Q3 2023 Baker Hughes Co Earnings Call
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Good day, ladies and gentlemen, and welcome to the Baker Hughes Company third quarter 2023 earnings call. At this time all participants are in a listen only mode. Later, we conduct a question and answer session and instructions will follow at that time.
As a reminder, the conference call is being recorded.
I would like to introduce your host for today's conference Mr. Chase Mulvehill, Vice President Investor Relations, Sir you may begin.
Thank you Justin good morning, everyone and welcome to Baker Hughes third quarter 2023 earnings Conference call here with me are our chairman and CEO Lorenzo Simonelli, and our CFO Nancy busy the earnings release, we issued yesterday evening can be found on our website at Baker Hughes Dot com.
We will also be using presentation with our prepared remarks. During this webcast, which can also be found on our website.
As a reminder, during the course of this conference call. We will provide forward looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please.
Please review, our SEC filings and website for a discussion of the factors that could cause actual results to differ materially Reg.
A reconciliation of operating income and other GAAP to non-GAAP measures can be found in our earnings release.
With that I'll turn the call over to Lorenzo.
Thank you Jay good morning, everyone and thanks for joining US we were pleased with our third quarter results and remain optimistic on the outlook.
As you can see on slide four we maintained strong orders performance in both IEP and Sps with larger awards coming from venture Global LNG and <unk> energy and subsea. We also delivered strong operating results at the upper end of our EBIT guidance range booked almost a 100 million.
A new energy orders and generated $592 million of free cash flow.
We continue to see positive momentum across our portfolio despite persistent global uncertainty.
Turning to the macro on slide five oil prices have rebounded as the combination of resilient oil demand and production cuts have tightened the market as a result, the oil market is likely to see inventory draws through the rest of 2023.
<unk> disciplined from the world's largest producers the pace of oil demand growth in the face of economic uncertainty and geopolitical risks will be important factors to monitor as we look into 2024.
While oil prices have strengthened during the second half of this year.
<unk> development plans, mostly sat through year end. Therefore, we remain confident in our 2023 outlook.
We still expect international drilling and completion spending to be up year over year in the mid teens and North America up by mid to high single digits.
As we have said previously we expect this upstream spending cycle to be more durable and less sensitive to commodity price swings relative to prior cycles.
Higher hydrocarbon prices do provide positive momentum and to operate as development plans for next year.
While it is still early and with the caveat there is growing geopolitical risks, we do see another year of solid upstream spending growth in 2024 led by international and offshore markets.
In the offshore market, specifically, we were awarded 21 subsea trees during the quarter, which includes a significant equipment order from our sub Saharan African operator.
This award expands Baker Hughes has presence in offshore Angola and consists of 11 deepwater horizontal trees are prior manifolds and subsea controls.
Our FSC also saw continued growth in the north sea booking two major multiyear contracts from <unk> energy.
One being a long term contract for well intervention and exploration logging services and the other being in order to deliver seven vertical three systems for the Balder field.
Unknown Executive: Good day, ladies and gentlemen, and welcome to the Baker Hughes Company third quarter 2023 earnings call. At this time, all participants are in a listen only mode. Later, we could duck a question and answer session instructions will follow at that time. As a reminder, the conference call is being recorded.
Turning to LNG, despite a soft economy, the global LNG market remains fundamentally tight.
This tightness as evidenced by the recent LNG price spikes that resulted from the current geopolitical situation and strikes in Australia by LNG, Wackos, which temporarily interrupted operations at several LNG facilities.
Chase Mulvehill: I would like to introduce your host for today's conference, Mr. Chase Mulvehill, vice president of the investor relations. Third, you may begin. Thank you, Justin. Good morning, everyone, and welcome to Baker Hughes third quarter 2023 earnings conference call. Here with me are Chairman and CEO, Lorenzo Simonelli, and our CFO Nancy Beesey. The earnings release we issued yesterday evening can be found on our website at Baker Hughes dot com. We will also be using presentation with our prepared remarks during this webcast, which can also be found on our website.
In the third quarter global LNG demand was up approximately one 5% year over year.
Year to date global LNG demand has reached record levels at just over 300 MTA.
This is despite softer than anticipated gas demand and economic weakness persisting and key LNG consuming markets like Europe and China.
Chase Mulvehill: As a reminder, during the course of this conference call, we will provide forward-looking statements. These statements are not guarantees of future performance and involve a number of risk and assumptions. Please review our SEC filings and website for a discussion of the factors that could cause actual results to differ materially. Reconciliation of operating income and other gap to non-gap measures can be found in our earnings release.
Globally, we expect 2023, LNG demand to approach 410, MTA or up about 2% compared to last year.
With estimated global nameplate capacity of 490 MTA. This year effective utilization is expected to be over 90%, which has historically represented a tight market.
Lorenzo Simonelli: With that, I'll turn the call over to Lorenzo. Thank you, Chase. Good morning, everyone, and thanks for joining us. We were pleased with our third quarter results and remain optimistic on the outlook. As you can see on slide four, we maintain strong-orders performance in both IET and SSPS, with large awards coming from venture global in LNG, in our energy in Subsea. We also delivered strong operating results at the upper end of our EBITDA guidance range, booked almost $100 million of new energy orders and generated $592 million of free cash flow.
Looking into 2024, we forecast LNG demand to increase by 3%, which should result in utilization rates remaining at elevated levels. As we forecast just 15 MTA of nameplate capacity coming online next year.
Looking out to 2025 and 2026, we see similar trend of supply growth being balanced by demand growth, which should keep global LNG markets at relatively strong utilization levels.
LNG prices remain healthy, which has helped to sustain the strength in offtake contracting a key driver of LNG.
Lorenzo Simonelli: We continue to see positive momentum across our portfolio, despite persisting global uncertainty. Turning to the macro on slide five, oil prices have rebounded as the combination of resilient oil demand and production cuts have tightened the market. As a result, the oil market is likely to see inventory draws through the rest of 2023. Continued discipline from the world's largest producers, the pace of oil demand growth in the face of economic uncertainty and geopolitical risk will be important factors to monitor as we look into 2024.
During the quarter, we received in order to provide additional liquefaction equipment and a power island to venture global as part of our Upsized Master equipment supply agreement of over 100 MTA.
As a reminder, we have provided LNG modules for both venture Global's 10, MTP Calcasieu pass and 20 MTA Plaquemines projects.
Additionally, we were pleased to be recently awarded by App not gas on behalf of act not two electric liquefaction systems for the nine six MTA risk LNG project in the United Arab Emirates.
Lorenzo Simonelli: While all prices have strengthened during the second half of this year, upstream development plans are mostly set through year end. Therefore, we remain confident in our 2023 outlook. We still expect international drilling and completion spending to be up year-over-year in the mid-teens and North America up by mid-to-high single digits. As we have said previously, we expect this upstream spending cycle to be more durable and less sensitive to commodity price swings relative to prior cycles.
The award is expected to be booked in the fourth quarter of 2023.
And was announced at this year's <unk> Conference.
The LNG trains will be driven by Baker Hughes is 75 megawatt brush electric motor technology and will feature our state of the art compressor technology, making ruins LNG one of the first all electric LNG projects in the Middle East.
We are pleased to see continued traction from brush power generation, which we acquired in 2022 to enhance our industrial electric machinery portfolio and to support our strategic commitment to provide lower carbon solutions.
Lorenzo Simonelli: Higher hydrocarbon prices do provide positive momentum into operators development plans for next year. While it is still early, and with the caveat there is growing geopolitical risk, we do see another year of solid upstream spending growth in 2024, led by international and offshore markets, markets. In the offshore market specifically, we were awarded 21 subsea trees during the quarter, which includes a significant equipment order from a sub-Saharan African operator. This award expands Baker Hughes' presence in offshore angola and consists of 11 deep water horizontal trees, optiomanifolds and subsea controls.
Since then we have secured several additional orders for our electric machinery portfolio, including a contract from weather in the first quarter before LNG compressor trains in sub Saharan Africa.
These recent successes of brush further validate our strategy of investing in bolt on M&A opportunities that can complement the current <unk> and OFC portfolios as well as our efforts and new energy.
Lorenzo Simonelli: OFSE also saw continued growth in the North Sea, booking two major multi-year contracts from via energy, one being a long-term contract for well intervention and exploration logging services, and the other being an order to deliver seven vertical tree systems for the Balder field. PANning to LNG, despite a soft economy, the global LNG market remains fundamentally tight. This tightness is evidenced by the recent LNG price spikes that resulted from the current geopolitical situation and strikes in Australia by LNG workers, which temporarily interrupted operations at several LNG facilities.
Turning to slide six through the first quarter 53, MTA of capacity has taken this year.
For 2023, we expect to book LNG orders totaling approximately 80 M Tpa.
Given we sometimes receive larger LNG orders before projects have taken.
Lorenzo Simonelli: In the third quarter, global LNG demand was up approximately 1.5% year-over-year. Yet to date, global LNG demand has reached record levels at just over 300 MTPA. This is despite soft and anticipated gas demand and economic weakness persisting in key LNG-consuming markets like Europe and China. Globally, we expect 2023 LNG demand to approach 410 MTPA or up about 2% compared to last year. With estimated global nameplate capacity of 490 MTPA this year, effective utilization is expected to be over 90%, which has historically represented a tight market.
The LNG project pipeline remains strong both in the U S and internationally.
Therefore, we expect to see similar year over year levels of activity in 2024.
And could see between 30 to 60 MTA of LNG <unk> in both 2025 and 2026.
Based on existing capacity projects under construction and future <unk> in the pipeline. We have line of sight for global LNG installed capacity to reach 800 MTA by the end of 2030.
This represents an almost 70% increase in nameplate capacity from 2022, which provides significant near term growth for gas tech equipment and further long term structural growth for gas Tech services.
Importantly, since 2017 that have been 204 MTA of LNG <unk> and Baker Hughes has been selected for 201 MTA of this new capacity.
These projects are scheduled to come online over the coming years, representing an almost 50% increase in our global liquefaction installed base between now and 2028.
Lorenzo Simonelli: Looking into 2024, we forecast LNG demand to increase by 3%, which should result in utilization rates remaining at elevated levels, as we forecast just 15 MTPA of nameplate capacity coming online next year. Looking out to 2025 and 2026, we see similar trend of supply growth being balanced by demand growth, which should keep global LNG markets at relatively strong utilization levels. LNG prices remain healthy, which has helped to sustain the strength and off-take contracting a key driver of LNG FIDs.
Turning to slide seven we have long held the view that natural gas is an abundant low carbon and versatile energy source it.
It will play a critical role as both a transition in destination fuel.
Accordingly, natural gas will be fundamental in satisfying the world's energy needs for many decades to come.
While also improving air quality and reducing global emissions displacing coal in the broader energy mix.
We forecast our primary energy demand will continue to grow beyond 2014, due to rising population and increasing consumption per capita in the developing world.
Lorenzo Simonelli: During the quarter, we received an order to provide additional liquefaction equipment and a power island to venture global as part of our upsized master equipment supply agreement of over 100 MTPA. As a reminder, we have provided LNG modules for both of venture global's 10 MTPA Calpissue Pass and 20 MTPA Placomans projects. Additionally, we were pleased to be recently awarded by AdNOT Gas on behalf of AdNOT two electric liquefaction systems for the 9.6 MTPA RIRTH LNG project in the United Arab Emirates.
However, it is essential to meet this growing demand with affordable and reliable energy to ensure a strong global economy.
Today's mix of primary energy demand is still heavily reliant upon coal, which accounted for 24% of global energy demand in 2022.
In many Asian countries, like China, and India coal has a much higher share of the energy mix.
This is the opportunity for cleaner burning natural gas to be paired with renewables and <unk> as a base load energy source to displace coal in the energy mix over the coming decades.
Lorenzo Simonelli: The award is expected to be booked in the fourth quarter of 2023, and was announced at this year's Antepet Conference. The LNG trains will be driven by Baker Hughes's 75 megawatt brush electric motor technology and will feature our state-of-the-art compressor technology, making Rua's LNG one of the first all-electric LNG projects in the Middle East. We are pleased to see continued traction from brush power generation, which we acquired in 2022 to enhance our industrial electric machinery portfolio and to support our strategic commitment to provide lower carbon solutions.
That being said all energy sources will be needed to meet increasing energy demand, although with an increasing importance on minimizing global emissions.
Importantly, many of our customers long term spending plans are beginning to reflect this evolving energy mix.
This presents significant customer synergies across our <unk> and OFC portfolios, providing a unique opportunity to be an integrated solutions provider as the energy transition takes shape.
Lorenzo Simonelli: Since then, we have secured several additional orders for our electric machinery portfolio, including a contract from wisdom in the first quarter before LNG compressor trains in sub-Saharan Africa. These recent successes of brush further validate our strategy of investing in bolt-on M&A opportunities that can complement the current IET and OFSE portfolios, as well as our efforts in new energy. Counting to slide six, through the third quarter, 53 MTPA of capacity has taken FID this year.
Turning to slide eight as.
As we take energy forward, making it safer cleaner and more efficient for people and the planet. We are focused on our strategic framework of transforming our core to strengthen our margin and returns profile, while also investing for growth and positioning for new frontiers in the energy transition.
Through these key pillars, our company is building and executing a plan to deliver sustainable value for our shareholders and stakeholders.
As our strategy and the energy markets have evolved we have been increasingly focused on the execution of our strategy across three time horizons.
Across the fast time horizon, which spans through 2025, we are focused on driving enhanced margin accretion through organizational simplification and expanded efficiencies operational discipline and optimization of asset and people productivity importantly.
Lorenzo Simonelli: For 2023, we expect to book LNG orders totaling approximately 80 MTPA, given we sometimes receive larger LNG orders before projects have taken FID. The LNG project pipeline remains strong, both in the U.S, and internationally. Therefore, we expect to see similar year-over-year levels of FID activity in 2024 and could see between 30 to 60 MTPA of LNG FIDs in both 2025 and 2026. Based on existing capacity, projects under construction and future FIDs in the pipeline, we have line of sight for global LNG installed capacity to reach 800 MTPA by the end of 2030.
These actions are well within our control.
During this period Baker Hughes remains poised to benefit from the macro tailwind that we see across our two business segments.
Specifically, we remain well positioned to benefit from the continued strength in the natural gas and LNG growth cycle as well as the multiyear increases in upstream spending driven by international and offshore markets.
We also remain focused on navigating short term supply constraints specifically.
Lorenzo Simonelli: This represents an almost 70-percent increase in name-plate capacity from 2022, which provides significant near-term growth for gas tech equipment and further long-term structural growth for gas tech services. Importantly, since 2017, there have been 204 MTPA of LNG FIDs, and Baker Hughes has been selected for 201 MTPA of this new capacity. These projects are scheduled to come online over the coming years, representing an almost 50-percent increase in our global liquefaction installed base between now and 2028.
Specifically in aerospace sector, and broader macroeconomic and political uncertainty.
Throughout horizon, one we will be focused on transforming our business and simplifying the way we work. Additionally.
Additionally, we remain committed to further developing and commercializing a new energy portfolio, while also evolving our digital offerings.
All of this will underpin our goal to deliver 20% EBITDA margins and OFC by 2025 and in <unk> by 2026.
During the second horizon, which extends out to 2027, the focus shift towards investing for the next phase of growth, where our strategy is to solidify our presence in the new energy and industrial sectors, while leveraging gas tech services' growth across our expanding installed equipment base.
Lorenzo Simonelli: Turning to slide 7, we have long held the view that natural gas is an abundant, low-carbon, and vast-tile energy source. It will play a critical role as both a transition and destination fuel. Accordingly, natural gas will be fundamental in satisfying the world's energy needs for many decades to come, while also improving air quality and reducing global emissions, displacing coal in the broader energy mix. We forecast that primary energy demand will continue to grow beyond 2040 due to rising population and increasing consumption per capita in the developing world.
At the same time, we see upstream in natural gas spending continuing to grow at a lower rate.
We also expect an increase in customer focus on efficiency gains and emissions reductions offering meaningful opportunities for our <unk> and OFC digital businesses as we further deploy our Lucifer accordant and flare reduction solutions during this horizon.
Lorenzo Simonelli: However, it is essential to meet this growing demand with affordable and reliable energy to ensure a strong global economy Today's mix of primary energy demand is still heavily reliant upon coal, which accounted for 24% of global energy demand in 2022. We've prepared with renewables and or CCUS as a base load energy source to display coal in the energy mix over the coming decades. That being said, all energy sources will be needed to meet increasing energy demand, although with an increasing importance on minimizing global emissions.
To illustrate the IEA estimates improving efficiencies by just 10% across oil and gas operations with save almost half a gigaton of cotwo per year, which is equivalent to achieving 5% of the Paris agreement goals.
Also in horizon, two we expect to exceed our ROIC targets of 15% and 20% and our FSC niet, respectively and.
And drive further margin expansions across both business segments above our stated 20% EBITDA margin targets.
Lastly, horizon free looks to <unk> and beyond where our execution over the coming years will position Baker Hughes to compete across many new industrial and energy frontiers, including Cc U S.
Lorenzo Simonelli: Importantly, many of our customers long term spending plans are beginning to reflect this evolving energy mix. This presents significant customer synergies across our IET and OFSE portfolios, providing a unique opportunity to be an integrated solutions provider as the energy transition takes shape.
Hydrogen clean power and geothermal.
By this time, we expect decarbonization solutions to be a fundamental component and in most cases, a prerequisite for energy projects.
<unk> of the end market.
The need for smarter more efficient energy solutions and emissions management, while our family extended into the industrial sector.
Lorenzo Simonelli: Turning to slide 8, as we take energy forward, making it safer, cleaner and more efficient for people in the planet, we are focused on our strategic framework of transforming our coal to strengthen our margin and returns profile. While also investing for growth and positioning for new frontiers in the energy transition. Through these key pillars, our company is building and executing a plan to deliver sustainable value for our shareholders and stakeholders. As our strategy and the energy markets have evolved, we have been increasingly focused on the execution of our strategy across free time horizons.
Considering this backdrop, we expect our new energy orders to reach $6 billion to $7 billion in 2030 and across a much broader customer base.
Before turning over to Nancy I would like to speak to the positive momentum that Baker Hughes is built during 2023.
And while we have experienced strengthening tailwind in both OFC and.
International and offshore markets are set to drive the strongest year of OFC growth and more than five years.
While continued robust LNG activity is set to push out orders to yet another record year in 2023.
Lorenzo Simonelli: Across the first time horizon, which spans through 2025, we are focused on driving enhanced margin of creation through organizational simplification and expanded efficiencies, operational discipline and optimization of asset and people productivity. Importantly, these actions are well within our control. During this period, Baker Hughes remains poised to benefit from the macro tailwinds that we see across our two business segments. Specifically, we remain well positioned to benefit from the continued strength in the natural gas and energy growth cycle, as well as a multi-year increases in upstream spending driven by international and offshore markets.
And most importantly, our improved operational execution and cost structure and continued commitment to our customers.
Are helping us to deliver on our commitments to our shareholders.
With that I'll turn the call over to Nancy.
Lorenzo I will begin on slide 10, with an overview of our consolidated results and then briefly talk to segment details before outlining our fourth quarter and full year 2023 outlook. We were very pleased with our third quarter results as both segments continue to execute well and benefit from market tailwind.
Adjusted EBITDA of $983 million came in at the high end of our guidance range, mostly due to better than expected <unk> performance driven by strong backlog conversion in gas tech equipment and continued improving execution in industrial tech.
Lorenzo Simonelli: We also remain focused on navigating short-term supply constraints, specifically in aerospace sector and broader macro economic and political uncertainty. Throughout horizon one, we will be focused on transforming our business and simplifying the way we work. Additionally, we remain committed to further developing and commercializing our new energy portfolio while also evolving our digital offerings. All of this will underpin our goals to deliver 20% EBITDA margins in OFSE by 2025 and in IET by 2026.
GAAP operating income was $714 million during the quarter.
Adjusted operating income was $716 million.
GAAP earnings per share were <unk> 51.
Excluding adjusting items earnings per share were <unk> 42.
Orders for both business segments maintained strong momentum highlighted by another record quarter for IEP and the third consecutive quarter of at least $1 billion of subsea and surface pressure systems orders. The first time. This has happened since 2014.
Lorenzo Simonelli: During the second horizon, which extends out to 2027, the focus shift towards investing for the next phase of growth, where our strategy is to solidify our presence in the new energy and industrial sectors, while leveraging gas tech services growth across our expanding installed equipment base. At the same time, we see upstream and natural gas spending continuing to grow at a lower rate. We also expect an increasing customer focus on efficiency gains and emissions reductions, offering meaningful opportunities for our IET and OFSE digital businesses as we further deploy our Lucifer, quadrant, and flare reduction solutions during this horizon.
New energy orders totaled almost $100 million this quarter, which brings year to date orders to just under $540 million and puts us on track to hit our 6% to $700 million target range.
Due to the sustained strength in orders IGT RPI is at record levels and <unk> is now at the highest level since 2015, which provides strong volume and earnings visibility over the coming years.
Lorenzo Simonelli: To illustrate, the IEA estimates the improving efficiencies by just 10% across oil and gas operations would save almost half a gigaton of CO2 per year, which is equivalent to achieving 5% of the Paris Agreement goals. Also in Horizon 2, we expect to exceed our ROIC targets of 15% and 20% in OFSE and IET respectively, and drive further margin expansions across both business segments above our stated 20% EBITDA margin targets.
Free cash flow was strong again this quarter coming in at $592 million and resulting in free cash flow conversion from adjusted EBITDA of 60%.
We continue to target free cash flow conversion of 45% to 50% this year.
Turning to slide 11, our balance sheet remains strong as we ended the third quarter with cash of $3 2 billion.
And a net debt to trailing 12 month adjusted EBITDA ratio of one times.
Turning to capital allocation on slide 12, we continue to return excess free cash flow to shareholders. We recently increased our dividend by a penny to <unk> 20 per quarter, we remain committed to growing our dividend over time with growth ultimately tied to the structural earnings power and growth of the company.
Additionally, we repurchased $119 million of stock during the quarter, which brings total repurchases at the end of the third quarter to $219 million.
Lorenzo Simonelli: Lastly, Horizon 3 looks to 2030 and beyond, where our execution over the coming years will position Baker Hughes to compete across many new industrial and energy frontiers, including CCUS, Hydrogen, Clean Power, and Geothermal. By this time, we expect decarbonization solutions to be a fundamental component and in most cases, a prerequisite for energy projects, regardless of the end market. The need for smarter, more efficient energy solutions and emissions management will have firmly extended into the industrial sector. Considering this backdrop, we expect our new energy orders to reach $6 to $7 billion in 2030 and across a much broader customer base.
Including our dividend and buybacks through the end of the third quarter. We have returned $805 million to shareholders. We remain committed to returning 60% to 80% of free cash flow to investors.
Now I will walk you through the business segment results in more detail and give you our thoughts on our forward outlook.
Starting with oilfield services and equipment on slide 13, the <unk>.
<unk> performed above expectations in the quarter, driven by better than expected revenue and margin in Sps and a resilient oilfield services performance in North America.
Sps orders of $1 billion maintained strong momentum as offshore project awards continue at robust levels.
Accordingly, Sps book to Bill of one three times was above one for the seventh consecutive quarter NSS PFS RPI now sits at three 6 billion.
Lorenzo Simonelli: Before turning over to Nancy, I'd like to speak to the positive momentum that Baker Hughes has built during 2023 and where we have experienced strengthening tailwinds in both OFSE and IET. International and offshore markets are set to drive the strongest year of OFSE growth in more than five years. While continued robust energy activity is set to push IET orders to yet another record year in 2023. And most importantly, our improved operational execution and cost structure and continued commitment to our customers are helping us to deliver on our commitments to our shareholders.
Which is up 52% versus the same quarter last year.
<unk> revenue in the quarter was $4 billion up 2% sequentially and up 16% year over year.
Excluding Sps International revenue was up 1% sequentially as declines in Latin America offset increases in other regions.
Excluding SBS North America revenue was up 4% sequentially with strength in North America offshore, partially offset by North America land revenues down 2%.
Which outperformed the U S land rig count that fell 10%.
Oh FSC EBITDA in the quarter was $670 million.
And 5% sequentially and up 27% year over year.
Nancy Buese: With that, I'll turn the call over to Nancy. Lorenzo, I will begin on slide 10 with an overview of our consolidated results and then briefly talk to segment details before outlining our fourth quarter and full year 2023 outlook. We were very pleased with our third quarter results as both segments continued to execute well and benefit from market tailwinds. Adjusted EBITDA of $983 million came in at the high end of our guidance range, mostly due to better than expected IET performance driven by strong backlog conversion and gas tech equipment and continued improving execution in industrial tech.
I'll also slightly above our guidance midpoint of $665 million.
Although FSC EBITDA margin rate was 17% with margins, increasing 60 basis points sequentially, and 140 basis points year over year as Sps margins outperformed expectations.
Now turning to industrial and energy technology on Slide 14. This segment also performed above expectations again during the quarter. The stronger performance was primarily due to higher volume and gas tech equipment and industrial Tech.
Slightly offset by lower than expected volume and gas Tech services due to delivery timing for upgrades and supply chain challenges for Aero derivative components.
Nancy Buese: Gap operating income was $714 million during the quarter. Adjusted operating income was $716 million. $1 million. Gap earnings per share were 51 cents, excluding adjusting items earnings per share were 42 cents. Orders for both business segments maintain strong momentum, highlighted by another record quarter for IET and a third consecutive quarter of at least $1 billion of subsie and surface pressure systems orders. The first time this has happened since 2014. New energy orders totaled almost $100 million this quarter, which brings year-to-day orders to just under $540 million and puts us on track to hit our $600 to $700 million target range.
<unk> also had record orders this quarter driven by robust LNG Awards.
<unk> orders were $4 3 billion.
Nancy Buese: Due to the sustained strength in orders, IET RPO is at record levels, and SSPS RPO is now at the highest level since 2015, which provides strong volume and earnings visibility over the coming years. Free cash flow was strong again this quarter, coming in at $592 million and resulting in free cash flow conversion from adjusted EBITDA of 60%. We continue to target free cash flow conversion of 45 to 50% this year. Turning to slide 11, our balance sheet remains strong, as we ended the third quarter with cash of $3.2 billion and a net debt to trailing 12-month adjusted EBITDA ratio of one time.
Up 32% sequentially and up 84% on a year over year basis, and included almost $2 $5 billion of LNG equipment orders.
Major awards during the quarter included liquefaction equipment for an LNG project in the Eastern Hemisphere, and a major award to provide additional liquefaction equipment and power island to venture global.
<unk> ended the quarter at $28 8 billion up 5% sequentially.
Gas take equipment, <unk> was $12 $8 billion and gas Tech services RPM was $13 8 billion.
Gas Tech equipment book to Bill was two two times the ninth consecutive quarter above one.
Turning to slide 15, <unk> revenue for the quarter was $2 7 billion.
Up 37% versus the prior year led by gas Tech equipment growth that was up over 100% year over year, driven by execution and project backlog.
<unk> EBITDA was $403 million up 23% year over year coming in above our guidance midpoint of $385 million.
Nancy Buese: Turning to capital allocation on slide 12, we continue to return excess free cash flow to shareholders. We recently increased our dividend by a penny to 20 cents per quarter. We remain committed to growing our dividend over time, with growth ultimately tied to the structural earnings power and growth of the company. Additionally, we repurchased $119 million of stock during the quarter, which brings total repurchases at the end of the third quarter to $219 million. Including our dividend and buybacks through the end of the third quarter, we have returned $805 million to shareholders. We remain committed to returning 60 to 80% of pre cash flow to investors.
EBITDA margin was 15% down 160 basis points year over year, driven by higher equipment mix and higher R&D spend related to our new energy investment.
This increased R&D spending balances our broader margin improvement objectives with the demand to drive technology growth in our climate technology solutions portfolio.
In September we announced a realignment of our product lines across five key value vectors, simplifying our organizational structure to focus operations and decision, making and drive margin and returns improvement.
Through this realignment, which was effective on October one and shown on slide 16. We are also providing increased transparency for our Cts business a key growth engine for Baker Hughes as well as integrating our asset performance management capabilities under industrial solutions.
Nancy Buese: Now I will walk you through the business segment results in more detail and give you our thoughts on our forward outlook. Starting with oil fill services and equipment on slide 13, the segment performed above expectations in the quarter driven by better than expected revenue and margin and SSPS and a resilient oil filled services performance in North America. SSPS orders of $1 billion maintained strong momentum as offshore project awards continue at robust levels.
Before turning to our outlook I'd like to quickly speak to a part of our growth story that we think is a key differentiator for Baker Hughes and as highlighted on slide 17 is the visibility we have around structural IGT growth into the latter part of this decade.
Nancy Buese: Accordingly, SSPS book to bill of 1.3 times was above one for the seventh consecutive quarter and SSPS RPO now sits at $3.6 billion, which is up 52% versus the same quarter last year. OFSE revenue in the quarter was $4 billion, up 2% sequentially and up 16% year over year. Excluding SSPS, international revenue was up 1% sequentially as declines in Latin America offset increases in other regions. Excluding SSPS, North America revenue was up 4% sequentially with strength in North America offshore partially offset by North America land revenues down 2%.
We believe this growth will drive meaningful free cash flow expansion for the company, which we can attribute to four areas.
First as LNG equipment orders based on our expectation, we will book almost $9 billion of LNG equipment orders across 2022 and 2023.
As a result, our gas tech equipment RPM is at a record level, giving itt's strong equipment backlog coverage over the next few years.
As gas Tech services.
As Lorenzo mentioned, we see the global LNG installed base growing by 70% from today through the end of this decade also the 172 MTA as capacity additions during the 2016 to 2022 time frame will begin to earn increasing service revenue over the medium term.
Nancy Buese: Which outperformed the US land rig count that fell 10%. OFSE EBITDA on the quarter was $670 million, up 5% sequentially and up 27% year over year. Deer, while also slightly above our guidance midpoint of $665 million. OFSC EBITDA margin rate was 17 percent, with margins increasing 60 basis points sequentially and 140 basis points year over year as SSPS margins outperformed expectations.
Given the Baker Hughes equipment is installed on the majority of these projects, we have significant earnings and returns visibility through 2030 and beyond from a gas tax services franchise as LNG accounts for almost 80% of our $13 8 billion <unk> and gas Tech services.
The third growth area that we see is across industrial solutions and industrial products. We believe that these businesses can be so much more than a collection of technologies that they are today.
Nancy Buese: Now turning to industrial and energy technology on slide 14, this segment also performed above expectations again during the quarter. The stronger performance was primarily due to higher volume and gas tech equipment and industrial tech, slightly offset by lower than expected volume and gas tech services due to delivery timing for upgrades and supply chain challenges for aeroderative components. IET also had record orders this quarter driven by robust LNG awards. IET orders were $4.3 billion, up 32 percent sequentially, and up 84 percent on a year over year basis, and included almost $2.5 billion of LNG equipment orders.
For industrial solutions. The focus of this platform is to provide an integrated suite of solutions supporting industrial asset performance management and process optimization.
There is a significant opportunity to advance solutions that can provide recurring revenue streams at accretive margin rates.
Starting point for this is our <unk> platform, which we launched in January of this year.
In industrial products, we've been focusing on driving further simplification and unifying the industrial hardware capabilities that we have in our portfolio today as.
As we focus on industry verticals that allow for stronger growth opportunities and improve profitability into the future.
The fourth growth area is new energy, we remain excited about new energy opportunities, where we will focus on differentiated technologies that add value for our customers and Cc U S hydrogen clean power geothermal and emissions management.
Nancy Buese: Major awards during the quarter included liquefaction equipment for an FLNG project in the Eastern hemisphere, and a major award to provide additional liquefaction equipment in a power island to venture global. IET, RPO, ended the quarter at $28.8 billion, up 5 percent sequentially. Gas tech equipment, RPO, was $12.8 billion, and gas tech services, RPO, was $13.8 billion. Gas tech equipment booked to bill was 2.2 times the ninth consecutive quarter above one. Turning to slide 15, IET revenue for the quarter was $2.7 billion, up 37 percent versus the prior year, led by gas tech equipment growth that was up over 100 percent year over year driven by execution and project backlog.
Accordingly, we see a path to growing new energy orders from our $6 million to $700 million target this year towards 6% to $7 billion in 2030.
Next I'd like to update you on our outlook for the two business segments, which is detailed on slide 18.
Overall, we remain optimistic on the outlook for both OFC and IGT, given strong growth tailwind across each business as well as continued operational enhancements to drive backlog execution and margin improvement.
For Baker Hughes, we expect fourth quarter revenue to be between $6 7 million and $7 1 billion and EBITDA between one five and $1 1 billion.
Nancy Buese: IET EBITDA was $403 million, up 23 percent year over year, and coming in above our guidance midpoint of $385 million. EBITDA margin was 15 percent, down 160 basis points year over year driven by higher equipment mix and higher R&D spend related to our new energy investment. This increased R&D spending balances our broader margin improvement objectives with the demand to drive technology growth in our climate technology solutions portfolio. In September, we announced a realignment of our IET product lines across five key value vectors, simplifying our organizational structure to focus operations and decision making and drive margin and returns improvement.
Implying an EBITDA midpoint of $1 8 billion.
For the full year, we are increasing and narrowing our guidance ranges as we flow through third quarter results and fourth quarter guidance.
Accordingly, we now expect 2023 Baker Hughes' revenue to be between $25, four and $25 8 million and EBITDA between three seven and $3 8 billion.
Nancy Buese: Through this realignment, which was effective on October 1st, and shown on slide 16, we are also providing increased transparency for our CTS business, a key growth engine for Baker Hughes, as well as integrating our asset performance management capabilities under industrial solutions.
Sure.
We expect fourth quarter results to reflect sequential and year over year revenue growth for both gas Tech and industrial Tech.
Therefore, we expect fourth quarter <unk> revenue between $2, eight and $3 1 billion.
And EBITDA between 430 and $490 million.
The major factors driving this range will be the pace of backlog conversion and gas tech equipment, and the impact of any aero derivative supply chain tightness and gas deck.
Our full year outlook for IEP remains constructive for orders revenue and EBITDA.
Nancy Buese: Before turning to our outlook, I'd like to quickly speak to a part of our growth story that we think is a key differentiator for Baker Hughes, and as highlighted on slide 17, is the visibility we have around structural IET growth into the latter part of this decade. We believe this growth will drive meaningful, pre-cashful expansion for the company, which we can attribute to four areas. The first is LNG equipment orders based on our expectations.
For orders, we've increased our 2023 expectations from 11, five to $12 5 billion to a new range of $14 to $14 5 billion.
Flowing through the third quarter upside in fourth quarter Guide, we now expect full year revenue between $10, five and $10 35 billion and EBITDA between one five and 155 billion.
Nancy Buese: Action. We will book almost $9 billion of LNG equipment orders across 2022 and 2023. As a result, our gas tech equipment RPO is at a record level, giving IET strong equipment backlog coverage over the next few years. The second is gas tech services. As Lorenzo mentioned, we see the global LNG installed base growing by 70% from today through the end of this decade. Also, the 172 MTPA of capacity additions during the 2016 to 2022 timeframe will begin to earn increasing service revenue over the medium term.
For OFC, we expect fourth quarter results to reflect the typical year end growth in international revenue and a decline in North America.
We therefore expect fourth quarter OFC revenue between $3 85, and $4 5 billion.
And EBITDA between 675% and $735 million.
Factors driving this range include the pacing of some international projects level of year end product sales Sps backlog conversion and the pace of our cost out initiatives after.
After including the third quarter results and fourth quarter guidance, we now forecast full year OFC revenue between 15, 3% and $15 5 billion.
Nancy Buese: Given that Baker Hughes equipment is installed on the majority of these projects, we have significant earnings and returns visibility through 2030 and beyond from our gas tech services franchise. As LNG accounts for almost 80% of our $13.8 billion RPO and gas tech services. The third growth area that we see is across industrial solutions and industrial products. We believe that these businesses can be so much more than the collection of technologies that they are today.
And EBITDA between two five and $2 65 billion.
We will provide detailed 2024 guidance alongside our fourth quarter results in January.
Looking out to next year, we remain optimistic for continued growth across both OFC and <unk> as well as further operational enhancements to drive increasing margins and returns. We also remain focused on navigating aero derivative supply chain challenges and broader macroeconomic and geopolitical uncertainty as we head into 2020.
Nancy Buese: For industrial solutions, the focus of this platform is to provide an integrated suite of solutions supporting industrial asset performance management and process optimization. There is a significant opportunity to advance solutions that can provide recurring revenue streams at a creative margin rates. The starting point for this is our coordinate platform, which we launched in January this year. In industrial products, we've been focusing on driving further simplification and unifying the industrial hardware capabilities that we have in our portfolio today. As we focus on industry verticals that allow for stronger growth opportunities and improve profitability into the future.
Sure.
More broadly our transformation journey continues and we're pleased with the progress we're making in identifying areas to drive efficiencies structurally removing costs and modernizing how the business operates.
We are continuing to see the cost outperformance come through our operating results and we see further opportunities to enhance our operating performance through continued business transformation efforts.
In summary, we remained relentlessly focused on achieving the targets we've set for 20% EBITDA margins and now FSC in 2025, and <unk> in 2026, and we remain committed to delivering our ROIC targets of 15% per OFC and 20% for IEP.
Nancy Buese: The fourth growth area is new energy. We remain excited about new energy opportunities where we will focus on differentiated technologies that add value for our customers in CCUS, hydrogen, clean power, geothermal, and emissions management. Accordingly, we see a path to growing new energy orders from our $600 to $700 million target this year toward $6 to $7 billion in 2030.
Importantly, we are continuing to take actions today to help us achieve and exceed these targets overall, we remain excited about the future of Baker Hughes.
Turn the call back over to Lorenzo.
Thank you Nancy as we enhance our position as a leading energy technology company. We remain encouraged about the continued growth that we see for our organization across our three time horizons.
Nancy Buese: Next, I'd like to update you on our outlook for the two business segments, which is detailed on slide 18. Overall, we remain optimistic on the outlook for both OFC and IET, given strong growth tailwinds across each business, as well as continued operational enhancements to drive backlog execution and margin improvement. For Baker Hughes, we expect fourth quarter revenue to be between $6.7 and $7.1 billion, and EBITDAB between $1.05 and $1.11 billion, and applying an EBITDAB midpoint of $1.08 billion.
There is a growing consensus that the energy transition will likely take longer than many expected.
Our unique portfolio is set to benefit irrespective of how quickly the energy transition develops.
For example, our foster energy transition drives quicker growth across our climate technology solutions business, while a slower energy transition would extend the cycle of our traditional oil and gas businesses.
Nancy Buese: For the full year, we are increasing and narrowing our guidance ranges as we flow through third quarter results and fourth quarter guidance. Accordingly, we now expect 2023 Baker Hughes revenue to be between $25.4 and $25.8 billion, and EBITDAB between $3.7 and $3.8 billion. For IET, we expect fourth quarter results to reflect sequential and year-over-year revenue growth for both gas tech and industrial tech. Therefore, we expect fourth quarter IET revenue between $2.8 and $3.1 billion, and EBITDAB between $430 and $409.
Accordingly, we have set out our strategy to grow irrespective of the pace that the energy transition unfolds.
Considering this balanced portfolio Baker Hughes is becoming less cyclical in nature, and therefore set to experienced solid growth irrespective of the energy transition pace in.
Importantly, we are laying the foundation today for a more durable earnings and free cash flow growth profile, which will enable us in parallel to deliver best in class performance and structurally increasing shareholder returns.
With that I'll turn the call back over to Chase.
Nancy Buese: $30 million. The major factors driving this range will be the pace of backlog conversion and gas tech equipment and the impact of any aeroderivative supply chain tightness and gas tech. Our full year outlook for IET remains constructive for orders, revenue and EBITDA. For orders, we've increased our 2023 expectations from 11.5 to 12.5 billion dollars to a new range of 14 to 14.5 billion dollars. Following through the third quarter upside and fourth quarter guide, we now expect full year IET revenue between $10.05 and $10.35 billion and EBITDA between $1.5 and $1.55 billion.
Thanks, Lorenzo operator, let's open the call for questions.
Ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone.
Telephone again, if you have any questions. Please press star one one.
Okay.
Yeah.
And our first question will come from Arun Jairam.
JP Morgan your line is open.
Yes, good morning team Lorenzo I wanted to start with the E T.
Order outlook and guidance since the beginning of the year Baker has raised.
Nancy Buese: For OFSE, we expect fourth quarter results to reflect the typical year in growth in international revenue and in decline in North America. We therefore expect fourth quarter OFSE revenue between $3.85 and $4.05 billion and EBITDA between $675 and $735 million. After striving this range, include the pacing of some international projects, level of urine product sales, SSPS backlog conversion and the pace of our cost out initiatives. After including the third quarter results in fourth quarter guidance, we now forecast full year OFSE revenue between $15.3 and $15.5 billion and EBITDA between $2.55 and $2.65 billion.
IEP order guidance by more than $3 billion. So I was wondering if you could talk about some of the drivers of the higher.
Inbound this year and just thoughts on 2024.
One of the questions is it are you taking some of the 'twenty 'twenty four orders and accelerate the timing of that into this year.
Yes, definitely you Rune <unk>.
Good to hear from you and I think if you go back to the beginning of the year. We always said that we saw a robust pipeline of opportunities for IEP and as we've gone forward through the year that has continued to get stronger and stronger and more of the pipeline has been converting and so it's given us the opportunity.
Nancy Buese: We will provide detailed 2024 guidance alongside our fourth quarter results in January. Looking out to next year, we remain optimistic for continued growth across both OFSE and IET, as well as further operational enhancements to drive increasing margins and returns. We also remain focused on navigating arrow derivative supply chain challenges and broader macroeconomic and geopolitical uncertainty as we head into 2024. More broadly, our transformation journey continues and we're pleased with the progress we're making in identifying areas to drive efficiencies, structurally removing costs and modernizing how the business operates.
To be able to take up our guidance on the <unk> orders and as you said correctly now it stands at a range of 14 billion to $14 five and it really plays out and free areas. As you look at the activity level. The fast is LNG, you've seen that LNG continues to be robust and.
Theres been a number of projects that have moved forward as you saw this quarter with the uptake of the venture Global agreement also with the AD Nat gas and the <unk> facility. So continuing to see good uptake on the LNG side, and we booked $4.
Nancy Buese: We are continuing to see the cost out performance come through our operating results and we see further opportunities to enhance our operating performance through continued business transformation efforts. In summary, we remain relentlessly focused on achieving the target suite set for 20% EBITDA margins in OFSE in 2025 and IET in 2026 and we remain committed to delivering our ROIC targets at 15% for OFSE and 20% for IET. Importantly, we are continuing to take actions today to help us achieve and exceed these targets. Overall, we remain excited about the future of Baker Hughes.
$8 billion of LNG equipment orders and we still expect more in the fourth quarter and very pleased to see also the uptake in the electrification and the electric motor being used from a brush division as well. So one is LNG. The second we continued to see strength in the onshore.
Sure offshore production and Thats trending better than expected and we also expect to see a good fourth quarter with the larger F. BSO orders and that continuing to be a case with the offshore activity and the last area of new energy.
Lorenzo Simonelli: I'll turn the call back over to Lorenzo. Thank you Nancy.
Had a forecast that the started the year to be at $400 million, we've taken it up to 6% to 700 and you can see that by the end of the third quarter. We're already at 540, we still expect to see orders coming through in the fourth quarter. So feel good about that 6% to 700 million and still remain very confident on the.
Lorenzo Simonelli: As we enhance our position as a leading energy technology company, we remain encouraged about the continued growth that we see for our organization across our free time horizons. While there is a growing consensus that the energy transition will likely take longer than many expected, our unique portfolio is set to benefit irrespective of how quickly the energy transition develops. For example, a faster energy transition drives quicker growth across our climate technology solutions business. While a slower energy transition would extend the cycle of our traditional oil and gas business, on the basis.
Lorenzo Simonelli: Accordingly, we have set out a strategy to grow irrespective of the pace that the energy transition unfolds. Considering this balance portfolio, Baker Hughes is becoming less cyclical in nature and therefore set to experience solid growth irrespective of the energy transition pace.
<unk> ended the decade being at the 6% to 7 billion. So good overall strength in those three areas from an <unk> perspective and.
Because we look out to 2024, we continue to see a pipeline of good project opportunities and.
We will obviously be able to update you further in January but.
And the free cases.
Continued strength in a number of opportunities.
Great.
A follow up.
Lorenzo to slide six you can give us a fulsome update on LNG, but I was wondering if you could talk a little bit about.
Lorenzo Simonelli: Importantly, we are laying the foundation today for a more durable earnings and free cash flow growth profile, which will enable us in parallel to deliver besting class performance and structurally increasing shareholder returns.
The pipeline of opportunities that you see over the next 12 months to 18 months.
Brownfield versus Greenfield.
U S Gulf coast versus international in a modular versus stick build what are you seeing in terms of the emerging pipeline for Baker.
Chase Mulvehill: With that, I'll turn the call back over to Chase. Thanks, Lorenzo.
Unknown Executive: Operator, let's open the call for questions. Ladies and gentlemen, if you do have a question at this time, please press star 11 on your capstone telephone. Again, if you have any questions, please press star 11.
Yes, it's definitely all of the above.
As you think about <unk>.
LNG and you think about also the role that natural gas is going to play as a transition and destination fuel.
We see that we need an installed capacity of LNG by 2000 and fatty of 800 Mg EPA, we've mentioned that before and as you look at 'twenty three we've had a good.
Arun Jayaram: And our first question will come from Arun Jayaram of Daisy Morgan, your line of question. Yeah, good morning, team. Lorenzo, I wanted to start with the IET order outlook in guidance. In a sense, the beginning of the year, you know, Baker has raised its IET order guidance by more than $3 billion. So, I was wondering if you could talk about some of the drivers of the higher inbound this year and just thought some 2024, because one of the questions is, are you taking some of the 24 orders and accelerate the timing of that into this year?
Set of <unk>, There's 53 MTA that's happened over Friday, we've obviously booked.
ATM Tpa, because we do get some orders prior to projects going to RFID, but we see that continuing as we go into 2024 and also feel good about 65% <unk> in 'twenty four and continuing in 'twenty five 'twenty six at what we stated previously the rate of fatty.
<unk> and I think.
When you look at both Greenfield International North America Brownfield, we're seeing activity across the board I think obviously the U S has a unique opportunity where the natural gas reserves that it has and also the associated gas and a number of projects.
Arun Jayaram: Yeah, definitely, Arun. And good to hear from you. And I think if you go back to the beginning of the year, we always said that we saw a robust pipeline of opportunities for IET. And as we've gone forward through the year, that has continued to get stronger and stronger. And more of the pipeline has been converting. And so it's given us the opportunity really to be able to take up our guidance on the IET orders.
Both Greenfield and brownfield Cheniere venture global have made comments about their activity you know that there is some projects in Mexico.
Yes.
New projects that again.
Looking towards <unk>, such as to Lauren So U S continuing to be strong, but then also internationally you see Qatar you also see.
Arun Jayaram: And as you said, directly, you know, now it stands at a range of 14 billion to 14.5. And it really plays out in free areas as you look at the activity level. The first is LNG. You've seen that LNG continues to be robust. And there's been a number of projects that have moved forward. As you saw, this quarter with the uptake of the venture global agreement, also with the ad not gas and the Rua facility.
Again, Canada, you see the AD Nox of the World and I think you are starting to emerge with Africa as well so.
We remain very positive and I think at the end of the day, it's all towards that 800, MTA that we need to have by 20 <unk> to make sure that we meet the energy demands of the world.
Great. Thanks Laurence.
Arun Jayaram: So continuing to see good uptake on the LNG side. And, you know, we've booked 4.8 billion dollars of LNG equipment orders. And we still expect more in the fourth quarter. And very pleased to see also the uptake in the electrification and the electric motor being used from our brush division as well. So one is LNG. The second, you know, we continue to see strength in the onshore offshore production. And that's trending better than expected.
Thanks.
Operator.
Justin.
Next question please.
Arun Jayaram: And we also expect to see a good fourth quarter with the larger FPSO orders. And that continuing to be a case with the offshore activity. And the last area in energy, you know, we had a forecast that the started the year to be at 400 million. We've taken it up to 6 to 700. And you can see that by the end of the third quarter, we're already at 540. We still expect to see orders coming through in the fourth quarter.
Operator can we go to.
The next question please.
Arun Jayaram: So feel good about that 6 to 700 million and still remain very confident on the end of the decade being at the 6 to 7 billion. So good overall strength in those free areas from an IET perspective. And look, as we look out to 2024, we continue to see a pipeline of good project opportunities. And we'll obviously be able to update you further in January. But in the free cases, there's continued strength and a number of opportunities.
Yeah.
Arun Jayaram: Great. Just to follow up, you know, Lorenzo in the slide six, you give us a full some update on LNG, but I was wondering if you could talk a little bit about the pipeline of opportunities that you see over the next 12 to 18 months, you know, Brownfield versus Greenfield, you know, U.S. Gulf Coast versus International, in a modular versus thick build. What are you seeing in terms of the emerging pipeline for Baker?
Yeah.
Operator.
Okay.
Arun Jayaram: Yeah, it's definitely all of the above. And as you think about LNG and you think about also the role that natural gas is going to play as a transition and destination fuel, we see that we need an installed capacity of LNG by 2030 of 800 MTPA. We've mentioned that before. And as you look at 23, we've had a good set of FIDs, there's 53 MTPA that's happened of FID. We've obviously booked ATM TPA because we do get some orders prior to projects going to FID, but we see that continuing as we go into 2024, and also feel good about 65 MTPA of FIDs in 24, and continuing in 25 and 26 at what we stated previously, the rate of 30 to 60 MTPA.
Okay.
Okay.
Good morning.
Okay.
No.
Our next question comes from Glenn <unk> with Piper Sandler Luc Your line is open.
Hey, good morning.
All right.
Hi, all.
Technically.
Arun Jayaram: And I think when you look at both Greenfield International North America, Brownfield, we're seeing activity across the board. I think obviously the U.S, has a unique opportunity with the natural gas reserves that it has and also the associated gas and a number of projects. Both Greenfield and Brownfield, Shaneer, venture global have made comments about their activity. You know that there's some projects in Mexico. There's other new projects that, again, are working towards FID, such as Tolerian.
Oh good.
Your <unk> results came in at the top end, Turkey Guide.
Even with some of the concerns out there about your derivative tightness that can impact I E T.
So you've already incorporate this in your guidance as I mentioned the process pretty well.
Could you help us understand refreshes on what's going on with the Earth route of supply chain and how you see this unfolding over the next 12 months and maybe what the upside could be after disapproves.
Yellow Cal kickoff here and then I'll also let Nancy chime in and I think we've mentioned at the start that we continue to navigate.
A challenging aerospace supply chain and you all have had from others that also our reported results the dishes across the aerospace industry and we factored this in at the beginning of the year and we're continuing to monitor it and work closely with our supply chain and make sure that we.
Arun Jayaram: So U.S, continuing to be strong, but then also internationally, you see Qatar. You also see, again, Canada, you see the ad nox of the world, and I think you're starting to emerge with Africa as well. So, you know, we remain very positive, and I think at the end of the day, it's all towards that 800 MTPA that we need to have by 2030 to make sure that we meet the energy demands of the world. Great. Thanks, Lorenzo. Thanks. Operator? Justin, next question, please. Operator, can we go to the next question, please?
We mitigate as much as possible any consequences and we feel good about being able to do that as we go forward I think it is important to note.
When you think about our rotating equipment about <unk>.
One fact of the LNG is aero derivative, but the other is heavy duty gas turbines and then also electric motors and we continued to see robust supply chain availability. There. So we're working through it and continuing to keep an eye on it.
Yes.
<unk> bye.
Hi chain challenges are certainly contemplated within our 2023 guidance and will also be considered in 2024, we're still working very carefully with the vendor in terms of timing to improve and as we start to have a line of sight towards when we'll see those improvements will bake that in but it is certainly considered in the guidance that we provided.
Okay.
Thank you Bob.
One moment for our next question.
Okay.
Our next question comes from James West with Evercore ISI James Your line is open.
Thanks, Good morning, Lorenzo and Nancy.
Hi, James.
So.
Alonso.
I wanted to.
Touch on the the horizons.
The strategy is something that I know, we talked about in September.
But you've now laid out kind of a much more detailed view of the three different horizons that youre thinking about alto and I was curious how you are.
How this informs the overall strategy.
James West: Operator[inaudible] Our next question comes from James West with Everkora ISI. James, your line is open. Thanks. Good morning, Lorenzo and Nancy. Hi, James. So, I Lorenzo and Nancy, I wanted to touch on the horizons strategy. It's something that I know we talked about in September, but you've now laid out kind of a much more detailed kind of view of, you know, the three different horizons that you're thinking about. I was curious how you're how this informs the overall strategy for Baker, how it has informed and how it is informing strategy going forward and how you're thinking about it.
For Baker, how it hasnt form and how it is informing the strategy.
Going forward and how youre thinking about it.
Definitely and you know.
We've been now working on our strategy and also been monitoring how the energy markets have evolved in.
That really has given rise to the free time horizons and I want to be clear that we've been thinking through this for some time and now we're starting to really reveal it more and detail it externally and so as you look at the fast time horizon, which goes through 2025. This is really focused on.
Making sure that we enhance the margins accretion through simplification and efficiencies operational discipline and optimization of our assets that people productivity all of the things that are in our control as we create really an energy technology company and benefiting from the macro tailwind that we see across our <unk>.
Business segments that we've mentioned before relative to the LNG growth cycle as well as our multi year upswing in upstream spending so.
That's going to be the key focus during the first horizon and it will underpin our goal is to get to 20% EBITDA margins in our FSC by 'twenty five and also why I E. T by 26, and we'll manage accordingly for that the second horizon goes out to 'twenty seven and this is really shifting our focus.
Because to the next phase of growth and new energy and the industrial sectors will have the benefit of the gas tax services growth.
It will be coming to fruition through the expanded installed base that we have and the opportunity to provide efficiency through our digital applications.
And also the Lucifer according to our customers, so driving fiverr margin expansion across the.
The whole company and above our stated 20% EBITDA margin targets for the two segments and also exceed our ROIC targets beyond the 15, and 20% and our FSC niet, respectively, and then as you get to 'twenty fatty youre starting to see the initial signs of this is really the new energy.
And we mentioned the orders.
<unk> year to date at 540, but by the time, we get to 'twenty fatty fixed to $7 billion in orders and really the new energy frontiers of CCU S hydrogen clean power geothermal and the opportunity for really helping with decarbonization solutions, which have become a critical component to.
What we think is the energy transition as we go through that and so emissions management will be a key factor and this really lays out the way in which we're executing towards the free horizons and really focused on that operational discipline associated with it.
Okay right. Thanks.
And then maybe just a quick follow up Lorenzo on the new energies side.
Obviously orders this year have been much stronger than last year you're already.
Likelihood of bullets or your target here. So this year the <unk> recently.
Els.
The hydrogen hubs program or announce the awards the 100 hubs and I'm curious kind of what Youre seeing new energy broadly.
We're focused on hydrogen.
In particular, just given that there's a lot of a lot of activity in hydrogen today.
Definitely James and look we're very pleased with the way in which the new energy orders are coming in and as you've said, we've taken up our target for 2023, and we expect to be between $6 million to $700 million and.
One important aspect is that this is equipment that we're producing today and it comes from the existing Baker Hughes technology stack and so we're continuing to also invest in new areas of the energy transition and when you look at the policies that are coming on stream you look at era, you look at tops in the United States.
You look at what our Europe is done and as you mentioned most recently the Doa awarded $7 billion of grants to seven hydrogen hubs in the United States that opportunity is actually coming faster than we anticipated and is growing and we feel good about being able to differentiate ourselves and in hydrogen and.
James West: Definitely, and you know, we've been working on our strategy and also been monitoring how the energy markets have evolved and that really has given rise to the free time horizons. And I want to be clear that we've been thinking through this for some time, and now we're starting to really reveal it more and detail it externally. And so as you look at the first time horizon, which goes through 2025, this is really focused on, you know, making sure that we enhance the margins, accretion through simplification, efficiencies, operational discipline, optimization of our assets, the people productivity.
We've got a long history and hydrogen you've seen the successes that we've had with our products and being able to provide them.
Technology associated with the hydrogen facilities and we expect that to continue and with these new hydrogen hubs, we've got the opportunity to again extend our opportunity with the equipment that we can provide them so feeling good debt.
James West: All of the things that are in our control as we create, you know, really an energy technology company and benefiting from the macro tailwinds that we see across our two business segments that we've mentioned before relative to the LNG growth cycle as well as a multi year upswing in upstream spending. So, you know, that's going to be the key focus during the first horizon and it will underpin our goals to get to 20% EBITDA margins in OFC by 25 and also IT by 26 and will manage accordingly through that.
Hydrogen is going to be a area of focus for Baker Hughes as we continue going forward.
Got it thanks a lot.
Thanks James.
Thank you we apologize for the technical difficulties as a reminder to ask a question you will need to press star one one on your telephone.
One moment our next question.
Yes.
James West: The second horizon goes out to 27 and this is really shifting a focus to the next phase of growth in new energy and the industrial sectors. We'll have the benefit of the gas tech services growth that will be coming to fruition through the expanded installed base that we have and the opportunity to provide efficiencies through our digital applications. And also the Lucifer cordon to our customers so driving further margin expansion across the whole company and above our stated 20% EBITDA margin targets for the two segments and also exceed our ROIC targets beyond the 15 and 20% in OFC and IIT respectively.
Our next question comes from Neil Mehta with Goldman Sachs. Your line is open.
Neil Your line is open please ensure you're not muted.
One moment for our next question.
James West: And then as you get to 20, 30, you know, you're starting to see the initial signs of this is really the new energy and we mentioned the orders. Three few years to date at 540, but by the time we get to 20, 30, 6 to $7 billion in orders and really the new energy frontiers of CC us hydrogen, clean power, geothermal and the opportunity for really helping with decarbonization solutions, which become a critical component to what we think is the energy transition as we go through that.
Yeah.
Our next question comes from Scott Gruber with Citigroup. Your line is open.
This morning.
Can I ask about the 20% EBITDA margin target for our I T.
Consensus currently stands at about 16 quite 2% for next year and I realize you restructure the business.
Looking at going from 16%.
In 'twenty, Florida to 20% in two years or so the big job. So can you just provide some more color on the drivers of margin expansion in this segment in your overall confidence level.
James West: And so emissions management will be a key factor and this really lays out the way in which we're executing towards the free horizons and really focused on that operational discipline associated with it. Okay, right, makes a complete sense. And then maybe just a quick follow-up Lorenzo on the new energy side. Obviously, orders this year have been much stronger than last year. You're already likely to pull it through your target here. For this year, the DOE recently, you announced the Hydrogen Hubs program or announced the awards, the hydrogen hubs.
Achieving the 20% by a 26.
Yeah sure. It's a great question, given how strong the pipeline is and in order since we really published our margin targets last September I would say the biggest driver is the mix of.
The mix and that's really the headwind and that's sort of the variable to our EBITDA target. So while we continue to expand the installed base, that's sort of pushing the services revenue as a percentage of the margin targets and we've said publicly that services at a much higher margin than the equipment. So when you think about the things we're doing to drive to that 20%.
Margin, it's really a continued progress on our cost out and transformation process at the segment level thinking how we can be leaner. How we can operate more efficiently. You'll also see improvement in the industrial tech margins and the supply chain and chip shortages really continuing to normalize in that space and then certainly gas Tech services is.
James West: And I'm curious kind of what you're seeing in new energy broadly, but maybe we're focused on hydrogen in particular, just given that there's a lot of activity in hydrogen today. Definitely, James. And look, we're very pleased with the way in which the new energy orders are coming in. And as you said, we've taken our part target for 2023 and we expect to be between six to seven hundred million dollars. And one important aspect is this is equipment that we're producing today.
Slower to ramp and the impact this year of that continued aviation supply chain issues, which we believe will start to abate in 2024, and then the other piece to remember is that we have been absorbing additional R&D costs as we.
James West: And it comes from the existing Baker Hughes technology stack. And so we're continuing to also invest in new areas of the energy transition. And when you look at the policies that are coming on stream, you look at era, you look at in the United States, you look at what Europe has done. And as you mentioned, most recently, the DOE awarded seven billion dollars of grants to seven hydrogen hubs in the United States.
Think about the investments, we're making into climate Tac for the back half of the decade. So all of those things together with a very strong topline growth allow us the past and to see the transparency around how we get to the 20% margin, but we are confident in our ability to sustain those margins and we will.
You need to work for more but we definitely see line of sight towards the 20%.
No I appreciate that and just as we think about going from 24 to 25. The choices. We've made a linear expansion nancy or because of the mix headwinds with all the equipment grows and as the margin expansion a bit more back weighted with more expansion go through 'twenty five 'twenty six and what we'll see from 24 to 20 songs.
James West: That opportunity is actually coming faster than we anticipated and is growing. And we feel good about being able to differentiate ourselves. And in hydrogen in particular, we've got a long history in hydrogen. You've seen the successes that we've had with air products in being able to provide them technology associated with the hydrogen facilities. And we expect that to continue. And with these new hydrogen hubs, we've got the opportunity to again extend our opportunity with the equipment that we can provide them.
Yeah, I think you'll see a gradual ramp up but it will be a little bit lumpy in the part we can't necessarily predict is the pace of the equipment orders and where the services revenue will will pop in so I would say youll continue to see a trajectory up into the right. It's hard to say exactly where those those bigger Haynes will occur, but we will continue to provide line.
James West: So feeling good that hydrogen is going to be an area of focus for Baker Hughes as we continue going forward. Thanks for the thanks James. Thank you. We apologize for the technical difficulties. As a reminder to ask a question, you will need to press star 11 on your telephone one moment for our next question.
The size of that with our guidance.
I appreciate the color. Thank you.
Thank you one moment for our next question.
Our next question comes from Dave Anderson with Barclays. Your line is open great.
Great. Thanks, Hey, anthems can stick with you.
We could please ask what the backlog conversion on the gas tech equipment side last quarter.
There was a little bit slower seems like Reits this quarter if.
If I look kind of overall compared to last year looks like conversion will be something like 45% compared to 2022 year end backlogs just wondering how we should think about this trending over the next year or two are you doing things internally.
Unknown Executive: Our next question comes from Neil Metta with Goldman Sachs. Your line is open. Neil, your line is open. Please ensure you're not muted. One moment for our next question.
Should speed up backlog conversion, but the other hand I also think that there's a mix of orders and how that includes conversion rate might kind of changed a little bit can you talk about how you see that progressing.
Dave I'll I'll take this one and look as you can imagine with the intake of orders that we've had we've been working on making sure that we've got lean processes and <unk> the different manufacturing shops that we have and we feel very good about the ability to take on the.
Scott Gruber: Our next question comes from Scott Grover with City Group. Your line is open. Good morning. I want to ask about the 20% EBITDA margin target for IET. Consensus currently stands at about 16.2% for next year. I realize you restructure the business, but just looking at going from 16% in 24% to 20% in two years or so. It's a big jump. So keep providing more color on the drivers of margin expansion in the segment in your overall confidence level and achieving the 20% by 26%.
Additional orders and also a ton of around from a cycle time perspective, and also from a conversion you won't see that dramatic a change again, if you look at the.
The large LNG projects. They normally take between 18 to 24 months from the intake out to the actual.
Installation and so that will remain the case, but definitely we're focused on making sure that we're meeting the customer commitments.
Great. Thank you.
And Lorenzo.
Made a statement earlier that you said that there's a growing consensus that energy transition taking longer is more complex than many expected.
Scott Gruber: Yeah, sure. It's a great question giving how strong the pipeline is and in order since we really published our margin targets last September. I would say the biggest driver is the mix of the mix and that's really the headwind and that's sort of the variable to our EBITDA target. So while we continue to expand the installed base. That's sort of pushing the services revenue as a percentage of the margin targets and we've said publicly that services in a much higher margin than the equipment.
We saw shall just announced yesterday that they're pulling back from some of the Ccs side of BP is kind of pivoting away as well you as you highlighted youre in a way to benefit either way, but I'm. Just wondering if you have any kind of change in kind of longer term view do you think that LNG and upstream business now has a longer runway than you initially thought.
Also if you can kind of unpack some of those complexities that you talked about the technology.
Scott Gruber: So when you think about the things we're doing to drive to that 20% margin, it's really continued progress on our cost out and transformation process at the segment level thinking how we can be leaner, how we can operate more efficiently. You'll also see improvement in the industrial tech margins and the supply chain and chip shortages really continue to normalize in that space. And then certainly gas tech services is slower to ramp in the impact this year of the continued aviation supply chains issues which we believe will start to abate in 2024.
Kind of what what's driving that there are some interesting statement and you wrote in the release as well.
Yeah, Dave that look we definitely see that the transition is complicated we've always said that and I think there was an agonist that it should happen overnight.
There is an energy supply that needs to be given to the growing population and also the developing world that needs to be there and we're going to see in parallel the continuation of the use of oil and gas and we're going to see it.
Scott Gruber: And then the other piece to remember is that we have been absorbing additional R&D costs as we think about the investments we're making in the climate tech for the back half of the decade. So all of those things together with the very strong toppling growth allow us to pass and to see the transparency around how we get to the 20% margin, but we are confident in our ability to attain those margins and we will continue to work for more, but we definitely see line the site towards the 20% appreciate that and just as we think about going from 24 to 25 to 26, is it a linear extension or because of the mix headwind with all the equipment grows, there's the margin expansion a bit more back weighted with more expansion going from 25 to 26 and we'll see from 24 to 25.
<unk> to be cleaner as well with the adoption of CCU Asti adoption of emissions management.
And what were mentioning here is that the reality is I think.
Becoming known that it's going to take some time and it's going to be more gradual but it doesn't change the destination.
And I think ultimately we're going towards a low carbon economy, and everybody's focused on that and we're going to see growing activity across both of our business segments associated with that so again, we're in a I think unique position where irrespective of the speed of the transition.
We have the opportunity to benefit.
Understood. Thank you.
Scott Gruber: Yeah, I think you'll see a gradual ramp up, but it will be a little bit lumpy in the part we can't necessarily predict is the pace of the equipment orders and where the services revenue will will pop in. So I would say you'll continue to see a trajectory up and to the right. It's hard to say exactly where those those bigger gains will occur, but we will continue to provide line a side of that with our guidance. Okay, appreciate the comment. Thank you.
Thank you as a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
One moment for our next question.
Our next question comes from Kurt <unk> with benchmark your line is open.
Hey, good morning.
Dave Anderson: Thank you one moment for our next question. Our next question comes from Dave Anderson with Barclays. Your line is open. Great. Thanks. And I was going to stick with you if we could please ask about the backlog conversion, the gas tech equipment side last quarter. There was a little bit slower seems like you write it at this quarter. If I look kind of overall compared to last year, it's like conversion will be something like 45% compared to 2022 year and backlog.
Hi, Kurt.
Hey.
So I just wanted to maybe follow on to some.
Some of the early questions around the new energy business.
Got it.
And the growth opportunities on a number of different occasions.
And you made a reference a little bit earlier too.
The fact that you have.
Existing technologies that are going to be used to kind of tap into into that market. So you've got a 10 of 10 X kind of growth profile in order intake over the course of the next.
Seven years or so.
Do you are you confident and comfortable in what you can deliver internally do you have to invest a substantial amount to maybe execute on that $6 billion to $7 billion just wanted to get a sense from you as to.
Dave Anderson: Just wondering how we should think about the trending of the next year or two. Are you doing things internally that should speed up backlog conversion, but the other thing I also think that there's a mix of orders and how that includes conversion rate might kind of change a little bit. Can you talk about how you see that progressing. Dave, I'll take this one and look as you can imagine with the intake of orders that we've had.
To get to how you think about that.
Dave Anderson: We've been working on making sure that we've got lean processes and chisens in the different manufacturing shops that we have and we feel very good about the ability to take on the additional orders and also turn it around from a cycle time perspective and also from a conversion. You won't see that dramatic a change again. If you look at the large LNG projects, they normally take between 18 to 24 months from the intake out to the actual installation.
Yeah, and actually we have been investing and I think as you've seen DSO say, a Ted R&D expenditures increased this year and you know.
We are preparing for that six to 7 billion and feel very comfortable and it's not just within the compression space. It's also within the tableau expand the base and you look at net power for example, and we're obviously linked closely with them and we see that as a big growth opportunity.
In the future with regards to clean power generation.
Hydrogen and again application of our compression you look at our gas turbines that we already have that can be that our hydrogen ready. So actually think we've got a large complement of the equipment.
Dave Anderson: And so that will remain the case, but definitely we're focused on making sure that we're meeting the customer commitment. Thank you. And Lorenzo, you made a statement earlier that you said that there's a growing consensus, the energy transition, taking longer is more complex than we expected. You know, we shall just announce yesterday that the point back from some of the CCS side of BP is kind of pivoting away as well. You as you highlighted during a way to benefit either way, EIT, but I'm just wondering if you've any kind of change, you kind of longer term views, do you think that LNG and upstream business now has longer runway than you initially thought.
Dave Anderson: And it's also if you could kind of unpack some of those complexities that you've talked about the technology of kind of what's driving that this is interesting statement in your role in the release as well. Yeah, they look, we definitely see that the transition is complicated. We've always said that and I think there was an eagerness that it should happen overnight. There's an energy supply that needs to be given to the growing population and also the developing world that needs to be there.
We're already ready to go or already in research and development with the aspect of the associated engineering, that's taking place and we're seeing the flow of orders and also pipeline opportunities come about and that's just further reinforce with ore its February enforced with somebody.
European policies and also what Youre seeing in the middle East So.
Many many opportunities as we go forward and feel comfortable with that $6 billion to $7 billion and also our opportunity to convert on it.
Okay I appreciate that color and then maybe a follow up for Nancy on capital allocation.
How do you how do you gauge that.
The preference between dividend and share repurchase.
Yes. So at this point, how I would think about it is we've committed to the $60 to 80% of returns back to shareholders. The dividend will structurally go as the business goes and we will work to increase the dividend over time, how I would think about the share buyback is it'll be opportunistic to get somewhere in that 60% to 80% range.
Dave Anderson: And we're going to see in parallel the continuation of the use of oil and gas. And we're going to see it continuing to be cleaner as well with the adoption of CCUS, the adoption of emissions management. And what we're mentioning here is that the reality is I think becoming known that it's going to take some time and it's going to be more gradual, but it doesn't change the destination. And I think ultimately we're going towards a low carbon economy and everybody's focused on that.
So that will be the opportunistic add onto the dividend. Our sincere goal is as we get more structure stability linearity in the business will be able to grow that dividend over time, and especially as we pivot away from the cyclical nature of certain parts of the business and mortgage sexual secular growth. So that's the goal, but we still remain very committed to the 60 to 80.
<unk> turned to holders.
Dave Anderson: And we're going to see growing activity across both of our business segments associated with that. So again, we're in a, I think unique position where irrespective of the speed of the transition, we have the opportunity to benefit. Understood. Thank you. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
One moment for our next question.
Our next question comes from Marc Bianchi with Cowen Your line is open.
Hi, Thank you.
I think you had mentioned an expectation for solid upstream spending growth next year.
There's some investor concern that maybe mid teens or even double digits might be a stretch.
For international spending could you just comment on how you're seeing the outlook. If you think that that.
Kurt Hallead: One moment for our next question. Our next question comes from Kurt Halleed with benchmark. Your line is open. Hey, good morning. Hi, Kurt. Hey, so I just wanted to maybe follow on to some of the early questions around the new energy business and maybe kind of outline the growth opportunities on a number of different occasions. And you made a reference a little bit earlier to, you know, the fact that you have existing technologies that are going to be used to kind of tap into that market.
Mid teens is achievable or any other puts and takes to be thinking about.
Kurt Hallead: So you got a 10, a 10X kind of growth profile and ordering take over the course of the next, you know, seven years or so. You know, do you, are you confident and comfortable in what you can deliver internally? Do you have to invest a substantial amount to maybe execute on that 67 billion? Just want to get a sense from you is to, to get on how you think about that. Yeah, Kurt, and actually we have been investing and I think as you've seen the associated R&D expenditures increase this year and, you know, we are preparing for that 67 billion and feel very comfortable and it's not just within the compression space.
Yes, again, if you look at this.
This year, we've said that international spending at a mid teens.
And as we look into next year, it's going to be.
Kurt Hallead: It's also within the turbo expanded base and you look at net power, for example, and we're obviously linked closely with them and we see that as a big growth opportunity in the future with regards to clean power generation. Hydrogen and again application of our compression, you look at our gas turbines that we already have that can be that are hydrogen ready. So actually think we've got a large complement of the equipment, either already ready to go or already in research and development with the aspect of the associated engineering that's taking place and we're seeing the flow of orders and also pipeline opportunities come about.
Double digit and as you look at offshore activity continues to be robust and if you think of Latin America with Brazil Guiana, continuing to see the uptake also West Africa, and if you look at the Middle East and the spending that's anticipated on the D&C side again.
Kurt Hallead: And that's just further reinforced with era, it's further reinforced with some of the European policies and also what you're seeing in the Middle East, so many, many opportunities as we go forward and feel comfortable with that 67 billion and also our opportunity to convert on it. Okay. Appreciate that color.
With the.
The plans that have been announced by the various national oil companies, we still feel good about the double digit in next year activity.
Okay. That's great. Thanks Lorenzo the other question I had was on LNG service. So you laid out the the growing installed base and what that could mean for the service opportunity can you talk about how much of gas Tech services today.
Comes from LNG service. So we could just get a sense of what that growth could mean for the business.
Yeah as you look at our services business and.
Again LNG accounts for about 45% of also the service we have services transactional on all of our onshore offshore applications as well as our installed equipment and in the other areas of our downstream pipeline et cetera, but on the LNG, specifically about a 75%.
Okay, great. Thank you very much I'll turn it back.
Thank you that concludes the question and answer session again, Lisa daily apologize for the technical difficulties experienced on today's call.
For your participation in today's conference. This does conclude the program you may now disconnect.
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Nancy Buese: And then maybe follow up for Nancy on capital allocation. You know, how do you, how do you, you know, gauge, you know, the preference between dividend and, and share repurchase? Yeah, so at this point, how I would think about it is we've committed to the 60 to 80% of returns back to shareholders, the dividend will structurally go as the business goes. And we'll work to increase the dividend over time. How I would think about the share buyback is it'll be opportunistic to get somewhere in that 60 to 80% range.
Yes.
Mhm.
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Nancy Buese: So that will be the opportunistic add on to the dividend. Our sincere goal is as we get more structure stability linearity in the business, we'll be able to grow that dividend over time, especially as we pivot away from the cyclical nature of certain parts of the business and more to sexual secular growth. So that that's the goal, but we still remain very committed to the 60 to 80% return to holders.
Yeah.
Okay.
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Okay.
Marc Bianchi: One moment for our next question. Our next question comes from Mark Bianchi with Edie Cohen. Your line is open. Hi, thank you. I think you had mentioned an expectation for solid upstream spending growth next year. There's some investor concern that maybe mid teens or even double digits might be a stretch for international spending. Could you just comment on how you're seeing the outlook if you think that that mid teens is achievable or any other puts and takes to be thinking about?
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Okay.
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Marc Bianchi: Yeah, again, if you look at this year, we've said international spending at mid teens and as we look into next year, it's going to be double digit. And as you look at offshore activity continues to be robust. And if you think of Latin America with Brazil, Guiana continuing to see the uptick also West Africa. And if you look at the Middle East and the spending that's anticipated on the DNC side again with the plans that have been announced by the various national companies, we still feel good about the double digit in next year activity.
Yes.
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Okay.
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Marc Bianchi: Okay, that's great. Thanks, Lorenzo. The other question I had was on LNG service. So you laid out the growing install base and what that could mean for the service opportunity. Can you talk about how much of gas tech services today comes from LNG service so we could just get a sense of what that growth could mean for the business? Yeah, as you look at our services business and again, LNG accounts for about 35% of also the service, we have services transaction on all of our onshore offshore applications, as well as installed equipment in the other areas of downstream pipeline, etc. But on the LNG specifically about 35%. Okay, great. Thank you very much. I'll turn it back. Thank you.
Okay.
Yes.
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Yes.
Unknown Executive: That concludes the question and answer session. Again, we sincerely apologize for the technical difficulties experienced on today's call. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Jack John Anderson, James West, Arun Jayaram, Nancy Buese, John Anderson, Lorenzo Simonelli, John Anderson, Lorenzo Simonelli, John Anderson, Lorenzo Simonelli,[inaudible] Lorenzo, Lorenzo, Lorenzo, Lorenzo Lorenzo, Lorenzo, Lorenzo, Lorenzo, Lorenzo Lorenzo, Lorenzo, Lorenzo[inaudible][inaudible] . . [inaudible] . . [inaudible] I'm not sure. I'm not sure. I'm not
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