level in <unk>.

<unk> is a law.

Through portfolio grading North America already a proof that we can move our margins through execution.

Execution through performance through hydrating visibly.

So can we move.

I think pricing, we'd only accelerates the time by which this would be met.

We are still constructive that we'll achieve this.

Independent of pricing and that pricing will come as a boost to innovate beyond 20% to 25%.

Got you great to hear thanks for the color.

Youre welcome.

Our next question is going back to the lineup of Rune <unk> Ryan. Please go ahead.

Yes, thanks for letting me back thanks for letting me back in so Olivia a year to date <unk> reduced debt by about $1 5 billion.

I wanted to get your thoughts on how you're thinking about the priorities for free cash flow generation.

Between cash return the dividend and the balance sheet and also how you're thinking about <unk> investment in Liberty now that the lockup recently expired.

It is our own logo our immediate priority remains.

The deleveraging of the balance sheet and yes, we've progressed quite well and we are very happy with it. So now we do have a clear line of sight to achieving our two times net debt to EBITDA target leverage and we said we should do that by the end of 2000.

Okay.

We view owning the expansion, we are expecting and visa growth cycle and our continuous focus on capital stewardship, Yes, we will continue to generate significant excess cash in the next few years. So.

This will allow us to maintain a healthy balance sheet and it will give us the flexibility.

80 to increase.

<unk> two shareholder as well as for new growth opportunities.

As it relates to our returns to shareholders. This is something we will continue to review with our board of directors the cycle unfolds.

The deleveraging of our balance sheet accelerates.

And as it relates to new growth opportunities, we will weather.

Digital towards new announce any new investment we will continue to look at under the strict lengths of our returns based capital structure framework. Your question on.

Liberty clearly we are happy with the transaction, we made no more than a year ago, we are benefiting from the.

Alrighty, covering North America, the significant appreciation of our <unk>.

Equity stake there.

Yes monetization is.

He is clearly an option the timing and the pace and the magnitude of this decision will be based on.

The market conditions and the outlook, but we'll make sure we do.

We'll optimize it basically.

Thank you.

Yeah.

Next we go to the line of Roger read with Wells Fargo. Please go ahead.

Yeah. Good morning, Thanks for good morning. Thanks.

Thanks for having me on here.

I guess I'd like to come back to the 25%.

The region Gulf for EBITDA, but think of it maybe slightly different way.

<unk> got obviously, the typical cyclical recovery.

Utilization Youll get some pricing you talk about digital as one of the big separating factors and I was wondering if.

As you look at the goal of the 25.

<unk>, maybe a weighting of where you think that could go if he thought what would be normal for utilization normal for pricing and then digital on top it is it a third a third a third is it 50 50, I'm just kind of curious.

How we should think about that coming through.

I think it would be difficult.

To give you a precise actually because it will depend on every division and almost in every geography, depending on our mix.

Outlook, we foresee, but suffice to say that the single voting virtually didnt need being a base for margin expansion to the way, we execute with efficiency using.

Our digital transformation to execute and expect performance from our execution so that debate.

Above that will replace the digital the technology first and take those mix adoption from fit for basin that are highly differentiated and successfully innovating.

I will include the condition technology that are starting to emerge as a unique differentiator and it will include also the integration delivery performance and integration of contact and then indeed you are correct.

Our digital expansion will be favorable.

So I think.

These three years, we think but I don't want to be.

And starting to be trying to.

Create a.

Boundary between these I don't think it's appropriate and I think it will depend on the every basin and every division will have a different trajectory, but we're confident that across the portfolio we have.

Considering.

The international mix sourcing the offshore considering the technology adoption that is coming back I think this.

We have the path forward.

Okay, great. Thanks, and then just an unrelated follow up I was curious you talked about a lot of major projects and so forth globally.

Sin.

Obviously, some pretty extreme pricing.

LNG and natural gas overall, so if you just kind of looked at natural gas as a as a driver on the project side or the activity side anything globally, you could say it looks like its improved over recent months of recent quarters.

Or anything on the sort of larger project side there.

Okay.

Got it guys is is is therefore, a long long time as a critical supply.

As a transition period as well so I think you'll.

You'll see that the existing reserve beat on.

Commercial conventional offshore and onshore.

Will be commercialized by.

Customers as long as they have a path to market to LNG or they have a path to market two pipelines. So we see this accelerating <unk> seen some of the critical announcements we made this morning relating to <unk>.

Sure offshore.

Unconventional and conventional gas developments and we see that as a trend that is not not about to stop now with accelerates I think the the gas supply demand balance this year will recover a little bit next year, but we will continue.

Strength strong trajectory going forward.

Sure. The other shoe country that are committed to accelerate that gas condition. MDI study. The most visible one that will step changed the consumption of gas and will then participate to fuel gas.

Gas demand and.

What he says.

<unk> industrial players domestically so there is domestic.

While the gas.

As a as an engine of growth for gas beyond the current the current mix and.

Some specific security supply.

Our supply that will trigger some.

Some gas development.

From existing gas development.

Mr short cycle activity, so I'm optimistic.

Very very pleased with the.

The guys are contact we have been winning this quarter.

Thank you.

Thank you and our next question is from Waqar Sayed with ATB capital markets. Please go ahead.

Good morning, Thanks for taking my question.

Olivier just one broader question.

You've given us some good guidance on.

We've seen capital spending.

National markets and North American markets for next year now with respect to exploration budgets in particular do you see the growth rate.

Exploration spending in line with them.

Otherwise global spending on higher or lower.

It's too early to.

To give to give a specific guidance for exploration, where we sit for exploration is that we are seeing two things coming back we are seeing some SUS.

<unk> activity coming back.

Including that add some proof that the seismic boat.

Utilization is going but what is more critical is the near field exploration.

Is is triggering a more activity and exploration going forward as everybody wants to get.

Get better return on the existing infrastructure.

To tie back and hence we have seen some licensing realm as well so licensing rounds, some seismic survey coming back and exploration near field exploration for future infill or tie back is what we see so to give you a magnitude directionally it will improve and will increase.

But to give you might at least too early.

Okay, and then with respect to the Aps business previously there were some plans for asset divestitures.

Are those plans on hold or are you still pursuing those.

Look for.

We're careful Aps assets in Canada.

We discussed previously we have received no firms.

Volumes commercial constructs and now we have addressed in the process of evaluating the potential merits and risk associated with those proposals.

So this is what we're doing now in the meantime, we are of course managing this asset.

Optimize cash flows.

Which is in.

In the current commodity pricing environment and it generates quite a lot of gasoline.

Okay.

Thank you very much appreciate the answers.

Welcome.

And next we go to the line of Neil Mehta with Goldman Sachs. Please go ahead.

Thanks, So much team I just wanted to go back to Aaron's question on deleveraging as you think about the right at the optimal capital structure.

Is two times net debt to EBITDA is still there.

Normalized way you would think about the business and based on the visibility you have on the cash flow.

When do you think you'll be in a position to hit that target.

It's a good question Neal.

Is two times.

The right level you could you could argue it's it's a good level throughout the cycle now.

And up cycle with the cash you generate the excess cash.

Cash.

We would probably be happy to go below two times and it will give us.

The required flexibility as I said to to look at growth additions.

Additional growth opportunities and potential incremental shareholder return. So we may not stop at two times, we can take visa and intermediaries.

No.

And we.

Two times will just be an average Roe of the circulation.

Is the right level.

Yeah.

The follow up is just on the digital business he's spending a lot of time talking about it on this call but.

Do you think the company will ever get credit.

Yep.

The digital business, which is highly valuable terrific margins embedded within a more volatile services and technology business does the does that asset ultimately belong outside us.

Your core business and I look at Emerson and it has been the transaction.

Credit recently did try.

Try to put a better marker on the value of digital it's a it's a high level question, but I'm curious on what the optimal way to showcase the value of that businesses.

No first of all we will continue to pursue we haven't been investing too.

The digital platform.

Using it bullshit.

But externally.

We are.

Critical customer of the panel upon us and we will continue to trust us for the future.

So we are using it.

Accelerate our growth be accretive.

On our growth and our returns and whether we're getting the right value I think is up to Youtube.

Tony review and give us the multiple imaging port expansion that we deserve for this I think we have been so far demonstrating.

Enough margins.

Margins.

Stained margins to this we anticipate the growth to do not come to play visibly in the coming years and I think our leadership and this is wilco.

And yes, I would expect that this will be turning into a premium.

For valuation.

Okay. Thanks.

Thanks, guys.

Thank you ladies.

Sure.

Go ahead please.

I believe it's time to call I'm not sure that we have time for another question.

No further time, you may conclude okay.

So thank you very much so I would like to conclude the call and I would like to leave you with a few key takeaways.

First during the first quarter, our growth momentum was sustained both internally internationally and in North America and drove peer leading margin expansion.

Operating leverage advantage market position and increased technology adoption.

<unk> generated sizable free cash flow, allowing us to materially reduce our net debt.

Our performance in institution, a proven integration capabilities, and our differentiated technology and digital portfolio increasingly resonating.

Lift truck estimates and observe that in <unk>, but it was during the quarter across middle East.

<unk> and <unk> development basketball, all critical markets as the upcycle unfolds.

Thirdly, we are confident that the momentum of this up cycle will continue allowing us to close this year with another quarter of revenue and earnings growth.

19, resulting in full year sequential growth internationally and pro forma formica and full year margin expansion on the high end of our guidance.

Finally, with the backdrop of strengthening demand in the energy markets. The macro conditions in Kissimmee set to unexceptional admitted multiyear growth cycle unfolding broadly during.

2022, both internationally and in North America, and the resulting significant earnings growth potential for Schlumberger.

Ladies and gentlemen, I could not be more satisfied with our Carthage decretion progressed to date.

<unk> of our entire team and delivered the trust of our customers I look forward to the coming quarters with increased confidence.

Our returns focused strategy execution as created the conditions for unique outperformance in our core and digital offering at the onset of this up cycle.

Debating a systemic commitments and accelerating our new energy strategic initiatives. Thank you very much.

Ladies and gentlemen that.

Includes your conference for today. Thank you for your participation and for using AT&T teleconference Service you may now disconnect.