Q3 2022 Schlumberger NV Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the Schlumberger Earnings Conference call. At this time all 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 queue you may remove yourself from cube.
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. Mod will amaze you. Please go ahead.
Yeah.
Thank you Leah good morning, everyone and welcome to the Schlumberger Limited third quarter 2022 earnings Conference call.
Today's call is being hosted from Houston.
Following the Schlumberger Limited board meeting held earlier this week.
Joining us on the call I'll leave any Parrish, Chief Executive Officer, and Stephane <unk> Chief Financial Officer.
Before we begin I would like to remind all participants that some of the statements we'll be making today are forward looking.
These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements.
I therefore refer you to our latest thank you Patti and our other SEC filings.
Our comments today May also include non-GAAP financial measures.
Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter press release, which is on our website.
With that I will turn the call over to Olivier.
Thank you Andy and good morning, ladies and gentlemen, thank you for joining us on the call in my prepared remarks today I will cover three topics, starting with third quarter results and our latest view of the macro environment.
We completed for outlook for reminder of this year.
The second is developing to be one of the most exciting times for the company. The recent past we.
We started a new solid results led by the international markets and we continued to execute at a very high level delivering another quarter of double digit revenue growth with earnings per share and EBITDA at their highest level since 2015.
In addition to the detailed is captured in our earnings release. This morning, I would like to take a moment to reflect on some of the key highlights for the quarter.
<unk> year on year revenue growth accelerated to 28% the highest growth since 2011 more than a decade ago.
Internationally.
Alright, and the pace of growth increased 13% sequentially and 26% year over year.
Activity generally really trends confirm the onset of another phase in our global growth cycle, one that would be increasingly driven by the international and offshore markets draw breath and take those integration, we're optimally positioned to benefit strongly from the acceleration of activity that is expected in the quarters and years ahead.
No coal all divisions continued to execute very well and the impact of operating leverage and improved net pricing was affected in our reserves All division Alcoa posted margin expansion led by well construction, our biggest division, which posted over a 400 bps sequentially important.
We also had all digital for I'm going to say on Switzerland, bringing together, our captains of industry energy and information technology over 1000 foot leaders partners and customers.
These just for them was our biggest yet and marks an inflection point for digital.
Our long term competitiveness as an industry the pumps on our ability to effectively honest technology data and deeper collaboration.
During the three days of acted on engagement it became increasingly clear to all participant that true digital we entered a feature better equipped to deliver a higher value in terms of performance and decarbonization.
But we also continue to strengthen our core portfolio and kissing your opportunity set in new creative offshore markets, We announced an agreement to form a joint venture with ACA solution and subsea seven is that payment will bring together a complementary portfolio of technologies and unmatched integration capability to help customers increase production improve.
ANSI and meet their decarbonization goals.
In the core and in digital health technologies are increasingly being adopted and are positively impacting our cost and our performance we secured several significant.
T a complex wins during the quarter and continued to build a solid pipeline of activity for the future.
And finally in <unk>, we continue to make significant advanced breeding partnerships investing and developing new capability.
We announced an agreement with <unk> international to accelerate Demutualization and scale up of innovative known actress solvency II capture technology.
We also made an investment in <unk> to accelerate the development of technology for cleaner doors that prediction from natural gas boom.
Both of these are advancing are holding up for Admiral Jan and just U S.
His son policy decision in the U S and Europe as your body <unk> youth energy domains technology led approach and market growth opportunity.
We expect to announce additional progress in the coming weeks and months as we continue to position the company for long term participation across the entire energy value chain.
To sum up we entered the second half of the year with the expectation for strong growth momentum and raised our revenue guidance for the full year.
This was predicated on a whole best international outlook, the strengthening of offshore activity and the boarding and impact of service pricing improvement.
I'm very pleased with the evolution of these dynamics and our execution, thus far both of which continue to result in detail shattered a passion with performance and solid financial results I.
I would like to thank the entire <unk> team for delivering another exceptional quarter.
Turning now to the macro we have strengthened our view in the medallion up second is we are on the cusp of yet another year of growth.
Despite concerns over a slowdown of global growth rates and the potential for recession, the fundamentals of energy as a critical resource remains very constructive.
First of all in the near term seasonal uptick in demand as we enter our approach is speed to the games very intricate superbly landscape for both oil and gas to the end of the year. The deterioration is exacerbated by the ongoing energy causes in Europe .
Looking further out into the horizon the demand supply picture remains litigate with this imbalanced amplified by as you predict.
Increasing stuffs offset by disruption and limited spec global capacity.
Second the growing necessity of energy security and supply suite devastation will also bring also drive an increase in energy investment a significant step up in investment as they go out to kit Chugai Huda duncey, he balanced market and the hibbett global spare capacity to levels that provide for sustainable economic growth.
And further we saw Opex plus decisions and the extension of existing work for corporation through 2020 free additional effect that we can have better operation operator to invest without a degree of confidence in the commodity price assumptions.
Taken together these dynamics will result in a <unk> cycle.
Realized by as you don't upstream investment that is decoupled from near term demand volatility.
We expect investment in growth would be doable reinforced by the long term demand trajectory retire capacity expansion plans.
Operating breakeven price and supportive commodity prices.
Growth will be similar to <unk> in North America and in International markets. This started first in the North America market and where we are already witnessing the next phase of growth with an acceleration in pace in the offshore and international markets that was very visible in the first quarter.
In the U S land markets, we are past spending more profitably in the market.
And lower capital intensive market signaled well technology battlements spaniel, an up tick there was excess business model are driving solid revenue and margin goals.
In the international and offshore markets with increased market access and enhance about suspicion across the value chain through a combination of portfolio actions fit for basin technology and higher wallet share on account of our performance and integration capabilities.
The next phase of global market inflection is expected to be driven by increasing activity in the middle East.
Looking ahead to the fourth quarter, we expect another quarter of sequential revenue growth and EBITDA margin expansion to close the year checkup.
The consumer growth will reflect historical seasonal trends.
International markets will be driven by a sequential uptick in the middle east activity as capacity expansion projects beginning to mobilize.
Global offshore activity will continue to strengthen offset by Dr. Pushing seasonality in the northern Hemisphere, while North America land activity is expected to moderate its growth trend.
This combination will result in fourth quarter year on year revenue growth in the mid twenties, and 200 bps EBITDA margin expansion when compare to the fourth quarter of 2021.
Against this backdrop, we will visibly surpass our previously raised revenue guidance for the full year <unk>.
This updated outlook would have locked up what he set to be an outstanding year for the company.
Looking further ahead, we have increased our conviction in our strategy and the growth opportunities across all three engines to go digital and new energy constructive.
Constructive oil and gas market fundamentals and energy security and the need to accelerate the energy transition, we supporting investments in both clean energy technology development, and lower carbon oil and gas collection.
We have positioned the company to outperform in the long tail with multiple technologies that the opportunities across the entire energy value chain.
As opportunity.
Oil and gas industrial Decarbonization, and new energy systems, all supported by digital transformation.
We're hitting to apply our technology global scale and <unk> capabilities to lead in this energy landscape and deliver outstanding value for customers and shareholders.
And finally, we will hold our Investor Conference in New York in a couple of weeks, where I look forward to seeing most of you. During this event would escalate the ambition for the future, including on near term goals for 2023.
I'll spell a decent year's Investor Conference. We will also have an immersive opportunity to see and touch some of our exciting new technologies and meet men with members of our expanded management team.
I'm truly excited about this upcoming event.
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> 63.
This represents an increase of 13% sequentially and 27 cents.
When compared to the third quarter of last year.
This was the highest quarterly earnings per share excluding charges and credits since the fourth quarter of 2015.
Overall, our first quarter revenue of $7 5 billion increased 10% sequentially.
We witnessed a clear acceleration of growth during the quarter as evidenced by the 28% year on year revenue increase.
Consistent with our expectations activities shifted towards the downloads are known markets, particularly offshore.
As a result, we experienced international sequential revenue growth of 13%, which significantly outpaced North America.
Although we experienced volatility in certain foreign currency exchange rates across the world. The overall net effect on our revenue was negligible both sequentially and year on year.
Turning to our profitability.
Pretax segment operating margins expanded 161 basis points sequentially to 18, 7% and adjusted EBITDA margins increased 91 basis point to.
To 23, 5%.
Margins also increased significantly as compared to the southwest trough quarter of last year with pre tax segment operating margins, increasing 320 basis points year on year, while adjusted EBITDA margins increased 143 basis points.
This significant margin expansion illustrates the benefits of the operating leverage and pricing momentum, we have as well as our ability to manage inflationary headwinds.
Let me now go through the first quarter results for each division.
First quarter of digital and integration revenue of 900 million decreased $55 million sequentially, while margins were down 586 basis points to 43, 9%.
The effect of increased digital sales was offset by the absence of $95 million of exploration data transfer fees that we recorded last quarter.
Reservoir performance revenue of $1 5 billion increased 9% sequentially, while margins improved 209 basis points.
These increases were driven by higher intervention and stimulation activity, both on land and offshore.
Well construction revenue of $3 1 billion increased 15% sequentially.
Driven by strong activity growth, both internationally and in North America, as well as improved pricing.
Margins expanded 403 basis points to 21, 5%.
Due to higher offshore activity, a favorable technology mix and solid pricing improvements.
Finally production systems revenue of 2.2 billion increased 14% sequentially, primarily driven by higher product deliveries and backlog conversions.
Our supply chain logistics constraints continue to ease.
The revenue increase was led by international markets, which grew 17% sequentially.
As a result margins returned to double digits increasing.
Sequentially by 142 basis points to 10, 4% the highest level since the first quarter of 2019.
Now turning to our liquidity.
During the quarter, we generated $1 6 billion of cash flow from operations and free cash flow of $1 1 billion.
This performance represents a significant improvement compared to the first half of the year as working capital started to unwind during the quarter. Despite the sequential revenue growth.
Consistent with historical seasonal patterns, we expect this trend to accelerate in the fourth quarter, resulting into free cash flow improving sequentially.
Yeah.
During the quarter, we made capital investments of just over 500 million. This amount includes capex and investments in Aps projects and exploration data.
For the full year of 2022, we are expecting capital investments to be approximately $2 2 billion as we continue to support very strong revenue growth, particularly in our well construction reservoir performance divisions.
Net debt improved by $1 3 billion during the quarter.
And at $9 7 billion.
This level of net debt represents a $2 $7 billion improvement compared to the <unk> of last year.
Our net debt to EBITDA leverage is now down to one six times and we expect it to drop even further during the fourth quarter on.
On a combination of higher earnings and improved free cash flow.
I will now turn the conference call back to Olivier.
Thank you Stephane and then Ian gentlemen, I think we're ready for the Q&A session.
Ladies and gentlemen, once again, if you have a question you May press. One then zero on your telephone keypad. Our first question comes from the line of James West with Evercore ISI. Please go ahead.
Hey, good morning, Olivier and Stephane.
Morning, James.
So Olivier I wanted to touch on the biggest business right now which is your core and then the fact that it's strengthening so significantly but it's also.
The core has changed over the last several years I'd love to hear kind of your thoughts on how the next maybe not next quarter, but the next couple of years should play out for the core business given where the cycle is go and how it's headed internationally, how it's heading offshore in house slumber J has positioned itself.
For where the increased capital spending will be.
No I think I would like to comment qualitatively on the strengths and the power of the call.
First and foremost I think he's built on the two critical foundation. One is a performance performance matters in this industry and performance give us differentiation and I think here from Arctic news Youre liability from.
The competency of our people and the way we are.
A more digitally controlled and Amrita operation, we are we're leading and well recognized as such an industry. The secondaries are customer intimacy, because some intimacy coming from the geographical basins and engagement. We added that gives us opportunity to deliver these are CPI based and technology that are carrying our kitting are you.
Any differential there and cutting our loyalty with our customers. So I believe these are the foundation now the delivery comes from our integration our technology and our people competency on Cedar provision when you combine this and we have done that for decades, but I think in when the market comes with.
Higher revenue intensity in offshore market and in unique projects, where integration matters and.
<unk> technology makes an impact and create value for our customer we see more adoption of our technology, we see more market share consolidation and we see we see an organized more passing premium. So we see this trend to continue as the international market the offshore market. The middle East is the next leg of growth internationally.
And we believe that they're just not knee deep in our portfolio aggregating weed eating in North America to June .
For you to be a fit and a focus on the capital light and technology conversation.
And this combined with international footprint and strengths, we have retained I think give us a unique <unk>.
Any care a set of benefits as the market continues.
To unfold going forward.
Okay, great. That's it that's very helpful. And then maybe a follow up for me on the digital side of your business, obviously, a successful forum.
<unk> recently.
I got I have my own kind of takeaways I guess from the from the event and the things that were announced during the event, but I'd love to hear kind of your takeaways of.
The level of success, how are you thinking of wind how you see the adoption playing out of digital.
I think it was subdued as we said the not only the biggest yet that the most successful yet event on the back of a multiple factors the first day.
Quality and level of the audience that did that speak to this on both of our strategic partners and our customers that.
That made therefore to attend an engaged to the event and all agreed that our discipline was a defining moment for them and I believe for the industry as it trades at an inflection point in the hog organizing the value of digital.
Performance impact in <unk>.
The capitalization and the efficiency going for Watson industry building as a factor of resiliency and performance for long term for the industry. So I think that's the highest take away now that the.
The deal there are clear benefits, we have is and we have is that we.
We had.
Trevor acknowledgments from the customers that were outstanding and focus the mills that were watching what was happening that oh.
Our platform is and our ecosystem with the partners. We have a we have a we have created around our platform is becoming very mature and he is delivering value and as already been proving its.
At wharf for many many customers so the.
The buzz around.
The success of the platform and the value from sub surface.
So phase two a.
He moved a portion of our diesel operation has been a whole book nice and and this will call for more success. So I believe we had where the inflection point in the adoption.
And we are seeing it through the different contact and you have seen some of them are that are coming through.
In India in our in our press release, and Youll see more coming in the coming months and quarters that reflect the adoption of scale of our solution and its not only sub surface is not linear. This domain is expanding is expanding in athene. The announcement, we made with.
With Microsoft to offer a non surprise data solution and the first commercial solution OSU is making an impact similarly, and I was wondering maybe if I could on the.
On the Koch Knight, our data foundation to expand and provide the only sub surface operation and together the ecosystem for for workforce or untoward liability is unique so the adoption is about the scale and finally you have seen that we also announced that the power of our platform has attracted the.
The commitments and the collaboration who said Hey, I am going to go beyond upstream and Teekay.
Got a platform for cabin management. So believes the typically set for success, if I may going for a while and you will start to see this this this quarter and in the years to come.
Very good thanks Olivia.
Our next our next question is from David Anderson with Barclays. Please go ahead.
Hi, good morning Olivier.
Morning, Dave.
Wanted to ask you about service intensity somebody jumped out in the release to me was you said that international revenues already exceeding 2019 levels upon a 25% lower rig count.
My question is what's changed so much over the last three or four years. It seems to be increasing service intensity I don't think it's pricing at least not yet so is it more technology being used as a reversal of efficiency gains.
Where is the most prevalent in your pitch is well construction, whereas most prevalent just help me understand the service intensity patterns you are seeing.
Yeah, Yeah correct.
That's part of the mix as well as international Asthmatics come back head.
Uh huh.
Basins and you will see the next leg of growth coming from our middle East activity in <unk>.
In quarters, but I think that that is one factor, but I think technology.
Our performance our customers are more focused on the critical assets, where they won't execution and they want.
They want the performance enhancements in our return on their capital.
Low cost high return, but this translate into a higher adoption of technology, how adoption of digital technology and the POS integration. So when we have the Pos integration technology adoption and are increasingly being recognized for performance and some of it through contract that are.
Performance base I think we're getting recognition and we are in effect, creating a net increase in our in the intensity of service, but also net pricing impact and I think that pricing as a as a.
As many many dimension it comes from a mix of adoption of technology comes from the the performance.
Is that true for which we are getting commercial contact to organize and share the value of the performance of Kate and it comes from a pricing catalog pricing as we as we say the combination of which is creating a net effect.
We have been that'd been benefiting from and indeed, Pascal in well construction where.
I think the breadth of capability, we have that is unique across the industry.
Hitachi God Av.
Benchmark of performance the competence of our people the distal fruition transformation, we need all have.
<unk>.
Cost of service delivery for one have impacted the performance we have carried for customers and as such as exited the service intensity that is carrying higher earnings.
And then just sticking on the well construction business.
Also set an even noted in the release a lot of the growth. So far this year has come out of North America in Latin America. It was interesting that middle East Asia is actually lagged.
With everything you were talking about with the Middle East should we be expecting this trend to kind of reverse next year should we expect well construction to be sort of the leader I am sorry, it should middle east with the leader in well construction next year and you hit on another level of margins. This quarter should we expect those margins to continue to go higher as this mix shifts more into the middle East.
I, that's a that's a fair, but this is going forward I think the.
The Middle East has been the has been lagging the growth on the rebound.
Due to the some some of the constrained you on the short cycle over the last 18 months due to the OPEC plus but I think the.
The four five country.
<unk> set some some a new expansion plan.
Initially this expansion plan in the second half and are set to accelerate the expansion plan going forward I think it includes Saudi it includes the UAE.
Kuwait, Iraq, and what has been the first due to expense, which has cut down their LNG LNG commitment towards 2027 will continue to expand as well. So I think the combination of these we catch a new leg of growth next year internationally, and we will be set to benefit from it.
The costs are all the other divisions.
Thank you.
Yeah.
And our next question is from Chase Mulvehill with Bank of America. Please go ahead.
Hey, good morning, everybody.
Maybe a follow up Olivier.
Quick follow up to.
To Dave's question, you know around pricing or I guess, maybe some of your earlier comments around pricing and I'd like to flush that out a little bit more in and think about kind of international pricing and the potential momentum that this could see this cycle.
Personally I think that investors are underestimating the potential pricing momentum that international could see this cycle.
Think that people forget what discipline in market consolidation and higher barriers to entry can actually do for pricing and obviously international ticks all those boxes.
We haven't invested in.
International rollout as companies have it in almost a decade.
It seems like there is a recipe for rather quickly tightening fundamentals and a real pricing cycle and international So I just kind of be curious your thoughts what you're seeing on pricing and kind of as we look forward over the next couple of years, what are your expectations on fundamental tightness that could drive some real pricing momentum.
Well I think we are seeing this already today and I think our we have a.
Passing impact started as I said two years ago, you on half ago in North America has been rolling as being a very visible internationally in the last quarter. So the older fundamental elements for our in place Indeed first and foremost in the capital discipline that we have in our organization.
Is limiting are firmly in place our capital stewardship is clear.
For us and we deploy an asset.
In the complex and in the market.
<unk> be accretive to our returns the service intensity also.
Considering the deployment of more offshore hates is also increasing the pool on the existing net pool of resource technology that is cutting further a scratch on the demand of supply.
Capacity.
Finally, as I said earlier.
The performance factor.
On the base Foundation of all of our operation beat our core performance.
<unk> that are fit for basin, and our trading performance premium for customers.
Digital operation of digital portfolio that we are holding out or cutting of performance impact that the customer are looking for customer are willing to develop and are keen to developed assets.
Provided that.
We developed them, we help them develop them efficiently at a lower capital intensity and we've beaten the curve and creating new bathroom those benchmark and I think this is a price and I think we differentiate in this endless amount. So we expect the future indeed internationally to support this.
This pricing and this.
These market conditions.
Okay also I appreciate the color unrelated follow up.
If we can kind of go to the subsea business.
And just kind of maybe a state of the Union update just kind of general market outlook pricing starting to move maybe I don't know if theres any updates on kind of what margin subsea margins are today and how much margin expansion you might be able to see over the coming year or two.
Now as we come out of it earlier on we come out of that in our in the making of a subsea JV and we addressed some of this is <unk>.
Communication, well, we're very constructive on to the deepwater market going forward.
The recent Ah I don't know if I read it has been a blessing in.
In recent months the pipeline that is set in 2023. According to woodmac is.
The 170 billion blah.
That will be the highest in the last 10 years since 2011, and the mobilization of our of project cost at the different Depolo Basin continues there are some as.
Some are critical and very positive trends in Brazil in Norway.
Again, I continue to be in that.
Latin America basin with still some the appraisal.
Both from a Columbia, Columbia gas offshore or.
The Suriname.
Will be complemented by.
Further activity in Africa and also in Asia. So we are we are positive on the outlook then above threes is growing and has grown visibly to now exceed a chunk of the 200 trees and these are this is setting are setting the market condition for for supporting higher price and again.
Linked to performance in the lifecycle of addiction performance in measured in the phase of what we call reusing boosting and processing technology that are becoming increasingly critical.
And hence we believe the commission asset to be positive for deepwater partly for subsea market.
Alright, perfect I appreciate the color I'll turn it back over thanks Olivia.
Next we go to our Roone Jairam with J P. Morgan. Please go ahead.
Yeah. Good morning, Olivier I wanted to perhaps wondering if you could elaborate a little bit more on well construction you know your margins grew 400 basis points sequentially.
Maybe you could elaborate on just the drivers of the margin expansion and help put some of the results in well construction and into historical context.
With the topline out above 3 billion.
In terms of <unk>.
Yeah.
I think it's a combination work, we're obviously externally semi pleased with the performance of our concession during the last quarter, but not only during the last quarter I think it has been a division that has been on a journey.
For the last few years, where we are.
Is that are.
We have the opportunity to put together the best.
The biggest the portfolio and the most comprehensive breadth of capabilities across our across the technology portfolio for where construction, we adjusted and changed the structure in the organization to combine all of this in one division.
Less than less than three years ago.
And about two years ago and we are.
He'd been the benefit from this both from a technology adoption from performance integration and from a customer intimacy, giving us opportunity to expand our market access and it's been a success and then.
Critically.
Getting a case getting a depressing impact on the earnings impact that we want so part of this where FIFA basic technology that have created a unique performance in fact, our kona as such.
We have digital operation that we're increasingly using two to impact the performance and the accuracy of our of our well placement and the efficiency of operation as such.
You're seeing our cost of service delivery and <unk> and we continue to introduce a.
We said technology that are making impact any different on the market. So we are positive for the outlook is it because this division it does and it will continue to lead in the core going forward and we remain very very optimistic about the outcome and we believe that the customer organize the performance and.
And look for are using and adopting our well construction.
Great just a follow up what are the sources of upside versus our model was the revenue growth in Europe <unk> Africa.
Was wondering if you could help you know help us understand was that I think over 20% increase in sequential revenues the drivers with <unk> and and you know.
So as we enter into the fourth quarter in terms of the broader region.
I think it's a it was most of your offshore it was driven by <unk>.
A significant contract.
We have been executing an offshore environment.
In Europe .
In the Black sea in the in the in Norway and in Africa rebound of operation I think the mix has been highly favorable and this is the powerful core and including our well construction that is being played out.
Very well we have a we have many contract that we have announced and we have been you have been communicating earlier like the ahmann longer project.
I think we have some some some progress there we have a black sea.
Deepwater project and we have more that have been combining two to create a much much impact on on pollution system put in place and well construction during the during the quarter.
Great. Thanks, a lot.
Youre welcome.
Our next question is from Neil Mehta with Goldman Sachs. Please go ahead.
Good morning team and looking forward to seeing you here in a couple of weeks I guess.
We'll talk a lot about strategy, Dan So maybe some tactical questions for you as you think about.
Fourth quarter considerations, it sounds like margins and top line are going to be improving but can you just give us any color on how you think about the sequential <unk> across business lines as it comes to earnings and then the follow up is on working capital you had made a comment that you expect it to accelerate.
Into the fourth quarter any any any comments there would be great.
I think first I think I've been sharing in my prepared remarks, some some dumb.
Some guidance that say comparing comparing fourth quarter to you through.
For the fourth quarter of last year with mid Twenty's revenue growth and a 200 bps EBITDA expansion and I think from from the Zubair field business line I would only come on that we see an uptick in our intermediary sue to materialize and we expect our digital.
To further accelerate and to reflect the year end says that we.
We typically up so it's a positive outlook continued growth both internationally and.
And in North America, and margin expansion to set to continue as each six base successful journey.
And then on working capital.
We start to see some of that release come up.
In this quarter, but just how do you how should we think about that.
Quarters.
Yeah, yes needed as you saw in the the working capital improved quite a bit in the in the first quarter. Obviously is how we predicted and it resulted into stronger free cash flow going into Q4, you will see this accelerate as we typically see a at the end of the year also working capital.
We continue to unwind and free cash flow will continue to increase we have are typically at the end of the Ohio customer collections, we have the effect of of higher product deliveries reducing inventory. So this is what we expect okay. Thanks.
Thanks Pete.
Thank you. Thank you.
Next we go to Scott Gruber with Citigroup. Please go ahead.
Yes, good morning.
Question Good morning.
Good morning.
So digital one aspect that appears to be underappreciated. It's just the time required to migrate onto the Delphi system.
While you get paid for the migration process I imagine that the margins are a definite.
Look better than the deployment phase.
So is it accurate to say that after a few years in selling the platform and undertake the migration process for customers are you are you.
Coming upon an inflection point just in terms of getting customers.
Utilizing the system, they're transitioning to the.
The data consumption phase kind of where are we at in that process.
I think you said, it's a very good a very good observation I think we expect indeed that.
The journey of digital transformation of our customers will take time and I think it's a it's a long tail of transformation, we expect that that will.
That will impact our results for for decades to come and we say however.
We are indeed, observing an inflection point.
That is reflecting onto the maturity of our platform to the acceptability of the this platform as the most effective platform that a customer of ours.
I've seen in terms of impacting their lapsed.
Last cycle of addiction impacting the pollak detailed asset team and providing them access to our cloud computing resource and do your diesel operation capability that is not it's not available to them. Today. So we are seeing the adoption of our casinos, we mentioned in the past.
We have a that we have a baseline of 15 on with customers that are currently using our digital solution and our <unk> and our previous software suite of AV products and we believe that we are today between 203 hundred of those similar about 20% of these that have already adopted and has started to move and transition onto.
The platform and we expect this to accelerate both in number of customers, but also into the expansion of these customers are using it the way they are using.
Our platform and expanding the workflows expanding the scope indeed.
Indeed, the adding the data on supply solution as a necessity to go and reset and confirmed their their data infrastructure and then adopting workflows from subsurface workflows to apportion workflow. So that there are multiple dimension competing tons city dimension workflow dimension and customer numbers.
Mr. Matt mentioned that we are set to benefit for the years ahead.
Great I appreciate all that color and then switching gears to <unk>.
The new energy portfolio de Carbonization, you guys have been active in building out that new energy portfolio, while at the same time developing solutions and partnerships to help drive decarbonization of the oil and gas industry itself.
Olivia can you just compare the commercial opportunity of the two I would surmise that the commercial opportunity on the de Carbonization front is greater over there.
Next five years versus new energy, but wanted to hear your perspective.
I think it's a it's both we believe that there is a compelling.
Events.
Accompanying need.
And at most priority for oil and gas Decarbonize itself it comes into.
And Thompson.
Ah the engagement, we have and the success, we're having with energy east.
Take the position technology portfolio to reduce the carbon footprint all the scope one and two of our customer come in white light with the Buffalo rough cut at the <unk> portfolio, and two and emission management for butane in vascular and getting more traction and more success with this portfolio. So I believe that this is happy.
Bidding at scale and our customers are.
Turning into a clear.
I would say initiative set of initiatives to reduce.
The carbon footprint of their operation and to target the lower cab on oil <unk> gas production. So this is the first trends and this is happening at scale and this this would include Ccs.
Our opportunity.
That we are developing is run in parallel.
On the side of this there is a lot happening in the into the clean energy and I believe that you have seen some announcement in diet I have seen some announcements. He bought you that are aligned with the domain. We have selected a beta zero energy for efficiency beta beta critical amenable to lithium, albeit a hydrogen with getting our.
Getting our kit at large and WC Ccs with the 40 <unk> improving to help us address not only the <unk> opportunity.
Close to two.
Oil and gas customers, but also the one that are close to year half two I bet sector. So I believe that Ah I will not I will not try to compost, both our more recognized that both represent huge opportunity of growth existing customers and new customers and that we are set to go in and read a book in jumbo.
Yes.
Got it appreciate the color. Thank you.
Thank you.
Next we go to Roger read with Wells Fargo. Please go ahead.
Yes. Good morning, congratulations here on the quarter with Boenning look forward to see look forward to seeing you on a couple of weeks.
I guess, what I wanted to ask just two different things one as you look at the margins and obviously thats one of the positives here and we compare I'm just going to say EBITDA margins, but you can choose whichever you want we look back over time, you've gotten back in.
Right.
Kind of neighborhood here for what we would expect Schlumberger to deliver.
If we look at what Youre doing in terms of you know.
Better market expansion service intensity, you've mentioned pricing power and the digital should it be the kind of situation, where we can start thinking about margins.
Getting back over the next several years to levels you've seen when businesses is truly firing in all cylinders or is that a little too optimistic here.
I think we first when we look forward to see you.
At.
The event in two weeks and indeed comment on this and give you more color, but it's clear that we are seeing in and where are they put it on the outlook. Both from the market fundamentals are in place to support our ambition for growth across the core data and new energy for the reason mentioned.
Before I discuss during this Q&A and also we believe that.
The investment we have done and the tougher months, where they've been focused the mers is giving us indeed, the earnings power that will translate could you translate the margin expansion going forward. So this this is set in and I think we will come up more and give you more color on the ambition for.
No. That's fair I knew that was kind of a leading question on that but I thought I'd try it.
The other one is and this might be getting a little ahead of what you want to talk about in a couple of weeks, but can you remind us where you want to take the balance sheet in terms of fee comfortable enough with where your overall debt structure is and where we would think about more of a.
Continuous or somewhat reliable way to think about dividend increases or anything else you would do with free cash.
So.
First we are we are quite happy with the progress we've made and are.
In deleveraging the balance sheet, we have not set a new target the new leverage targets at this stage, but as I mentioned earlier, we do continue to see the the balance sheet continue to increase as it relates to our to the uses of capital.
As you saw we made the first step in increasing returns to shareholders by increasing our dividend by 40% starting with.
The July payment in and in the future as cash flows ROE over the cycle clearly there will be opportunities to.
To continue improving returns to shareholders and clearly as well we will provide you more details in our November 12 in New York.
I appreciate it thank you.
And our last question will come from Luke Lemoine with Piper Sandler. Please go ahead.
Hey, good morning.
Good morning.
Livia maybe attack Roger's question, just a little different way want to see if you could touch on this multiyear international cycle how.
How it's unfolding and can you talk about how you see that versus 2005 to 2008 when pricing was very strong.
I think it's always difficult to compare on mega dialogue between the bidding cycle, but I think I will more focus on what is unique about the cycle.
I think our the condition upset and.
And it includes a few critical.
I would say.
Factors that I think are.
I don't think can be compatible and will lead to a really a unique cycle.
One I would say is the global gas market.
He is uniquely a constrain and he's a structurally in in in balance and I think this will lead to the gas market, both offshore onshore unconventional and conventional to continue to have a long long long growth cycle in the penalty of the I would say some.
Some headwinds on economic market.
These offshore of choice as indeed started offshore we have conditioned from breakeven price that are with Ofit below 60 is not 40 dollar that are set to support a very stronger offshore environment.
For oil.
And in the gas and Donald who you see and this is very visible both in deepwater and in Middle East Middle East will will have one of the highest.
Has the Gulf in an offshore environment with more than 30 rigs were just contracted neulasta. There are six months by selling four for oil development offshore and and last time, we said at the Middle East you said.
Do you have a combination of factors that include the.
The maximum sustained capacity commitments all of the enhanced capacity and that has been that had been committed by by many countries in excess of forming on buying.
Between 2025, and 2030 and will not be surprised to see this commitment to be accelerated falls.
So that the middle East.
Is the swing producer of <unk> and <unk>.
Expand the capacity and the result of this because middle East is also growing.
And it's a and as gas ambition and not only because of the LNG commitments from Qatar to exceed 120 and Tpa.
By 2027, but also because the unconventional in Colombia on resource are being exploited for domestic and for regional.
National a market and all of that combined the old capacity expansion the gas will result.
<unk> results into the largest ever investment cycle in middle East and studying and this will be happening in the next two or three years.
Two or three years middle East will benefit from the allowed us investment cycle that we have seen so you have unique characteristic that.
Can and cannot be compared with the past. So I just want to focus on getting the best of these future market positioning ourself using our performance attributes using our unique technology and preparing the team to put spread that scale and being successful with our customers in this environment.
Okay, Alright, thank you very much.
Youre welcome.
Thank you. So I believe that this will we will close this call. So ladies gentlemen, I think to conclude let me summarize with key takeaways that I would like you to remember.
Firstly, the Q3 results represent another quarter of outstanding execution and financial outperformance in our returns focused strategy.
Was achieved to the combined effects of significant international activity inflection technology adoption operating leverage and pricing premiums.
It gives us the confidence in our ability to deliver upon our promise and exceed our revised guidance for full year 2022.
Secondly, while witnessing a decoupling of upstream investment from uncertainties in the near term economic outlook constructive market fundamentals painful by the energy crisis decisively aligning support of mid tier upcycle. Furthermore, the activity mix and investments trends continued to evolve very favorably Nanaimo, if our strengths moves.
Geographically and across the breadth of our portfolio.
The secular trends of digital transformation and decarbonization continues to gain momentum for our higher value and lower carbon future of our industry. Whilst at the same time, the global urgency on climate actions, resulting into an acceleration of clean energy investments. This is creating a unique combination of opportunity.
We are set to pursue at scale to all three engine of growth for digital and new energy.
Ladies and gentlemen, I could not be more satisfied with our performance to date and if our outlook for the full year to close a sequence of three years with remarkable progress against the very challenging Michael.
I hate it to further success and continue our journey towards a bright future for our company.
Thank you very much.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
Yes.
We're sorry your conferences ending now please hang up.