Q1 2022 Schlumberger NV Earnings Call

Yeah.

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to the Schlumberger Earnings Conference call. At this time all participants are in a listen only mode later.

There will be an opportunity for your questions. You May press, one than zero to place. Your line into the question queue. You may remove yourself from the queue by repeating the same one zero command as a reminder, this conference is being recorded I would now like to turn the conference over to the Vice President of Investor Relations.

N D motto Amaze you. Please go ahead.

Thank you Leah.

Good morning, everyone and welcome to the Schlumberger Limited first quarter 2022 earnings conference call.

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

Joining us on the call what do you believe Bush Chief Executive Officer, and Stefan <unk>.

<unk> financial officer.

Before we begin I would like to remind all participants that some of the statements. We make today are forward looking.

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

I therefore refer you to our latest thank you filing and our other SEC filings.

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

Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our first quarter press release, which is on our website.

With that I'll turn the call over 200 gig.

Thank you Amy.

Ladies and gentlemen, thank you for joining us on our call today.

My remarks, I will cover our first quarter results and achievements followed by our latest view of the market environment and our outlook for the second quarter and the rest of the year box karate internationally.

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

Considering the global context during the first quarter I'm very pleased we saw start of the year.

Sequentially.

First of all it affected typical seasonal patterns, except for additional effects of the Russian ruble devaluation and a more pronounced sequential decline and production systems.

Year on year, we delivered a solid increase in earnings and revenue growth along with operating margin expansion.

Our results were particularly strong in vertical section.

Because of our performance, where we are maximizing our leading market positions.

Chip technology performance, and hence or putting the alleged to put effect both internationally and in North America.

All divisions and area grew year on year.

Deserting, 14% order growth. This was achieved through double digit revenue growth internationally and by fully capitalizing on our North America exposure with 32% moving toward <unk>.

Operating margins expanded in both North America and in the international markets and we start the year with the highest first quarter margins since 2015.

This establishes a mixing and foundation for our full year margin expansion.

Omission.

Political selection and because of our performance our core services divisions.

Very strong momentum to start the year. In addition, we secured several new retail complex and improving commercial condition in a number of geographies and services.

Digital integration also posted double digit growth compared to the same period last year with new critical commercial complex and significant advance of updated thoughts on strategy with the launch of our first innovation factory North America.

Propulsion system I'll call it coupon division.

On your golf was muted by the impact of supply chain, but the mix, which has pushed deliveries into subsequent quarters.

Despite these transitory challenges I am very pleased with liquidity and size of the backlog and the order secured in the past 12 months.

Importing supply conditions I'm confident that the execution of our response plan, where significant improved backlog conversion.

Ping an to an accelerated revenue growth dynamic in the coming quarters.

In Russia.

The onset of the tragic conflict in Ukraine, and corresponding assumption impacted the later part of the quarter.

Swiftly initiated a series of actions to ensure the safety of our people and implement the restrictive measures considering new investments and <unk> deployment to our Hirsch operations.

We continue to closely monitor this dynamic situation and remain hopeful for a quick decision or four cities.

Overall, and despite unique challenges I am very pleased to declare a second quarter I would like to extend my thanks to the entire <unk> team for successfully navigating the development and delivery of mixed salons stopped to our promise to be a year of citigroup and achieve.

Turning now to the macro environment and as you know escape as evolve significantly over the past few months.

Recent events of on one hand resulted into a change in the pace of demand recovery.

Energy security and supply diversification I've also emerge as premiums global drivers that will shape the future of fund industry. In addition to decarbonization capital discipline and digital transformation.

This new dimension will have long lasting positive implications for energy investments over the next few years.

I would like to share how we see that developing over the short and long term horizons and more importantly, all of this condition, we play to assure measures differentiated strength.

First in the short term commodity prices are elevated as supply conditions continue to tighten due to the impact of capital discipline, consistent OPEC, plus pretty steep limitation and the potential impact of supply dislocation from Russia.

The industry is responding to this new to these high commodity price environment with accelerated short cycle investment in North America led by the private producers and a gradually increasing investment by the public operators or beat compared by capital discipline and bottlenecks in capacity and supply chain.

Internationally short cycle investment offset to accelerate through the seasonal rebound in the second quarter or more strongly in the second half of the year led by the Middle East.

And the key international offshore basins.

Second the elevation of energy security is a priority we drive further capacity expansion and optionality to deliver a more diverse oil and gas supply.

This will support additional long cycle development projects exploration activity and brownfield tissue of notion programs.

Third favorable condition for product and services net pricing improvement ask Judy emerge and I expanding across both North America and international markets.

This will be a defining characteristic of this up cycle.

Considering the service sector, Nufarm capital discipline and commitment to margin expansion.

This improvement.

Absolutely critical to support returns and investment in capacity that will be needed to deliver on both the short and long term oil and gas supply the world needs.

The combination of these effects creates an exceptional second fall sector.

Likely resulting in a cycle of higher magnitude and duration than previously anticipated.

She measures led the sector in the Haynesville itself over the past few years aligning closely with industry shifts customer needs and increase shareholder value.

Since launching our performance strategy with targeted trends that analysis thing today by focusing on the development of pizza for basic technologies, some of which I'll now and looking much needed energy supplies and by reducing or eliminating <unk> mission with our transition technology portfolio and our new end to end emissions solutions.

We have also expanded manufacturing capacity in key basins, such as in North America and in the Kingdom of Saudi Arabia to tailor fit for basin declaration delivery.

In digital we are enabling transformation in our sector, establishing industry digital platform density.

Trading more powerful AI solutions, and leading innovation in autonomy.

These advanced digital enablement are improving both customer operations and our own efficiency.

As we evolve workflows and improve execution with insights from data.

Today <unk> is the best positioned to capture the benefits of this unique up cycle, given the steady execution of our strategy breadth of our market presence and leading technology portfolio and our ability to derive premium pricing drop performance execution and value creation focus.

Now I'd like to share with you our outlook for the second quarter and the second half of the year.

Secondly, we expect a three quarter of growth in both North America and the international market.

Growth in North America will be led by continued short cycle activity offset by Canadian spring breakup.

Internationally, but both will be driven by the seasonal rebound, albeit moderated by the absence of the usual second quarter uptick in Russia or in to the uncertainty around the ruble depreciation impact of sanctions and customer activity to decline.

Taken together this where Richardson global revenue growth around mid single digits for the second quarter.

We anticipate the operating margins to expand 50 to 100 basis points driven by further operating leverage and a positive conditions our client.

In that context, our second show margin expansion trajectory is set to resume and subsequently strengthened in the civil after a year in line with our full year guidance.

Looking further ahead the second half of the year is shaping up to be particularly strong based on our view of a significant pipeline of customer activity upcoming call. It backlog conversion and the growing impact of net pricing.

This part of the year is typically the total this congress styles and 2022 looks to be no exception.

The dynamic situation in Russia, and a potential reduction pace of the demand recovery present near term concerns. We believe the continued tightness in supply elevated commodity price and some limited investment intended to diversify around gas supply should represents a positive offset for 2022 and beyond.

<unk>.

Second half growth will be driven primarily by the international markets led by communities and key offshore basins.

Indeed, Yorkshire activity already is growing sequentially in <unk> year on year will benefit some secular growth in both shallow and deepwater environment as the acceleration of infill drilling and tie back development with combined with the resurgence of exploration drilling during the summer and with an acceleration of long cycle development projects ahead of 2023.

Similarly, the middle East region, we benefit from the combination of reinvestment in short cycle barrels as we approach the end of current OPEC plus agreements and from the commitment to capacity expansion in both oil pollution and gas developments.

Additionally, 2022 set to benefit from higher discretionary spending and higher product sales.

And deliveries as customers secure the necessary capacity for the 2023 growth plans.

Finally, and critically we anticipate our net pricing impact we further expand in breadth and scale as the year progresses to benefit margin expansion during the second half and become a unique attribute of this <unk>.

With this backdrop and despite uncertainty linked to Russia, we believe that the favorable market condition outline should allow us to maintain our full year ambition of year on year Hogan golf in the mid teens and adjusted EBITDA margin exiting the year at least 200 basis points higher than the fourth quarter of 2021.

I will now turn the call over to Stephane.

Thank you Olivier and good morning, ladies and gentlemen.

First quarter earnings per share excluding charges and credits was <unk> 34.

This represents a decrease of 7% sequentially and an increase of 13% when compared to the first quarter of last year.

In addition, during the quarter, we recorded a <unk> <unk> gain relating to the further sale of a portion of our sales in Liberty oilfield services.

Which brought our GAAP EPS to <unk> 46 cents.

Overall, our first quarter revenue of 6 billion decreased 4% sequentially, while pretax operating margins declined 84 basis points to 15%.

This decrease reflects the seasonally lower activity and product sales that we typically experienced in the first quarter.

The conflict in Ukraine also had an impact on our first quarter results.

Although this was largely limited to the effects of the depreciation of the ruble witnessed during the last month of the quarter.

While margins were seasonally lower on a sequential basis.

The increased significantly as compared to the first quarter of last year.

Pretax segment operating margin increased 229 basis points year on year, while companywide adjusted EBITDA margins of 21% increased 94 basis points year on year. Despite the inflationary factors we are facing.

This reflects the strength of our operating leverage new technology uptake and.

An increasing pricing traction.

Yeah.

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

First quarter on digital and integration revenue of $857 million decreased 4% sequentially with margins declining 372 basis points to 44%.

These decreases were primarily due to the effects of seasonally lower on digital and exploration data licensing sales, partially offset by improved contribution from our Aps projects in Ecuador, following the pipeline disruption of last quarter.

Reservoir performance revenue of $1 2 billion decreased 6% sequentially.

While margins declined 232 basis points to 13, 2%.

These decreases were due to lower activity in Latin America.

And the seasonal activity reduction in the northern hemisphere.

Well construction revenue of $2 4 billion was essentially flat sequentially.

Our seasonal reductions in Europe , Russia, and Asia were offset by strong drilling activity in North America, Latin America, and the Middle East.

Margins of 16, 2% increased 77 basis points sequentially. Despite.

Despite the flat revenue.

Largely due to improved profitability in integrated drilling projects.

Finally production systems revenue of $1 6 billion decreased 9% sequentially and margins decreased 192 basis points to seven 1%.

This was due to the effect of lower revenue following the traditionally higher fourth quarter product sales combined with delayed deliveries and increased logistics costs, resulting from global supply chain constraints.

These are temporary challenges that we are diligently working to remedy.

Once resolved this will provide for favorable upside to our revenue and margins in future quarters as our backlog is solid and we will ultimately return to a normal pace of deliveries.

Now turning to our liquidity.

During the quarter, we generated $131 million cash flow from operations and negative free cash flow of $381 million.

Our cash flow generation was seasonally low as a result of the increase in working capital requirements, we always experience in the first quarter.

In addition to the typical payout of our annual employee incentives in the first quarter, we saw lower cash collections. Following the exceptional accounts receivable performance of the fourth quarter.

Our inventory balance also grew due to the product delivery delays in our production systems Division.

It also to prepare for project startups in the second quarter and for the strong growth anticipated for the rest of the year.

In addition, we took the decision to increase our safety stocks and lock in prices on certain long lead items in order to secure supply and hedge against anticipated cost inflation.

Although it is reflected outside of free cash flow. Our overall cash position was enhanced by the further sale of a portion of our sales and liberty, which generated $84 million of net proceeds.

Following this transaction, we hold a 27% interest in Liberty.

Our working capital and cash flow will improve each quarter for the rest of the year consistent with our historical trends.

And we remain confident in our ability to generate double digit free cash flow margin on a full year basis.

This will allow us to continue deleveraging the balance sheet and exceed our previously stated leverage targets in 2022.

Based on this and the strengthening industry outlook, but Olivia described earlier, we announced today, a 40% increase in our quarterly dividend.

The increase will be reflected in our July dividend and will result in approximately $140 million of additional dividend payments in 2022.

And $280 million on an annualized basis.

This will have minimal impact on our leverage and we will of course remain focused on strengthening the balance sheet.

I will now turn the conference call back to Olivier.

Thank you Stefan.

We can open the floor to the Q&A session. Thank you very much.

Thank you, ladies and gentlemen, as a reminder, if you have a question you May press. One then zero on your telephone keypad and our first question comes from the line of David Anderson with Barclays. Please go ahead.

Hi, Good morning, Olivier just want everything that's happened over the past few months for example of our potential Hi, Hi, good morning.

I'll look over the next several years for your international business would be seem to be a primary beneficiary here I guess my question is the ramp up of that activity. We have seen a lot of entities announced contracts more tenders are on the way, we've yet to really see that materialize in activity. We don't have a ton of visibility on that market. I was just wondering if you could just help us understand what's happening on the ground. There. It seems like just a matter of timing.

Are there any challenges in your case, you're mobilizing equipment and services environment Youre clearly confident in being a second half story.

Could you provide a little bit more context into how we're getting there. Please thank you.

No. Thank you, Dave So Andy first to put things in context.

I think the international growth as started to be rebounding.

Last year I think as you know year on year in the second half last year, we have already posted more than double digit growth year on year in the second half.

You can see that.

And this quarter, we're already at 10% growth year on year and the majority of our international journey actually posted debated and quite a few above 20% year on year. So clearly the momentum of activity pickup internationally as been initiated and is not on the short cycle is short and long cycle as some failure.

Already been signed last year and more coming in the way.

So now looking ahead and trying to understand how this is hedging and in the future I think first there.

He is a dynamic of call international supply that will continue to happen as the demand recovery.

<unk> is happening and as the market is looking for energy security enhanced diversification of supply. So international basin at large would benefit from this dynamic in the years to come.

Secondly, you have the dynamic of short second response to the tightness of supply as we face today, and we will face for the quarter to come and this will prompt not only.

Activity up cycle in the second half of this quarter and in the second quarter in order to short cycle basins from middle East to some short cycle activity offshore.

And it would be supplemented in the second half by an acceleration of the long cycle development.

Indeed, we believe that the conditions are set for.

For long and short cycle to be contributing at the same time to the supply growth of international market.

And long cycle is not only offshore long cycle as some large capacity expansion that national company major.

Continuing to post.

And offshore markets will also see.

The condition of major and international operator continue to expand the investment. So we are seeing this happening today.

We are seeing this accelerated in the second half visibly.

As the combination of short and long run benefit industrial market.

And the OPEC plus as you know is ending their quota and.

Distribution and at the end of the third quarter and this will unlock short second zubair to look at Middle East Middle East a few countries have already made a commitment to capacity expansion.

In 2022 and beyond and this would be simply maintain the short cycle investments.

Sure you have seen some F&D approval you have seen some exploration drilling assuming even last quarter that we just turning to Saudi and into subsea and deepwater activity uptick.

In the second half and Furthermore, in 2020, so recognition assets as I said for both short and long cycle to contribute to supply from International Basin, and we are very well placed to respond to this considering a.

Favorable market exposure to industrial market, our market position with empty and our exposure to both major and <unk>.

Independent into key base internationally.

So olivier on the offshore side, you highlighted a number.

Numerous offshore awards in our release today.

I'll cover most regions.

This is typically a very highly margin accretive business to Schlumberger.

I was just curious how much of this is related to the events of the past month past few months are you seeing projects starting to accelerate.

I would think you'd start to see a lot more on the short cycle activity you talked about short versus long I would think maybe short cycle activity is accelerating because of this is that true or are you starting to see that materialize.

No I will come on in two sides first offshore market remain.

Im very relevant to many.

Our customers internationally relevant why because the economics of offshore market, both shallow and deepwater have improved a lot in the in the in the cycle.

Clearly many of these.

Offshore reserves, they will place from a from a carbon footprint and I think this is something that plays again, two to reinvestment and expansion and third I think the technology the integration capability and digital have made.

Offshore operation more efficient more effective having an impact on short cycle offshore infill drilling tieback with huge technology.

The first session we have there.

And and exploration exploration near field exploration on one hand, and secondly, shorter long cycle.

That is a characteristic that we will see accelerating.

As the major and AUC and some NFC that have unique basin advantage basin, we want to accelerate the RFID and we want to accelerate the execution of the HRD for contributing supply and again integration capability technology for performance impact and digital were all combined to make this.

So yes, we have already seen the impact of this and it's only set to accelerate and we will not as a link to the events happening in the last.

The last few weeks the last few weeks event will have the consequence of diversity diversity can supply and security of supply and this will favor <unk>.

<unk> is one of the basin that can contribute to the long term supply security.

Much appreciate it thank you.

We'll go next next we have a question from Chase Mulvehill with Bank of America. Please go ahead.

Hey, good morning, guys.

So wanted to follow up wanted to follow up on Dave's question here on the international side I mean, obviously.

It appears that this international recovery is going to exceed last cycle's recovery.

So maybe I don't know if you if you want to take a moment and kind of talk about how this will impact pricing and margin.

It's actually just digging through some old models in and looking at 2006, 2007, 2008 margins and obviously the industry margins back then we're much much better than they were last cycle. So what do you think it would take.

For the industry to really get back and move towards those 2006, 2007 2008 margins.

I think the conditions are set for directionally going Theyre clear.

And I think.

You have several factors playing first deliver a activity expansion.

Globally in every basin for every division.

<unk> is creating the conditions for tightness in the capacity of supply of the semi supply and equipment supply and this condition.

Extremely favorable for pricing power, because our operator customers looking to secure capacity and to secure delivery assurance as they invest into their basins into their.

And to the favorable assets to securities about sufficient to these supply market share so first the pricing.

The pie senior moment as I said, the passing attribute to be a key characteristic of this cycle.

Secondly, I believe that.

The industry has realized that technology.

Can make a huge impact on performance.

Robin footprint and on digitalization.

To deliver efficiency that we need to accelerate the cycle and to the assurance of delivery of these <unk>. So we believe that we have here the condition for <unk>.

End of side on the technology adoption and upside on digital transformation of the industry trying to achieve.

Operation automation achieve drilling autonomy in terms of our preparation and all of that we combine in addition to decarbonization. So you have these trends that are.

New that will augment the mix effect that this market is giving us today via the favorable mix international and with an accretive offshore mix.

Yeah, but favorable pool and stretch on capacity of the industry with significant discipline on this side of the of the industry that will lead to pricing.

Expansion and finally, you have this adoption.

Adoption of digital adoption of decarbonization and adoption of any fit for basin performance technology that can make an impact to deliver because industry want to deliver and participate fully through the cycle. So that's the reason why we are positive on the second.

Okay, if I could follow up quickly you start.

To talk about digital a little bit I mean, there's obviously.

Tightening supply chain, you've got emerging labor constraints, you've got accelerated international growth over the next 12 to 14 months and all of this should be pretty positive for digital.

As the industry kind of searches for ways to do things kind of faster smarter and harder.

So with that said and with that as a backdrop.

You started to see accelerated digital adoption and if so what parts of the international market are you really start to see accelerated adoption.

No I think you you later case very very well I think.

Digital will be an attribute of efficiency performance and transformation in the cycle no doubt everybody recognized it and nobody is investing towards that speak to these digital transformation. We believe was up platform strategy we have.

Absolutely the most compelling offer to the market.

And we have been building as you as you are.

As before for the last two.

Three to five years, the foundation of our platform and we have seen adoption accelerating last year.

So year to date.

Very pleased with the performance of the early performance of the year to our digital.

Our business out of our digital integration.

Division It is already contributing to visible growth year on year, all the metrics that we are internally following beat.

Customer adoption of our debt should be the number of users that are using our cloud DLP capability or beat the number of the scale and intensity of mid cycle.

Of cycle of competing cycle adoption all of this are going sequentially and year on year.

So adoption is happening you have seen some announcements during the quarter and you'll continue to hear.

Adoption translating into co packed and into growth accretive growth for digital suddenly athene, and we mentioned it in to the into the EPL.

We have been launching a year ago.

Our innovation factory <unk>.

Innovation factory, our digital collaborative center that we have placed strategically and we just integrated the last one yesterday in Oslo, Norway, and we are using this place to explore.

<unk> is a customer or two.

Capability of our platform with AI and machine to machine learning using a partner a capability integrate into their fee and a customer realize that we can achieve a lot. We have delivered 200 project collaboratively with our customers and the customer understands the power of our platform to reduce exposure and then come way.

With the ability to scale.

For for entrepreneurs deployment.

This.

Innovation factory capability. So this this this is one other dimension of adoption that we see and as part of our offering to the market. So yes. We are convinced this will be accretive to our growth. This year and this will be also adding a full true positive flow through of our margin that will support our margin expansion ambition for.

On a full year.

Okay perfect I appreciate the answer and I'll turn it back over pace in Libya.

Thank you.

Next we go to I'll ruin Jairam with J P. Morgan. Please go ahead.

Yes, good morning.

I wanted to get your perspective on any changes youre seeing in customer spending behavior related to natural gas.

In a very strong international and our U S gas prices and just wanted to get your thoughts if youre seeing any changes there, particularly given the fact that Russia supplies 155 bcm of gas to Europe .

All right.

Very relevant question I think it's a very topical subject.

With the operators and indeed, we are senior operator.

<unk> planning and being ready for accelerating their diverse supply to the world market internationally and in North America as well I think this is touching all aspects of exploration development and production of gas and we are very pleased for our exposure.

Our exposure in North America and exposure internationally internationally as you know we have exposure in conventional gas and I think you have seen some recent announcement of renewing contracts in commercial and gas in Saudi.

Fully aware of our market exposure in Qatar.

<unk> benefited for the last two years that have already grown visibly to commit more LNG train for supply to the world and you have seen also that we are going to participate fully in wear parts being fully into offshore integrated gas development.

Now to what we did a few years back with zoro in East <unk>, we are doing with.

And asset for fully integrated gas in Turkey in the Black Sea, where we are taking care of everything from from development.

The gas facility that can be captured.

Charles gas from this so we are where we're exposed and finally unconventional gas internationally in middle East popularity is getting significant support for additional consumption and you are fully aware of the contract gradovs contact integrated contact.

And Jeff one in Saudi Aramco, so the exposure we have on gas is unique.

Conventional unconventional offshore onshore so and finally <unk> had to add one one dimension of technology onto it I was very pleased this week, we broke the board.

<unk> to visit in Norway.

And we have the opportunity to visit our App.

Excellent.

Center of excellence for subsea processing in Bergen, Norway, where we're manufacturing.

All of our processing boosting equipment to serve gas market in deepwater <unk> diamond and in particular.

Subsea wet gas compression that will be deployed for almond longer to extend the life of a longer gas supply.

Two U.

UK for the long run so this paths pay today energy security dispatch space today.

So the gas development production and we are very pleased with our exposure. So we are seeing signals of exploration commitment and well very well leveraging that for the future.

Great I appreciate that.

My follow up is I wanted to talk a little bit about cash return you increased the dividend quite significantly this quarter, but maybe olivier or Stephane you could talk about the framework, you're thinking about future cash returns and how should we be thinking about.

Further dividend increases from here.

Yeah.

Look good question. Thank you, yes based on the market fundamentals, we highlighted we do expect to continue generating significant free cash flow throughout the cycle.

Most favorable conditions persist as we currently anticipate this will clearly allow us to at the same time, maintaining a strong balance sheet find new growth opportunities.

And look for additional ways to increase shareholder returns throughout the cycle.

This can take the form of increased dividend share repurchases or a combination of both.

As it relates to the framework, we will we will of course provide further detail.

At our upcoming capital market day.

At this moment, we set the dividend at the level, we are comfortable we've two allowing us to balance our continuing deleveraging commitments with the overall capital allocation priorities.

Great. Thank you.

And next we have a question from Neil Mehta with Goldman Sachs. Please go ahead.

Great.

Hey, good hey, good morning team.

So first question here is.

Is this more of a logistical question I think in the back half of this year. The expectation is to do a capital markets day. So one any update in terms of timing, but secondly, what do you want to achieve at that event and what are the important strategic priorities that you want to discuss with the investment community.

Yes.

So on the logistical side of the capital market day will be early November and you received the invitation to produce would now let Olivia comment on the main agenda.

And as you know I think it will be to achieve our two or three key elements. The first is to lay out our updated view of the mid and long term outlook for our industry and of course the engines that we want to pass back fully into the core of the digital and new energy and.

As such documents, our view of the market scenario and the way.

Al.

Play will expose us to flip out spend in each of these three.

The second obviously will be to articulate element of our strategy that we make that to make you understand the tangible progress. We have made the critical milestones will meet by 2025 by 2030 and finally, we will we will document I will say our financial.

Ambition in financial and capital framework to support the submission of our strategic vision from Alexa. The next five years and with the long horizon of 2034 target. So that's what we are aiming to achieve the capital market day.

Thank you, Sir we look forward to it and a follow up is can you talk about your exposure to the increased capex here at Saudi Aramco and add knock and how you see that trickling across your segments, where do you expect expanding to increase significantly.

Here.

Across what business lines.

I think generally speaking our <unk> is not only Saudi aramco in the.

In Saudi and UAE fingers the GCC.

Our country and includes <unk>.

Hi, guys, well I think that.

Set for a significant rebound in both short cycle to respond to the unlocking Dakota at the end of the year and then long cycle with capacity expansion commitments that civil country. I've made so we expect the consequence of that will be first in the second half of the year activity will start.

To see an uptick in the form of <unk>.

<unk> and that will affect both was our performance where construction and will receive also this expanding into.

Offshore and onshore capacity expansion more into 2023 as you know several contracts have been put in place to support this cap six function by this operator with with us and the industry at large and this will see an acceleration of investment in 2023 that will expand beyond the short cycle visibly.

Into this new development, new capacity beyond what is happening today on gas and conventional recipe happening today and some of the integrated contact we already own. So it's it will be.

Widespread I would say.

And.

Across the all the division as we move into 2023.

Thanks, guys.

Thank you. Your next week next we have a question from Scott Gruber with Citigroup. Please go ahead.

Yes, so I wanted to touch on the.

The new energy outlook here, just given how that the macro is changed.

Obviously valuations and new energy has come down and your cash flow outlook has improved.

With that move.

We should expect.

Obligated to be industrial a bit more aggressively in new entity or with a better outlook for the core.

They're less urgency to build out the new LNG business, how should we think about that.

No I think it remains.

Our new energy remains a critical strategic pillar of our long term strategy. So we.

We are set to continue to invest into the venture we have created.

We are making tactical move and strategic move to accelerate organic and inorganic investment.

And we continue to.

Monitor the market and continue to edge and grow our exposure to this so the market condition.

That have slightly changed the last few weeks do not change our view on the new energy outlook.

I haven't seen.

Some some reinvestments and you have seen this in the quarter into geothermal as an alternate source of energy.

Energy.

<unk> seen that <unk> energy being through the SSG synergy venture that we have created.

Was is a domain that is was exemplified by the.

The European Union to be invest in EG to 62 gas and has lessened the dependency on.

Single source of supply on gas.

And I think you can certainly anticipate and see that.

Yes at large is is is growing as an opportunity for all industry and for us as we work not only with industry. As you have seen the announcement. We have made we spent on us but also we are working beyond the industry. As you have seen previous engagement, we have and continue to do so so I think we continue to.

To develop and mature the technology ready for scaling them and we continue to make.

Organic investment and securing inorganic opportunity to augment our capability into that space.

And you started to touch on my follow up.

Which relates to the commercial opportunity and how that develops here going forward and if it does.

It seem like geothermal is going to get a call here.

Can you speak to the other commercial opportunities and how you think those evolve, particularly from a timing and cadence perspective, given the backdrop.

Yes.

Gross opportunity.

Materialize more quickly across carbon capture.

Hydrogen electrolyze it perfectly.

We have been commenting on this before and I think will provide a very comprehensive.

Our view at our capital market day, and I think the biggest long term bigger potentially move from Tcs and allergen market. We believe first and foremost and believe that the energy storage, including lithium lithium processing life collection as well as energy stationary energy storage as well as G&A as usual thermal.

Certainly a shorter term.

Midterm opportunity that would not missed.

To secure but we'll come back with more detail and more.

A more a better framework for you to understand the ambition there.

Well thanks for the color.

Thank you.

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

Thank you good morning.

Wanted to talk about.

I just wanted to ask about the potential recovery in the back half and particularly OPEC.

You were alluding to.

The cessation of the supply agreement I guess, one thing that surprised us is while there have been some countries that have fallen short of their production targets OPEC as a group has been able to raise production fairly significantly and there hasnt been as significant an increase in the rig count I. Appreciate not all activity is captured in the rig count but has that surprised you and when do you think we see a sort.

Catch up do we need to return to 2019 activity levels to get to 2019 production levels.

Now first I think the other OPEC plus and it has been a very strict into implementing the policy and the respect the Dakota.

Second I think with very few exceptions.

<unk> has been able to indeed unlock this prediction without significant at this moment significant increase in <unk>.

In short cycle activity to support that increase.

This will transition into a necessary investment into supporting the sustain.

Our capacity in the coming months.

Until then.

And until now it has been that the collection of some critical country were below their sustained capacity potential and the need for investing the need for accelerating.

Investment drilling or intervention was measured and wasn't necessarily.

This proportionate.

Compared to the past I think you will see that positioning.

Into the second half and accelerating next year and it will combine annual combined with.

With capacity expansion they have committed to so there will be a heightened activity on two fronts. The short cycle. This time sustained maximum capacity that is established and in investments that will expand at this sustained capacity in the future. So that that is set to happen it wasn't necessarily a big supply.

This to us for that.

Middle East was little bit of a.

Behind in terms of activity rebound internationally until now, but you will see this catching up in the second half and accelerating in 2023.

Alright. Thank you that's helpful context.

Maybe just flipping over to the Russia side of things I'm curious.

We're in your full year revenue growth commentary what are you contemplating in your Russia operations are you expecting significant activity declines could you could you help us frame what the cessation of new investments actually means for your activity levels in the near term here.

I think it's obviously an extremely dynamic situation.

If you own the sanction.

Having an impact on the Russian economy, and operation will not be immune to this effect, whereas currently currency fluctuation as you have seen or customer activity level today or tomorrow.

And there is also a possibility of assumption so the impact to the first quarter. As you have seen was essentially limited to currency depreciation.

The division is very difficult at the moment to predict.

While the impact maybe in the coming quarter, considering the uncertainty.

Keep side as I've described.

On the island that we see and the dynamics, we see new market and the spill response to this call for energy security.

He is carrying the condition to offset.

And certainty and said this risk and also the decisions we have made to.

To suspend new investment will mean that we'll be able to allocate these capex to this upcoming opportunity.

Effective this year.

Being able to capture this upside in activity in this dynamic environment and as you say should allow us to offset.

And keep our financial ambition intact.

Okay.

Alright, Thank you very much I'll turn it back.

Thank you.

And next we go to Roger read with Wells Fargo. Please go ahead.

Yes, thanks, good morning.

Good morning, Mike I would like to ask two questions that are more or less margin focused.

First on production systems, which obviously is lagging.

<unk> reasons.

But if we don't get a strong subsea or offshore deepwater recovery what else can we expect that would lift.

The production systems margins as we go forward.

I think that two to two of them in staffing ratios, we should really see.

But here the first is the.

The transitory or temporary impact we have had on the excess of cost of logistics and and.

Delivery Sebastian bottleneck that we had to work through that AD led to.

Temporary costs that I think will over time over time abate and will reduce as we walk through this supply chain, we have a corrective action plan with diversification of sources of supply.

Using different default those issues routes and you heard about our commitment to some critical safety stock inventory to secure less disruption going for a while so this disruption aside that has had concession onshore cost super multi cost impact I think we expect this to be more subdued as we go forward.

We start to accelerate.

Our conversion of our backlog so what do we need I think we have already in the backlog we have a very big backlog that you have accumulated for the us.

The last few quarters, then we keep going and it's not only subsea or <unk>.

<unk> system is made of subsea as I mentioned I think we are very proud of our some of our market pushing subs, including what we have seen in Norway, but also have a completion with a few contracts that we won in the middle East in Brazil in particular actual lift.

PCP.

Pumps that you have seen that we have one just in Kuwait.

Have a good position pollution chemicals that are being pulled.

As well and.

Midstream and so phase come on capability that.

Fully leveraging partially so phase the cycling in North America. So we come out of this we are not only short cycle exposure with we still face in North America of completion of lift we have long secondly for BC deepwater and some of our long cycle pass, especially into some.

Gas facility as I mentioned in Turkey, you commented all of this and you have enough backlog to lift and create.

<unk> to our growth.

Going forward actually indicative of.

<unk> system to be accretive to our growth in the second half.

Okay.

Thanks for that.

That was very helpful.

The other question I have is a little bit more.

Far reaching but as.

As we think about let me say the base case is let's assume what's happened in Russia stays as is the sanctions and everything like that through the middle of the decade.

<unk> other parts of the world is going to have to increase to make up for lost Russian production at a minimum loss ration grow if not absolute lost barrels.

And I was wondering as you look at your margins and you think about sort of an equal distribution of that spending or that production growth in other parts of the world should be no impact on Schlumberger as margins, a modest positive or a modest negative Russia.

Russia becomes a shrunk in market and some of these other areas that could grow in response.

I think I will I will.

I will not try to compare Russia margin with the rest of our portfolio I think I will look at it from a from the strengths of the cycle from a unique market position, we have and from the starting point, we have today with having restructured and reset our putting leverage the exposure with digital the exposure we've had increasing.

Offshore long and short cycle mix I think these are attributes that convinced us that our margin will continue to expand.

As we have seen.

This quarter, we had the increase year on year at both Nam and international margin and we have been posting the best margins in two.

2015, and yet despite.

Impact in the first quarter from Russia. So I think we're looking at it.

As you say are the big picture Big picture includes investment in oil and gas for energy security and diversification that will have a call on international supply as well as as in North America, and an increasing mix of offshore and long cycle as capacity needs to be expanded and reserve.

That had been depleted.

Through the last down cycle for the last seven years, we need to be expanded again, so that mix is what make us confident into our project areas of margin expansion and into the potential.

Uniqueness of this cycle compared to past and hence the confidence we have in a.

In the short and long term.

Great. Thank you.

And ladies and gentlemen, we have time for one last question is from the line of Ian Macpherson with Piper Sandler one moment. Please.

And please go ahead Sir.

Thank you good afternoon in Oslo.

Wanted to wrap up.

Hey, I wanted to ask directly what is your view of that.

The production trajectory for Russia, assuming the sanctions.

Our what we see today I know that you don't want to be too specific with regard to the cadence of <unk>.

Your impact over the course of this year, but.

Do you subscribe to the idea that at.

Best Russia pivot from a steady grower to a steady decliner under the.

The current sanctions.

Rajiv.

I think I cannot be speculating on this.

Market condition I think you see the same numbers as we do see you see that there is as I said a potential risk of.

Of Russia supply dislocation I think what is important is that the demand trajectory.

That is recovering and is set to further increase next year compared to previous prediction not only to offset that but two also.

Bond to the to the market I think.

Will be contributing to overall, so it's very difficult to predict I think we are.

This is a very dynamic situation and.

We're not here to speculate on a dynamic situation. We know that we have to account for assumption that it could be a demand dislocation that could be.

On the supply disruption.

The Russia source of supply, hence, we know and we have seen a customer.

Hotel, <unk> and starting to anticipate and <unk>.

Position themselves for participating to the equivalent supply that will happen from the second half of this year and ideas to come. So that's the only thing we can that we can come up.

That's a perfectly fair answer, but maybe put otherwise how how critical would you say that schlumberger and your western Oss peers are relative to that.

The domestic.

Russian Orthodox industry with regard to their ability to.

Lean on internal Oss resources as opposed to a western technology in kit.

No again, we cannot we cannot speculate on this I think we are first and foremost priority is to look after the safety of our people.

Where we operate including Russia and to comply.

We've done most divisions stood assumption international assumption that are in place to speculate about worldwide. The consequence of the assumption onto the office industry in Russia, I think is something that the future will tell us what is happening.

I think the mom to be inefficient to come up on this at this moment.

Fair enough. Thanks for all the other answers I appreciate it.

Thank you very much.

I believe that it's time to close this call so.

Conclusion, I would like to review with three takeaways.

Firstly, our first quarter financial results represent a strong start to what promises to be a significant year for our company.

Basket, the resilience and strength of our core service Division and a full participation in the fast growing North America market as contributed to a very solid year on year growth and margin expansion.

Can lead the activity outlook shipping as shipping up favorably as 2022 progresses and is set to support our full year mid teens growth ambition. Despite the uncertainty in our Russia operations.

Furthermore, in the later part of the year, we'll gain from improving market conditions favorable activity mix in key offshore basins in Indonesia, and brought our net pricing impact across North America and international markets.

Our confidence and the favorable market conditions, and our midterm outlook supports our margin expansion, our mission and our commitment to generate double digit free cash flow.

As a result, we have decided to accelerate cash returns to shareholders through visible to increase.

Finally, we believe that the consequences of the current crisis reinforce the market fundamentals for stronger.

And longer upcycle as a priority on energy security will favor investments in.

Oil and gas supply.

Consequently, the outlook for the next few years is improving and absence of global economic setback should translate into an exceptional seconds per industry.

You very much.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.

We're sorry your conferences ending now please hang up.