Q4 2021 Schlumberger NV Earnings Call

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Ladies and gentlemen, thank you for standing by welcome to the Schlumberger Earnings Conference call. At this time all participant lines are in a listen only mode. Later, there will be an opportunity for your questions 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, today's conference call is being recorded I would now like to turn the conference over to N D. Madhu Amaze, Yeah, the Vice President of Investor Relations. Please go ahead.

Thank you Lisa good morning, and welcome to the Schlumberger limited fourth quarter and full year 2021 earnings conference call.

Today's call is being hosted from Houston following the Schlumberger Limited Board meeting held earlier this week.

Joining us on the call Olivia Leigh Parrish, 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 refer you to our latest thank you 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 fourth quarter press release, which is on our website with that I'll turn the call over to Olivier.

Thank you Andy ladies and gentlemen, thank you for joining us on the call today.

In my prepared remarks, I will cover our Q4 results and full year 2021 achievements.

Thereafter, I will follow with our view of the 2022 outlook and some insight.

Due to our near term financial ambitions.

Stephane will then give more detail on our financial results and we will open for your questions.

The fourth quarter Westcott, guys by broad based activity growth with continued momentum in North America activity acceleration in industrial markets and that kit and a captive offshore market contribution.

Both of which we delivered strong sequential revenue growth of six consecutive quarter of margin expansion and outstanding double digit free cash flow generation.

These financial results conclude an exceptional year of financial performance for full measure.

At a pivotal time for the company.

And in our industry at large.

Underlying these results are referring highlights from the quarter.

Geographically sequential growth in North America exceed exceed rig activity growing in excess of 20% offshore and international revenue growth accelerated closing the civil now for 2021 up 12.

12% versus the prior year.

All international areas supposed to growth driven by gains in more than 75% of our international business units.

By Division revenue in all four divisions grew sequentially and.

And when compared to the same period last year.

Digital integration led growth posting double digit sequential growth and record high margins.

Political friction and because of our performance I'll put them in a service oriented divisions outperformed expectations with strong sequential growth and approximately 30% growth year over year on a pro forma basis.

Pollution systems, we call it Joanne cells, which drove mid single digit growth, though partially impacted by logistics change.

Operating margins expanded in spite the seasonality effect improving further beyond Cleveland <unk> levels.

I'm trying to we generate the outstanding cash flow from operation exceeding $1 9 billion in the quarter.

Although I am very pleased with our operational execution, our safety performance and our financial results Trudeau saltwater.

Now let me briefly reflect on what we achieved in 2021.

In our call we fully your portion of that is a returns focused strategy leveraging our new division and business organization to seize the stop of the upcycle.

In North America. This resulted in full year of topline revenue growth, excluding the effects of divestiture and significantly expanded margins achieving double digits. One of the finish of the targets we laid out in 2019.

Internationally. We also grew the top line and expanded margins significantly as international activity strengthened in the second half of the year.

This also resulted in for your international margins that exceeded 2019 levels.

Taken together these margins reserved in the highest global operating margins of the last six years.

Getting an excellent foundation for further expansion as activity accelerates and market conditions further support plus improvement.

In digital our second engine of growth I'm very proud of the momentum we established during the year.

We advanced on our goals to expand market access and exited with adoption of our platform AI capabilities and powerful digital tools to reduce cycle time improve performance and lower carbon intensity.

We built partnerships to achieve compounds with cloud access globally collaborator. This AI innovators to deploy machine learning and AI solutions and enabled digital operations through automation of key workflows in well construction and production operations.

At the end of 2021, we have more than 240 commercial.

Key customers pick ordered more than 160% did see user growth year over year, and so more than tenfold increase in compute cycle intensity and our digital platform.

We also made CW <unk> data business stream and digital operation advancing always do commercial offerings autonomous drilling and the adoption of <unk> edge, AI and Iot solutions with great success.

The Q4 results, including significantly taken digital service and sizable income alter margin a clear Testament of this success.

<unk> New energy, we continued to advance.

We continue to advance the development of clean energy technologies and low carbon projects in.

In 2021, we took a position in stationary energy storage expanding our total addressable market and advanced all of our venture in halogen lithium Jonah energy and a suite of <unk> U S opportunities, including our bioenergy Ccs project.

Some notable milestones achieved include the signature of gout pilot agreements with agenda, our hydrogen adventure with a seller mittal user deck, Zika and had immix, leading company in steel and cement.

And he says I'll Julien as you venture we secured five commercial contracts in Europe , and one in North America for our prestige unit.

University campus.

This was also pivot pivotal year for us in terms of our commitment to sustainability.

Announced a comprehensive 2015 net zero commitments inclusive of scope three emissions and launched the transition technology portfolio to focus on the big amortization of oil and gas abortion with much success.

<unk> <unk> rating by MSCI.

ESG top perform a world by heart energy Coke organizing our sustainability efforts and enhanced disclosure and our commitment to apply our technology and capabilities towards helping the world meet future energy demand.

In summary, 2021 was a great year for <unk>.

Beyond this a bunch of online financial results and our ESG accomplishments, we made excellent progress in our core digital and new energy. The three engines of growth that support our success now and well into the future.

Above all I'm, most proud of our people the unique ability to execute he mobilizing operation across the world with new moves funding constraints adapting the logistics and supply chain dynamics and setting new performance benchmark.

All of which the whole condition of our customers.

I would like to thank the entire team for delivering a year of outperformance on every metric. This surpassed all of our target this year and created external momentum as we enter 2022 for which I would like now to share our outlook.

Looking ahead, we have increased confidence in our view of robust mid tier market growth.

Tight oil supply and demand growth beyond the pre pandemic peak.

Projected to result in a substantial step up in capital spending.

It's shrinking spare capacity declining inventory balance and supportable price.

In addition, we expect more pervasive semi supply chain improvements in response to market conditions as technology adoption increases while service capacity tightens.

In essence, 2022 review periods of Congress short cycle activity resurgence driven by improved visibility in the demand recovery and greater confidence in the oil price environment.

And as all demand exceeds pre pandemic levels in the 2000, and 2023 and beyond long cycle development will oakmont capital spending growth in response to the colon supply.

This demand led capital spending growth sets the foundation for a strong multi year upcycle.

Indeed, this scenario has already been established as the number of <unk> increases service pricing as begun to improve and multiyear long cycle capacity expansion plans have started basketball internationally and offshore is seen during the last quarter.

Turning to 2022 more specifically, we expect an increase in capital spending of at least 20% in North America and <unk>.

In both the onshore and offshore markets, while internationally capital spending is projected to increase in the low to mid teens.

The momentum from a very strong exit in the second half of 2021.

All area animal protein environment short and long cycle, including deepwater I expected to post strong growth with upside potential as we move from disruptions dissipate as the outlets.

In this scenario increased activity and pricing will drive similar Dennis double digit growth both internationally and in North America that will lead our overall 2022 revenue growth to reach mid teens.

<unk> is to once again expand operating and EBITDA margin on a full year basis.

<unk> EBITDA margins at least 200 bps higher than the fourth quarter of 2021.

In this context and Michelle how we see the year unfolding.

Directionally, while we are still expense from Covid related disruptions, we anticipate typical seasonality in the first quarter with revenue and margin progression similar to historical sequential trends, which will be seen most prominently and digital integration.

This will be followed by a strong seasonal uptick in the second quarter across all divisions with growth further strengthening through the second half of the year supporting our full year mid teens revenue growth ambition and EBITDA margin expansion.

These growth and margin expansion trajectory give us further confidence that we will reach or exceed our mid second ambition of 25% adjusted EBITDA margin before the end of 2023, leading to adjusted EBITDA that should visibly exceed 2019 levels in drop downs.

With this I will now turn the call over to Stephane.

Thank you Olivier and good morning, ladies and gentlemen.

Fourth quarter earnings per share excluding charges and credits was <unk> 41.

This represents an increase of five <unk> compared to the third quarter of this year.

End of <unk> 19 cents when compared to the same period of last year.

In addition, we recorded a net credit of one.

Bringing GAAP EPS to <unk> 42.

This consisted of a <unk> gain relating to the sale of a portion of our sales in Liberty oilfield services.

Offset by a one cent loss relating to the early repayment of $1 billion of notes.

Overall, our fourth quarter revenue of $6 2 billion increased 6% sequentially. All divisions posted sequential growth led by digital and integration from a geographical perspective International revenue grew 5%, while North America grew 14%.

Pre tax operating margins improved 51 basis points sequentially to 15, 8% and have increased for six quarters in a row.

This sequential margin improvement was driven by very strong digital sales, which helped sustained overall margin despite seasonality effects in the northern hemisphere.

Companywide EBITDA margin remained strong at 22, 2%.

Which was essentially flat sequentially.

Let me now go through our fourth quarter results for each division.

Fourth quarter digital and integration revenue of $889 million increased 10% sequentially with margins growing by 268 basis points to 47, 7%.

These increases were driven by significantly higher digital and exploration data licensing sales, which were partly offset by the effects of the pipeline disruption in Ecuador that impacted our Aps projects.

Reservoir performance growth further accelerated in the fourth quarter with revenue, increasing 8% sequentially to $1 3 billion.

This growth was primarily due to higher intervention and stimulation activity in the international offshore markets.

<unk> were essentially flat at 15, 5% as a result of seasonality effects and technology mix largely driven by the end of summer exploration campaigns in the northern hemisphere.

Well construction revenue of $2 4 billion increased 5% sequentially.

Due to higher land and offshore drilling both in North America and internationally.

Margins of 15, 4% were essentially flat sequentially.

As the favorable combination of increased activity and pricing gains was offset by seasonal effects.

Finally production systems revenue of $1 8 billion was up 5% sequentially largely from new offshore projects and yearend sales.

However, margins decreased 85 basis points to 9%.

Largely as a result of the impact of delayed deliveries due to global supply and logistic constraints.

Now turning to our liquidity.

Our cash flow generation during the fourth quarter was outstanding we delivered $1 9 billion of cash flow from operations and free cash flow of $1 3 billion during the quarter.

This was the result of a very strong working capital performance driven by exceptional cash collections and customer advances.

Cash flows were further enhanced by the sale of a portion of our sales in Liberty generating net proceeds of $109 million during the quarter.

Following this transaction, we hold a 31% interest in Liberty.

On a full year on basis, we generated $4 7 billion of cash flow from operations and $3 billion of free cash flow.

We generated more free cash in 2021 than in 2019, despite our revenue being 30% lower.

This is largely attributable to our efforts over the last two year relating to the implementation of our capital stewardship program and the high grading of our portfolio.

As a result of all of this we ended the year with net debt of $11 1 billion.

This represents an improvement of $2 8 million compared to the end of 2020.

We are proud to say that net debt is now at its lowest level over the last five years.

During the year. We also continued to reduce gross debt by repaying $1 billion of notes that were coming due in may of this year.

In total our gross debt reduced by $2 7 billion in the last 12 months, thereby significantly increasing our financial flexibility.

Now looking ahead to 2022.

We expect total capital investments consisting of Capex and investments in Ats and exploration data to be approximately $1 922 billion.

As compared to just under a $1 7 billion in 2021.

This increase will allow us to fully sees the multiyear growth opportunity ahead of us while still achieving our double digit free cash flow margin objectives.

We are entering this growth cycle with a business that is much less capital intensive as compared to previous cycles. As a reminder, during the last growth cycle.

2009 to 2014.

Our total capital investment as a percentage of revenue was approximately flat.

We are therefore, well positioned to fully reap the benefits of this growth cycle with the potential for enhanced free cash flow margins and return on capital employed.

With this backdrop I would like to emphasize that based on the industry fundamentals and positioning of the company that Olivier highlighted earlier, our financial outlook for 2022 is very strong we have high expectations and in 2020 do we expect the triple double.

Consisting of double digit return on capital employed double digit return on sales and double digit free cash flow margin.

It is worth noting that we have not experienced this combination in a single euro since 2015.

Finally, I am pleased to announce that we will hold a capital markets day in the second half of the year.

This event will allow us the opportunity to provide you with additional details relating to <unk> strategy and financial objectives.

For information regarding this event will be forthcoming shortly.

I will now turn the conference call back to what you do.

Thank you Stefan.

So I believe that we are ready to turn.

We'll go to you for any further questions. Thank you.

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 acknowledgment that your line has been placed in Q you may remove yourself 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.

Good morning, James.

So Olivia I liked your increased confidence in achieving mid cycle margins sooner.

Rather than later.

I wanted to dig in a bit.

Why that confidence.

Has increased obviously, we're starting at a bit higher level, but the target is a reasonable target and I'm curious what are the key drivers around that the confidence increase.

Thank you James let me explain why we have increased confidence and I think some payload answer on this question is in the quality of the results were delivered in 2021 as the foundation.

And next I believe that.

The current market condition <unk> supporting our thesis for the budget CAGR growth over the over a few years. So in this backdrop I think we have we believe three or four factors that will help us continue to guide upwards.

Margin expansion Firstly, we set a foundation the foundation, we have put in place in the last 18 months, the operating leverage reset the integration performance execution and the profit aggregating.

Tuesday.

And this was already very visibly impacting the.

The <unk> division well construction and reservoir performance as you have seen throughout the year and Patrick the second half of the second half of last year.

And we saw this shall pass already the 2018 margins performance Secondly, I think the market mix.

The market mix is set to improve and designated to our profit of strength.

Increased offshore activity mix as already started to happen and we expect this to only accelerate as the year unfolds and further into 2022.

The adoption of technology also is accelerating as you have seen including digital but are fit for basin, our position technology and all the technology that extract performance for operation and making an impact today and getting further adoption by customer and giving us a premium.

And finally pricing.

Well a year ago were talking about potential pricing in North America. Today, we are seeing and we are already recording.

<unk>.

Passing improvements in abroad on a broad market condition, both in North America and also internationally. When we are getting awarded new compact as well as when we have to mobilize and deliver unique technology to our customer so.

As the year developed we believe that these attributes are foundation operating leverage a performance that differentiated execution gives us a plenty of them.

Mix.

Our technology adoption success with customer and finally pricing, giving a tailwind to this we'll dive.

And further expand our margin to the 2025, the 25% margin expansion.

So it's not about is not about.

But it's about wind.

And we have gained confidence and we have moved forward our confidence on duties into the 2023.

Okay, Great that's very clear.

Maybe a second question for me as we think about the cycle is really starting to take hold here.

How should we think about the cadence of growth given obviously numbers for 2022, but if we think about it by both geography and by Division.

Where do you see the I guess the the.

The biggest growth.

Or could there be some lagging areas.

Just a little more color on the cadence would be very helpful.

Maybe in one of the world.

<unk> growth will be very broad across all geographical first as a backdrop I think that's that's what we're realizing and that's quite unique and I think you've had to characterize first geographically are they high level I think it's it's possibly the tale of two half with North America, leading the uptick of growth activity.

In the first half international further accelerating in the second half, where we did and on the <unk> of <unk> of 12%. We expect this to be the base in the first half and accelerate further in the second half internationally. So that we are even accelerating into 2023 for international activity.

Okay, Secondly, I believe that if at all.

To characterize what will lead and the accretive to growth.

I will say I'll make us land because of activity uptick, but I will also put.

Offshore on diamonds and these are the three engines of growth that we pull.

This year growth to the target ambition, we have put up mid teens. So now per division Athena service oriented division of reservoir performance and.

Well construction will be accretive to this we expect.

Followed by because they are benefiting from the social environment, they're benefiting from a pricing and they have strong both nam and international presence.

So the ability from long cycle exposure and mix technology mix probable.

In addition, the pollution system will also see growth building on the short cycle exposure to North America and the backlog of contact that we have won in the last few quarter that we would execute towards 2022 funding of digital integration.

It's a two phase of a division here.

We expect the digital to be accretive to our growth while it will be moderated by our visibly motivated by at flattish.

Demand for Aps prediction going forward. So that gives you the mix.

Across the division and across the geographies.

That's perfect. Thanks Lydia.

Youre welcome.

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

Hi, good morning Olivier.

He gave you laid out the margin expansion and kind of how youre going to see that I have a question on the other side of that just thinking about mobilization of large tenders.

And you started on the Jafar our contract to the Middle East, but I guess typically will see in the past is in these mobilization periods through these kind of extra costs that get weighed in.

Just thinking about how that's looking in 'twenty. Two I mean is that something that you think is youre going to have to absorb in 'twenty, two and therefore kind of 'twenty three is sort of another margin uplift there or has that improved pricing in some of these contracts kind of countered some of those mobilization I think you had said something about getting better pricing for mobilization. So.

If you could just comment I think.

I think Dave I think it's part of the mix of execution that we have and I think we always mobilized for new product somewhere in the world.

We are committing to international growth and margin expansion this year.

20.

Last quarter was already.

Adding a witness of CTD cancer.

New project starts yet we have our margins and improve our margins last quarter and we have seen the results of the of the coal division.

So we did it already so I think.

As we accelerate the pace.

<unk>, yes, we are very critically assessing the cost of this startup we are working for customer to minimize we are using.

Ditto operation to him out and optimize our the permanent resource and we believe that what we have done in last quarter. We will continue to do in 2022, So I think directionally.

We are still set to improve.

Margin internationally in 2022 despite.

On this new product so we are very.

They came to start of this new product. We are very proud of the default contract award that we won last year and I think this is part of the mix that we're executing and the more we the more activity in the more growth, we will respond and continue to use efficiency and leverage our polishing operating practice.

To minimize impact and engagement for customers to get the to get full full recognition of all of our investment.

Okay.

On the digital integration side grew really nicely in the top line this quarter.

I was just curious is that related to more new sales of customers or is it more about the adoption pace of your current customers into their workflow and I was just wondering if secondarily. If you could just tell us how much that digital portion grew this year I'm, assuming it outgrew the 8% overall top line, but if you could provide any color on that that'd be really.

I appreciate it.

Yes, let me give you a little bit of a currently suffer first I think.

If I had to characterize I think the uptick we've seen in digital sales at the end of the year is not.

<unk> year end sales effect.

One or two large contract on one or two application and software sales is broad is very diverse.

Touch and expand upon the platform strategy that developed different revenue streams. So it's about new <unk> cloud customer and you have seen we have announced in our progress one more time in last quarter, it's about new hopefully monetization.

In a digital operation between overall, including increased drilling and remote operation and automation, it's about new data business stream, where we have been securing contact for OSU Foundation, where we are the first to commercialize entre.

Enterprise data management solution on this with you and as the follow through on the entrepreneurs contact that we have won in 2021 or in 2020 on Delphi adoption. So it's it's significant it's is relates to the progress we have made in our platform it relates to the acceleration.

Of digital adoption by our customers and diesel this pursuit of digital transformation by customer and it is translate into an uptick in each and every of the diesel revenue stream, we have created and the success from data to workflow and too.

Fruition. So it's diverse it's broad and it's here is multifaceted so it's here to.

To continue to expense.

Positive on this because it's not a one off you.

<unk> year end sales effect, there that we're not we're not repeating in the first quarter, but at the same time, it's something that I see expanding as the platform going forwards and and.

And we are in the early innings of this adoption as we mentioned a quarter ago. We had we have 1700 digital customers and we are in the early innings of deploying and pursuing this large installed base with transform digital transformation.

So.

It's where the first cycle of this digital expansion and digital adoption.

This will continue in 2022 and accelerate beyond.

Thank you.

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

Hey, good morning, everybody.

So in China.

So I guess first question is just kind of around this looming investment cycle that.

You and I and hopefully.

Hopefully investors are starting to realize needs to happen.

You had mentioned that you expect substantial.

The increase in spending this cycle. So maybe you didn't you framed it a little bit, but so could you kind of add a little bit of context about how you see this cycle shaking out what gives you confidence in it and what it means for pricing for Oss.

The competitive dynamics have obviously changed especially in international where it feels like you've got more disciplined less players.

So just kind of frame the cycle and activity and where you see the most opportunity for growth and then ultimately what this could mean for pricing this cycle for all of those companies.

No. Thank you great Great question, I think the fundamental as we see them as not the change and actually some characteristic of the cycle of accelerated I've been excellent traded in recent months. So the first.

The attributes that we put the first is the <unk>.

Outlook of economic GDP growth that considering considering the oil intensity in energy intensity will still and will drive.

The oil demand.

Key attributes beyond.

The previous peak.

No later than the end of this year. According to the latest projection and is set to expand visibly beyond not only in 2023, but.

In few years beyond this so the first is the macro demand situation is set to be favorable for the next the next few years Secondly, I think the.

Supply.

Demand imbalance and supply almost credit crisis that we are facing is pumping not only.

And the uplift on through the commodity price, but also as ponting the investment.

Hey, turn to investment across the broad portfolio of our customers. So you have seen it in North America, No surprise that North America is still and we remain structurally smaller than <unk> due to the capital discipline, but also due to the crunch of supply, including on the services side Secondly.

I think the.

The international under investment for the last the last few years actually the last down cycle combined with the deep in the last two years.

Is creating condition for unnecessary injection of short cycle capital and then long cycle.

Capital investments too.

Bumped to the supply so we are seeing growth in North America, albeit.

We are seeing a rebound visible rebound in short and long cycle investment internationally and I will insist on the long cycle, because I believe that both oil capacity is being looked upon and buy some OPEC member to secure future supply market share but also.

For the international and major are investing into there.

Advantage offshore basin, and we are seeing not only in fill drilling, but we are seeing a friday for offshore that accelerating going forward. So it's a mix of offshore rebounds solid including deepwater.

International short cycle, and all capacity in land and finally.

Solid growth in North America. So these are unique condition that are tightening their capacity and that are heading.

The underlying pricing improvement condition.

Okay perfect I appreciate the color.

A follow up to that would be obviously with this constructive backdrop for <unk> in LFS industry, you've got a wall of free cash flow coming to you.

And so when we look at this obviously you did $3 billion of free cash flow last year.

And it looks like over the next two years that should be growing so how should we think about returning cash household Mercedes is going to return cash to shareholders.

And then how does M&A fit into this capital allocation strategy. Because obviously you are trying to reshape the company for new energy ventures, and things like that as well.

Dresses.

Luke I would like to our exploration on free cash flow. It was it was indeed quite.

Quite strong last year with $3 billion.

Now indeed, we visibly accelerated deleveraging of our of our balance sheet, but we're not quite there yet at the leverage ratio. We committed to so we have a clear line of sight now to achieving the target leverage.

We announced earlier, even though there is still some uncertainty remaining in the start of the year.

Nevertheless, with the market fundamentals consolidating particularly in the second half of the year and into 2023.

Even more confidence indeed, now in generating significant excess cash in this year and beyond so we will we will be able to maintain quite a healthy balance sheet and it will give us the flexibility to increase returns to shareholder as well as fund new growth opportunities. So we will certainly provide a comprehensive framework.

Work for our future capital allocation as part of the capital market day that we announced earlier returns to shareholders are obviously important and increase dividends and buybacks will definitely be part of this equation.

So as it relates to M&A.

We don't answer on M&A is it.

It's also part of what.

We will of course part of the toolbox and we will get more details when we give you a more comprehensive framework again.

Okay look forward to I appreciate the color I'll turn it back over.

Thank you.

Next we go to the line of Arun <unk> with JP Morgan. Please go ahead.

Yeah.

Yes, good morning.

Marginal supply sources are moving from U S shale to OPEC.

I wanted to see if you could frame what kind of changes in spending Pat.

Patterns are you seeing from the NOC is.

Versus call it maintenance work versus.

And things to increase our productive capacity.

I think what we have seen and we are already witnessing today.

And it's visible in middle East, but beyond is the short cycle the return of short cycle activity.

To assure as you said maintenance of friction and with small, but visually can come out of.

Output supply.

We are seeing is as all.

Also.

Our commitment and the semi side in the pipeline to increase all capacity sustained all capacity for <unk>.

A few country committing to participate fully in our laying out the foundation this year and next year into expanding the supply.

But what we should not forget about and especially true for Fob at risk is.

There is also a gas market that is being a very sustained that I've seen reinvestment and it's part of the original dynamic and it is already seeing is continued to see double digit growth. So I think it's a combination of gas market being sustained and having had less setback.

Then in the in the recent time.

Short cycle expansion.

And long cycle.

Long cycle acceleration.

With our new <unk> capacity and this is true from from deepwater Brazil too.

Yeah.

With your investment.

In the current and future investment middle East or Friday, the diner pipeline in Russia, so that.

That's again very broad and that combined short and long cycle and the surety project.

I think 2022 is a supply led.

Our activity rebounds, and 2023 will be a demand led activity growth and.

The capacity expansion the long cycle will forever.

Further contribute going forward into well into 2023.

Great.

And my follow up is.

Our outlook on 2022, Embeds, a 200 basis points.

Year over year margin expansion.

In the fourth quarter, so that would.

If I did my math right that would put your EBITDA margins based on the outlet slightly above 24%.

And so I wanted to ask.

Go ahead, yeah, as we exit as we exit it as an exit rate.

We made the comprising 200 bps or higher as we exit 2022, when compared to the second half or Q4 of 2021.

Particularly knowing exactly.

Exactly okay got it.

So.

As we think about 2023.

Your outlook is that you could.

Reach or exceed a mid cycle EBITDA margin of 25% second half.

And there are several of them right, we are expecting a second half to reach or exceed indeed.

Great Great and I just wanted to comment on the drivers of that would be next and just further pricing improvement.

I think.

As I commented in the previous question I think operating leverage we continue to give us a full true as we continue to.

To leverage the structural change we have done in digital operation Pascua.

The mix will be with long cycle and offshore will continue to be.

Digital.

Part of the technology adoption across the different basins will surpass <unk> remixed forever and finally pricing we'd expense. So I think this is the combination that gives us more confidence that we'll reach this mid cycle prior to previous anticipation.

Great. Thanks, a lot.

<unk>.

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

Yes, good morning.

Good morning.

Good morning morning.

Clearly your capital intensity.

It's going to be down versus last cycle, but just given the potential growth rates that we're seeing.

Coupled with new and peers, keeping a lid on capex. Please.

A piece of the market to be quite tight exiting this year.

Question is key.

Keep capex at a similar level to 2022 as a percentage of sales in the 'twenty three 'twenty four while still riding the multi year growth cycle that we all hope unfolds.

So look as good as indeed, our capital intensity is as reduced quite a bit.

Just because we high graded our portfolio, we extracted more operational efficiencies and we had our capital stewardship program as well with where we deploy assets only to the best returns countries and contracts.

Now for 2022.

We are looking at spending total capital investments, including EPS.

Between one nine and two is just a relatively small increase compared to 2021.

As to the can we keep this in into the future, it's a bit too soon to say, but we.

Definitely whatever increment, we make it.

It is geared towards technology.

It will be on the most accretive contracts.

We want that incremental technology investment to be to be priced appropriately and for that matter are we already have a strong pipeline of.

Of contracts that allow us to do that that favorable commercial conditions. So we'll see how the year of progress but for the moment, we're quite confident that the envelope. We gave you allow us to fully see the growth in 2022 and prepare for 2023, we will see how we set the envelope in 2020 free it cannot be.

Increased vessel, but we will keep the capital intensity.

Of our business going forward and check I think the capital stewardship part of our returns focused strategy is clearly, giving us EBITDA of a new dynamic and a new mindset.

Our commercial and contractual engagement of customer.

And we have the organization focused on on.

Effectively and efficiently using the capex the coupon prove that we have to deploy to the most accretive contactor and the most accretive.

Our engagement we have so we will continue to use this discipline to make sure that we keep in check.

Broadly the capital intensity in this cycle.

Got it and then of the $1 $92 billion budget this year.

Are you able to state how much is Aps and if you do end up selling the Canadian projects this year and how much could be EPS portion step down on an annualized basis.

So look you know we don't disclose the split of the guidance.

There is a.

A small increase in Aps investment, but it's matched with the we've increased cash flow as you know the way we look at the peers investment is really based on the on the cash flow of the individual projects.

As an aside we are generating very good cash flows in our EPS.

So.

Overall as Olivier mentioned the business of Apa's, because it's just a handful.

Of projects is going to be pretty flat this year and the investment level is definitely not going to.

To increase in the future in future years.

Got it appreciate it thank you.

Thank you.

Our next question is from Connor Lynagh with Morgan Stanley . Please go ahead.

Yes. Thanks, I was wondering if we could go back to pricing for a minute here and I'm curious if you could maybe characterize.

It certainly sounds like pricing has become more broad based but are there specific areas globally.

Globally or specific divisions in which you are realizing more pricing and I guess the question is when.

When do we see this in the results.

It's broad based and youre going to be seeing it in 2022 or is this sort of early signs and it's more of a 2023 dynamic.

I think it's broad based but let me, maybe underline what where and how we see putting condition getting developed I think and we see it in three ways first.

We believe that policy condition and commercial type of commercial time linked to performance. So.

Performance in execution or performance contract.

Differentiated in the impact to provide customer gives us opportunity to nil.

Negotiate favorable commercial terms and keep or expand our market position with key customers. So I think this has started and this is depending on region. This is something that in fact.

Our service.

Service Division I will say that our performance and where concessions, particularly.

The second one is linked to.

I think.

Capacity and I think capacity on unique technology capacity on the on equipment that is tight beat for offshore deployment, albeit for high volume intensity basin like North America. So this we have seen clinically shown asset and we.

We are getting.

Protiviti to to expand from gunshot too broad.

<unk> and <unk>.

<unk> condition. So this we have seen happening.

For the last year in North America, and we see this starting to happen in offshore the brands, where our unique equipment has to be mobilized has to be secured and they are done at pricing conditions that improve of the last few months.

Finally inflation inflation is something that exist.

Related to two market condition efficient suddenly that we always deal with.

And today, we are seeing more into the OECD in North America, but we are dealing with inflation every day and every as you need to as we call it.

Over the years, and we know how to manage it to engagement customer is more acute asthma pronouncing stockpiling some basin and we're responding it with engagement for customer and using the contact them, we have to offset the inflation pressure, we're getting so it's all about performance.

<unk>, our technology sort about capacity tightening and it's about.

It has put into the inflation pressure. So these three things.

The lever we are using and that are starting to be more broad each of them across the different basins and it's positive and it's the ciena and addressing different spacing and all divisions throughout 2022 and further into 'twenty three.

Thank you.

Helpful context.

The inflation topic, obviously is when we haven't.

You talked about extensively it hasnt seem to prevent you guys from expanding margin significantly but as.

As we look into 2022 I would say.

The market expectation seems to be the commodity deflation could occur, but labor inflation could increase I'm curious, what you're seeing on that front and should we think about.

Either of those having a meaningful impact on your margins either positively or negatively.

I think for <unk>.

I think as you mentioned I think efficient nothing new and it happened last year and I think the performance of our supply organization. The way, we are dealing with fit asking us help us to mitigate.

And shifted variety if I may some of some of these and secondly, I think we have been able to youngest commercially to offset that and kept net pricing condition. So I think we see this happening falls and when it comes to resource versus equivalent I think resource is.

As always a hot topic in our organization, but I think we'll respond to these by further improving accelerating our digital operation adoption. So that we we.

We offset some of the pressure on our resource as much as we can and can kind of offset this pressure as well. So I think it's part of our toolbox that we use and that will contribute to June as the cycle unfolds.

Great. Thanks very much.

Thank you.

Our next question is from Roger read with Wells Fargo. Please go ahead.

Yes, Thank you and good morning.

Ali good morning.

Certainly good to see things turning around here.

I had a couple of questions follow up on some of the discussions about.

The expectations on EBITDA margins the mix that you expect to see but I was curious what you would anticipate or what is embedded in the forecast in terms of a recovery in EAA spending.

Within the overall spending increase.

That's going to be less and the reason I say that is we know several companies.

Actually eliminated their EAA departments.

How that might affect.

The EBITDA expansion that you anticipate 22 and on into 'twenty three.

I think it's a valid question, but I think if you were to notice some of the highlights that we have.

In the fourth quarter, we had a rebound of DNA.

Data exploration cells as part of the.

DNA is.

Albeit very compressed compared to the peak of the last cycle I think is seeing a resurgence for two reason.

First customer trying to assess and reassess their reserve.

Around there their hubs beaten on the land.

They own, albeit on the key offshore hubs that they have developed to make sure. They can fast track in filtering and develop near field exploration. So.

We see a lot of infrastructure led exploration not necessarily large greenfield new and we don't expect this to be to be the trend going forward, but we see that the exploration is much more surgical in exploration. If I may use that world to be near field backyard exploration as we call it around near infrastructure.

So that.

Operator battery offshore get accelerated.

Accelerate the return on the existing infrastructure and get.

Fast track fast short cycle return on existing offshore so we see that in Latin America, we see that in Gulf of Mexico, and Europe in West Africa. This is very broad so we are benefiting from it.

However performance will benefit from it.

Some of the key.

Technology that we provide including in digital so I think.

While it does us.

It has been a step down compared to <unk>.

There is a keen interest and investment resurgence in <unk>.

For for this reason and I think we see that as a backup of EFI and.

And it's true battery offshore.

I appreciate that thanks, and then just looking at the digital and integration segments. Obviously won a lot of us are focused on and I know you've got a lot of lot of expectations embedded in it as well.

Just curious if you look back over the last 12 months in Florida over the next 12 kind of what's been a positive surprise, what's been maybe a little bit of a headwind there.

And if there has been a headwind maybe how you would anticipate that reversing as we look into 'twenty, two and 'twenty three.

Probably more from the customer side, but but if theres anything internal as well.

<unk> I think we are very pleased of the progress of the <unk>.

Deploying and continue to breed.

Digital Foundation and digital platform Foundation that support our strategy.

Every customer has their own pace of adoption their own internal in digital infrastructure, they choose to deploy in which we need to plug. So our choice two years ago to go with open data ecosystem Foundation. The choice you have made to go in.

Ship with different cloud provider defense industry partners to expand our market reach has unlocked some of this.

Customer to come and join us in our digital journey with our platform.

So it's.

We continue to work on it.

The last two years could have been better and larger adoption, possibly but I think we have the foundation in place. We are in the early innings as I said of full adoption of considering the size the oversize the scale of our.

Customer base. So I remain confident that this is just the first step and this will only accelerate so we have.

We have the right foundation, so diesel easier to stay a digital transformation has accelerated across the industry and I think.

We are taking it one customer at a time and this is what is happening so.

We are positive.

Great. Thank you.

Thank you.

Our next question is from Neil Mehta with Goldman Sachs. Please go ahead.

Good morning team model.

And the first question is modeling specific one working capital obviously, a big positive item this quarter.

Talk about do you see it unwinding over the course of the year and any just thoughts on trajectory there and as it relates to that Liberty. It looks like you sold $109 million shares in the quarter as it relates to that should we think of that as well.

Ratable exit at this run rate in the open market.

You can be opportunistic around share price. Thank.

Thank you.

Thank you Nils or working capital Indeed was was significantly lower in the second half, especially Q4 and again this was a very strong customer collections and customer advances.

Looking at 2020 do we expect the same pattern there is seasonality in working capital usually the.

It increases in the first quarter and we have payment of annual incentives to employees and then gradually improving in the subsequent quarters.

Mostly on the cash collection. So we will see the same in 2022.

We will likely be higher levels in general working capital consumption as activity accelerates, particularly considering the exit rates, where we are looking at but we will.

We will strive to maintain this to a minimum and in any case we are.

We still want to generate double digit free cash flow margins and that's inclusive of any working capital movements. So that helps us managing with vis vis vis boundary.

As to Liberty, Yes, we are quite happy with our equity stake has actually improved quite a bit since the transaction was announced we did decide to monetize part of the two start monetizing part of the investment following the exploration of the lockup period, we still hold a significant share.

Share of the equity as I highlighted about 31% after on the transaction. So we will continue to monitor the value of the investment going forward. Then we will decide on further monetization based on market conditions.

Thanks, Olivia that the follow up is you announced a capital market stay on this call earlier in the call.

Sometime in the second half can you just.

Talk about what you want to achieve out of that day from a financial perspective, what type of framework.

I think we are well.

Where are we going to.

On gauge we follow viewing in the live sessions first and foremost.

We want to lay out clearly our strategic framework.

Going forwards.

In the in the cycle and beyond.

Including our three engine of growth core digital and new energy and were supported by laying out our financial framework for.

Return on capital, including capital allocation and return to shareholder.

Thats, what we aim at doing at that time, and we will be clearly expressing in that in that setting the long term target that we set.

Perfect looking forward to senior life.

Indeed, thank you.

I believe we have time for one last question operator.

Very good that last question is from Keith <unk> with RBC capital markets. Please go ahead.

Hi, good morning, good morning.

Yes.

Yes, I just wanted to maybe.

Great and ask you to dig in here in North America and outlook for the 20% increase in spending this year can you maybe just sort of break that out in terms of what you might expect for drilling versus completion versus versus price inflation in general.

Yes. Good question I think first up in the North America outlook, we are providing is inclusive of offshore and onshore and onshore inclusive of U S and Canada. So I think it's a mix that is EBITDA not difficult, but it's added a lot of viable at play to disappear here, so but to your specific question, we foresee indeed.

U S land, which is a big portion of this activity outlook will be having a bias towards well construction has the market is rotating from depleting the ducks to replenishing the ducks, hence well construction rig based activity is will be the lead in the 20% plus and I think.

We are set to.

Respond to this with.

Well construction portfolio in that.

In that environment and this will be.

Very favorable.

To us.

On the offshore environment is broad and I think offshore environment will be execution of well construction and also has a performance.

And so when you put all of this and you put a more modest a more moderate Canada.

<unk> do you have a mix that is favorable to our construction and production system in.

In our U S plants and favorable to our.

Two are or has a performance and.

Construction offshore environment, all of which combine.

To give us information about 20%.

Okay. Thanks for that and maybe one quick follow up just on the Canadian Aps I know there was a sale process outstanding just curious if you can give any update on your on your thinking there currently.

So we have received.

Several of us for four EPS asset in Canada as part of the process. We launched last year. So while we were assessing those proposal the market conditions actually continued to improve.

The value of the asset increased as a result, we actually took the decision that youll firms. We had received we are not no longer are reflective of the economic value and the cash flow potential of the assets. So we are not entertaining those offerings at the moment.

Yes that is now generating very strong cash flows, but we remain open to all options.

Yeah.

Perfect. Thanks very much.

Thank you.

So I.

We need to close the call. So before we close the call I would like to leave you with a few takeaways.

Firstly, the quality of our results during the fourth quarter, particularly the cash flow generation and our digital sales have helped us close a amicable year with financial outperformance during 2020, while supporting significant EBITDA margin expansion and very sizable reduction of our net debt.

<unk> to the entire Schlumberger team for outstanding execution across all basins and divisions.

Secondly, our performance strategy execution as resulted in significant progress in the adoption of our digital platform the deployment of our fit for basin and position technology and the success with acceleration of our new energy venture each developing towards sizable addressable market.

During 2021, we have enhanced our market position with key customers ahead of the significant up cycle and we will be fully benefit from the scale and breadth of the funnel activity mix unfolding across all basins. During 'twenty two and beyond this will result in significant growth and further margin expansion and will support our double digit.

Free cash flow ambition finally, the macro environment is unique because it is supportive of our financial Super cycle.

As these favorable market condition extend both onshore and offshore well beyond 2022, we have increased confidence in reaching our mid cycle EBITDA margin ambition of 25% in the second half of 2023.

Ladies and gentlemen, 2021 was a defining and transformative year for <unk> and 2022 presents the unique environment to substantially build upon our success and accelerate our growth into the future.

Very much.

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