Q4 2022 Schlumberger NV Earnings Call
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The first thing.
Ladies and gentlemen, thank you for standing by and welcome to the S. L. B 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 also remove yourself from the queue by repeating the same.
<unk> 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 and the model of Macy's. Please go ahead.
Thank you Leah.
Good morning.
And welcome to the L B fourth quarter and full year 2022 earnings conference call.
Today's call is being hosted from Houston Following our board meeting held earlier this week.
Joining us on the call are what do you mean, it Bruce Chief Executive Officer.
Okay.
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 would you say 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 fourth quarter press release, which is on our website.
With that I'll turn the call over to you what have you. Thank.
Thank you Andy ladies and gentlemen, thank you for joining us on the call today.
In my prepared remarks, I will cover our fourth quarter results and full of this but a quick review of our full year 2022 achievements.
Then I will share some thoughts on the outlook for the full year.
Stephane will then provide more detail on our financial results and we will open for your questions.
At the beginning we sustained growth momentum through the fourth quarter that have been strong revenue growth and further margin expansion, both sequentially and year over year.
The quarter was correct.
We strive to be the growth in the middle East and offshore and was augmented by robust you and says in digital.
Growth was once again broad based and the old personal commercial and earnings by four months was up Sonny.
We ended the fourth quarter of sequential revenue growth and margin expansion in North America and in all international areas.
In the in the industrial end markets quarterly revenue topped six we don't go out for the first time in more than four years.
Additionally, our international revenue growth rate.
Does it be outpaced international rig count goals since the cycle trough in 2020.
So it'd be surprising new technology and digital adoption all continued to trend positively.
Looking broadly over the second half for the pace of golf's adult stomach out significantly moderated.
Time international accelerated growing in excess of 20% compared to the first half of the year almost twice the growth rate of North America.
We are clearly witnessing the start of a new phase of integral cycle, which will physically be driven by as you know international rules.
This market dynamic.
Let your loyal that unusual cash flow performance.
However, we felt were reduced net debt during the quarter and close the year below our leverage target.
Overall, this fourth quarter or was that helped us surpass our revised revenue guidance I would close with EPS pre six months operating income and margins or at the highest level in seven years.
Switching to the full year 2022, west people don't need for our industry and for us.
The second consecutive year of outperformance for the energy sector, providing further evidence of the medallion upcycle and investment momentum that is underway.
I would like to take a few minutes to reflect on what we achieved.
We announced a new round I don't think we sustainability embedded in everything we do and opened a new shutdown for the company.
Jimmy position <unk> to benefit from the underlying macro trends that reshape the Fisher.
Nancy.
But I'm just ignoring the innovation in this field, the carbonization digital transformation and new energy systems.
We executed consistently for customers, achieving our best safety and a person to hit your performance on the gold.
We have done something there was you did a ship and service quality differentiation, leading to more contract awards I don't think new guys adoption and increase the pricing premium.
Now I'll call divisions, we expanded pretax operating margins by more than 300 basis points. This was led by vertical section, which expanded margins by more than 550 basis books.
We also launched new products services and solutions that increase efficiency and lower operational emissions.
You have seen many examples of these in today's press release, our fit for basin take donors excess and position technology portfolio, a few growth and margin expansion every division in every geographic area out throughout the year.
We continued to strengthen our core portfolio for both and position for future residents and returns with the acquisition of genre desktop and announced joint venture with I guess solution for subs.
In digital we have some golfing exploration data innovations factory in AI solution says and the adoption of a new digital.
These two platform is accelerating we ended the year with more than 270, <unk> more than 70% gross debt to users and all SAS revenue more than doubled.
Please proceed under commence combined with higher Ips revenue contributed to the digital and integration divisions.
It's expanding pretax operating margins by more than 170 basis points.
Adjacent expansion opportunities for our digital business, both in operation data space and beyond oil and gas such as capital management.
And even as we progress the conversion development milestones established new partnership bucket in Ccs and made new investments.
I've created a focused yet compulsive portfolio that offer a promising growth opportunity for the future.
Today this portfolio comprise five boost Srs carbon solutions hydrogen Joe turmoil enjoy gnagey critical minerals and stationary energy storage.
And we are accelerating our R&D efforts to develop technology solutions that address hop to a bit industrial and power generation emissions.
As you see all 300 of rules on solid footing and are positioned for market success.
It's just the ability to reduce our own carbon emissions intensity and scopes, one and two and we continue to be one of the highest ranked companies you know industry a cluster for rating agencies.
We also made significant advance launching I said it'd be end to end emission solution or <unk>.
An industry first to help out oil and gas.
Customers address methane and greenhouse gas emissions.
Finally for our shareholders, we demonstrated our commitment to superior returns, we increased our dividend by 40% in April 2022, followed by a further 43% increase announced today and it gives you must share buyback program to be smoked.
These achievements are light remarks cable yeah, that's why I said it'd be it speak to how we have successfully leveraged the breadth of our portfolio and our competitive strengths to deliver peer leading outcomes for customers and shareholders.
We are planning for significant success and look forward to carry this momentum into the year ahead I would like to extend my thanks to the entire <unk> team.
An outstanding year.
Yeah.
Moving to the Michael we had until 'twenty 'twenty free against the backdrop of market fundamentals.
And compelling for both oil and gas and low carbon in Azure resource.
First despite concerns but also what it can be slow down in certain regions or in gas demand growth remains resilient.
The IEA forecast that oil and gas demand will grow by one 9 million barrels to reach approximately Hollywood and 2 million survive badly.
Got it market remains tight supply what escalation increase offset by the end of SPL, rudi's and well productivity declines in certain regions, most notably in North America.
Second there's a greater sense of urgency around energy security.
This is asserting new investment in capacity expansion and diversity of supply.
Have you seen these perfect Union Unembarrassed, New project sanction gas supply agreements signed and the return of offshore exploration or at the pace unforeseen just 18 months ago.
And fifth the secret up trends of digital and decarbonization of CIT to accelerate driven by significant digital technology advancement in cloud and AI favorable government policy support in Union energy investments and increased spending on low carbon initiatives by operator anybody.
Underpinning everything commodity price remained at supportive levels for durable investment.
In North America spending growth is expected to be more restrained after an exceptionally strong year in 2022.
<unk> spending growth is expected to increase in high teens as rig counts, but don't shoot approach.
Public companies populated the majors I expect it to increase short cycle spending in key U S land basins and drilling activity to remain strong to build up when inventory and support ticket pollution increase.
In the U S Gulf of Mexico, where we have seen it gone presents we expect the song staying at least to continue.
Turning to international markets are poised for strong growth in the Middle East and Latin America, geographically and more broadly in offshore and in gas.
In the Middle East, we expect record levels of upstream investments, which will hump up in both capacity expansion projects designed to deliver more gas production and a combined all increments for me Don Smiled per day through 2030.
Oh show activity will continue to strengthen our tie back of new development projects mobilize and USD assumption Wild horse that activity is expected to contract.
Excluding Russia customer capital spending internationally is expected to increase in the mid teens. The combination of long cycle, all capacity expansion projects offshore deepwater a resurgence and falling gas development activity will be a key driver for the mid tier or duration of this cycle.
This outlook is very favorable for us with multiple paths, because you don't golf and cool digital and new energy.
On a full year basis ambition is to grow revenue in excess of 15% compared to 2022. She bought it about a step up in international and offshore momentum, which we look months Gulf established in North America.
As a result year on year adjusted EBITDA growth will be in the mid twenties driven by further margin expansion.
More specifically in the international markets, we foresee growth in the high teens, excluding Russia, which is set to decline this year.
We expect the highest growth rates to be realized in the middle east and in offshore markets, particularly in Latin America and in Africa.
North America, we anticipate about 20% golf supported by offshore strengths land drilling activity and higher pricing.
For your margin expansion will be driven by further positive pricing dynamics increased ignores adoption and improvement from a hand, hence operating leverage mainly internationally.
Let me share with you we see this year unfolding.
Directionally during the first quarter, we have spent a typical pattern of activity beginning beginning with the combined effects of seasonality and yourselves of your ads product and these doses.
Additionally, the first quarter will reflect some impact of your own yeah, Russia activity decline.
This will be followed by a rebound in the second quarter and sort of acceleration of growth trajectory in the second half of the year, particularly in the unit in the international markets.
This typical pattern of activity and the favorable dynamics I described earlier combined to support the ambition, we have set for further growth and margin expansion.
In addition, the beneficial impacts of annuity or unexpected he operating in China, the easing of inflationary trends and any further restriction on Russia exports could lead to an acceleration of soft short cycle activity globally and fast tracking RFID internationally.
This could present upside over the second half of the year.
I will now turn the call over to Stephane.
Thank you Olivier and good morning, ladies and gentlemen.
Fourth quarter earnings per share excluding charges and credits was <unk> 71.
This represents an increase of eight <unk> compared to the third quarter.
And an increase of 30 cents or 73% when compared to the same period of last year.
In addition.
We recorded a net credit of <unk>.
We brought our GAAP EPS to <unk> 74 cents.
You can find details of the components of this net credit in the epic use at the end of our earnings press release.
Overall, our fourth quarter revenue of $7 9 billion increased 5% sequentially.
And 27% year on year.
All divisions posted sequential revenue growth.
Led by digital and integration and reservoir performance.
From a geographical perspective, North America revenue grew 6% sequentially.
While international revenue grew 5% led by the Middle East.
Fourth quarter pre tax operating margins of 19, 8% improved 104 basis points sequentially.
And 393 basis points year on year, notably.
Over 70% of our jewelry units posted their best margins since 2016.
Adjusted EBITDA margin for the quarter of 24, 4% was 219 basis points higher than the same quarter of last year.
Exceeding the guidance, we provided at the beginning of the year.
Let me now go through the fourth quarter results for each division.
Fourth quarter of digital and integration revenue of 1 billion increased 12% sequentially.
With pre tax operating margins, expanding 386 basis points to 47, 7%.
This growth was driven by yearend exploration data licensing sales in the Gulf of Mexico and Africa.
Increased project activity in Ecuador, and higher digital sales internationally.
Reservoir performance revenue increased 7% sequentially, while margins expanded 146 basis points, primarily due to new projects and activity gains internationally.
Led by the Middle East and the offshore basins.
Well construction revenue of $3 2 billion.
Increased 5% sequentially.
Due to strong activity from new projects and solid pricing improvements internationally arty.
Particularly in the Middle East and in Latin America.
Margins of 21% declined 50 basis points as improved profitability from the higher activity in the Middle East and Latin America was more than offset by the onset of seasonal effects in the novel Emmis view.
Finally production systems revenue of $2 2 billion was up 3% sequentially on higher international sales of artificial lift.
Patients and midstream production systems Oxy.
Really offset by reduced sales of valves and subsea production systems.
Margins improved 42 basis points due.
Due to favorable technology and project.
Now turning to our liquidity.
Cash flow from operations during the quarter was $1 6 billion and free cash flow was 855 million.
This performance did not reflect the increase we typically experience in the last quarter of the year as free cash flow was 200 million lower than in the previous quarter.
This was due to a combination of the following four factors.
First we experienced extraordinary year on year on fourth quarter revenue growth of 27% representing.
Representing incremental revenue of almost $1 7 billion.
Second our inventory balance increased 22% year on year to.
To support our increasing product backlog driven by the sizable share of tender awards, we have secured going into 2023.
Third we pulled forward certain investments in Capex.
There are two fully sees the continued revenue growth expected in 2023.
Particularly in our well construction and reservoir performance divisions.
As a result, our capital investments increased 255 million sequentially.
Our full year 2022 capital investments will therefore, $2 3 billion as.
As compared to our initial guidance at the beginning of the year of $1 92 billion.
Despite.
This increase the Capex portion of our capital investments, we're still at the midpoint of our 5% to 7% of revenue targets.
Lastly.
Lower than expected year end accounts receivable collections contributed to a reduced free cash flow.
As you May recall, we had exceptional cash collections in the fourth quarter of 2021.
We did not achieve the same level of year end collections as last year.
And as a result, our DSO in Q4 2022 was approximately five days higher than at the same time last year.
However, it is worth noting that our 2022 year end DSO was the second best we have achieved going back at least two decades. Therefore this is just the timing issue.
Beyond free cash flow.
Our overall cash position was enhanced by the partial monetization of our investment in the Arabian drilling company.
In onshore and offshore drilling rig company in Saudi Arabia.
EDC completed an initial public offering during the fourth quarter and in connection with this IPO, we sold a portion of our interest in the secondary offering.
That resulted in us receiving net proceeds of 223 million.
We currently have 44% interest in <unk>.
We also sold an additional portion of our sales in Liberty with.
We generated $218 million of net proceeds during the quarter.
We currently have a 5% interest in Liberty.
As a result of all of US we ended the year with net debt of $9 3 billion.
This represents an improvement of approximately 400 million sequentially.
And $1 7 billion compared to the end of 2021.
This also represents our lowest net debt level since the first quarter of 2016.
Consequently.
Our net debt to EBITDA leverage is now down to one four.
In addition.
Our gross debt reduced by almost 2 billion during the year.
We repaid in the fourth quarter $900 million of debt, but materials.
And repurchased $800 million of notes, that's we're going to continue in 2024.
In 2025.
As a result of our strong operating results and the net debt reduction.
Our return on capital employed for 2022 was 14%.
Representing its highest level since 2014.
Now looking ahead to 2023.
We expect total capital investments consisting of Capex and investments in Aps and exploration data.
To be approximately $2 five to $2 6 billion as compared to $2 3 billion in 2022.
Based on this our capital investments will grow at a slower pace.
Our our expected revenue growth in 2023.
As a result.
And when taking into account our 2020 free guidance for EBITDA to increase in the mid twenties when compared to 2022.
We are confident that our free cash flow will increase significantly in 2023.
Accordingly, we reaffirm our ambition to deliver a minimum average of 10% free cash flow margin.
Through the 2021% to 2025 period.
This will allow us to continue increasing returns to shareholders as we leverage both the land and trends of the current growth cycle.
Specifically for 2023.
We expect to distribute visibly more than 50% of our free cash flow to our shareholders between dividends and stock buybacks.
Today, we declared a <unk> 40 for the 43% increase in our quarterly cash dividend to <unk> 25 per share.
In line with our announcement at our recent Investor day event.
In addition, we have resumed our share repurchase program this month.
And are targeting a minimum amount of 200 million for the quarter.
For 2023.
We are targeting to return a total of 2 billion.
To our shareholders in the form of dividends and buybacks.
I will now turn the conference call back to Olivier.
Thank you Stefan the reinsurance as a matter of saying we are ready for opening the floor to the to the question.
Thank you, ladies and gentlemen, as a reminder, if you have a question you may press one than zero to place your line into the question queue.
And our first question comes from the line of James West West with Evercore ISI. Please go ahead.
Morning, James.
Hey, good morning, Liberty a warning Stephane.
So I guess the first thing I wanted to touch on Olivier is the international business had a really strong second half, particularly strong fourth quarter, but from everything I understand and see in the market as we're really just getting started with.
Ramping activity, particularly in the middle East, particularly in some of the offshore markets.
But we're we're in the early stages of that and so there should be a further.
Acceleration in international activity I know you gave some guidance for 'twenty three in terms of what's your anticipated in terms of revenue and EBITDA, but how would you characterize the next several quarters, we will see of course, the the normal seasonality in <unk>, but as we get into kind of Q2 Q3 Q of next year, we should see kind of a big volume increases and then.
Of course price increase is on top of that.
No. Indeed, I think let me reframe it would be that the guidance we shared.
As we see today, the combination of our offshore middle East and broad gas investments internationally will continue to support it.
A very solid very solid growth internationally, we're seeing here as we have seen in the fourth quarter.
And the uptick into the rate of Gulf for Middle East and Thats, driven by our commitment to all capacity increase and further gas development and this as I commented briefly in my in my prepared remarks will lead.
Amid these investments to be on record.
As we anticipated in this year or next year and as a result, we generate significant pool.
While our revenue going forward, but I think that what I will say is that what is characterizing international as we as we see it is that it has a lot of resilience because it's multi pronged it moves multiple genes.
Short and long oil.
Oil and gas.
Offshore and onshore and I believe that the.
Mid tier commitments for capacity expansion and gas developer in middle East is combining with our offshore long cycle, a return of our alpha deepwater.
Which is the operating environment I would see the most activity increase this year.
And also the return or the acceleration of exploration and appraisal offshore which would be one of the defining characteristics of the audit of the quarters to come. So when you combine all of this you are getting are.
A very resilient multi pronged and Utah yeah.
The sustained growth pattern for international market and I think that that's what we see and it will it would indeed support not in golf this year, but it will support our growth.
Growth next year in the U S to come and it will be multi pronged churn fairly a fairly broad and with multiple geographic impact.
Right.
Exactly what we're seeing so excellent there and then maybe if I could hone and this is a follow up on the offshore.
Markets, because that's an area, where summer's day has sorry.
Sorry S L b.
It increased.
Market share is also a high technology.
Area of the business could you maybe talk true.
Some of the things that are happening in offshore shallow water plus really the deepwater area and especially what you seen in your exploration and appraisal because that's.
You said the defining characteristic here and we haven't seen exploration well.
Well.
Long time, [laughter], So I'd love to get your thoughts there.
Yeah, absolutely first I think <unk> defined the offshore has been I think seeing an uptick.
That started about 18 months ago.
We don't see it abating and we see continued to steadily grow I think what is changing this year is that whereas the shallow water on diamond was leading the growth to a large extend early early part of this offshore cycle second expansion, we are seeing the deepwater or two to catch up and including.
Indeed, our exploration and appraisal activity and.
That is set to visibly to outpace our international offshore activity actually so depo would be the highest operating other months activity growth in 2023, and as part of it exploration appraisal will be all.
Also our pacing and suddenly rebounding. So it's visible in Imitable region, and I think you have seen is military with scope of announcement by two or three major announcement of gas discovery that are set.
To be a price and that's for future developments you have seen some last year announcement in South Africa and that media basing that to also get additional appraisal ends and future development and you have seen that debate the raws at Atlantic margin and or Suriname, and DNR him and so they all tend to finally.
East Asia is also seeing some are you put a gas exploration at the same time. So you have this 45 offshore mostly deepwater, Iowa that are seeing exploration and appraisal results of of gas and oil and gas and energy security and all bullshit <unk> reserve replacement by major end.
By National large national oil company. So I think this is happening and disputes on top of the.
The very high shallow water activity that has already rebounded and it's a set to further.
Accelerates in the in the Mideast, where.
Beat in Saudi and UAE and Qatar, we are a combination of all.
Oil and gas offshore development.
Plants that are in place. So offshore outlook is strong and is here to stay for years to come.
Very good thanks Avi.
Thank you.
Our next question is from David Anderson with Barclays. Please go ahead.
Hi, good morning, Olivier So two things really counting that because.
Hey, good morning, two things really stood out to me today I guess the first one as you call them distinctive new phase of the cycle, but also really kind of what it means for the duration of this cycle.
To ask you about so first fundamentally it's clearly not taken center stage, you've talked about a record level of oxy extending next few years and a lot of ways. You can feel in like 2005 again I was wondering if you could talk about how this cycle could be different for <unk> in this region.
The perspective of the types of work you're performing how are the contracts being tendered differently and really what that means for the pricing opportunity both within discrete services in the integrated contracts.
No. Thank you David Let me comment first on your on your remark on the liability I really believe that the cycle that we have entered in internationally that Sky Italia is now about to be the least joining the journey. The growth engine. If you like is said to be very doable I think in the barbell of that as I said.
It's a combination of.
Four or five country, having committed capacity expansion for oil production are for.
For the future and at a much need as we can see that the tight supply is here to stay and <unk> touched the market.
And also for <unk> gas development and this is happening.
Obviously in multiple countries. So this is set to happen and will not last one year is a long cycle offshore onshore gas and some of it on commercial loan and an oil development. So this is first do liability is here to stay and we're talking about years and I think the the target I spending anywhere from 30 to 27 two.
30, depending on the country, depending on the on the ambition to Adam sustained capacity production.
Secondly is that what what is quite unique and this is a combination of offshore onshore.
Gas commercial and noncommercial.
You have to cut our conventional gas development is only set to save further NK.
In case, you have the unconventional development in Saudi and in the in UAE you have the other gas development in the region.
Including the east Med that.
As as a.
Fundamental potential of of the east Med gas.
<unk> and then you have the.
The mix of offshore onshore.
I think is quite unique partially on the rebound on the shallow water.
In case of activity you have seen so what that has unique cannot give us.
A unique opportunity to.
To outperform and to use.
People seem to use a local content user.
MS Centricity of engagement that we have in the region and to build on those market position to be a benefit and we are poised to certainly a record revenue in middle East.
And during the cycle and eclipse previous.
2014 peak by mounting.
And how are the contracts differently before.
Last cycle I don't think we really talked about integrated drilling contracts or contracts.
Contracts I think it was mostly discrete services. So is that different today and how does that change sort of your I think is there more opportunity I think.
Our risk there as well.
I think that what what characterizes this equity performance.
It's all about performance and I think our ability to perform in this integrated contact and and as you have seen what we have shared during this press release on the on the shop floor contact and been able to tick up of performance.
Performance do you have to be.
Some of the North America performance.
And and performance will dictate market market allocation market share location and will dictate the tenures adoption. So our ability to fit for basin. Our technology like we did in kept down erosion in local content like wedding, Saudi in a region, adding he's is giving us the opportunity to earn this contact and to use.
To use a a pricing premium for these tech neutral option to deploy digital and you have seen the announcement, we made a few months back with in the sustainability platform with Saudi Aramco and more announcements will come.
So we are building our featuring imagery some multiple engines.
And we are building and on the performance in execution technology adoption in differentiation and SDK, while being a palo the landscape of the way. We operate is not allows us beast of all of our business in the middle East.
Thank you.
Secondary quiet second question to follow up on what James was asking about on the offshore side, obviously, you feel confident the duration, we're seeing that.
Shallow water business, which you didn't really have a middle east, but thinking about the deepwater side, we're seeing rig contracting picking up materially Petrobras is going to be cornered the market on deepwater rig. So I guess my question is sort of somewhat to my other question. How is it different. This time is the customer base changing much from what you see is it going to be the same big players that we saw the last time.
Its always that changing much and I'm, just sort of thinking that should we be expecting to see a bit more of a pronounced inflection in the second half of the year as deepwater comes on.
Yeah, I think that's where through a pretty keen as well I think as Ed indicated the deepwater we see the highest activity uptick compared to ER.
Shallow and land because land is being impacted by the activity compression and declining in Russia internationally and this is our this is what we anticipate is wearing out and we don't expect this to stop at the end of the quarter of next year. This year. So this trend is set to continue indeed.
Thank you.
Thank you.
Next we'll go to Chase Mulvehill with Bank of America. Please go ahead.
Hey, good morning, everyone.
Hey, good.
Good morning.
Obviously covered a lot of ground on kind of international.
Your outlook pricing momentum starting to build.
And we touched a little bit on Dave's question here on offshore so I kind of want to dig into that a little bit more and talk specifically on subsea.
We keep hearing a lot of anecdotes out there so really strong margins that are starting to get booked in backlog.
So could you speak to the subsea market, what kind of fundamental as youre seeing out there.
And I don't know if you if you're willing to kind of talk to if you think the industry not necessarily some version of it at the industry can kind of get back.
Prior cycle peak margins on the subsea side.
I cannot comment on Bev industry, I think I cant comment on what I see as activity outlook and what we see in our backlog and type of activity for subsea so.
On the currency if I was to use that terminology for four four subsea are very strong because on the outlook the mid and long term outlook because of these deepwater activity that is includes exploration appraisal and and future development.
Our offshore <unk> fall 2023 set to be the highest since 2012 2013, indicating that there is a.
Pipeline of subsea.
Our activity in <unk>.
In the horizon, and we have seen some of it are materializing in our world. This year. We are seeing also some some infill drilling tie back activity, which benefited us in recent quarters end and we are very reassured that the that the market is inflicting for further growth and indeed the condition are set.
For a price to be to be accretive into the mouths in into the backlog going for a while to build up and to resume to resume some extent previous pledges of subsea margin, but I cannot comment on the on the industrial Dodge, but I believe this is an industry that is there.
Critical to the success of offshore development, and where we see a lot of collaboration engagement technology development and critical technologies, <unk> subsea processing, boosting and and trends are positive as we see it.
And we are as you know made a strategic decision.
So you're aligned with.
Yeah to form a JV with <unk> with <unk>.
ACA solution and 67, two to address that market opportunity and this announcement reflects our view on the market.
Yes, absolutely.
Alrighty.
Just one follow up unrelated if we kind of look at <unk> and just kind of think about the moving pieces you walked through some of this you know with international seasonality I didn't hear anything kind of explicitly on North America, but I don't know if you can kind of just step us through <unk>.
Moving pieces between North America International and maybe some color around margins.
Yeah first because you pick on it I think.
Like to first reflect on North America, North America has been.
Fantastic success in the last 18 months 24 months I think.
The rate of growth that they are the team has achieved both in offshore in the land market has outpaced the recall so visibly the success in our technology offering and fit and tech access model that has been very.
We're successful there I think as as has expanded margin as you have seen I'm asking are there.
Okay.
Level two today and in the in North America. So this is a very good base to be on and as the market. Our 2020 free unfolds first days at a bit of a shift to drilling to rebuild.
The DUC inventory that will drive us.
In a month and a couple of quarters to come before the usual.
<unk> or a moderation of growth in the second half, but we see we see a level of a of a he activity in North America, and clearly on the momentum of <unk> and its typically.
It happens in the early part of the of the year before it plateaus in the second half and that's a that's nothing new that's a pattern that we expect and see will have an impact on on the first quarter.
And then we see a continuation of the of the offshore.
And in a beating in the Gulf of Mexico, and even in the East Canada off of an off in Alaska and this activity set to continue to grow in a in 2020 freezer Nam will be indeed, an engine that will support our growth in the first half and by <unk> as I said the usual pattern of seasonality.
Internationally in the novels in Israel will be offsetting it.
And we will also this year.
The effect of the loss share year on year decline that we expect to impact negatively. So you have a mixed here that I think we have described in and but Nam will be an engine of golf in the first half.
Okay Alrighty, perfect I'll turn it back over like Libya.
Thank you.
Next we go to Arun Jairam with J P. Morgan Chase. Please go ahead.
Yeah, good morning Olivier.
Only O N E.
I wanted to get your thoughts Olivier and the level of service intensity that you're seeing particularly in the middle east, perhaps relative to the 2009 and 14 cycle as well as our thoughts on just spare capacity first capacity in markets like the middle East and offshore.
Yeah, I think let me reflect first Sunday indeed.
The service intensity I think the again as I said I think there is a significant significant expansion happening at a symptom concurrently and there is a significant focus on performance. So this is led to.
Increase of service intensity, the contact where we operate.
We are fully participating to this end we are leading.
Any of them based on our performance.
But at the same time, we have much increase in machine tools.
Asset efficiency, and we're able to deliver that.
The service intensity that performance Lucas.
So a customer.
Without increasing our capex intensity and we remain.
We felt that I get to a five to seven total capex as you have seen our gallons today. So that's that's I think that's one aspect that I think is is.
It's critical.
And we use that are <unk>.
Discipline in our Capex debt capital stewardship to indeed.
I use this to help us extract.
And guide further up the pricing in the market. So the pricing is driven by first and foremost performance as we see it.
Give us a premium.
<unk> unique technology that are.
Impacting performance or impacting decarbonization as transition technology all of that is fit for the basin.
And then have you.
C.
The.
Catch in the capacity in the market that is now being abused and is being tested in middle East and offshore.
Being an undercurrent of passing a positive trend.
Great and just.
To follow up on this on performance.
Yeah, Let me how are your key called NFC partners differentiated in between performance and call. It the lowest cost bid in terms of tender awards are you seeing more direct awards, but how is this how are the tendering process is being impacted by this focus on performance.
I think it has been a significant impact.
The Kimberlite survey that has been just published a few will remain the.
The best performing supplier as indicated by by the total survey.
Based on technology based on the delivery service quality.
And a personal efficiency that we deliver I think this is this is recognize this is leading to either of two things.
Uh huh.
I would say direct awards or are and our ability to negotiate a premium on our service pricing or technology pricing to reflect our differentiation by four months. So the industry as measured by performance and we believe that we have set a set the benchmark and we continue to pursue.
Collectively.
Our organization through technology through a process in our production efficiency to digital operation. So that we can extract this performance in a face to the customer and they organize it and to give you the premium.
Great. Thanks, a lot.
Thank you.
Our next question is from Scott Gruber with Citigroup. Please go ahead.
Yes, good morning.
You guys posted some pretty impressive margins in North America last year do you think most of the margin benefit overall and the share gain benefit within drilling services from your new strategy has now been captured.
The market is going to stagnate here onshore for a period. So I'm just curious about your ability to potentially still deliver exit to exit growth onshore in North America or weather.
The benefits.
From a share perspective and from a margin perspective have largely been captured.
No I believe that the market is still see room to grow.
Our very first from the activity as I described albeit I think I think he is.
It's very well known that the limited access to the tier one inventory and actually edge.
And the search on capacity in the market is Canada.
And it gets even inflection on to the well productivity, but.
We expect the major.
<unk> and then I'm not sure it's a private to drive the growth this year.
In this market to a well positioned because we have a technology access model and people based in technology that has in drilling.
The onshore met the performance impact and has been recognized and then says earn the premium we have a production portfolio pollution system buffer that you set those sorts through our ESP or frac trees to succeed. So we see further runway both in growth and margin expansion as the market is still just touch and similar too.
International market the market recognize the opportunity to differentiate Buffalo, particularly the public company. So our view is that in the North America, both land and offshore there is not any are activity based growth coming this year.
Not to the same magnitude in land market like last year and still support also pricing considering the search and considering the <unk> premium on fit technology and on performance and part and this is true both.
On land and offshore environment.
Well, great I appreciate all that color.
And then just turning to Russia, you mentioned that Russian activity will be trending lower at 23 is that a market comment or does that apply to your activity in country as well.
No that's a I think.
That's a market comment directionally and in line with some independent market than the U S.
This is a five to.
Five to a single digit to teens digit decline.
A decline and then we along with as you and I think our market.
Activity.
Will will decline accordingly.
Got it I appreciate the color. Thanks.
Thank you.
We can take the next caller.
And that is from the line of battery and Moss Banco. Please go ahead.
Good morning.
Just like I would like to come back to your positive commentary on the increase in the offshore and particularly deepwater I was just curious to the extent you can share with us kind of the way to think about.
Impact on Schlumberger as excuse me as we go from kind of a conventional land rig.
On international land rig.
Shallow water and then deepwater right like so what's the sort of multiple of revenues potential margin expansion.
Process.
Yeah, I think we have come out of this before and we are coming out that of choice and intensity of five times revenue intensity per rig and ER and we maintain that you what are the scan expense depending on the intensity depending on the market mix depending on the.
The pricing thing is Asia.
We set a floor to some extent.
But yes, we see that are the deep water.
Accelerating and I think it's something that is not only in one region, but I think is pretty road as I commented is Latin America is Africa East Med and he said to some extent also east Asia and these are these addition, and we're not talking about necessarily 50 rigs, but the one and twos and threes are real.
And those Ngos region, and the fact that they are relating to you also a content of of exploration and appraisal is creating a mix that is a favorable in the quarters to come I would say.
Okay, and then my unrelated follow up just to come back on the Capex understand 22, we're running a little hot in the growth rate a little slower.
In 'twenty three based on that the accelerated capex, but what's the right way for us to think about capex as a percent of revenue because for a bit.
It seemed like kind of 5% to 6% running a little above that in 'twenty two and.
By my own calculations may be still running above that in 'twenty. Three so I just wondered if there's been a change in how youre thinking about it or just reflects market conditions.
As we look into 'twenty three in the middle of the decade.
So I.
I think you clearly have to distinguish.
The Capex portion, which is which is directly correlated to the level of activity and a N D. Aps investments also together as we guided.
This is a total envelope for 2020 free of two five to $2 6 billion.
Within this the Capex portion are as we said we will continue to target a range of 5% to 7% of revenues, though so it allows us to flex it up based on the activity, but we will not go with movies and it will be probably pretty similar to the.
Two the percentage, we see we saw in 2022.
Yeah.
Okay, great. So no change in how you're thinking about the investments and how that affects return on capital employed and everything going forward.
No no not at all since are still the same target range.
Alright, great. Thank you.
And our next question is from Luke Lemoine with Piper Sandler. Please go ahead.
Hey, good morning.
Good morning to you.
Good morning, you've outlined 23 international growth and at your Investor event.
You know kind of gave us some parameters around 25 and your comments today about international growth would keep going through 'twenty seven.
And possibly to 2030.
I think we're all pretty familiar with middle east strong growth offshore as well growing substantially.
But what do you see someone coming to a later cycle growers or is this cycle, mainly middle east and offshore.
Yes, I think again to you to make sure that we're actually on the commentary a shed.
Our specific about the <unk>.
Later part of the year to 27% to 2030 old capacity and gas development commitments in the middle East Okay.
Sure. Similarly, I think it is a typical development on a Friday that are being blessed and sanctioned this year and years to come out of a three to five years horizon. So combining the what is expected to be diversified.
In dollar value and offshore environment in 2023 in the last 10 years with our pipeline is strong going forward. We indeed expect a three to five years for.
Fall through on offshore from from today, and combining with them at least.
The rest I think is is more related to short cycle and and it's difficult for you to combine these two major growth engine internationally.
I think have the potential.
To sustain.
They are resilient growth.
International environment for years to go indeed, that's that's correct and that's output disease.
Right.
Okay got it thanks a bunch.
Thank you.
Next we go to Kurt who lead with benchmark. Please go ahead.
Hey, good morning.
Good morning, Kurt.
Oh Olivier I wanted to kind.
A follow up as you kind of laid out your financial targets back from your analyst day in November and it looks like you're very much on track to kind of meeting those targets.
I just wanted to get a sense now you know as we're kind of entering into 2023.
You get are you getting a feeling that you know the market.
Momentum in both international and offshore drilling.
Even better than you thought it was when you laid out your plans for the analyst day in November .
I know I think a generally speaking a feel directionally I think the market assumption we took.
The macro backdrop, we anticipated.
Roughly the same I think I would only put to comment I think first is that the dynamic of this year has as I commented in my remarks, Liberty the fanapt sites, depending on the China.
Economic rebound and opening and that could lead.
Later in the upcycle and they finally acceleration and that would have an uptick.
Onto your outlook and secondly, I think the and I think building on the on the recent visit adding at least.
And the engagement of either for a lot of customers there.
The strength of the and commitment.
This to this capacity expansion into these gas development program I think is here to stay and will be resilient.
To to a market condition I would say so I believe that the duration of the cycle. I think are we limited our guidance to 2025, but its abuse to becoming abuse, increasing abuse that are recycled will expand and will it be the strengths to expand.
Growth beyond 25, both on offshore in Middle East Gulf engine.
That will materialize.
Okay. That's great color and then a lot a lot of great information around your core businesses.
Just kind of curious now what could give us a brief outlook on what's happening on the new energy side.
No I think new energy I'm very pleased the progress I think we can utilize.
<unk> very much in the last six months I think we have been commenting on ETA extensively during the capital market day to outline the five selected domains in which we are investing.
In technology, we're investing in partnership with investing into equity critical a critical partner.
To accelerate our go to market like I said our success. So we continue to make progress on each of these five domains and you have seen some announcements relating to Ccs, which I believe has a lot of momentum and we're involved in.
Into dozens of projects this year, and we have a crystallized and materialize some partnership including the passion of Linda for Blue, a blue ammonia Blue Arrow, Jen and Anna and gas gas processing, and we have been investing in that Ti as well for carbon capture and we continue to make progress.
You have seen some announcement on Julian AG, We've said, which is a very critical technology that is being assessed and being recognized in Europe as something that could really have an impact as a as a new as a new technology is a new domain that could transform the EBIT the way to the heating and cooling of buildings and cities.
So we have a great long term outlook on this and more will come on this on the chapter but in general we're making progress on each of these are deep domain beaten pilots beatings early commercial contact there'll be it in technology milestones and will continue to inform you on the on these milestones. So that you can judge a poll.
And continue to assess the potential.
And then keep us a well.
We will keep you informed on our journey towards 2030, and the ambition we have to do the next decade so steep.
Still positive on courage.
<unk> been encouraged with what the feedback we're getting for our partners and customers.
Great.
Any color thanks Olivier.
Thank you. Thank you very much.
So I believe my time too.
To conclude.
<unk>, so ladies and gentlemen, as we conclude todays call I would like to leave you with four key takeaways.
First our 2022 results represent another positive step in our financial and operational performance journey financially.
<unk> revenue growth and margin expansion closed the fourth quarter with year on year EBITDA margin expansion ahead of our initial guidance and further reduce net debt.
Operationally the year was transformative as we execute our strategy of class III and general growth and can we get a new brand purples and items.
Germany positions <unk> to be.
Leader in the energy sector across multiple opportunities and time horizons.
Second the macroeconomic environment remains highly supportive of them because you don't upcycle in both oil and gas and low carbon energy solutions.
This is fundamentally driven by demand.
Both amidst very tight supply and further boosted by the prioritization of energy security and Decarbonization. These market conditions will continue to ship both citigroup in global oil and gas upstream investment for years to come and will prompt additional investment in low carbon energy solutions for our balance planet.
Third the oil and gas industry is entering a new phase in the upcycle marked by the infection in the middle East and the strengthening of offshore activity taken together. This signals the onset of a new growth pattern internationally. These dynamics are closely aligned with our strengths and will enable us to benefit from a subtle pricing environment and further technology.
Adoption. Additionally, we believe that the secret out trends in digital transformation and the cannibalization will only accelerate across all markets presenting an advantaged position facility finally based on our confidence in the strength of the up cycle, a probable market exposure and strong financial results, we reaffirm our ambition to.
Significantly expense shareholders returns in 2023 true commitment to more than double the returns when compared to 2022 true combination of increased dividend and share buybacks.
I could not be more satisfied with their service position at the onset of 2023 and have full confidence in our team's ability to <unk>. The new phase of this up cycle and accelerate our investments for the future.
We look forward to once again exceeding your expectation 12 this year.
You very much for your time.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
Yeah.
We're sorry your conferences ending now please hang up.