Q2 2022 Schlumberger NV Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Schlumberger Earnings Conference call. At this time all participants are in a listen only mode. Later, there will be an opportunity for your questions.
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 Yeah. Please go ahead.
Yeah.
Thank you Leah.
Good morning, everyone and welcome to the Schlumberger Limited second quarter 2022 earnings Conference call.
Today's call is being hosted from Paris.
The Schlumberger Limited board meeting held earlier this week.
Joining us on the call would you be the Bush Chief Executive Officer, and <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.
I, therefore refer you to our latest 10-K filing and our other SEC filings.
Our comments today May also include non-GAAP financial measures.
Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our second quarter press release, which is on our website.
With that I will turn the call over to Olivier.
Thank you Andy Good day, ladies and gentlemen, thank you for joining us on the call.
Prepared remarks today I will cover three topics, starting with our second quarter results and our latest view of the macro environment.
After I will conclude with our outlook for the civil now for the year and it's compelling attributes which are very supportive of our raised guidance for the full year.
The second quarter was a defining moment in the overall trajectory of the year with significant growth in revenue margin expansion and earnings per share.
Execution was solid and Directionally all trends were positively in our February call.
International activity growth and steady drilling momentum in North America sustained offshore recovery and the broadening impact of improved pricing.
<unk> hedged up all of our call, our global footprint and differentiated technology to seize widening industry activity. The most hurting your ability to capture golfing every land and offshore basin for North America to most remote international basin.
This was reflected in the broad dimension of golf in our second quarter results as customers stepped up activity with a focus on increased about four months and prediction.
But war, where effectively harness these positive dynamics and deliver a very strong sequential quarterly revenue and earnings growth.
In addition to the details provided in our earnings press release. This morning, let me reiterate some performance highlights from the quarter.
We recorded 14% would be to increase the allows us to control ribena, increasing more than indicate as revenue growth exceeded the head count increase both internationally and in North America.
Year on year revenue growth accelerated to 20% further sustaining robust growth momentum visible inflection in international markets at 50% Gulf of ascent bad last year.
Growth was very broad across all dimensions, ARIA divisions land and offshore with spending visibly higher across all customer types.
Internationally second for growth was recorded in all of our Middle East and Asia Geo units and all of Latin America.
And then you see a golf club <unk> across Europe , Scandinavia, and West Africa in.
In North America, we continued to post very solid drove offshore and onshore.
And an increased drilling and completions activity.
The rise of offshore activity, particularly deepwater was a key driver for Ceragon squad does take on school fees, most regions and in support of all divisions.
All four division posted double digit revenue growth and expanded margins sequentially consulting in the highest quarterly operating margin level since 2015.
In addition, another feature of the quarter was broadening pricing improvements impacting all divisions geographies and operating on diamonds.
Finally, the quarter also marked an umbrella new complex wins and an increase in backlog for production systems and I'll read the coupon business and are a leading indicator of the strength of the activity pipeline ahead of us, notably pricing permanently also being reflected in Cochin system backlog, which is significant for us later cycle implication for sustained.
Margin expansion on an overall portfolio basis.
To sum up the second quarter emphasizes our clearly differentiated Apache on performance <unk> execution and financial results, both North America and internationally.
We have very strong momentum and have secured a solid pipeline of activity ahead of us.
I'm very proud of the entire ocean measure team for delivering these exceptional results and demonstrating our unique value proposition for both our customers and our shareholders.
Turning now to do Michael.
First energy security and urgency to establish more diverse and reliable source of oil and gas supply has become increasingly apparent through the year exacerbated by the effect of ongoing conflict in Ukraine, and a notable increase in periodic supply disruptions in certain regions.
Second subban excess spare capacity remains very tight.
As recent OPEC and demand.
Demand outlooks for 'twenty, two and 'twenty three remain constructive continuing to suggest a colon supply from North America, and a more significant colon supply formed into international basins.
Third despite near term concern of a global economic slowdown the combination of energy security travel breakeven price and urgency to go long term oil and gas production capacity, we continue to ship bulk obscene E&P spending growth.
Consequently, we are witnessing a decoupling of upstream spending from but also near term demand volatility, resulting in a residence global oil and gas activity growth in 2022 and beyond.
Additionally, the factors supporting passing that winds most specifically the tightening savvy supply capacity, both Nam and increasingly in international markets will continue to help us on the defining characteristics of this up cycle and will support both revenue growth and margin expansion more than offsetting inflation.
Looking more specifically at the second half of the year, we see very robust activity dynamics characterized by distinct acceleration of investments, Indonesia International basins, and the continued strengthening of offshore activity.
As all operators, including IOC stepped up spending.
The energy Securities attrition continues to drive structural activity increase adjusting for the increased focus on short term production and the mid to long term capacity expansion across oil and gas space.
In addition, we also expect further exploration and appraisal activity and the pricing dynamics expound, so far to add service support to both the growth trajectory at the margin performance during the second half.
These positive undercurrents will lead to an attractive mix and an increase in short and long cycle International projects complementing our already robust short cycle activity North America.
Directionally.
The second half of the year, we expect a phone call traditional golf and Nicole led by predictions systems for the rest of the year with digital integration benefiting from typically seasonally strong year end says.
Also in our result, as a result of a rotation of investment towards international basins, we anticipate the highest growth rate during the second half to occur internationally.
Sit here very nice backdrop for 2023.
Outlook.
Based on this we expect our edge to revenue this year, two or at least high teens compared to the same period last year.
Organic growth will therefore be in the high teens because it in revenue of at least 27 billion for 2022.
Furthermore.
Adjusted EBITDA net salute developed apps would increase by at least 25% for the full year of 2022 when compared to 2021.
Indeed, 2022 is shipping up to be an outstanding year for some of the power of our coal our digital and the carbonization leadership and the expansive attribute of this upcycle enable us to leverage our focused North America business with an Unparallel international breadth.
The combination of which probably exposed to measure to durable top line growth earnings and further margin expansion potential that is unmatched in the sector.
Beyond this the momentum we are building through the second half of the year and the exit rates that will have achieve both very well for our 2023 outlook and financial ambition for which we'll be sharing more details at our Investor Conference in November I look forward to seeing many of you in person at this event.
I will now turn the call over to Stephane.
Thank you Olivier and good morning, ladies and gentlemen.
Second quarter earnings per share excluding charges and credits was <unk> 50.
This represents an increase of 16 sequentially and 'twenty when compared to the second quarter of last year.
This also represented the highest quarterly earnings per share since the fourth quarter of 2015.
In addition, during the first quarter, we recorded a 14% gain relating to the further sale of a portion of our sales in Liberty and LG and <unk> gain relating to the sale of certain real estate with Roto GAAP EPS to <unk>.
Seven.
Overall, our second quarter revenue of $6 8 billion increased 14% sequentially.
This represented the strongest sequential quarterly growth since 2010.
All four divisions experienced double digit increases.
Changes in foreign currency exchange rates had virtually no impact on the sequential revenue increase.
Yeah.
Pre tax operating margins expanded 212 basis points sequentially to $17, one vessels and EBITDA margins increased 157 basis points to $22 six doses.
These increases largely reflect the seasonal rebound in activity a favorable technology mix, particularly on higher offshore activities.
And strong exploration data licensing sales in our digital and integration Division.
Margins also increased significantly as compared to the second quarter of last year.
Pretax segment operating margins increased 279 basis points year on year, while adjusted EBITDA margins increased 133 basis points year on year.
This margin performance is even more notable considering the inflationary headwinds we continue to face.
This demonstrates our ability to manage inflation through our supply chain organization.
As well as through pricing adjustments from our customers.
Let me now go through the second quarter results for each division.
Second quarter digital and integration on revenue of $955 million increased 11% sequentially with margins, increasing 570 basis points to 39, 7%.
These increases were primarily due to higher exploration data licensing sales <unk>.
Including $95 million.
Of transfer fees.
Reservoir performance revenue of $1 3 billion increased 10% sequentially beyond the impact of the seasonal rebound in activity driven by growth both on land and offshore.
Margins improved 143 basis points to 14, 6%, primarily as a result of the seasonal recovery.
And higher offshore in exploration activity.
Well construction revenue of $2 7 billion increased 12% driven by strong growth and improved pricing both internationally and in North America.
Margins increased 134 basis points to 17, 5% due to the higher activity combined with a favorable technology mix and improved pricing.
Finally production systems revenue of $1 9 billion increased 18% sequentially and margins increased 190 basis points to nine persons.
Global supply chain and logistics constraints starting to abate.
<unk> in higher product deliveries and backlog conversion.
International growth outpaced North America growth and was particularly strong in the Europe CIS Africa area.
Now turning to our liquidity.
During the quarter, we generated $408 million of cash flow from operations and negative free cash flow of $119 million.
Working capital consumed $936 million of cash during the quarter, largely driven by higher receivables due to the significant revenue growth.
However, our DSO improved sequentially.
Inventory also increased as we continued to manage lead times in anticipation of continued growth in the second half of the year, particularly in our production systems Division.
Consistent with our historical trends, we expect our working capital and cash flow generation to significantly improve overall, the second half of the year.
During the quarter, we made capital investments of 527 million visa.
This amount includes capex and investments in Aps projects and seismic exploration data.
Although it is reflected outside of free cash flow. Our overall cash position was enhanced labor for all of our sale of a portion of our sales in Liberty.
We generated $430 million of net proceeds.
We currently hold a 12% interest in Liberty.
During the quarter, we also sold certain real estate, which resulted in proceeds of $120 million.
As a result, our net debt improved by 406 billion million during the quarter to $11 billion.
This level of net debt represented 2 billion improvement compared to the same period last year.
Furthermore, we have now achieved our previously stated leverage target of two times net debt to EBITDA.
We expect our leverage to continue decreasing throughout the rest of the year on a combination of higher earnings and improved free cash flow allows.
Allowing us to further strengthen our balance sheet.
This will provide us with the financial flexibility required to continue funding growth.
And increased returns to shareholders throughout the cycle.
I will now turn the conference call back to Larry.
Thank you stfan, ladies and gentlemen, I believe we are opening the.
Well to answer your questions.
Very good ladies and gentlemen, once again, if you have a question. Please press one zero on your telephone keypad.
Our first question goes to the line of James West with Evercore ISI. Please go ahead.
Hey, good morning Olivier Stephane.
Good morning, James.
So Olivier a curious how youre thinking about the <unk>.
Evolution of the particularly the international cycle.
As we go through the next several quarters and really into next year I mean, we're clearly you'll oss or energy is decoupling from the.
The global economy, you're going to see some changes in how the activity level the mix the pricing.
It seems to me that kind of the best is still to come I think for for the cycle. So just kind of curious your broad outlook for international.
Now first I want to reinforce the.
That the macro environment, we are facing is quite unique.
Controlling some.
And presented the low.
Spare capacity.
Eight years of under investment International basins.
And a.
The call for energy security that is creating a double sourcing of of both oil and gas partially international basis. So when you put that together it creates not only a <unk>.
Short cycled in person.
Friction enhancements to respond to that energy security, but also reinforce the need for expanding all capacity accelerating gas development and an entire set of intellectual basis, both offshore and onshore benefit from it as we see so we have seen an inflection.
And the sentiment of our customers both National Company International Oil company and Internet International did independent to respond to that goal and are turning and accelerating the investments and rotating the investments internationally visibly. So this is certainly a new T <unk>.
<unk> recorded multi phase.
Oil and gas.
We are positive on that non cobalt. So we have seen that Latin America has been the first to benefit from that inflection and we see that continuing going forward as from Vienna to Brazil to Colombia in as a short cycle to Argentina shale exposed on diamond, we foresee this to be continuing including explore.
Ocean offshore Colombia.
Atlantic margin, Brazil. This is this is set to continue going forward.
We are seeing these two updates in ECA as you may have seen more than offsetting the constraints, we have in Russia, Ukraine region and cutting a superb.
Under current call to call. It on all of our basins in this region and we have seen it in our <unk>.
Very strong in Europe , West Africa and.
Scandinavia with unique tax incentive set that will start to be kicking in next year will only accelerate that trend and is military or black Sea were also see continuous growth going forward. So and you turn to middle East and Asia I think we have a combination of.
Of.
OLED capacity commitments increased by both the UAE.
Saudi and <unk>, Kuwait that will play out.
In the case of KSA, K 10, and uptick in offshore activity, partly from next year.
You see that the gas that is being.
Developed at large scale in middle East both for domestic and for sugar substitution that will continue to play to our strengths in Qatar and in commercial and multi UAE.
In Saudi is not demand and then and then you have.
The Asia market that is also not shy of investments and you see that long term into the south China Sea chassis as well. So I think it's it's multi pronged multi multi color I will say and it has started strong in laminate will tend to favor ECA further middle east.
This inflection that will materialize as the quarter.
<unk> executed going forward.
Okay. Okay got it. Thanks, that's very helpful. Olivier maybe a quick follow up for me you have your digital event coming up here in September I've been following kind of the the list of speakers very impressive group that you've that you're assembling.
And then I'm curious, so where you see the industry now where you see slumber J in the industry.
The digitalization of the digital journey of the industry it seems to be that we're.
We've been inflicting but we seem to be breaking even further in digital and certainly the results are proving that out.
In your income statement as well so curious about digital.
No I think Youre, correct and I think.
That.
The number and.
The rich panels that we're assembling into this digital form in September is our is is therefore, two reasons first and foremost is because the industry believes in digital the digital can add a significant step up in efficiency that we will continue to impact positively cost cash generation and.
<unk>.
We will contribute to decarbonization of operations. So thats. The reason why we are seeing customer.
In high number and record number two our digital form in the second reason we have the success is in our foot leadership and <unk>.
Platform strategy that has been adopted and that has been the cornerstone of our success in digital and we are using it to continue to transition all of our customer base.
Was this a cloud platform and this is a long tail and this will certainly laughter.
All of this decade and beyond and we are we are looking forward to success long long success here, but also we are using this betterment as digital capability to continue to enhance our operation to continue to transform our digital operation to impact.
Our customers and our operations for efficiency and for performance so lifting up.
Two efficiency lifting up the performance enhance getting a premium or getting increment of market position. So it has a dual effect but.
The success of these reform is set to nita.
Clearly to the to our team but also.
The the proof that digital is now mainstream into this industry.
Got it thanks a lot.
Well go next.
Our next question is from David Anderson with Barclays. Please go ahead.
Hey, good morning Olivier.
So going to Crusher numbers you grew in every region in every segment.
The one I thought was really interesting was Mena grew 7% this quarter, but it didn't even in the middle East hasn't even started yet so.
So I was wondering if you could just kind of start there and just help us give us give us a sense of kind of where you stand today in terms of project mobilization and how that region is building out.
And I'm just kind of curious when do you fully expect to be up and running on the contracts you have in hand, and I guess related to that it's been a while since we've seen a ramp up in activity over there, but we've often seen startup delays and higher costs that lead up to the work. So aside from just pure execution are there ways that you can navigate some of these risks are there lessons learned from past cycles.
Or is it different because this is much more integrated drilling work that didn't exist in prior cycles.
No I think I believe that our team is as improve its execution track record.
We have as you may remember three years ago, we took a we took some action on to our underperforming contact and we learn we learned and applied some some best practice best lessons and project management to <unk> deployment and to the discipline in our in our competency management deployment and use of digital to help us execute.
These are complex in a better way.
From the way, we manage the maintenance cycle of our equipment to the way, we deploy and do remote operation to control them.
And support.
People on the ground I think we have progressed a lot in the last the last few years and as such.
The major contract we are studying always has.
Learning path, but I think we are accelerating this learning pads by comparison to.
To previous cycles, and I think we are set for success on all these projects.
Before soon and but we always have somewhere somehow in international based in a major project startup and but we expect this to be a.
I will set the background that we will have going forward, but all execution packet golar Sumner and use of digital best practice.
And disciplined organization, including a competency that we deploy has helped us to accelerate the lesson learned and to reach maturity and demo performance margins on those projects faster than in previous cycles. So I'm I'm I'm positive and I and as I said, there is an inflection building up in middle East.
TVT that will materialize in two or three country visibly into the second half.
And we will accelerate next year as we will see more offshore shallow activity.
Particularly into the into the <unk> environment.
It is led by the Saudi oil major development that accelerating for oil capacity increase towards their 2027 1 million buying this will translate into activities to further activity increase we materialize and we will benefit from it the industry will certainly other.
Our trumpeter going forward. So it is the early cycle of growth in middle East.
The offshore market was actually my my second question there.
Your.
They're really the offshore market to really tailor made for your technology profile of exploration drilling subsea boosting so and recognizing that there is a ramp up on the on the shallow water side in the Jackups in the Middle East is it too soon to say and overall kind of offshore inflection is here, we noticed a lot of your own.
We saw a lot of your work offshore Gulf of Mexico is not too soon okay.
No it's not too soon in the in the second quarter International.
Sure It was accretive to our growth internationally visibly and you can see it into the <unk> growth and I think.
If you read some of the reports published by and others I think youll see that.
You'll see that the outlook for 2022 2025 on offshore investments in exciting activity will outpace visibly added <unk> 16 to 2019 cycle. So we are the early innings of this offshore cycle, but it's quite interesting and it includes it includes more exploration or more.
Appraisal activity than we could have anticipated considering the.
Some of the Michael but we're seeing it from Namibia to Colombia.
We are seeing an interesting exploration happening to north north of Brazil in the Atlantic margin, we have seen acceleration of Av.
Arizona exploration that combine an increase the beneficiary a mix I would say that we are.
That we're seeing in our strong balance so yes, we're very well exposed as we recently conducted doing.
During a conference in June .
We believe that the average show a real intensity that we collect from an offshore environment. These can be up to five times or more what.
What we collect in Atlanta environment and the scope.
We have is quite unique from as you said Tom.
From subsea to exploration from.
From that the licensing.
Integrated rig.
Well construction, so it's quite unique.
While benefiting candidly on that the offshore outlook.
Excellent. Thank you very much.
Thank you Dave.
Our next question is from Chase Mulvehill with Bank of America. Please go ahead.
Hey, good morning, or I guess, good afternoon over in Europe .
I guess, yes.
I want to come back to the topic on international and maybe follow up a little bit on James's question.
Obviously.
We've now seen kind of three.
The diversified service companies International results, although they are all surprised to the upside so it feels like the activity, maybe a little bit higher than kind of what we all saw.
Kind of heading into <unk>, but could you talk about the fundamental tightness that youre seeing across the international market.
And whether youre seeing kind of broad based on pricing at this point or is it just kind of more pockets.
Pricing increases.
Just a little bit on pricing across the international side.
No it's definitively broadening.
As our activity continued to ramp up and includes an offshore mix that typically as more pud on equipment, considering the backup and considering the length of assignment of this equipment on the offshore rigs. This is creating a pinch on the supply capacity that resulted into a voting passing a plus.
Passing pressure and passing passing uplift that we're seeing in oil environment I would say both from existing complex, where we have an opportunity to negotiate and offset more than offset inflation as the new tenda and <unk> direct a world where our customer want to secure.
Our future capacity demands secure technology, they want to secure performance and as such are.
Accepting and are directly negotiating a passing comment on existing scope. So we are benefiting from this.
The pricing environment is definitive broadening and improving and we believe that going forward as we see the inflection of international investment that has started to accelerate in the second half as we anticipate second half international rate of growth will outpace the North America, our rate of growth, we see that two to generate.
More and more floor and at least for the pricing environment going forward.
It all makes sense and we agree with you there.
Can we is it kind of a related follow up can you expand on kind of I guess, maybe your ultimate earnings power of the company.
Obviously, you gave us some EBITDA guidance here and when we think about the earnings.
This year Youll surpassed last cycles peak.
But how should we be framing kind of the earnings power of Schlumberger This cycle.
And then maybe just kind of weave in the discussion around EBITDA margins and your confidence in may be hitting the 25% mid cycle margins that you had kind of guided.
As a target for kind of year end 'twenty. Three do you think you can kind of hit that a little bit earlier now given that you're outperforming on the margin side.
So I think as we have said before I think that there are two or three reasons why we are confident about <unk>.
<unk> project to your earnings power going forward. The first is that we had a high grade our portfolio in North America that has lifted our margin in North America.
To deliver that we're comfortable now that we're competing and accretive secondly, we have created a significant reset in operating leverage.
Less than three years ago that is paying up and paying off at the time, we are expanding and growing and further we believe that a combination of tight supply already very visibly in North America and boating as Ive said in international combined with performance technology performance integration performance.
The foundation.
Is hitting a further premium that will that will fall through to earnings.
So we have.
Robert mixed outlook that includes offshore we have differentiated technology and integration performance and we are as a foundation.
They are putting assets that you have done in the <unk> we did.
For a while so you combine this with the upside that digital brings.
And you get all in.
There are significant.
The upside that we have in our margin and we had the anticipated 25% EBITDA margin.
Sometime next year and I think we are still very confident about that target.
Okay, perfect I'll turn it back over thanks Olivia.
Thank you.
Next we have a question from a rune J Orion with J P. Morgan. Please go ahead.
Yeah, good morning Olivier.
Obviously, some consumer loans are up.
Around Russia kind of heading into the print, but I was wondering if you could provide more color.
On the drivers of the 20% sequential top line growth that you saw in Europe C. I S Africa.
That manifests despite a.
A decline in Russian revenue.
I think it's a it is built on multiple multiple azure units.
In West Africa, and Europe , and Scandinavia, Virtualized <unk> that has been benefiting from project.
Project timing from a battery in a production system that you have seen as benefits from a significant sequential growth.
A large portion of that was in Europe .
The same in offshore band I think we have a sharp nominally speaking up in that in that region and this has been very beneficial to us including some explore.
Performance. So you combine all of this and we have a fairly substantial growth and we don't and we don't see this necessarily abating and locking in the coming in the coming quarter. So I think we see a lot of further offshore and activity both in Africa, Europe , Scandinavia accelerating as I said next.
Year.
And that will more than offset the risk.
Facing in Russia outlook.
Great Great and just as my follow up Olivier you mentioned, how Schlumberger is hosting an investor day in November I was wondering if you could talk about some of the objectives of that upcoming.
And what do you hope to showcase and highlight to to investors at that time.
I think we come out on this during the last during the last call and I think.
It is a.
And events whoever we invite our investors and analysts to update them on our view first on a cycle our strategy.
To execute on the cycle and our long term ambition, we have for the company building on the on our core and our digital and our new energy investment that will go forward. So that's where.
And you will see technology, you will see.
I think in a matter of our strategy and we will expose all of you to the view we have on the on the micro and the long term ambition for the company.
Great. Thank you.
Welcome.
And our next question is from Neil Mehta with Goldman Sachs. Please go ahead.
Good morning team.
First question was turning around.
And Olivier just around you.
Canada Aps assets, how are you thinking about that are you still considering the sale or has the thought process changed given the macro environment and alongside that.
The monetization at the Liberty position as well should we be thinking that Schlumberger will look to continue to exit.
Our own Stefan here, so look on Palliser, and Canada all of our asset.
For EPS. We are we are quite happy with the performance of this asset actually is generating very strong cash flows. So it's a great asset and we are making the most of it.
At the moment.
As it relates to two Liberty you you will have seen that we are we decided to monetize a large part of our investment in the second quarter when the market.
Conditions were favorable.
We now hold only 12% of the equity we will simply we will continue to monitor our investments going forward then.
And we will decide on further monetization based on the on market conditions like we did earlier.
That's great. That's helpful color and then the second is a philosophical question as lumber today is now getting to the point, where the business is generating.
A decent amount of free cash flow and visibility for that free cash flow to grow how do you think about return of capital and as you think about the preferred methodology to return that capital do you think a buyback or dividend is the most effective way.
To get that cash back to shareholders.
Sure look first as you know we increased our dividend by 40, Brasseaux and starting with the with the July payment. So this was the first step in increasing returns to.
Two shareholders in this growth cycle now as earnings and cash flows indeed continue to grow over the cycle. We will review opportunities constantly to increase returns to shareholders and it will be either in the form of increased dividends or share repurchases.
We will also see exceptional cash proceeds from.
Our continuous portfolio high grading program. So this will give us further optionality that we will decide between dividend.
And share repurchases in due time dividend of course has to be a sustainable affordable for the long term, but share repurchases will be part of the equation as well.
Thank you Sir.
Thank you.
Our next question comes from Scott Gruber with Citigroup. Please go ahead.
Yes sure.
<unk>.
Afternoon afternoon.
And as you mentioned, there's growing recession fears in the broader market and that weighed on the oil and the weight on your stock.
But Olivia as you mentioned there seems to be great resiliency here to the growth outlook, but I am curious.
Roughly at what oil price do you think the multi year double digit recovery could be imperiled, just seems like theres, a pretty big buffer between the current price.
That price could be but I'm wondering your thoughts on.
I think it's a point that there is indeed I think first I think we are living through a supply led.
On that I think is.
It's quite unique and that it would take time before it demand.
Recovers to alter demand supply balance so I think the quarters to come will be definitely three quarters to be happening and securing enough spare capacity.
To avoid the exposure or exposure to.
The risk of the energy supply and but you have the undercurrent that is on an as a security that is carrying a double sourcing that is a new attribute of demands that are and supply and supply that.
It is already doubling down so.
I think the buffet is pretty wide in my opinion and the hence the short term and some of the risks on the slowing in or inflection in the demand growth going forward.
The earliest days of decoupling and resilience into the investment cycle that we are we are seeing as we speak so what does this last.
It's very difficult to say how long it will last but I think we see that this cycle is.
<unk>.
Longer on price or that posture than we had anticipated because of those unique condition.
That.
Secretive supply has just added a new dimension to it so I think there's a lot of space in my opinion.
Yeah, we are we agree.
And a follow up on exploration I know you touched on it touched down its benefiting mix.
I'm curious.
Just how you see the.
The recovery here on the exploration side. This cycle you know the general assumption coming in was that exploration would lag.
Given our deep down turn in exploration activity and given a renewed focused on energy security should we'd now be assuming that exploration activity will actually rise in excess of the general recovery as it usually is that possible here.
No what what we are witnessing activities that are below the us cleaner if I may use that.
Expression is that we are seeing a lot of exploration and appraisal program that is being that are being initiated with some.
Good surprise good surprise that we're seeing in the new frontier accrete.
In the in Namibia code it in Colombia.
And we are seeing.
Pilgrim and support for new exploration in Asia as well.
So yes, we're cautiously optimistic that indeed, the exploration securities back.
To escape that I think will be will be accretive to the omics and we're giving us that a unique exposure from.
From a exploration that licensing in or.
From a reservoir performance portfolio and digital also as we typically have a lot of our license and diesel.
<unk> that address the expression geoscience work flows. So we see this as a as a mix that is.
Critical to our future and that is coming a little bit ahead of what we could anticipate in this cycle.
No I appreciate that color. Thank you.
Thank you.
Our next question is from Roger read with Wells Fargo. Please go ahead.
Yes. Thank you good morning, and good afternoon.
Morning.
What I would like to maybe understand.
And focusing on kind of the back half and the exit this year on the EBIT.
Guidance.
Didn't really raise that despite the stronger Q2, obviously some positives on pricing I was just wondering what you see to keeping I don't know if cautiousness, the right term, but let's just say.
Conservative in terms of EBITDA guidance relative to revenue guidance is that Russia or something else that's flowing through.
I think first let me reiterate the guidance, we provided guidance that our revenue will be.
27 billion there are at least and we part of the guidance that our EBITDA in dollar terms, we grew by at least 25% year on year.
Two Walter from 2021, so if you use this you'll see that it goes up.
Above the current concerns through seven adjusted for the actual beat that we had in the second quarter. So we foresee we foresee a rise in EBITDA dollar for the full year with this with this guidance that I just said.
Yes, I understand that I guess I was just really coming at the sort of 24.
200 basis points from Q to Q4, 'twenty, one to Q4 of 'twenty to Odyssey scale, given the seizure ambition.
Ambition other things should help.
Yes. This is our ambition and I think this submission is based on the this is an impact that we anticipate.
Through our popular digital a neuron cells that will follow our digital phone and.
The mix that we believe will be recoverable, so, we including international and offshore that accelerating in the second half so.
This is still the ambition, we have set for the team and the <unk>.
And this is the reason why we have guided to the 25% of full year EBITDA growth in dollar terms.
Oh, okay.
And then this is a little more of especially given the commentary earlier about your best quarter since backing.
<unk>.
And this is a cycle, where a lot of the <unk>.
E&P companies integrated are being conservative in terms of their pace of spending increase relative to what we've seen in the commodity prices.
Just wondering as you look at this cycle in this part of the recovery so far what you could see it in the back half of this year thinking about Max what what looks the same what looks different I mean, obviously you expect any exploration recovery to continue but if we just look at the <unk>.
Development side are we leaning more heavily into that is the mix more positive than in some other cycles or should it ultimately.
Look a lot like any other cycle. Just you know it is going to be stronger in one place weaker than another.
No I think I think what is what is quite a character recycled is abroad. The broad nature of this the cycle, we see it we're growing across the full division who are going of course.
The four areas and we are seeing this set to continue so we see a as I said a strong inflection in international that will outpace in terms of rate of growth North America format from the second half. We see also offshore the return of offshore being a characteristics that will only expand going.
<unk>. The if you were to just look at the in terms of numbers the number of Av.
Jackup.
Being a protein shallow waters.
Actually on power, Ohio that need as it has been.
<unk> segment at more than 300.
And the deepwater is saying two to catch up so I think we have where the mix of our signal.
Clearly.
Broadening the activity outlook.
Hence if I want to differentiate is mostly the supply led and tightness to the market.
Cutting pricing condition that is unique in this cycle.
In addition to the boards nature of growth across almost all countries.
In this in the coming quarters.
Great I appreciate yes, even though it's positive in all dimension I would say customers geographies and.
<unk> Division business line. So that's what <unk> is unique in seats is broke its pollution announcement at some appraisal and exploration and he said development program, both oil and gas.
Thank you.
Next we'll move on to Connor Lynagh with Morgan Stanley . Please go ahead.
Yes, we've been talking a lot about pricing, but I wanted to maybe just put a finer point on something one of the big investor concerns on.
Both Schlumberger and the broader oil services industry is the degree to which you will be able to extract pricing or improve margins not just.
In some of the last quarter geographies, but also with some of your big National oil company customers.
So I'm curious based on how broad based your comments suggested pricing is are you already seeing pricing or margins improve in some of your biggest regions with some of your biggest customers.
Are your conversations indicating that that more is to come just curious.
Address that now.
As I commented before it's broad it's happening today.
And it's is expanding so now is it in for a rig contract for every customer.
That's what we're working on but the customer.
Understand the customer realize the market is becoming is going to be tight.
Careful performance the customer wants to do to secure capacity for our future plan.
And we are seeing.
Our success into our engagement.
With all of our customers into positive response and adjustment of our price in the existing contract or into a new contract into as I said a contract extension that are negotiated.
101, and with passing increments or ends into tender on demand, where the the pricing you're seeing being lifted so it's broad.
And it will continue to.
<unk> to happen and I think.
While a year ago, it was mostly north America with in shops internationally.
It's a very established in North America, and its broad now international across all customers and yes. Some will take more time to materialize and some we will face at a later date, but we are confident that the momentum that started and the market will support it going forward.
Got it. Thank you maybe pivoting a little bit here, we've talked to.
Generally about Russia, but I was wondering if you could just clarify what your expectations are for the country for your operations there.
And effectively what the wind down might look like relative to your plans to cease investments new car.
Tracks there.
No I think I would just reiterate what we said earlier in brain.
But our position is unchanged since we can make it earlier this year at the onset of these clauses and we have suspended new investment in technology deployment into Russia.
However, our structure gives us a flexibility to our approach in country.
In full compliance with international intelligence function. So at the same time, we continue to monitor this situation very very closely very carefully and will always put the safety of our people and asset as a first priority. So we cannot and will not comment on the future, but we have taken a disposition.
Support.
Alright, Thank you very much.
Thank you.
And ladies and gentlemen, we have time for one last question that is from Keith Mackey with RBC capital markets. Please go ahead.
Hi, Good day everyone.
Hey, good morning, good morning, Keith.
I, just would like to dig into a little bit more on the cash flow and free cash flow expectations for the second half of the year Stephane you mentioned that.
You expect that to improve just curious if you can put some some color on magnitude around that and is a double digit free cash flow margin for the second half of the year in the cards.
Sure. So look first let me come back to the second quarter to put some colo.
Our free cash flow was indeed slightly negative even though the cash flow from operations improved sequentially. So.
You have seen it's solely in the working capital and to give a bit more detail as to firms of the sequential working capital increase was.
It was due to an increase in receivables, but as I mentioned earlier, our DSO improved sequentially. So really the increase in receivables.
Due to the significantly higher activity, we experienced in the quarter.
So the inventory has increased as I mentioned, we are preparing to fulfill our growing backlog, particularly in our production system Division. We mentioned this is the fastest growing division. So we want to seize all the opportunities there. So so really the working capital buildup. We saw this quarter is to support the.
The accelerated growth we are experiencing as it relates to the rest of the year. We do expect the same pattern. We see every year in the second half where our working capital gradually improves on higher customer collections than we have lower inventories due to higher product sales.
So the second half so we fully expect our free cash flow to significantly improve in the second half.
Asberry story cold trends and clearly we maintain our ambition to.
To generate double digit free cash flow margin, although the cycle for sure.
Got it okay. Thanks for that and maybe just a follow up on on capital. It looks like you can move to the top end of your one $9 billion to $2 billion range can you talk about where this was is it activity driven versus inflation driven and if it is ultimately where you think you'll land for the year.
Under your under your 27 billion revenue guidance.
So just yes, just to confirm we are expecting our total capital investments, which include the Capex exploration data costs.
And EPS investment for the full year approximately $2 billion.
As Olivier highlighted clearly we are seeing higher demand for our technology and equipment, mostly in <unk>.
Core services divisions. This is where the most of the Capex goes well construction and reservoir performance. We are regarding various strong year on year growth. So this is expected to continue. So we will continue of course to maintain discipline in the way we deploy any additional resource allocating goes to the countries and in control.
We have the best returns in accordance with our capital to actually print work.
So just one note the capex portion of our total capital investment remains at the at the low end of our target target range of 5% to 7% of revenue and we fully intend to maintain that commitment.
The growth cycle.
Yeah.
Perfect. Thank you very much for the color.
Sure.
Yes.
And I do understand we have time for one more that is Marc Bianchi with Cowen. Please go ahead.
Hello.
Thank you.
Wanted to ask first on Russia, just to follow up I think last you updated Russia was about 5% of total company revenue, but at the time, the ruble had significantly devalued.
We've seen an appreciation of the ruble since can you comment on where that revenue mix is today.
Yes.
Sorry, Russia.
Russia throughout the first six months of 2022 electoral year is about 50% of our total worldwide revenue.
Got it okay. Thank you Stephane.
As we look at the back half of the year, perhaps you could provide a little more color on the segments I understand you mentioned DNI and production systems driving the improvement, but the DNI benefit would be largely fourth quarter.
As typical with seasonality, but there was an exceptional second quarter.
So maybe you could just provide a little more color on the progression as we move through third quarter for the business.
Yes, we had indeed, a very strong quarter and Eni due to some some very very strong.
Exploration sense, but at the same time I think we will see indeed, the <unk> coming back to.
So it's a usual margin to low to mid thirties, and and to progress to the edge to finish on a strong.
End of the year.
Of digital here in <unk> as we had experienced in previous years. So while it was a very strong I think you still are in the <unk> and we expect to <unk> if not in the mid <unk> going forward. So we'll.
We will see the uptick in another year.
Very good thank you so much.
Thank you Mark.
And so I believe at the time too.
Yeah.
Time to close indeed, thank you so ladies and gentlemen to conclude let me share with you three key takeaways.
Firstly as our second quarter results demonstrate our differentiated global market position, our industry, leading performance and uptick nausea portfolio uniquely matched to the market dynamics of this cycle.
Secondly, the market fundamentals continue to support significant investment growth in our sector with an anticipated decoupling and resilience against the uncertainty of the pace of future demand growth.
The same time the market conditions are increasingly supportive of net pricing impact on to current and future contract, both North America and internationally.
Finally, our confidence in the activity mix outlook for the second half, particularly the rotation of investment internationally combined with pricing headwinds has led us to revise our full year expectation for both the revenue and earnings growth.
This bodes extremely well for.
While future beyond year end as we continue to secure significant service and equipment backlog to support our ambition in this up cycle ladies.
Ladies and gentlemen, I believe there is no better time for <unk> as we continue to execute with much success. A returns focused strategy and are set to continue to outperform the market increasing in align with our strengths.
Damage.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
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