Operator:

Thank you everyone for standing by. Welcome to the SLB Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to James R. McDonald, Senior President of Investor Relations and Industry Affairs. Please go ahead.

Olivier Le Peuch:

Thank you, James. Ladies and gentlemen, thank you for joining us on the call. This was a very strong second quarter for SLB, showcasing our ability to harness the ongoing growth cycle while driving efficiencies throughout our business. During today's call, I will cover three topics. First, I will review our second quarter results. Then I will describe the dynamics of the cycle and how we are positioning our business for further growth and margin expansion. Finally, I will share our updated outlook for the full year and discuss our ongoing commitment to returns to shareholders. Stephane will then provide additional details on our financial results, and we will open the line for your questions. Let's begin. I'm very pleased with our strong second quarter performance. Sequentially, revenue increased 5%. Adjusted EBITDA grew 11%. Adjusted EBITDA margin expanded 142 basis points, and we generated $776 million of free cash flow. These results were driven by continued growth momentum in international markets, with more than half of our international geo units posting the highest revenue quarter of the cycle. Overall, international revenue grew 6% sequentially, led by the Middle East and Asia, which continued to set new records with two-thirds, 8 out of 12, of the year units in the area posting record high quarterly revenue. This was fueled by capacity expansion projects, new gas developments and production and recovery investments across the region. Additionally, the ongoing strength of the offshore markets supported further growth in Europe and Africa as well as Latin America. This was particularly pronounced in deepwater basins, including Brazil, West Africa and Norway, where we continued to benefit from strong backlog conversion in OneSubsea. We also benefited from new project on land, notably in Argentina and North Africa. Meanwhile, in North America, revenue increased 3% sequentially. This was led by the Gulf of Mexico, where we saw increased running and higher digital revenue from sales of exploration data licenses. However, this sequential growth was partially offset by lower drilling in U.S. land as the market continues to be constrained by weaker gas prices, capital discipline and ongoing market consolidation. Next, let me describe how this growth played out across the divisions. In our core divisions, we continue to harness this cycle, with revenue growing 4% sequentially and pretax segment operating margins expanding by 120 basis points. Growth was led by our Production Systems and Reservoir Performance divisions, which visibly expanded margins due to the favorable conversion of backlog as well as many business line operating and record activity levels. Demand for our services and equipment is being further reinforced by the combination of long-cycle development activity and the acceleration of production recovery investments, particularly in the Middle East and Asia and Latin America. Well construction also grew sequentially, supported by offshore developments, although this was partially offset by weaker land activity in North America. Overall, the core divisions continue to deliver margin expansion, combining to post their 14th consecutive quarter of year-on-year pretax segment operating margin expansion. Meanwhile, in Digital & Integration, I was very pleased to see highly accretive sequential growth, highlighted by our digital business, reaching a new quarterly high and supporting visible sequential margin expansion. This puts us on track to achieve our full year ambition of digital revenue growth in the high-teens. We have opportunities to build on this momentum as customers are increasingly choosing to partner with SLB to modernize their digital infrastructure, as you have seen in a number of announcements included in today's release. At the end of the second quarter, we had 6,900 users on the Delfi platform, an increase of 28% year-on-year. Additionally, the number of connected assets increased by 57%, and trailing 12-months compute hours increased by 43%. Combined with our first quarter results, SLB first half adjusted EBITDA grew in mid-teens compared to the same period last year, in line with our full year ambition. Moving forward, we will remain focused on driving quality revenue growth and leveraging operational efficiency to grow EBITDA, expand operating margins, generate robust cash flows and meet our commitment to return to shareholders. I'm here to clearly express my full gratitude to the entire SLB team for delivering such a strong second quarter and first half results. Next, let me describe how the market is evolving and the steps we are taking to capture profitable growth across the business. As the cycle continues, investments will increasingly be targeted to in the most resilient area of the market, including key international markets such as the Middle East and Asia and in offshore globally. In these areas, we are seeing long-cycle gas and deepwater projects, production and recovery activity to address natural decline and increased digital adoption to drive efficiency and performance. This is an optimal environment for our business, and we are seizing each of these opportunity. In the Middle East, in addition to the exposure to the oil capacity expansion program across the region, we continue to benefit from the acceleration and scale of investments in gas development, both conventional and unconventional, leveraging our fit-for-basin technology and differentiated integration capability. Offshore, we see the benefits of our OneSubsea JV as highlighted by the number of high value contracts awarded and partnership included in today's release. Through OneSubsea, we're helping customers unlock reserves and reduce cycle times through an extensive subsea production processing technology portfolio. And we are increasingly being offered the opportunity to partner with customers in early engineering phases to unlock the economics of the assets. In production and recovery, we are seeing customers embrace our offerings as they work to offset natural decline, extend performance and maximize the value of their producing assets. We have many solutions to help customers access resource to our production system and reservoir performance division, and this is showing up in the strong results these divisions are achieving. As this market continue to evolve, we expect to strengthen our portfolio to fully capture this growing opportunity through our pending acquisition of ChampionX. Finally, underpinning nearly everything we do is the power of digital and AI. In today's market, accelerating the time to returns and extracting new level of efficiency are top of mind for our customers. And they are increasingly recognizing that upscaling their digital infrastructures is key, is a key enabler in these areas, presenting us with significant opportunities for high margin growth. In summary, SLB is well-positioned across key resilient markets. We remain focused on expanding margins through quality revenue growth, and this is complemented by heightened focus on operating efficiency, support structure optimization and strategic resource allocation in certain markets to align with expected levels of activity going forward. To support these ongoing cost efficiency actions, we recorded a charge this quarter, and Stephane will share additional details on this topic later in the call. Overall, the positive market dynamics and our continued focus on operating efficiency present a strong backlog for continued outperformance. We look forward to enhancing these dynamics to deliver further growth and margin expansion in the second half of 2024 and in 2025. On that note, let me conclude my opening remarks by showing our updated outlook for the year. Based on our strong second quarter and first half results, we expect full year adjusted EBITDA growth in the range of 14% to 15% and full year adjusted EBITDA margins at or above 25%. Specific to the third quarter, we expect sequential revenue growth in the low single-digits, enhanced by further margin expansion. This will accelerate as we move towards the end of the year, with visible increase in top-line growth and an uptick in margin expansion during the first quarter due to seasonally higher year end digital and product sets. Lastly, we've returned $1.5 billion to shareholders over the first quarter, through the combination of stock repurchase and dividends. In the second half of the year, we expect to generate higher EBITDA and strong cash flows, supporting our full year commitments. Directionally, we expect a strong exit of the year to position us for continued revenue growth, margin expansion and cash generation, reinforcing our commitment to continue returns to shareholders in 2025. I will now turn the call over to Stephane.

Olivier Le Peuch:

Thank you, Stephane. And ladies and gentlemen, I believe we will open the floor for your questions.

James West:

Good morning Olivier and Stephane. Olivier, I know in your guidance for the year, you didn't used the word or highlight raise, but it seems like there was a slight EBITDA guide raise. I guess, one is, am I correct in that? And two, is the guidance for ‘25 that you'd already laid out, I guess, now starting from a bit higher base, the numbers need to kind of move up across the board?

James West:

And then maybe just a quick follow-up for me. It seems like international, we obviously know offshore looks great, but international land, particularly in the Middle East, across the Middle East, whether it's KSA or UAE, looks like expansion is going to be significantly or going to be strong. Maybe it's not much above your expectations, but very, very strong growth. Could you maybe highlight what you're seeing in the Middle East right now across the region? If there's any particular projects that make sense to highlight, I'd love to hear that.

Operator:

Next we go to the line of David Anderson with Barclays.

Olivier Le Peuch:

No. I will be -- I will say that more generically as we see resilience on 3 aspects, resilience on the steel oil capacity expansion and deepwater oil developments happening and having significant resilience. And you may foresee not an existing deepwater program in oil in the Latin Americas region, but you will see emerging new oil developments coming into Africa. So that's a strong resilient aspect of deepwater. You see and you can anticipate a gas resilience in deepwater development more in the Isthmeb, Turkey and Asia region. And then you have the complex of indeed Middle East that is both reinforcing their oil capacity, as I mentioned. And gas so it's not only one market. I think gas, we have increased our share of gas activity in Middle East visibly. We are very well exposed. I would say we are long on gas in the Middle East region. And we believe that it's a matter of offshore long cycle, both oil and gas, Middle East oil capacity and on commercial gas developments and Asia for gas security reason, offshore development for gas as well. So it's a mix that is favorable. And then we should not forget about North America that I think has continued high intensity technology deployment to support sustained production growth for oil, particularly in the short term.

Olivier Le Peuch:

I think we see the market of deepwater. I think you have two markets. You have the market offshore shallow that is highly concentrated in Middle East and to the States and in Asia. And then you have the deepwater market that is consolidated in Americas, Africa and some part of Asia and Isthmeb. And I think what we see, if you look at more generically, we see three legs of activity developing for the future of deepwater, large and offshore, large, but deepwater in particular. There is a strong portfolio of projects underway from Guyana to Brazil, from Norway to part of Asia that we'll continue to complete and develop to the next two or three years and are part of the portfolio of subsea deployment that we have across. Then you have an ongoing set of FID, and we expect that offshore FID this year will be reaching $100 billion exceeding this and the same for 2025. And this FID is led by a combination of oil, a lot of oil FID being developed and being nearing decision in the coming months and some have just been approved and you have seen some of the announcements in Patria and Angola. We are very pleased with this because that would feed our pipeline of subsea going forward. And lastly, we should not forget that there is a third leg. The third leg is coming from exploration and appraisal activity that is not only happening in Namibia or not only happening in Brazil or in Suriname or in Asia, but I think it's very strong across many basin in frontier region as well as in infrastructure led exploration. We believe that, this third leg will certainly add quarters, if not years of growth to the deepwater outlook. Hence, we are very confident on our exposure to the deepwater market. To the offshore market at large, as we commented before that, offshore represent about 50% of our revenue exposure internationally and we see it extremely resilient and we see multiple legs in the deepwater market going forward.

Scott Gruber:

Good morning. Wanted to ask about how you think about segmenting the portfolio next year when ChampionX comes in. I guess the heart of the question is, you have this awesome digital business, it's growing rapidly, it's going to be $3 billion or so in revenues next year. Does the ChampionX acquisition provide opportunity for you to think about re-segmenting the portfolio to further highlight the digital business?

Scott Gruber:

Okay. We will wait for the details, but good to hear. And then you mentioned low single-digit revenue growth in 3Q and continued margin expansion, but it does sound like the margin expansion potential may be stronger into 4Q, with those year-end sales. Can you just provide a bit more color on how you see the margin expansion potential shaping up for 3Q? And then, if you want to, any additional color on 4Q?

Operator:

Next we go to Arun Jayaram with JPMorgan.

Olivier Le Peuch:

Yeah. I think quality revenue growth is focusing selectively on we believe -- where we believe we have the most operational leverage, the most pressing upside and the most technology adoption potential to suit our growth with higher accretive margin and hence to support our margin ambition expansion going forward. We have demonstrated this fairly well in the second quarter. We continue to focus on this selectively. The market internationally remains tight and it favors the best performer from execution and we'll use this to deploy technology, fit-for-basin technology, use our unique integration capability and spice it up, if I may, with digital capability to increase and improve our margin going forward. So that's where we look at what we call quality revenue growth. And indeed, we have taken some measure to further support this by adjusting and relooking at our support structure and where we could and we should adjust to prepare for supporting our growth and adjusting our asset to fit where we see the most resilience going forward. So that has been also contributing and will continue to contribute to margin expansion going forward.

Stephane Biguet:

So yes, we were quite happy with the not only the top-line growth, but the margin expansion in the D&I division in the second quarter. And as I said earlier, it was all due to the digital business. So, APS was flat. And as it relates to the rest of the year, we do definitely expect the digital margins to continue improving in the second half. It will accelerate even more so in the fourth quarter on higher sales, but also on the effect of the changes we are making in the digital delivery and support organization to pull resources on a more global and regional basis to scale the business more efficiently. So as it relates to the APS business, again, it's always it is mostly flat quarter-on-quarter. So all the upside is coming from digital. And your question on Canada, I think we have signaled before that we were looking at divesting the asset and it's very much the case. We have actually reached -- we have launched a formal process again. We are quite happy with the results. So we will move to the second phase of this process, which is that we had several offers. We have shortlisted -- selected set of buyers and we are moving to negotiation with the selected set of buyers. It's so far so good. It's going well on this process and we'll update you later.

Neil Mehta:

Yes. Good morning, team. Olivier, I'd love your perspective on deepwater markets and offshores, particularly given some of the incremental investment in Subsea? And just how -- maybe you can characterize the different regions where deepwater is growing and what activity you're seeing and how that fits into your long-term strategy?

Neil Mehta:

Thank you. The follow-up is just around return of capital. Obviously, some of the dynamics around ChampionX precluded you from buying back as much stock as you probably wanted to in the last quarter, but seems like you're leaning into it. Just talk about your return of capital intentions and how you're thinking about taking advantage of any dislocation that might exist in the stock?

Operator:

And our next question is from Dan Kutz with Morgan Stanley.

Stephane Biguet:

Thanks, Dan. So you mentioned we've been quite active indeed. So at this stage, we are really focusing on making those acquisitions and various transactions from Aker Subsea to Aker Carbon Capture to the planned acquisition of ChampionX as a success. So we are the focus currently is more on integration than on new M&A. And really in terms of prioritization in for the capital allocation at this moment, we are really prioritizing returns to shareholders.

Olivier Le Peuch:

Thank you, Dan. So first, I would comment maybe stepping up on the CCS as a market. I think we see this as a very attractive market for us considering the adjacency on the sequestration and considering the integration capability we have acquired and the technology we have acquired through Aker Carbon Capture. So the market independently and at this point, we see this market growing at more than 50% a year. And I'm very accretive to our growth. And we don't see this slowing down necessarily soon. And obviously, the addition of Aker Carbon Capture give us an opportunity to participate at scaling market where Aker Carbon Capture was not exposed to, partly in North America, where we're getting a lot of inbound requests as we form this combination, unique combination with what we have invested into our own capture technology with carbon capture commercial technology, we are seeing a lot of inbound requests and we have been awarded and part of two DOE-funded projects in North America and another shipping ban request from a company that are exploring and/or pursuing some carbon capture in North America. We see the same in Middle East. This will complement the strong pipeline that Aker Carbon Capture has already developed in Europe with three active projects and most likely more to come. We see that, we will combine our strengths in technology deployment at scale in every basin in the world, combining this with the subsurface sequestration technology leadership we have to offer customers an all in capability from sequestration design execution to carbon capture, combining our technology with the technology of our carbon capture. We are very positive on this and we believe that, as this business will scale, as we will be in a position to add on many new innovation technology on it, this will result into margin expansion and into ability to extract a lot of value from this acquisition.

Luke Lemoine:

Hi. Good morning. Arun touched on it a little earlier with his question, but you mentioned cost efficiency programs a couple of times in the release. It sounded like maybe these were primarily support costs. First, is that correct? Secondly, would it be possible to maybe frame the magnitude of these?

Operator:

Next we go to Saurabh Pant with Bank of America.

Olivier Le Peuch:

Yes. This is a great question, Saurabh. We are very excited. We are very excited because we believe this is one of the leg of technology deployment that could change the game in the long-term and in the subsea infrastructure deployment. First, because it allows a lower footprint, a smaller footprint, reducing and eliminating hydraulics into the subsea and eliminate -- ultimately eliminating cost. And secondly, allowing full digital control of the subsea infrastructure. And last, obviously, having an impact onto the carbon footprint of this infrastructure. So we believe that for recovery, cost and low carbon, we believe that there is a future for our deepwater all-electric bid on the subsurface. And as you have seen, we you might have seen that we have announced earlier in the year and last year that we have made progress and being awarded several contracts on a completion subsurface all-electric solution. I will continue to lead in this domain and combine it with all-electric subsidiary or subsea infrastructure that then when combined together with the subsurface give us an opportunity to fully digitize and fully control and provide our customers and the operators the ability to optimize recovery and control and optimize the maintenance as well in this field. So that's part of the future of deepwater is electric and we're very pleased to have been awarded this as a result of our consortium actually, [Indiscernible] for other operators. So this will take place in several basins we believe, in particular in Brazil and another place and we'll be ready to deploy this for our customers.

Olivier Le Peuch:

No. I think the trend has been up, and I think it has been contributing in line with our ambition for digital growth as the data exploration sales has been a success. And we foresee this to continue to grow going forward in the quarters to come. Sometime, it will be up and sometime it will be slightly down, but we foresee a growth and I think this is driven by the frontier exploration. This is driven by infrastructure led exploration in natural basins and this is driven by new generation of software digital application that can relook an existing basin and extract more value for understanding and finding new hydrocarbon and or new gas finds into the existing basins. So, we're very pleased to have a leading offering both in term of digital capability to repossess existing data sets and also to be able to enhance the vintage data sets and to be having this in the right basin and the right place and parts linked too many of these licensing rounds. You're right to say that, many licensing round expected this year, no less than actually 70 licensing rounds are being announced across many parts of the world and I think some of them have been highly successful. Deepwater has been a success for critical finds and critical hydrocarbon, both oil and gas in the last few quarters and we expect this to continue. There's increased interest into the Apollo pass, which is the last hot spot South of Brazil. You have the Namibe Basin south of Angola, North of Namibia. You have Indonesia, India. You have Bangladesh, you have many, many spots that are being discovered and being explored with fresh data sets and the opportunity to indeed boost and support our participation to this market going forward. I think we will continue to participate and maximize this, and this will be, on occasion, lumpy, but we believe this will continue to grow.

Operator:

Next, we go to Marc Bianchi with TD Cowen.

Olivier Le Peuch:

I think we have been guiding earlier this year. We remain fit on this guidance that, internationally, we foresee double-digit growth when excluding Aker and Russia. North America, we have been guiding originally positive up to mid-single growth and we have been realizing this down as the North America has been clearly impacted going forward. But, we still have opportunity to grow in the second half and to improve our margin as well in this basin as we adjust our resource and get the most out of deepwater market in Gulf of Mexico as well as our participation with technology intensity in some part of the North American land market. No change international and lower growth in North America, compared to original guidance.

Stephane Biguet:

Yes. Sure. As I said, we will really complete everything. All the actions will be taken by the end of the year. But you will see gradually the effect on our margins in the second half. By the way, this is of course why we are confident in the updated, more precise guidance we gave for the full year EBITDA. We will update you more precisely on the savings once we are done at the end of Q3. In general, as a rough rule of thumb, if you want, you can assume that, the payback on these actions is between 9 to 12 months.

Kurt Hallead:

Thanks for fitting me in here. Appreciate the insights as always. Olivier, I think from my standpoint, Olivier, I'm kind of curious, right? We've now had five or six months or so to kind of digest the shift in game plan by Saudi Arabia from offshore to ton of conventional gas. You kind of, referenced that very explicitly in your commentary about unconventional gas being a growth market for you. But I guess from where I sit, right, we're five or six months into this process. What have you picked up incrementally with respect to that opportunity? And more importantly, what kind of legs do you see for that dynamic for you in Saudi in particular?

Kurt Hallead:

Great. That's great color. Always appreciate it. Thank you.

Olivier Le Peuch:

Thank you. Thank you, Leah. So ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways. First, the growth momentum continues with many of our international [GeoUnits] reaching new cycle highs. Combined with the increased adoption of digital technologies, the stage is set for further growth and margin expansion throughout the rest of 2024 and into 2025. Second, in this environment, no company is better positioned than SLB to capture quality growth. Our differentiated operating footprint, leading technical and digital offerings and sustained commitment to operating efficiency and value creation have set us apart throughout the cycle. Moving ahead, we remain favorably positioned in the highest quality area of the market, supported by our differentiated technology deployment, integration capabilities and performance. And third, with a strong first half of the year behind us and full confidence in further international revenue growth, we are optimally positioned to continue our margin expansion journey to generate cash and to fulfill our commitment to return to shareholders both in 2024 and in 2025. This is an excellent environment for our business, and I'm confident that we will continue to deliver outstanding performance for our customers and our shareholders in the quarters ahead. With that, I will conclude this morning's call. Thank you very much for joining.

Operator:

Thank you, everyone, for standing by. Welcome to the SLB First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to James R. McDonald, Senior Vice President of Investor Relations & Industry Affairs. Please go ahead.

Olivier Le Peuch:

Thank you, James. Ladies and gentlemen, thank you for joining us on the call today. During my prepared remarks, I will discuss three topics. I will begin by sharing an overview of our first quarter results; then, I will provide an update on the ongoing market dynamics and highlight areas where we anticipate opportunities for further growth; and finally, I will conclude with our outlook for the full year and the second quarter. Stephane will then provide more details on our financial results, and we will open the line for your questions. Let's begin. I'm very pleased with our strong start to 2024. Year-on-year, revenue grew 13% and EBITDA grew in the mid-teens, in line with our full year financial ambitions. Additionally, we demonstrated the differentiated value we deliver to our customers, the impact of our continued capital discipline, and execution efficiency, by expanding year-on-year adjusted EBITDA margins for the 13th consecutive quarter. Internationally, we harnessed broad-based activity growth, with 21 of our 25 international GeoUnits increasing revenue year-on-year. Even when excluding the Aker contribution, our international revenue grew by double-digits. These impressive results were led by the Middle East & Asia, which exhibited remarkable growth of 29% compared to the same period a year ago. Specifically in the Middle East and North Africa, year-on-year growth was supported by continued investments in long-cycle developments and capacity expansion projects, in both oil and gas, across Algeria, Egypt, Iraq, Libya, Qatar, Saudi Arabia, and the United Arab Emirates. And in Asia, we saw strong activity across the region led by offshore, notably in China, Indonesia, Malaysia, the Philippines, and India. Meanwhile, in North America, activity remains soft due to weaker gas prices, sustained capital discipline, and the effects of ongoing market consolidation. The slower activity contributed to revenue in the region declining by 6% year-on-year. Next, I will comment on the Divisions’ performance. I was very proud to see the power of the core divisions continue to drive our performance this quarter. In particular, you may have seen the remarkable growth in Production Systems, supported by our OneSubsea joint venture, and in Reservoir Performance, led by increased stimulation, evaluation, and intervention services. Well Construction also delivered resilient growth. I was also pleased to see our core margins visibly expand year-on-year, and I trust that this will continue as we remain focused on efficiency and value creation for our customers. Turning to Digital & Integration. I continue to follow our performance very closely. Although we experienced the typical pattern of seasonally slower sales to start the year, digital still grew in the double-digits year-on-year during the first quarter and we expect a visible uptick of digital sales throughout the rest of the year. This will be supported by increased customer adoption and a baseload of ongoing projects, as you can see from the quarterly highlights included in our press release this morning. For the full year, we maintain our ambition to grow our digital revenue in the high-teens. Overall, I am very pleased with this strong start to 2024. We will remain focused on the quality of our revenue, capital discipline, and execution efficiency to generate strong cash flows and shareholder returns throughout the year. I want to thank the entire SLB team for delivering this first quarter performance. They continue to operate at a benchmark level for the industry, and I feel privileged to work with such a dedicated and talented team. Next, let me shift into the ongoing market dynamics and how these are creating opportunities for our business. We are in the midst of a unique oil and gas cycle, characterized by strong market fundamentals, growing demand, and an even deeper focus on energy security. As described on several occasions, this cycle continue to display breadth, resilience, and longevity, this is very much the case in the Asia region where we are hosting this call today. In this context, there are certain priorities that are increasingly critical to our customers

Olivier Le Peuch:

Thank you, Stephane. Ladies and gentlemen, I believe, we are opening the floor for your questions.

James West:

Hey. Good morning, Olivier and Stephane.

Stephane Biguet:

Good morning.

Olivier Le Peuch:

Thank you, James. So from our perspective, I think, first and foremost, I think the cycle attributes that we have described earlier, the breadth, the resilience, the durability or the longevity of the cycle are fully in place and are driven by a combination of strong fundamental energy demand, oil and gas demand, if anything is trending upwards from the revision. Energy security is still on top of the agenda. There is no other place than Asia to realize this on the ground. And as such, I think the base of (ph) activity is being supported by very critical flow of investment, both as you said, in capacity expansion, which is already committed. But also, I think in short-cycle and long-cycle offshore, deepwater and shallow. And I think I was here in Asia, and it was remarkable to see the breadth, the diversity of the opportunity, the number of countries, offshore, onshore, the new exploration appraisal cycle, the new entrants that are coming in Southeast Asia, they were not before to invest because they are looking for securing gas supply, and they are looking to participate to maintain oil production. So I believe that if you combine this with what is happening in North America, which is North America operating within a threshold and not necessarily with significant anticipation of supply growth in that market in short term. This is only accentuating the characteristics of the cycle in international. And it can -- if I can reflect from the last two or three months of a lot of customer engagements, the sentiment is trending more positively than it was maybe six or 12 months ago. Hence, customer engaging to secure capacity on long projects such as deepwater and subsea, and they are looking for partnership collaboration to make sure that we help them into securing the best capital efficiency, as I highlighted, look for integration to accelerate the product cycle to get faster to first oil, first gas. So if anything, I think I see more, stronger pipeline of projects that will help us -- help this cycle to prolong beyond what we could have anticipated a year ago.

Olivier Le Peuch:

I think the adoption continues to trend favorably. I think you'll continue to see as we deliver quarter-after-quarter both sorts of announcements in digital operation in cloud adoption for geoscience workflow or in data and AI, as you have seen the diversity of what we announced this quarter. I do expect the same next quarter and the following quarter because we believe that customers are realizing that they need to unlock efficiency and they need to accelerate the cycle, and they need to extract lower carbon solutions for their assets. So this is pulling. So we are still -- and we have renewed our ambition and targets to reach or exceed high teens for digital growth this year. And we started the year, I would say, considering the seasonal low - in the teens -- low teens growth year-on-year, double-digits, that was fully aligned with what we could have anticipated and it will continue. So I see quarter-after-quarter expansion of digital adoption. And I see more and more contribution from digital operations, be it drilling automation with production operation solutions, and you will see that in the coming quarter and the upcoming transaction with ChampionX will only strengthen this production operation offering as it will complement and give us another platform to expand our digital adoption. So I remain very constructive, and I believe that it is a long trend of digital adoption that will continue throughout the rest of the decade.

Olivier Le Peuch:

Thank you, James.

David Anderson:

Thank you. Good morning, Olivier and Stephane.

Stephane Biguet:

Good morning.

Olivier Le Peuch:

Yeah. No, it's a fair question. And I think first and foremost, stepping back in time. I think we have been -- as we prepared our core strategy a few years back, we identified that production recovery in particular production chemicals, reservoir chemicals, and lift solutions will be a domain where we need to invest in technology, and we need to explore opportunity to accelerate our market participation because we believe two things

Olivier Le Peuch:

Exactly. I see what we see and in the engagement with customers, we see that in their quest for production recovery opportunity, we see that a combination of production chemicals, digital capability including optimizing some production lift solutions and overall intervention is in dire need for modernizing, innovation, and automation. And we believe that the addition of this to our portfolio, the significant talent and capability we are getting through the addition of ChampionX will help us fast-track this new path of production recovery market expansion. That would be a combination of OpEx and CapEx, and OpEx will only supplement and add opportunity for growth and it is not at all relating to where we are in the cycle for CapEx.

Stephane Biguet:

So Dave, yes, thanks for the question. So again, yes, $400 million of annual synergies which we think we can achieve in the first three years. And as we said, 70% to 80% achieved in the second year, which makes the transaction accretive to earnings per share in year two. So now we have the full integration team in place, refining estimates going through all the buckets of synergies. So I’m not going to give you definitive numbers, but as a rough split, most of the synergies, most of the $400 million synergies, let’s say, about 75% of it is related to costs and 25% related to initial revenue synergies, so of the 75% cost synergies, again, an approximate 75%, you can say that roughly half of that is on our own SLB spend. We mentioned earlier, we spent a lot of chemicals, for example, for overall operations. And with the manufacturing and internalization of spend we can do with ChampionX, we think we can have great savings there. And the over half or so of the cost synergies would be G&A and other operating cost savings if that helps.

Stephane Biguet:

Thank you.

Operator:

Next, we move on to Arun Jayaram with JPMorgan. Please go ahead.

Olivier Le Peuch:

Yeah. Thank you, Arun. I think let me first maybe for simplicity and for aligning our views, maybe let me unpack first and give some additional color on this rig suspension. And I think these are public data, and I think a total of 20 to 22 rigs are being suspended to divest for consolidation. But this is in the context of this both Safaniya and Manifa projects, oil incremental project expansion program, that has been suspended. Both of these assets were having combined slightly above 20 jackups operating in these two assets at the end of last year. The anticipation of the additional rigs necessary for the expansion, we expect customers will add (corrected by company after the call) another dozen rigs. When you make the math at the end of this year, both of these assets will host slightly above 10 to a dozen rigs or a net 10 rigs less than the rig count at the (corrected by company after the call) end of last year. So that's first, what is happening on offshore. You contrast this with the gas market and a decision that was almost coincidental with the MSC decision, to increase the gas capacity towards 2030 by 60% compared to 2021. This is actually resulting in the total rig activity increase and net rig addition between now and the end of the year 2025 (added by company after the call) of a total approximately 35-40 (corrected by company after the call) rigs across the entire unconventional and conventional, both workover rigs, coiled tubing drilling units, and drilling rigs for the unconventional Jafurah and for the conventional gas. So this switch from offshore to onshore, the switch from oil to gas is actually the execution of strategy of Saudi Aramco, I believe. And it happened that we have market exposure that is long on land, very long on land and it's balanced and actually long on gas. So as a consequence for us, while this is an activity that has changed and a mix that wasn't anticipated six months ago, this will not have a natural impact on our ambition for growth for Saudi, this will not change our guidance for Middle East sustained growth. And this will continue to support our ambition to grow international and hence, the full guidance directed this morning.

Olivier Le Peuch:

Yeah. I think that's a very good point. Actually, it's very broad growth and activity uptick in almost all the country with possible exception of Egypt these days, considering the cash and the valuation situation. But almost every other country is having a very significant growth and I have been citing a few countries this morning, and I could not stop listing all of them. And it includes Qatar that is starting to now remobilize for addition of the West North field. Obviously, Kuwait, as we commented earlier that is coming now very well structured to execute their capacity expansion, UAE on both gas and oil. Oman is very steady. Iraq, as you have seen, we have had some nice contracts also in that region. So we are very comfortable about the breadth, the diversity of the activity growth, rig activity growth, in the region. And actually, a couple of rigs or more could actually be redirected from the offshore Saudi contract to supplement and to help accelerate some activity in the region, while some others are already being retained to some extent for future activity here in the Southeast Asia. So I believe that the Middle East, as we said earlier, last year broke and had a total market spend that was record high. I think this record is just extending this year and with a very good breadth of oil and gas onshore and offshore activity despite a slight change of mix in Saudi.

Olivier Le Peuch:

Thank you.

Neil Mehta:

Yeah. Thank you for all the strategic comments. I had a couple of more financial questions. The first, just the second quarter commentary, if I look at Q1 EPS was $0.75, and I think The Street's got moving to $0.84 in the second quarter. So just would love your perspective on how we should think about the 2Q versus 1Q build as you have pretty good visibility at this point into the second quarter?

Neil Mehta:

That helps, falls in pretty well with The Street. I guess the follow-up is just on EBITDA margins. It did come in a little bit softer than maybe where The Street was on digital and integration, to a smaller extent, on Well Construction. Just love your perspective as we work our way through the year, how we should be thinking about EBITDA margins and your conviction on the recovery there? Thank you.

Neil Mehta:

Thank you so much.

Olivier Le Peuch:

Thank you, Neil.

Scott Gruber:

Yes. Hello. I wanted to just circle back on the Saudi comments because a few investors have asked for some clarification. Olivier, did you mention that the rig growth was the net 60, 60, even with the losses of 20 jackups?

Scott Gruber:

Thanks. It's encouraging, thanks for clarifying that. And then turning back to well construction margins. Should we be expecting those to come in about flat for the year. I know they'll improve seasonally and are always strong in the second half. Should we be thinking about kind of flat year-on-year and just thinking about the mix in that business, historically, with greater offshore activity and weaker U.S. onshore activity, I would just expect those margins to be grinding higher. So maybe if you could comment on what's kind of keeping those flat year-on-year? Maybe the mix just isn't that impactful any more with the new sales strategy in the U.S., but just some color on the year-over-year margins in Well Construction would be great.

Olivier Le Peuch:

Maybe for clarity of the split on the net addition in the gas market in Saudi. The net addition due to the expansion acceleration is about 20 rigs.

Olivier Le Peuch:

A bit more than half of that in a little bit more than half of that in unconventional and the rest in the conventional. So that’s the resulting effect of this acceleration of gas expansion into Saudi. Hence, the shift indeed from offshore to onshore and from oil to gas characterized by this accelerated expansion translating to 20 rigs and the reduction of the net offshore from end of year last year to the end of the year this year that is above 10%, plus the mix changing for clients.

Stephane Biguet:

Thank you.

Kurt Hallead:

Hey. Hey, everybody. Thank you for sliding me in here. I appreciate that. So given the fact that you are currently in Kuala Lumpur and Asia seems to be one of your growth vehicles and something that really hasn't gotten a lot of airtime. Just kind of curious as to what you see is driving that growth and what regions within Asia you is standing out to you?

Kurt Hallead:

That's great. That's great color. I appreciate that. So maybe a follow-up here as you kind of referenced significant opportunities to tap into the production spending profile, your customer base and hence, the dynamic related to the ChampionX acquisition. When you look at the production chemicals piece of the business, ChampionX is a clear leader there. And just kind of curious as to, is there, for a lack of a better phrase, like some secret recipes and production chemicals that you guys are bringing to the table that could potentially enhance margins and substantially boost the revenue growth rate or boost the ChampionX position?

Kurt Hallead:

Thanks, Olivier. Appreciate it.

Operator:

And our last question comes from Luke Lemoine with Piper Sandler. Please go ahead.

Olivier Le Peuch:

Yeah. Great question. First and foremost, I think we see CCS is certainly the most obvious and the most attractive market, total addressable markets adjacent to our space where we can contribute to decarbonization of the industrial space. So we believe we are first at market position and a lot of play into the sequestration through our technology, to our digital and solution to deliver not only site selection, but also site characterization and development of sites for carbon sequestration. So that's -- and by doing this, we have significant access to a large number of customers within oil and gas through that, and beyond oil and gas through the operator, the emitters, that are willing to develop. So we have this as a starting point that give us market access across many of the FIDs and many of the projects, and we quoted more than 30 projects, we are always part of at any point in time. And I think we have had quite a lot of experience there. So we also have invested into capture technology that we have done, such as RTI for non-aqueous solvent, which are trying -- where we are trying to disrupt the intervention, we have to disrupt the economics of capture for low stream -- local concentration stream of CO2 in hard-to-abate sector. But what Aker Carbon Capture brings into this is a commercial solution platform or recommercialize that will serve us as a base for expansion for deployment of our capture technology. And also we'll build on the initial success they have had to deploy this platform to some European markets and use our footprint where we see the market evolving fast in North America, Middle East and in Asia and using this platform and being the go-to-market for this carbon capture solution that they are offering, but supplementing it with our innovation that we are investing in and using this as a platform to deploy innovation. So combining sequestration and capture to offer this combined opportunity for the customers as technology solution and using the platform of the commercial carbon capture, Aker Carbon Capture, that exists today, is commercial, and using it as a platform to deploy and add and supplement this with new disruptive technology. That's the purpose, and that's the intention we have, that's the ambition we have in this market.

Olivier Le Peuch:

Yeah. I think we have been originally guiding and we are keeping our guidance that we believe that on a full year basis, it will be more muted than we had anticipated at the beginning of the year, considering the softness of the market at the start of the year, the persistent low gas price, the capital discipline and also the consolidation in the market. And we expect, going forward, we guided low-single digit growth sequentially. We anticipate at the end of the year to still outperform the market that will see a year-on-year decline on the activity by posting muted, but positive growth. But the shortfall that we may have, considering this offset will be fully offset by international growth as we commented where we see resilience, and we see further growth potential in many markets. So hence, we have reiterated our full year guidance.

Olivier Le Peuch:

Thank you.

Olivier Le Peuch:

Thank you very much. Ladies and gentlemen, to conclude today's call, I would like to leave you with the following take-aways

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the SLB Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to the Senior Vice President of Investor Relations and Industry Affairs, James R. McDonald. Please go ahead.

Olivier Le Peuch:

Thank you, James. Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I will discuss our fourth quarter and full year results, highlight a number of achievements and share our thoughts on the outlook for 2024 and our financial ambitions. Stephane will then provide more detail on our financial results and will open the line for your questions. Let's begin. The fourth quarter was an impressive conclusion to the year's financial results. We grew revenue both sequentially and year-on-year and we achieved cycle high margins and cash flows during the quarter. Our strong performance was fueled by the international and offshore markets and was supported by robust sales in digital and integration of the acquired Aker subsea business. Throughout the year, we witnessed continued growth in the international and offshore markets, where customers are focused on enhanced production and capacity additions. We have also seen further investments in digital technologies for planning and operational efficiency. This is driving growth today and presenting opportunities into the future. The international shift in investment has accelerated during the year, with fourth quarter revenue growth driven by the Middle East and Asia and Europe and Africa, where we continue to benefit from long-cycle developments, capacity expansions and exploration appraisal activities. Specific to offshore, we delivered a very strong fourth quarter as we grew our legacy portfolio and harnessed a strong performance from our OneSubsea joint venture. On this note, I would like to extend my thanks to the entire Aker subsea team who have joined us three months ago and have already contributed very well to our strong year and results. Exiting the year, our international revenue and margins reached new cycle highs, marking our tenth consecutive quarter of year-on-year double-digit revenue growth on the international front. And we delivered exceptional free cash flow of $2.3 billion in the quarter. Next, let me reflect on our accomplishments for the full year. We fulfilled our full year financial ambitions, growing revenue by 18%, surpassing our revenue growth target for the year and achieving adjusted EBITDA growth in the mid-20s. Additionally, we generated $4 billion in free cash flow, our highest since 2015. In the core, across production systems, Reservoir Performance and well construction, we grew revenue by more than 20% and expanded pre-tax operating margins by almost 300 basis points. This was driven by strong activity internationally and offshore, new technology deployment and strong product sales. Notably, we achieved our highest ever revenue in the Middle East, led by impressive growth in Saudi Arabia, the United Arab Emirates, Egypt and the East Mediterranean. Offshore also contributed positive momentum, led by remarkable growth in Brazil and Angola and very solid increases in the U.S., Gulf of Mexico, Guyana and Norway. This was supported by the contribution from the acquired Aker subsea business, which enabled us to expand in certain markets, mainly in Norway and Australia. Additionally, our fit-for-basin business model continued to deliver differentiated value in North America, resulting in revenue growth outperforming to the record. In digital, we continue to witness the adoption of our digital workflows and data AI platform as customers work to enhance efficiency and returns by integrating our connected and autonomous trading data and AI solutions. We now have more than 6,000 Delfi users and have generated 125 million compute hours, both representing more than 40% growth year-on-year. As a result, we achieved full year digital revenue of more than $2 billion with our new technology platforms comprised of cloud, edge and AI, growing at a CAGR of 60% since 2021. In new energy, we forged new partnerships and made new investments in capture technology for carbon capture and storage. We are seeing very positive momentum in this space. And we are actively participating in more than $400 million of CCS tenders globally. Additionally, in short-term and energy, we are partnering with government agencies in the Middle East on lower carbon electricity and in Europe on zero carbon heating and cooling solutions. As we advance our three engines of growth, we also continue to deliver for our customers and stakeholders, by achieving our lowest-recordable injury rate and highest level of operational reliability on record. This is also reflected in industry surveys, where we are growing customer satisfaction through performance and value creation. Finally, we reduced our emission intensity across Scope 1, 2, and 3 on the path to achieving our 2025 emissions reductions commitment. Moving forward, we are well-positioned to capture further growth, and I look forward to building on this strong success in the year ahead. I want to thank the entire SLB team for delivering these impressive results. Turning to the macro. The characteristics of breadth, resilience and durability that have defined this cycle remain fully in place. This continues to be supported by the imperative of energy security to meet rising global demand, confirming our belief in the longevity of the cycle. After a year of demand growth in 2023, we anticipate further growth in 2024 that will continue to support the ongoing multiyear investment cycle. In international markets, growth momentum is set to continue with more than two-thirds of total investment taking place in the Middle East, offshore and gas resource plays. In the Middle East, growth will be led by Saudi Arabia and the United Arab Emirates, which continue to commit significant investments to increase production capacity in both oil and on commercial gas, followed by Iraq and Kuwait. Meanwhile, in Asia, countries such as China, Malaysia, Indonesia and India are leading new gas exploration and development. Across our international basins, we anticipate strong activity led by Brazil and followed by West Africa and Australia. Looking across this wide baseload of activity, a significant portion is taking place offshore, while capital expenditure will continue their growth momentum in 2024. As a result, the rig count will continue to rise, mainly in the Middle East and Asia, responding to a strong FID pipeline in both shallow and deepwater. All in all, we see the potential for more than $100 billion in global offshore FIDs in both 2024 and 2025, underscoring the enduring strength of the offshore markets and supporting a very favorable subsea outlook for years to come. In this context, although geopolitical tensions persist in several regions, we do not expect any significant impact to activity in 2024, absent further escalation. Additionally, although we have witnessed short-term commodity price fluctuate over the past few months, long-cycle investment in the Middle East, offshore and gas markets remain decoupled from short-term pricing, which will continue to support the resilience of these markets. In North America, following a noticeable moderation of activity in the later part of 2023, we anticipate capital discipline to continue. Consequently, investment levels will be sustained at 2023 exit rates with minimum -- minimal increase in activity as the vision focused on sustaining record ARPU from last year. This will drive further adoption of technology as operators aim to further improve efficiency and recovery rates. Now let me explain how we expect these factors to drive our performance in 2024. In the international markets, we expect full year revenue growth reaching the mid-teens, led by the Middle East and Asia and Europe and Africa. This growth will take place both onshore and offshore, with offshore benefiting from our newly formed OneSubsea joint venture, which enters the year with close to $4.5 billion of subsea production system backlog. We expect to deliver more than $4 billion in additional subsea bookings in 2024, open increase of more than 25% year-on-year as the market continues to expect. For clarity, when excluding the impact of Aker contribution and the expected decline in Russia, we expect double-digit international growth for the year. Meanwhile, in North America, although activity has moderated, we expect full year revenue growth reaching the mid-single digits, driven by our technology and leverage portfolio in both U.S. land and the U.S. Gulf of Mexico. Turning to the divisions. We expect all core divisions to grow led by Production Systems and Reservoir Performance. Digital integration is also expected to grow with digital growing in the high teens, primarily driven by new technology platforms, while APS remains flat. Directionally, we expect further margin expansions, driven by tight service capacity internationally, pricing and increased technology adoption. This will result in year-on-year EBITDA growth in the mid-teens. With continued growth in earnings, our profitability to generate cash and confidence in the long-term outlook, we are pleased to announce that the Board of Directors have approved a 10% increase in our quarterly dividend. And we'll also increase our share repurchase program in 2024. Combined, we are targeting a return to return more than $2.5 billion to shareholders in 2024, an increase of more than 25% compared to 2023. Looking to the first quarter. We anticipate the typical pattern of activity beginning with the combined effects of seasonality and the absence of year-end digital sales. As a result, on a year-on-year basis, we expect first quarter revenue growth in the low-teens and EBITDA growth in the mid-teens. This will be followed by an activity rebound in the second quarter and further acceleration of growth in the second half of the year, particularly in the international markets. This will support the ambition we have set for the full year revenue and earnings growth. I will now turn the call over to Stephane.

Olivier Le Peuch :

Thank you, Stephane. Ladies and gentlemen, I think we will start the Q&A. So Leah, back to you.

James West:

So Olivier, curious to hear your thoughts. Clearly, you're looking for another year of pretty strong growth in EBITDA and revenue. But it seems to me like we've got a lot of particularly deepwater rigs that are going to start turning to the right here very soon and particularly in the second half, and it's -- there should be an exit rate that's even higher than that type of growth as we go into '25. I think, is that a fair assumption, or am I getting ahead of my skews here in terms of kind of what the overall market opportunity is going to be as we step through this year and get into the '25, '26 period?

James West:

Okay. Perfect. That's great to hear. And then maybe a quick follow-up in terms of CapEx. I don't know if, Stephane, if you want to take this one, but CapEx seems to be -- it seems like you're going to keep it at the same type of level that it's been, that wasn't in '23, but there's going to be a lot of -- a lot more activity. And so does that number eventually need to move higher? And when it does -- if it does, do you still believe that you can maintain this 5% to 6% of revenue for CapEx dollars ratio.

Operator:

Our next question is from David Anderson with Barclays.

Olivier Le Peuch :

Yes. Thank you, Dave. I think we have been very pleased with the activity and the way we have been able to turn this activity growth in the last 18 months and the last 12 months, particularly into revenue, benefiting from our strength on the ground in the Middle East. I think I would characterize beyond the capacity expansion and on commercial gas, which is a dual benefit for activity. I will also characterize the activity in the Middle East to be very broad. It's not two country leading this, it's almost every country in the region that we see further activity and will derive from its further revenue growth. So we are not at capacity. We don't see an inflection down of our revenue growth potential in the region, benefiting from our technology market position with every national company in the region and capability for integration to harness the part of our technology into performance for our customers, hence delivering higher revenue from rate of activity. So we are confident. When it comes to our capacity, yes, equipment capacity and everybody has been disciplined in the region. And hence, we have been responding and benefiting from pricing in the last 18 months. And as a consequence, our margins have expanded in the region and have supported what you have seen as our international margin expansion year-on-year have been a driver for margin expansion internationally. We expect this to continue as we execute 2024. But again, it's a long duration cycle, both by the nature of the investment decoupled from short-term pricing on commodities. So we remain very confident about our market position first and the market outlook and our ability to differentiate through performance, integration, technology and then continue this success in '24 and '25 and again, well into the second half of the decade.

Olivier Le Peuch :

Okay. Let me come back first on some metrics that I think we have highlighted into my opening remarks. And I think this relates to the adoption of Delfi indeed, adoption of a number of users, use of cloud compute on our Delfi platform and use of additional hedge or AI capability that we offer to customers. The combination of which, as I said, has grown 60% in the last two years on a CAGR rate and the adoption metrics that we shared, both the number of users and the number of hours of complete power that we serve to our customers on the cloud have been growing by 40%. So yes, the adoption is going, both measured by, as I always said, one customer at a the time that transition from our legacy desktop offering to our cloud. And by expansion of our workflows, data, AI capability that we offer to existing or new customers. So it's a combination of a transition of the existing customers to the cloud and adoption of data and AI capability because we are offering our platform that the industry is recognizing adopting. And finally, and maybe one of the most exciting parts that adds a dimension of growth is the digital operation, both drilling and production digital operation. You have seen some of the announcements that have been highlighted in recent weeks and months. And last week, further alignment with a partner to accelerate doing automation and autonomous systems. So the drilling adoption on the operation production with our partner, Cognite. And this is supplementing, I would say, the core growth of transitioning our real sound customers from desktop to the cloud. So you have three dimensions. You have the cloud transition with existing customers and adoption of new customers coming to SaaS solution. You have the data and AI. It’s a new market. It’s a reverse of the data management that scale into the cloud and AI, unlocking the power of data through AI in our industry; and finally, digital operation. These three trends are supporting our growth ambition, both this year and next year. And this span all the customer segment across the globe, and you keep seeing some announcement of customer adoption on our solutions.

Scott Andrew :

I want to touch on transition technologies, you noted over $1 billion in sales. And I realize a lot of these are new and focus on emissions reduction. And I believe that the bucket there is separate from new energy, correct me if I'm not accurate. Olivier, I wanted to ask about the outlook for these technologies and the growth of sales of these technologies as the uptake by customers around the world seems pretty strong. Can you speak to the multiyear outlook? And is the cadence of growth for transition technologies additive to the growth rate from the core?

Scott Gruber :

Right. Got it. Appreciate that color. And then Stephane, one for you. I appreciate the cash return target for '24. Can you also provide some broader color on the cash conversion rate? The working capital release in 4Q was very impressive. So curious thinking about the working capital outlook for '24 tax rate, et cetera.

Operator:

Next, we go to Luke Lemoine with Piper Sandler.

Olivier Le Peuch:

Thank you, Luke. I think, let me please first with the first quarter of the subsea joint venture we have with Aker and Subsea7. I think the results speak for themselves. I think it was a direct contributor to the PS, the pollution system, performance in the fourth quarter, both on the top line and the margins. So we are very pleased. And I think as I said, I could not be more pleased than this. Now going forward, I think our objective continues to be to extract more value to synergy and to fully seize this deepwater offshore cycle that is in full fledge happening and where we see, as I said earlier, a strong outlook. So our priority is still benefit from integration capability, and as you have seen that we have announced some alliance and one of them with BP, where I think customers are approaching us organizing that subsea integration capability across the SPS and SURF are augmented by our ability to deliver and understand the reservoir as well as deliver well construction. So hence, opportunity to have integrated asset development, integrated tieback delivery and more opportunity in the space that is a full intake subsea and beyond to extract better economics and to extract more importantly -- equally importantly, a higher recovery combining our reservoir subsurface domain expertise are well placement and our subsea boosting and processing capability, all combined to extract and create a little bit of more value for subsea market going forward from economics and from production recovery. So that's where we see trends coming. And we have a portfolio that is unique with the portfolio partially on the boosting and processing and tieback capability that is unmatched in the market. And we have digital reservoir technology and our core portfolio that complements this and help and will support this alliance integration capability. So I can only be pleased with the prospects ahead of us and the feedback from our customers so far is very positive on our capability.

Saurabh Pant :

Olivier, maybe I want to touch on exploration a little bit. You talked about that on the call today. You highlighted Asia. I think you talked about China, Malaysia, India, some of the other countries exploring for gas. I know you've talked about the exploration in the past. So, we are seeing at least a little bit of a tangible recovery happening on the exploration side. Maybe you can expand on that a little bit. What do you expect over the next couple of years on both the gas and the oil side. And just maybe remind us how impactful that is for SLB?

Saurabh Pant:

Fantastic. Okay. I have one very quick follow-up, if I may, on the Middle East side. I know you talked about that on the prepared remarks and the Q&A early on. But just to go back to that, I think one thing you noted in the press release was that you expect the record Middle East growth to continue beyond 2025. If you can elaborate a little bit, Olivier, on what gives you the confidence, the line of sight beyond 2025? Maybe part of that is just the gas side of things, not just oil, right, but elaborate a little bit on the light of sight you have beyond 2025 on the Middle East.

Operator:

And our next question is from Neil Mehta with Goldman Sachs.

Stephane Biguet :

Clearly, we see upside in '24 and continued margin expansion as we expressed earlier, really, the -- I'm sure you will calculate, but our guidance of mid-teens EBITDA growth in absolute dollars will be achieved with revenue growth, but clearly with margin expansion across our core and in digital, as I mentioned. So yes, we continue to see margin expansion. We have great operating leverage. We have pricing tailwinds in our in our backlog and new technology adoption, and this is pushing margins together with the favorable mix, as you well know, offshore is helping margins as well. So, it's subside -- it's continue to subside from now on.

Olivier Le Peuch:

No, we're very pleased with our performance in North America in retrospect in 2023 as we visibly outperformed the rig count, and we were able to grow in sequentially visibly. And we expect indeed to continue to outperform the market, and it comes from multiple factors, the mix factor of exposure we have with great exposure in Gulf of Mexico as well as East Canada and Alaska, we will see a potential of technology adoption and giving us the benefits of our mix. But also in the U.S. land market, I think we had a transition to a fit-for-basin and technology leverage focused portfolio in U.S. land and to some extent, in Canada. And we have seen this as a success with adoption of some really unique drilling technology in particular digital CCS giving us the tailwind to outperform the market in 2023, and we see this continuing. Now the priority for customers remain clearly efficiency and recovery in U.S. land market and hence, more efficiency on the trading well construction side, more recovery, use of digital, use of ESPs and also low carbon when it matters. We'll continue to make the impact and serve us very well. And the U.S. Gulf of Mexico and offshore market performance through integration performance to execution and reliability of our execution, I think, will continue to be paramount for our customers. And as long as we continue to deliver at this level, we'll get rewarded with market position and contract and pricing. And hence, we'll be able to outperform the recount, hence our guidance up to reaching the mid-single digit in 2024 against the market outlook.

Arun Jayaram:

I wanted to get your thoughts on what you're seeing in the international markets in terms -- perhaps you could compare and contrast the spending behavior you're seeing from the NOCs versus the IOCs?

Arun Jayaram :

Great. And my follow-up, Olivier, at the Analyst Day in 2022, you highlighted a target of $3 billion in new energy revenue by the end of the decade. I was wondering if you could give us a sense of where you're at in terms of that path to journey and maybe some of the areas where you're seeing the most traction today?

Operator:

We have time for one more question. That is from Roger Read with Wells Fargo.

Olivier Le Peuch:

I think I will turn it a little bit upside down and I realize that, well, our operators are looking at it a national company, IOCs, then looking at the demand that we continue to grow throughout the decade and realize that if they continue to execute on the capital discipline, they need to accelerate the supply coming from international market to fulfill this demand that we continue to grow and will put more pressure on the demand-supply balance. So some of them are responding for to capacity expansion program. Some of them are responding by accelerating the exploration appraisal or their development of existing international acreage that they have and development. So that's what we see. It applies to both for oil and gas. And gas is being more driven by regional dynamics on either consumption or gas security access, be it Asia or be it East Mediterranean to feed Europe, Asia for energy security and domestic consumption. Both these factors are driven by demand. The economics at the current level still favorable for long-cycle investment. The price of offshore international development and the economics have improved through the cycle, the benefits of efficiency, integration, technology have turned into making the offshore investment more attractive for the long run. Hence, it has reattracted investments. I will not try to comment on the industry needs more or less. I think the industry is certainly having the incentives today and have put a program in place with the FID pipeline that confirmed that it is attractive. It would be met with demand in the long outlook. Hence, our confidence into the longevity of the cycle internationally and into the breadth and resilience across oil and gas of the investment profile we are seeing from operators.

Stephane Biguet:

Thanks for the question, Roger. It's really the way we look at it is it goes beyond the dividend. We prefer looking at the total payout to shareholders, including buybacks. So the dividend itself, yes, 10%. We're happy. We can do this. We're happy it was approved by our board. It's on the back, of course, of the strong free cash flow generation we had in '23 and our confidence we can replicate that in the future. But we want to go at the right pace so that it remains sustainable in the future, and we can do more dividend increases in the future as long as they are reasonable. But again, total payout is what we are focusing on. We are increasing it from $2 billion in '23, including buybacks to hopefully more than 2.5 in 2024. So, if you back calculate this, of course, with the new amount of dividend, that means a minimum of $1 billion of share buybacks. And as the year evolves, we will review that every quarter, and we'll address that potentially above the $1 billion minimum as relevant.

Olivier Le Peuch:

Thank you, Leah. Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways. First, our fourth quarter and full year 2023 results underscore SLB's differential ability to general returns throughout the cycle. We delivered strong revenue growth and free cash flow above expectations and continue to expand EBITDA and operating margins. With momentum across our three engines of growth and our returns-focused strategy in place, we will continue to build on this success in the year ahead. Second, the macro environment remains very compelling for our business with investment and activity predicated in international and offshore basins. Combined with tight service capacity and an emphasis on performance and digital, we are well positioned to expand our lead by delivering exceptional value to our customers. Finally, I remain very confident in our strategy and impressed by the outstanding performance of our teams. I'm fully confident in our ability to deliver our 2024 financial targets and continue increasing shareholder returns. I look forward to sharing our progress with you throughout the year. With this, I will conclude today's call. Thank you all for joining.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the SLB Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to the Senior Vice President of Investor Relations and Industry Affairs, James McDonald. Please go ahead.

Olivier Le Peuch:

Thank you, James. Ladies and gentlemen, thank you for joining us on the call today. In my remarks this morning, I will begin by reviewing the third quarter financial results we represented in today’s earnings release. Then I will discuss the progress we are achieving across our three engines of growth and the macro environment supporting that. And finally, I will share our outlook for the fourth quarter and the full year. Stephane will then provide more details on our financial results, and we will open the line to your questions. Our third quarter results are built upon the positive momentum we established in the first half of the year and firmly position us to achieve our full year financial ambitions. We continued to grow revenue and adjusted EBITDA both sequentially and year-on-year, and we generated free cash flow of $1 billion for the second consecutive quarter. Internationally, we continued to seize the cycle. We achieved our highest international revenue quarter since 2015 by growing revenue in this market for the ninth consecutive quarter year-on- year. This was particularly visible in the Middle East & Asia, where we posted 22% year-on-year revenue growth, led by significant growth in Saudi Arabia, the United Arab Emirates, Kuwait, and Egypt. Our strong international activity was further augmented by resilient investment in the offshore markets, notably in Africa, Brazil, and Scandinavia. Offshore continues to offer many opportunities for our business, and I will shortly discuss how the recent closing of our OneSubsea Joint Venture with Aker Solutions and Subsea7 will help us to expand our footprint in the market moving forward. And in North America, although revenue decreased sequentially due to lower activity, we continued to grow year-on-year, outperforming the rig count. Once again, our focus on the quality of our revenue combined with the differentiated value we deliver through technology drove margin expansion. Our EBITDA margin reached a new cycle high of 25% and our pre-tax segment operating margin expanded for the 11th consecutive quarter year-on-year. These are very positive results and I want to thank the entire SLB team for delivering this strong performance. Next, I would like to share some updates about our progress across our three engines of growth

Olivier Le Peuch:

Thank you, Stephane. Ladies and gentlemen, we will now open the line for your questions. Leah, if you may open the lines.

James West:

Hey, good morning, Olivier and Stephane.

Olivier Le Peuch:

Good morning.

Olivier Le Peuch:

No, thank you, James. I hope everybody could catch your question right into Middle East. Indeed, I have the privilege to be there for about a weekend and not only went to the conference and met a lot of customers in the region, but also had the benefit to go to operation in Saudi and visit the customer in south over there. So great insights. Needless to say that this is clearly the largest investment cycle, its clean on the way. The momentum is set. It's not about the concept and I think the sentiment across [indiscernible] shall be positive. Leah, there's a noise on the …

Olivier Le Peuch:

Thank you. So if I were to characterize attributes, I think breadth, resilience, durability that we have characterized for the full cycle, I think are very much in full display in Middle East. I think the Durability 27 is the target for capital expansion. Breadth is not only old, but it's also gas as a driver for general vision or gas consumption and energy exports. Its offshore and onshore, its conventional and unconventional, and goes beyond one or two country that are very well known into Kuwait, into Iraq, into Egypt and more. And it's clearly decoupled from some of the short-term uncertainty. So it's all made about of long-term contract from the re-contracting to the service contract. And we are clear beneficiary of this situation. We have a unique footprint in the region. And indeed, we see that this will continue to support growth in the years to come for SLB. And this year, as stated before, we will record a record revenue in the region. And we will continue to grow and use this to be accretive to international growth and accretive to our international margin and the company. A great outlook in essence.

Stephane Biguet:

So, thanks, James. So, look, most of our revenue is built in U.S dollars. But indeed in a few countries, it's partially not the case for. So for some of us, we indeed had an unfavorable impact of the U.S dollar strengthening against local currencies. And that was both sequentially and year-on-year. I prefer I'm not giving you a specific amount as we have contractual adjustment clauses that come and offset the negative effect at least partially, but yes the revenue would have been slightly higher without that. And the last point here to remember is a lot of our cost as well are expressed in local currency. So we have a natural hedge on this. And the net impact on the earnings is quite marginally, it's limited.

David Anderson:

Thank you. Good morning. Morning, Olivier. With Aker now part of the -- with Aker now part of the OneSubsea JV, I was hoping you could talk a little bit more about the value proposition of not only a larger subsidy entity, but how it fits kind of within the whole -- how now fits in a fully consolidated market. In terms of offshore worth in FIDs, obviously, the trending really couldn't be any better, but what is the larger, more robust OneSubsea going to Schlumberger as a whole? And then as a follow-up, if you could talk about some of the integration steps you're planning, culture is such a big part of Schlumberger. Just wondering how you're thinking about bringing in one of your long standing competitors into the fold and -- how do you think about culture in that sense? Thank you.

David Anderson:

Obviously, all things that your customers are looking to achieve. If I could shift over to your digital business. Just more specifically, digital within D&I. APS has been kind of noisy this year between Canada and Ecuador. Kind of hard for us to get a real sense as to what's happening in software. In your release, you talked about higher sales or margins. I was wondering if you could provide a little more context around that. Have margins improved from a year ago? Is it necessarily about margins? You just gave some interesting statistics about increasing number of users, increasing computing time, and you also said 60% growth. Can you just repeat exactly what you meant by that? Is that the top line of that business? Thank you.

David Anderson:

Thank you very much.

Scott Gruber:

Yes, good morning. Question on …

Scott Gruber:

… the Production Systems outlook for margins post the Aker JV. Just how should we think about the path forward for margins in the business? I'm thinking about legacy contracts in Subsea rolling out that are largely lower margin, better price contracts rolling in. And then as you capture synergies, just what is a reasonable expectation for incrementals or where margins could go overall in Production Systems out over the next 2 years?

Scott Gruber:

Got it. And then turning to North America, a couple of years ago, you tilted your sales model towards more product sales and fewer boots on the ground. But now we're going through a wave of consolidation amongst your customers. We're seeing more privates taken out and now potentially a wave of larger mergers. How does that impact your strategy in North America?

Scott Gruber:

[Indiscernible]. Thank you.

Operator:

Next, we move on to Arun Jayaram with JPMorgan Chase. Please go ahead.

Olivier Le Peuch:

So let me start. I will let Stephane comment on the margin because I believe he provided some remarks to that effect. First, I believe that the core is benefiting from three things, in my opinion. It benefits from differentiated performance in the eyes of the customer, and hence, is benefiting by this creating an opportunity to secure market position and commands a pricing premium or favorable commercial terms to support this performance. Performance is recognized. Performance is critical in all projects, but in deepwater environment and is something that differentiates us and it's being recognized. So performance is a key factor. The second, I believe, is technology. Technology adoption has been accelerating. I think the target and the basket of technology we have set this year, including the transition technology where we set a target for $1 billion for the year, has already been achieved year-to-date. And hence, we see technology adoption as being unique in this environment, has differentiated again on performance and differentiated on creating insight and features and differentiate the value for customer and being recognized. And that is accretive to the margin and that drives our margin in the core. Finally, integration, and I will put digital into this, the ability to intertwine and add digital capability to our integration has delivered value. And you see that the Well Construction is benefiting from high-level margin that are very much helped by integration and digital as well as performance. Back to Reservoir Performance. Reservoir Performance had a very strong quarter on the back of result performance evaluation, which is used in exploration appraisal particularly where our differentiated technology portfolio has, again, been recognized with a premium. So that is what we are benefiting from. Technology, performance and integration with digital are driving a differentiated value proposition recognized with a pricing premium with our customers.

Olivier Le Peuch:

And you could expect this to carry on in 2024 as we believe the attribute of differentiation, as I outlined before, and the favorable environment which we are operating partly internationally will continue to support margin expansion for the core.

Stephane Biguet:

Sure, sure. So first, we are actually quite pleased with our free cash flow performance so far this year. It's indeed the second quarter in a row where we generate about $1 billion free cash flow. And it's really a combination, of course, of higher EBITDA, but also discipline in capital investments and an improved working capital performance quarter-after-quarter. So relating to Q4, we typically see a strong end of the year as it relates to free cash flow. So we are hoping that it will be the case this year as well. There are always moving targets based on customer collections. It's the main variability. But in general, we expect a strong free cash flow performance as we close the year.

Olivier Le Peuch:

Thank you.

Marc Bianchi:

Hi. Thank you.

Marc Bianchi:

Good morning. You previously discussed an expectation for directionally $1.5 billion of EBITDA improvement in 2024. I'm curious what the underlying assumption for the JV is here, just so we can get a sense of how it's doing versus the what appears to be the fourth quarter run rate here.

Marc Bianchi:

Okay. Thank you. The -- another question on offshore, but specifically related to exploration. I think you earlier said that you expect 20% type growth in '23. I'm curious how that's playing out. And then can you remind us how large exploration is for SLB?

Marc Bianchi:

Very good. Thank you very much.

Olivier Le Peuch:

Thank you, Marc.

Luke Lemoine:

Thanks. Olivier, good morning. You've alluded the enhanced capabilities of the new OneSubsea and maybe to fine tune it a bit more. Could you talk about what you'd like to achieve on a commercial basis and maybe qualitatively on an operational level within the first year and maybe the next few years as well?

Luke Lemoine:

All right. Thanks, Olivier.

Operator:

Next, we go to Neil Mehta with Goldman Sachs. Please go ahead.

Olivier Le Peuch:

Yes. Great question, Neil. I think indeed, our hypothesis for the way forward and [indiscernible] specifically discuss the U.S. land activity. The apologies we have is that by the combination of the gas price, creating a little bit of a pull on supply and a pull on activity on gas as well as the favorable oil commodity price. We create a pull on the private, E&P privates coming back into this market, the magnitude of which is, at this point, difficult to judge. And I think there are plenty of scenarios and it will be a little bit of the swing factor, more opinion in the 2024 planning. Yes, we believe that the trough is beyond us, so it's about, at this point, and we see incremental from H2 of this year in the U.S. market going forward, our biggest incremental gain. We will come back to that as we guide 2024. When it comes to North America offshore, I think here from Canada to Gulf of Mexico, we see a robust and steady activity going forward. And we see that will continue to benefit to our exposure, and the OneSubsea JV will continue to magnify this where we’ve opportunity to do so. And we are very satisfied with our performance there. So I believe that the activity and the outlook is, if anything, steady and has a potential for upside in 2024.

Olivier Le Peuch:

As you could find in today's key [ph] document that we are releasing, Russia revenue percent approximately 5% of our consolidated revenue year-to-date. And we expect it indeed to decline as a percentage but not to zero in 2024. And any guidance that we provide will always include the Russia effect and how we anticipate this to happen. This has always been built in our model and does not impact our financial guidance, as I said. And I remind you that we continue to ensure that our remaining presence in Russia meets and exceeds all international sanctions.

Olivier Le Peuch:

Thank you.

Operator:

Yes, Mr. Hallead -- Kurt Hallead with Benchmark. You may go ahead.

Olivier Le Peuch:

Good morning.

Kurt Hallead:

Olivier, I'm kind of curious, just this week, it looks like the U.S. has agreed to lift sanctions on the export of Venezuelan oil products. I know that Venezuela had been a fairly large market for Schlumberger prior to the sanction dynamics, and I think you guys have maintained a presence there. So just kind of curious as to what you think the opportunity could be once the sanctions are lifted in terms of providing incremental revenue growth.

Kurt Hallead:

That's great. Thanks. And I've got a follow-up. Just I know you referenced you expect Digital revenue to grow to be about $3 billion by 2025. Just kind of curious as to what contribution you think AI will have in that growth and whether or not the adoption rate of AI among your customer base gives you even greater conviction of getting to that level.

Kurt Hallead:

That’s great. Thanks for the color.

Operator:

And our last question will come from Roger Read with Wells Fargo. Please go ahead.

Olivier Le Peuch:

Good morning.

Stephane Biguet:

Good morning, Roger.

Olivier Le Peuch:

I don't want to, first, put a ceiling on the max on the margin we can achieve. I think the future and the market outlook will detect that. But most importantly, our ability to execute, to continue to execute on our performance strategy will continue to define our ability to capture, enhance our margin, whatever the market conditions are. And I think this is what we have been achieving for the last 4 years. And I think, again, technology differentiation, integration capability, augmented by digital and performance on everything we deliver is what is getting our customers trust us to give us premium and give us favorable commercial condition and further growth potential by better share of their business allocation. So I think, again, we initiated and we telegraphed fairly well 3 years ago that we'll be initiating a margin expansion journey. We have been on that journey for the last 3 years from the trough of 2020. We committed to expand. And I think we have delivered on this commitment. Some of you were looking forward to see when we will cross the 25%. Some of -- some scenario we are putting this in 2025. We said we would likely be able to cross this before. It came slightly ahead of our expectation because I think I'm impressed by what our team is able to deliver. And yes, the market conditions are favorable, but we expect that the breadth, duration and the resiliency of the cycle will continue. The effect of Middle East and offshore will continue to give us a favorable backdrop so that this strategy will continue to support margin expansion. So that's our belief. And again, I don't want to put a ceiling, I don't want to put a max, but I will continue to push my team to continue to extract the best and seize the cycle, as we say.

Olivier Le Peuch:

Thank you, Roger.

Operator:

And I will turn the conference back over to the Schlumberger management team for closing remarks.

Operator:

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

Operator:

Ladies and gentlemen, thank you very much for standing by and welcome to the SLB Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to the SVP of Investor Relations and Industry Affairs, James McDonald. Please go ahead.

Olivier Le Peuch:

Thank you, James. Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I will cover three topics. I will first review a few of our financial highlights from the quarter. Next, I will discuss the positive momentum we are seeing in the international and offshore markets. And third, I will share the exciting progress we are making in digital before concluding with our outlook for the third quarter and the full-year. Stephane will then provide more details on our financial results, and we will open for your questions. Our second quarter results continue to demonstrate the strength of our portfolio and our strategic positioning in the most attractive, accretive, and resilient markets globally. This is translating to financial performance, and we closed the first half of the year with solid growth across revenue, earnings per share, free cash flow, and expanded EBITDA and pre-tax segment operating margins. International revenue continued its strong growth momentum, increasing 21% year-on-year as we captured broad growth across all divisions and geographic areas. Second quarter revenue increased by more than 20% year-on-year in 14 of our 25 international GeoUnits. Most notably, Saudi Arabia, UAE, Mexico, Guyana, Brazil, Angola, Caspian, and India all grew more than 30% over this period. This drove our highest year-on-year international incremental operating margin over the last three years, and it underscores the breadth of our portfolio that I continue to emphasize. SLB's global reach shields us from regional fluctuations, as we have recently seen in North America, and give us the ability to seize opportunities wherever they arise. This is a true differentiator for our business and positions us for long-term outperformance. Following the remarks I shared in our earnings release this morning, I would like to reflect on a few notable highlights from the quarter. The broad growth characterizing this upcycle continues. Internationally, this was pervasive, and we were very pleased to see all divisions and geographies grow revenue and expand margins sequentially. In North America, we continued to increase our revenue, highlighting our agility across the land markets and the expanded activity in the U.S. Gulf of Mexico, solidly outperforming the rig count. Our focus on the quality of our revenue continues to support our margins. Sequentially, we expanded our pretax segment operating margin. This was fueled by our strong international operating leverage, increased technology adoption, and positive pricing trends that stemmed from inflation-driven contract adjustments and tight service capacity. And with higher earnings and improved working capital, our sequential cash flow from operations grew considerably, and we generated free cash flow of nearly $1 billion during the quarter. I want to thank the entire SLB team for their hard work and exceptional performance delivering value for our customers and our shareholders throughout the quarter. Now, let me take a moment to touch on the macro environment. As we have projected for the past few quarters, the international and offshore markets continue to exhibit strong growth as North America has moderated. This is playing to the strengths of our business, as international revenue represents nearly 80% of our global portfolio, and offshore comprises nearly half of that. As the growth rate shifts further toward international, these market conditions are driving the breadth, resilience, and durability of this upcycle and creating new opportunities for our business. Let me describe where this is taking place. In the international markets, the investment momentum of the past few years is accelerating. This is supported by resilient long-cycle developments in Guyana, Brazil, Norway, and Turkey; production capacity expansions in the Middle East, notably in Saudi Arabia, UAE, and Qatar; the return of exploration and appraisal across Africa and the Eastern Mediterranean; and the recognition of gas as a critical fuel source for energy security and the energy transition. In the Middle East, this is resulting in record levels of upstream investment. From 2023 to 2025, Saudi Arabia is expected to allocate nearly $100 billion to upstream oil and gas capital expenditure, a 60% increase compared to the previous three years, as they invest to attain a maximum sustained production capacity of 13 million barrels per day by 2027. Several other countries in the region have also announced material increases in capital expenditures that extend beyond 2025. Furthermore, we continue to witness a broad resurgence in offshore driven by energy security and regionalization. Operators all over the world are making large-scale commitments to hasten discovery, accelerate development times, and increase the productivity of their assets. This is resulting in increased infill and tie back activity in mature basins, new development projects both in oil and gas, and support for new exploration. With this backdrop, we anticipate more than $500 billion in global FIDs between 2022 and 2025, with more than $200 billion attributable to deepwater. This reflects an increase of nearly 90% when compared to 2016-2019. These FID investments are global taking place in more than 30 countries, and we are seeing the results with new projects in offshore basins across the world. This is reflected in the many contract awards highlighted in the earnings press release, notably in Mexico, Brazil, and Turkey. These contracts, in addition to many others, are building a strong foundation of activity outlook decoupled from short-term commodity price volatility. Moving forward, we expect further growth to be led by accelerating activity in Well Construction, new opportunities for Reservoir Performance in exploration and appraisal, expansion for Production Systems in subsea; and digital will enhance it all. In our business and the industry as a whole, the increased adoption and integration of digital technologies remains one of the most significant opportunities for growth. Indeed, our industry generates massive amounts of data, and by capturing that information and turning it into trusted and actionable insights, we can make energy production more accessible, more affordable, and more sustainable. This is a critical moment for our industry, and there are three digital trends concurrently shaping its future, clearly setting the path for a higher value lower carbon outlook. First, the adoption of cloud computing at scale. For geoscience workflows, this is supporting significant productivity gains for geoscientists and engineers across asset development teams. This is happening at a time when our industry is compelled to accelerate the development cycle and de-risk both subsurface and surface uncertainties. We continue to benefit from this trend in the adoption of our Delfi cloud-based digital platform, delivered through a flexible and personalized software- as-a-service SaaS subscription model with the cumulative number of users in global customer organizations growing 60% year-on-year to 5400. As we shared in our earnings press release, Petrobras and ENAP are only just two examples of customers deploying Delfi enterprise-wide with the aim of fundamentally changing how they work across the E&P value chain. Second, our industry is unlocking the power of data at scale. A single well can produce more than 10 terabytes of data per day. And this doesn’t even begin to touch on the total amount of upstream data across exploration, development, and production workflows. The adoption of open data platforms across the industry is liberating data for artificial intelligence AI applications at scale. SLB is benefiting from and driving this trend through both data foundations and AI deployment. We are seeing early success with the commercialization of our Enterprise Data Solution powered by Microsoft Energy Data Services. This offering delivers the most comprehensive capabilities for subsurface data in alignment with the emerging requirements of the OSDU Technical Standard. And we are witnessing tremendous success with our Innovation Factori, where we have developed more than 100 AI solutions with more than 80 customers since 2021, all of them with rich domain content in addition to generic AI capabilities. Third, digital operations are gaining in maturity, transforming the way operators develop and utilize assets. From automation to autonomous operations across both well construction and production, we are clearly seeing an inflection in the deployment of digital operations with significant impacts on efficiency, carbon footprint, and performance. Today, customers are accelerating their adoption of our Neuro autonomous solutions, with Kuwait Oil Company and PETRONAS both using these technologies to reduce manual operations while increasing performance, enabling drilling consistency and rig time savings. Similarly, our partnership with Cognite as a platform for unlocking access to production operations is gaining momentum in the industry, as exemplified with the Cairn contract highlighted in our earnings release. Finally, we continue to deploy Delfi Edge Agora technologies to deliver real-time insights directly within operations from connected hardware, where data is generated and processed with AI at the edge. We currently have more than 1,400 connected assets deployed, doubling year-on-year. SLB is positioned to fully harness these positive market conditions as well as our technology and digital leadership to drive financial outperformance and margin expansion. We are progressing on our journey to double the size of our digital business between 2021 and 2025, and the trends I have just discussed are reinforcing our confidence in the outcome of our strategy execution. I’ll next describe how we see the rest of the year progressing. After a positive first half, we remain confident in our full-year financial ambitions and have visibility into a significant baseload of activity that reinforces our 2023 full-year forecasts, and our growth ambition beyond. We continue to expect year-on-year revenue growth of more than 15% and adjusted EBITDA growth in the mid-20s. Turning specifically to the third quarter, we expect revenue to grow by mid-single digits in the international markets, with all international geographical areas growing sequentially, led by the Middle East and Asia. In contrast, North America revenue will be slightly down. With our focus on the quality of revenue, harnessing operating leverage, and further technology adoption, we expect global operating margins to further expand by more than 50 basis points sequentially. This will result into the highest EBITDA margin we have seen in this cycle. I will now turn the call over to Stephane.

Olivier Le Peuch:

Thank you, Stephane. Ladies and gentlemen, I believe we are ready to open the floor to your questions.

James West:

Hey. Good morning, Olivier, Stephane.

Stephane Biguet:

Good morning.

Olivier Le Peuch:

No, very good question, James. I think you may have realized that recently, we characterized the cycle as breadth, resilience and durability. And let me comment a little bit further on durability. And there are two or three elements to this. I think, obviously, we did comment on the return of offshore where we were the first to flag it and to call for the return of offshore. And I think we have seen this international offshore resurgence materializing in the last 12 months and accelerating. And in the second half, actually, the offshore rig count will be higher than the land rig count increase. So this momentum is driven by the economics of offshore assets where the FID now – the vast measure of the FID are below $50 and favorably positioned for FID. Also, the geologic and the low carbon nature of most of the assets, accessibility to these resources, and is both oil and gas. So offshore is having a resurgence that is translating into a very significant pipeline of FID, and we see it across not only the IOCs and independents that capturing this opportunity, but also the NOCs that have placed a bet on offshore, as you can see from Brazil to Middle East or the North Sea. So we see this happening at scale. We see also the emergence sort of the second leg of FID and future offshore expansion driven by exploration appraisal. Exploration appraisal is happening in many countries. There are many rounds of licensing rounds happening, a lot of exploration and appraisal is happening to find this next reserve and develop. So offshore is there to stay and not only in 2024 or 2025, but beyond as we can see, and with the second leg materializing. Beyond that, obviously, Middle East has made a significant commitment of capacity expansion both in oil of 4 million barrels or so and in gas for regional consumption, displacing oil for energy or for generating some blue ammonia or blue hydrogen products as well as further expanding the NG exports in Qatar, particularly. So the Middle East capacity expansion is leading to, as we have been quoting a record level of investment from this year onward, and is not set to again stop in 2024 as the vast majority of this capital expansion are towards the second half of the decade 2027 or 2030 for some of the target. So what we have seen lately and the feedback to the visits we have had is that the duration of the cycle as we were characterizing a year-ago is actually extending and is to be believed, prolonging to the right, and with a combination of offshore resurgence being very solid and Middle East being a capacity expansion beyond the next three years.

Olivier Le Peuch:

No, absolutely. I think we have been initiating the returns focused strategy a few years back. And I think we are getting the characteristics of cycle that's favoring and accelerating our strategy as we get the opportunity to not only get a favorable mix that included a bit more offshore Middle East exploration appraisal, but also higher technology adoption, including digital, including fit technology or including transition technology, all combining to give a premium to the – and a higher revenue quality. But I will not forget also the capital discipline that we have initiated as part of this strategy that is pushing us to high grade to the higher returns, higher margins contract as we move forward, and make sure that we get the best return for the capital we deployed and also to put a clear threshold on capital investment and capital stewardship going forward. So the combination, as I said, of the favorable mix, the technology adoption at scale with some secular trends in digital and the capital discipline that we have used to execute our strategy are allowing us to create the revenue quality improvement and the high grading on every portfolio and every business line we have to drive margin expansion. And we have seen margin expansion increasing, and we will continue to post this as we move forward.

Olivier Le Peuch:

Thank you, James.

David Anderson:

Great. Thank you. Good morning, Olivier. How are you?

David Anderson:

So I was curious on the Middle East Asia showed really impressive sequential growth during the quarter. I was wondering if you could talk a bit about what drove that. Was that just a reflection of the steady ramp-up of projects in Saudi and other Middle East markets, and also, you mentioned a directional drilling contract in the release. Was that a discrete contract? I know you're starting to see higher pricing on those types of contracts now?

David Anderson:

Okay. Thank you. And if I could shift over to the D&I segment. Could you provide some color on the non-APS businesses and how they've been trending? I'm particularly interested in the digital solutions business and kind of really what you're seeing in terms of digital adoption of your customers. I'm not sure if you can provide any metrics or any examples, but just kind of curious kind of how some of your customers are using it kind of this year versus a year ago. Is there any way to kind of show us kind of – or kind of explain to us kind of how that digital adoption is trending?

Operator:

We will go ahead and move on to the line of Arun Jayaram with JPMorgan Chase. Please go ahead.

Olivier Le Peuch:

I would think there are several aspects to that. One obviously is the progress the industry at large has made in efficiency, integration, technology, performance at large that is getting the curve shifting to the left on drilling the cycle compressing on subsea and the overall development cycle to be more derisked to digital. So technology, integration, performance at large has helped the operator and the service industry to deliver faster and to deliver the lower total cost, the development of those assets. The second element, I would think is that exploration has been creating a portfolio of assets that can then been high-graded. And then the quality of the resource, the high quality of the geological play and lower carbon and better plays that have a better production and recovery potential, have also emerged and have been more favorably primed and/or, I would say, prioritized by our customers. So these customers have choice and they focus on the best and the most advantageous assets and the most advantageous geological basins as we have seen it from Brazil to Guyana, and we are seeing in the Middle East for some of the gas assets as well. So the third, I think, dimension that is, I think, accelerating in our opinion is what is called infrastructure-led development or infrastructure-led exploration and development, which make the returns on incremental oil, incremental gas from existing hubs from an existing platform, lower cost than in the past because the capability to infill tieback and expand from an existing platform, getting a better return on existing infrastructure. Hence, we have seen a significant improvement and significant increase on investment into this infill and tieback and ILX, and it is called infrastructure-led development, infrastructure-led exploration, and that's – this is another trend that is lowering the average cost of FID for increment of oil pool or additional gas. So you combine all of this and you are getting better economics, hence, better and sustained and higher durability for the long-term offshore play.

Olivier Le Peuch:

Simply said, I think Russia revenue represented approximately 5% of our consolidated revenue in the second quarter and the decision that we have made last Friday to halt remaining shipments to Russia from all SLB facilities will not impact our financial guidance. So this decision will extend what you have seen as our previous ban on shipments from the locations that we had in the United States, the U.K., EU, Canada, into Russia, and we will continue to ensure that our remaining presence in Russia, meets and exceeds all international sanctions.

Olivier Le Peuch:

Thank you.

Scott Gruber:

Yes. Good morning.

Scott Gruber:

Yes. D&I margins snap back nicely in 2Q. And in the past, you've talked about D&I as a mid-30s type margin business, at least near term. But in terms of thinking about the second half, can you build off that 34%? Should we expect those to grind higher in 3Q and 4Q? And then more importantly, as we think about 2024 and given all the digital growth you think D&I margins could push into the high 30s, especially with hopefully some of the APS headwinds abating?

Scott Gruber:

And we should still think about that in 2024 as well?

Scott Gruber:

Got it. And then just a quick one on North America. Pretty impressive performance in 2Q with revenues up and the rig count – in contrast to the rig count being down. Obviously, Gulf of Mexico is helping you guys. Are you also seeing continued growth in that fit-for-basin strategy? Yes, go ahead.

Scott Gruber:

Got it. I appreciate all the color. Let's put it back.

Operator:

Next, we go to the line of Kurt Hallead with Benchmark. Please go ahead.

Stephane Biguet:

Hey, Kurt.

Kurt Hallead:

So you guys put up a really impressive free cash flow number in the quarter. You indicated that free cash flow dynamics would obviously improve in the second half of the year. So I'm just kind of curious, though, close to $1 billion of free cash flow in the quarter itself. Is this the dynamic now where you can continue to harvest that kind of cash? And is that level of free cash flow is something that you think could be sustainable as you go into the third and fourth quarter of this year?

Kurt Hallead:

All right. That's great. That's fantastic. And my follow-up, so Olivier, a lot of contract awards during the quarter. You discussed the emphasis on long-term visibility on a number of these projects. It's easy for us on the outside to kind of look at what goes on with an offshore driller and look at their contract start date sometime in the future. Maybe a little bit more challenging to kind of connect those dots to how a service company and at what point in time does a service company get slotted in for those projects. So I was just wondering for the benefit of everybody on the call and understanding where your visibility is coming from. At what point in time do you guys think that the Schlumberger get called into an offshore drilling project, for example? And what gives you the conviction and how can you can convey that conviction to the investor base and understanding that this cycle really does is different and has longer legs than what we may have seen in the past?

Kurt Hallead:

That's great. Really appreciate the color. Thank you.

Stephane Biguet:

Thank you.

Neil Mehta:

Yes. Good morning, team.

Neil Mehta:

Good morning. The first question is just around Production Systems. Margins were really good there. So can you talk about how we should think about the margin trajectory? And also tie that into any commentary you have around the subsea, which has been a source of momentum?

Neil Mehta:

And Olivier, when we saw each other a couple of weeks ago, you had just spent a lot of time on the road visiting a lot of customers in different regions. Wonder if you can just kind of go around the world and talk about customer conversations, obviously, name agnostic, and what are you seeing in terms of different basins in terms of activity?

Neil Mehta:

Thank so much.

Operator:

And next, we go to a question from Luke Lemoine. Please go ahead.

Olivier Le Peuch:

Good morning.

Olivier Le Peuch:

Yes. We typically do not speak ahead of any public announcements, the work we are doing on the ground to continue to prepare for further penetration of our existing customers. But yes, there are fairly advanced discussions with several customers to prepare for a transition and adoption of Delfi cloud solution, either for their geoscience workflow or for some of the drilling operations as I was referring to or for some of the adoption of AI and unlocking that data. So we are seeing this. And yes, you will see – you continue to see every quarter a new announcement that will come in the different, the three different dimension and trends that I was highlighting. And you will see large contract in the future, hopefully, materializing as well that will replicate the success we had with Chevron, who was the first very large enterprise deployment that many company are looking to towards and using to reflect some of their future opportunity they have with us. So that's happening at scale and we are pleased with progress. But again, it's a long journey and it's one customer at a time, and it will take years and the cycle will be long and will be accretive for the long run.

Olivier Le Peuch:

Thank you

Keith MacKey:

Hi. Good morning. Good afternoon, everyone.

Keith MacKey:

Just wanted to first ask on the subsea JV with Subsea 7 and Aker originally expected to close at the end of next month. Can you just remind us of the key benefits of that transaction? Maybe give us an update on where you are in relation to closing. And if you expect any impact to the numbers or the way you might report the numbers in the Production Systems segment going forward, would be helpful.

Keith MacKey:

Thank you. Appreciate the comments. And one final question for Stephane, just on the buyback. As free cash flow is set to increase in the second half of the year, should we expect any significant deviation from the $200 million-or-so run rate you've set for the first half of the year? Or is that still a good number to put in our models?

Keith MacKey:

Perfect. Thanks very much.

Olivier Le Peuch:

Thank you, Leah. Ladies and gentlemen, as we conclude today’s call, I would like to leave you with the following takeaways

Operator:

Ladies and gentlemen, thank you for standing by and welcome to the SLB Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for your questions. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to the Vice President of Investor Relations ND Maduemezia. Please go ahead.

Olivier Le Peuch:

Thank you, ND. Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I will cover three topics. I will begin with an update on our first quarter results; then, I will share our latest view on the macro and our positioning for long-term success; and finally, I will close with our outlook for the second quarter and full year. Stephane will then provide more details on our financial results, and we will open for your questions. It has been a great start of the year as we achieved results that set us on a solid footing for our full­year financial ambitions. On a year-on-year basis, our financial and operational results were strong across all geographies and Divisions. Following the remarks that are shared in our earnings release this morning, I would like to emphasize a few key highlights from the quarter. First, we delivered very solid year-on-year growth at a magnitude last seen more than a decade ago. Geographically, year -on-year growth rates in North America and internationally were comparable. More importantly, the rate of change is tilting more in favor of the international markets, where sequentially we experienced the smallest seasonal decline in recent times. Collectively, our Core divisions grew year-on-year by more than 30% and expanded operating margins by more than 300 basis points. We continue to position the core for long term success with significant contract wins and technology innovations that improve efficiency and lower carbon emissions. A great example is EcoShield, a geopolymer based cement-free well-integrity system and one of our latest Transition Technologies launched earlier this quarter. You will find many examples of these contract wins and the performance impact of our new technologies in today's press release. In Digital, we maintained strong growth momentum and also secured more contract wins. At a Division level, the amount of year-on-year revenue growth in Digital was somewhat masked by significantly lower APS revenue due to production interruptions in Ecuador and lower project revenue in the Palliser asset in Canada. Additionally, Digital continues to help us elevate our efficiency and margin performance in the Core, as we deploy these solutions at scale in our global operations. And in New Energy, we continue to make progress across our portfolio, notably with new Carbon Capture and Sequestration activities that raise our involvement to around 30 projects globally. CCS is recognized as one of the fastest-growing opportunities to reduce carbon emissions, and with the tailwinds from the US Inflation Reduction Act and other initiatives around the world, we expect more projects to move forward to final investment decisions in the next few years. Finally, we are delivering on our commitment to increase returns to shareholders. During the quarter, we relaunched our share buyback program, with repurchases totaling more than $200 million worth of shares. I would like to really thank the entire SLB team for their hard work and for delivering yet another successful quarter. Moving to the macro, we maintain a constructive multiyear growth outlook. Through the first quarter, the resilience, breadth, and durability of the upcycle have only become more evident. I would like to take a few minutes to describe these factors. To begin, the underlying demand, investments, and activity during this cycle are resilient, despite short-term economic and demand uncertainties. The combination of energy security, the initiation of long-cycle projects, and OPEC’s policy, sets the conditions for a de-coupling of the activity outlook from short-term uncertainties. Indeed, energy security remains a top priority for most countries, and is driving structural investments that are governed primarily by national interests. The extent of these investments is resulting into a broad-ranging growth outlook, comprised predominantly of resilient long-cycle projects in the Middle East, the international offshore basins, and in gas projects. Collectively, we expect these market segments to reach or exceed more than two-thirds of the total global upstream spend and support a long tail of resilient activity over the next few years. In parallel, the North America market, characterized by higher short-cycle exposure, is also set to benefit from positive demand outlook and supportive commodity pricing. However, this will be impacted by an anticipated activity plateau in the short term, which will subsequently be reflected in production volumes. Moving to the dimensions of breadth and duration, these are also best emphasized by the latest activity outlook for the Middle East and Offshore market segments. Fundamentally, the pivot to both segments as anchors of supply growth is a defining attribute of this cycle. This is providing an unprecedented level of investment visibility and a scale that is setting many records. In the Middle East, the largest ever investment cycle has now commenced. This will support ongoing capacity expansion projects over the next four years, in both oil and gas. Consequently, this year we expect to post our highest revenue ever in the Middle East putting us on track to achieve our multi-year growth aspirations. Simultaneously, we are witnessing further activity expansion in the offshore markets. Offshore activity continues to surprise to the upside, with breadth and a diversity of opportunities across all major basins. In addition, the latest FID projections and industry reports indicate that the offshore sector is set for its highest growth in a decade, with more than $200 billion in new projects through the next two years. This growth will be supported by three layers of activity

Olivier Le Peuch:

Thank you, Stephane. Ladies and gentlemen, I think we will open now the floor to your questions.

James West:

Good morning. Olivier, you and Stephane, you outlined kind of an unprecedented, quite frankly, amount of contract awards, amount of visibility into the cycle. And curious, as you talk to your customers now, what you see as the durability of those awards, given the global volatility in economies and things of that nature. How are you thinking about the next several years? How are you guys perceiving kind of the steadiness of these contract awards and their ability to continue to go forward, even if we were to have a recession or something like that? And how that would influence your revenue and results?

James West:

Okay. That's perfect, Olivier. And then a follow-up for me. In terms of pricing, international and offshore versus maybe North America, kind of what you're seeing there in terms of the level of concern or maybe not concern but level of willingness to accept pricing increases. It seems to me like customers internationally and offshore more looking at or concerned about availability of service capacity rather than what it actually costs.

James West:

Great. Thanks Oliver.

Operator:

Next, we go to David Anderson with Barclays. Please go ahead.

Olivier Le Peuch:

Good morning, Dave.

Olivier Le Peuch:

Yes. No, I think you are correct. I think the supply of high-performance equipment in the Well Construction domain is under stretch today. And I think we are working very closely with our customers to prioritize equipment, price technology application and use integration, use digital to help deliver the performance they expect. So there is a stretch indeed in this. But going forward, I think we are committing the resource when we see the returns to be accretive to our margins and align with our expectation and ambition to continue to expand margins. So where we see the most activity, clearly, this year is an uptick and this will be the case as sequentially next quarter is in Middle East and offshore. A combination of an integrated contract we have in offshore with relatively complex assets on occasion that demands a lot of technology deployments. And the intensity of activity in Middle East, that is a mix of short-cycle and long-cycle development project, this combination is unique and I think will be putting more resource, more equipment, more technology and will drive revenue forward up.

Olivier Le Peuch:

Yes, it was, indeed, absolutely. I think offshore is not only international, I think offshore is happening in North America. North America as northeast Canada, Alaska offshore and go from Mexico, the combination of which is set to grow and our pace this year, the -- I would say, the U.S. land and North America (NAM) activity. So we are also getting the benefit of our fit for basin success in North America that continues to hold and help us maintain, grow our share and come on a premium on pricing.

Olivier Le Peuch:

All of the above.

Olivier Le Peuch:

Indeed. But I think, indeed, Dave, I think first, in this quarter, obviously, the growth, and we have seen growth rate in Digital that is aligned with our expectations, aligned with our ambition to double revenue from 2021 to 2025. We have seen, as Stephane mentioned, during his prepared remarks that the new technology edge and cloud is growing at more than 50%, continuing on the trajectory that we have set in the last couple of years. And we don't see any sign of this slowing down. And indeed, expansion will come from multiple dimension. Obviously, getting more consumption from the existing customer we have. And we are today deploying one of the largest contractor in Petrobras, where we were and we are meeting with the team here, very satisfied deployment and growing number of users. That's an axis then growing number of applications, and that's where we want to deploy and go beyond geoscience, our petrotechnical suite, if you like, to digital operation, production and digital operation into the drilling domain, automating the full rig well construction process. And again, in Brazil, we are very pleased to meet with Equinor and look after the Peregrinoplatform, we're about to deploy for the first time in the world a full automated top side to bottom assembly, fully automated autonomous digital journey that we'll realize this year. So we have both the geoscience application deployment, the digital operation, and we have new customers coming in, and you have seen some new contracts that we announced this quarter. So we are growing to the pace we are expecting to be our trajectory to double. And in this quarter, this was unfortunately masked fully by the APS setback, but we expect this to resume and to be actually one of the leading growth sequential that you would see in the second quarter.

Olivier Le Peuch:

Thank you.

Chase Mulvehill:

Good morning, Olivier.

Chase Mulvehill:

So a quick question. I guess coming back to international and just kind of focusing there. We get questions on this international ramp. And because the last six months, we've seen some oil price volatility. We've seen a couple of OPEC+ cuts. And so we kind of get a lot of investor questions if there's been any signs of OPEC slowing down, any kind of planned projects or CapEx plans. So let me just ask you if you've seen any indications of OPEC+ members slowing things down at all in the Middle East.

Chase Mulvehill:

Okay, awesome. Appreciate the color there. The follow-up is really kind of on CCUS. You had a lot of announcements in your press release, which really highlighted your experience on the sequestration side. But there are other parts, obviously, of the value chain. And are there other parts that you would actually think that would be a good fit for SLB, like possibly the capture technology side?

Chase Mulvehill:

Okay. Awesome. Appreciate the color there. I'll turn it back over. Thanks Olivier.

Operator:

Next, we go to the line of Arun Jayaram with JPMorgan. Please go ahead.

Olivier Le Peuch:

Yes. Let me take it at the level of Production System first and let me give a quick zoom. So the booking we are talking about is at the Production System level, which is the division encompassing our production system equipment capability from Subsea, as you pointed out, from actually in well completion, in well actually, subsea surface system processing capabilities. So when you put all of this together, you get an end-to-end from port to process, from send phase to processing that is quite unique in integration and delivery capability, hence, the opportunity we have to participate at scale and be a provider with our partner, Subsea 7, into the product of TPAO that you heard about where the first gas to flare was realized yesterday and celebrated by the -- in country. And this is quite unique so that's differentiated. We have end-to-end integration capability. We can design and deploy and develop a gas facility, and we have done this in the past and we can link it to with our partners to our subsea development and participate to the completion architecture. So this end-to-end is quite unique and give us opportunity to participate at a large scale into development. Now very specific to Subsea, I think we are also quite differentiated into the way that we can connect to the subsurface and we have this integration capability from the sub to the completion architecture. And one thing in particular I would like to highlight or two things. First is the electrical capability of transforming this Subsea 3, the subsea control and the subsea and well completion control into electric -- full electric capability. This is a game changer for the deepwater industry, game changer for low carbon and control -- digital control of subsea equipment and control of zone equipment and completion. This is very much again the case in Brazil. We are very fortunate to have established here a unique center of excellence, and we have, under the sponsorship of A&P working with multiple operators that have joined us into a joint development program where we are deploying and we will soon deploy everything from subsidiary to septic valve to flow control valve, fully electric, that would change the game and creating a new step. So that's differentiated. With differential obviously are processing, boosting and processing capability. You remember the award that we got last year into Shell for gas processing subsea equipment into a large installation in -- and you have seen two awards this quarter in Brazil, highlighting our boosting capabilities. So we're unique into that position. And again, ability we have to integrate processing equipment subsea with the rest of equipment well or surface is unique. And that's something that is adding to our digital capability as well. So when it comes to the announced JV, I think we are seeing the process of going to the regulatory bodies in different parts of the world so I cannot comment any further than what we commented earlier. This is an exciting outlook, exciting opportunity. But until close, we'll move forward.

Olivier Le Peuch:

If anything, this visit has been outstanding, outstanding for the Board, outstanding for engagement we have customers and clearly highlighting the potential of Brazil to be fulfilling a significant supply growth. In the future, as I said, A&P and Brazil has ambition to reach or exceed 4 billion barrel from 3.3 billion today, I mean, on barrel per day. And they have already laid out the foundation of this of both production enhancement into the basin, the basin or the land basins and accelerating -- continue to accelerate the development of the sub-salt deepwater with up to 20 FPSO already into the play. So I think they also are pushing forward to the next frontier. They are about to explore Ecuador margin that give us another leg, if you like, of Brazil growth in the future beyond the already committed multi-year FPSO contract that are in place. So we don't see any change. If anything, we see an acceleration and extension of the duration of this Brazil outlook. And if I had to highlight one noticeable change that I've seen, a commitment to decarbonize, a commitment to digitalize that I think is the new -- the leadership is recommitted to. We have seen it and you will see it in the future. Digital operation will accelerate in Brazil by the main operator here. And the country will accelerate this commitment to CCS. We are very fortunate to be on the first and only bioenergy CCS project in Latin America with FS Bioenergia. And we met the team two days ago, and they are very pleased the progress we are making on the CCS product in Brazil. So you will see more activity and no slowdown, but any upside -- only upside to the offshore environment and then a low carbon and digital transition accelerating as well.

Olivier Le Peuch:

Thank you.

Neil Mehta:

Good morning, team. First question was around cash flow and working capital specifically was a bigger outflow than we had modeled in the quarter. Does that all reverse over the course of the year and you could talk about some of the moving pieces around that?

Neil Mehta:

That's really helpful. The follow-up is just the margins at Digital. I think it's hard to isolate because of some of the volatility around APS. Can you give us a sense of how you're seeing the underlying margin trends at the core Digital business? And in Q2, that segment margin progression, I would imagine, strengthens as you work through some of these Ecuador challenges.

Neil Mehta:

All right. Great. Thanks team.

Stephane Biguet:

Thank you.

Scott Gruber:

Yes, good morning.

Scott Gruber:

Good morning. Olivier, you mentioned the resurgence in exploration, which is great to hear for SLB. One concern out there though is the potentially limited number of experienced geologists across the customer base to prosecute the exploration programs just because G&G departments were definitely scaled down during the pandemic. Is this a legitimate constraint on the strength of the exploration cycle? Or is this capability being rebuilt across the industry? What are you seeing on that front?

Scott Gruber:

That's great. And just how would you compare the strength of this exploration cycle? So those are the path. Is the trajectory trending us back towards that 2011 to 2014 period? Could we possibly get back to the mid-to late 2000s levels just as tieback opportunities are consumed? Just some color on the potential strength of this exploration cycle relative to history would be great.

Scott Gruber:

I appreciate the color. Thank you.

Operator:

Next, we go to the line of Roger Read with Wells Fargo. Please go ahead.

Olivier Le Peuch:

I think the energy security, the supporting commodity price outlook and the desire indeed to go and leverage the cycle to explore and to tie back reserve to the existing advantage basin or to fast-track gas or new oil pools as I described earlier. Now the timing of it, the acceleration, I think, is linked more to the availability of -- and the contracting of deepwater rigs or the contracting of rigs offshore or land on some occasion when it is -- when this exploration is happening. More than yes, but the cycle has started last year of E&A return is accelerating in line to some extent, with the offshore acceleration. And I think it will be part of the mix and will give an opportunity to extend and create a new leg of activity and a new leg of FID in two or three years from now when those exploration will have been appraised and will be FID at that time. So I think it's more -- it's an underlying trend that have started in the last few quarters and have accelerated. And I think that is a more long view that customers are taking and not looking at the short-term uncertainty or short-term commodity price variation and committing on one new basin or committing on expanding near-field exploration. So that's the way we have seen it.

Stephane Biguet:

So look, Roger, on EPS, we really have to distinguish Ecuador. These are service contracts, tariff-based. There's no intention to exit. And we do need to maintain a minimum level of investment. But rest assured, these projects are highly positive in terms of not only earnings but cash flow. The Canada asset is a bit different. This is a pure equity position. And it's also very accretive in terms of cash flow even at current commodity prices. And as you know, we ran a process on that particular asset last year. We were not satisfied with the offers we received. So at the moment, we are happy with keeping that asset and the cash flow it generates. But if one day, there is an offer at the right price, we'll certainly consider it.

Olivier Le Peuch:

So ladies and gentlemen, I think I want to give a close to this call. It's almost to the hour. So to conclude today's call, I would like to leave you with the following takeaways. First, the quality of the unfolding upcycle in oil and gas is improving, with unique attributes of resilience, breadth and duration. This is very much evidenced by the strengthening outlook in both Middle East and offshore markets and further reinforced by the tight supply balance as demand forecast approach new highs at year-end. Second, our strong start of the year gives us further confidence in our full year financial ambition. Directionally, the dynamics in international markets will likely offset the moderation of activity growth in North America. In fact, we are witnessing a gradual shift from short-to long-cycle investment and a further transition to international, with both effects closely aligned with our strengths and paving the way for an exciting outlook for years to come. Third, our overall performance demonstrates the strength of our portfolio, focused on the most attractive and resilient market segments globally, both in oil and gas and low-carbon solutions. Our divisions continue to align with customers at most priorities on value delivered to performance and integration, with digital transformation and decarbonization as industry mandates. Additionally, pricing continues to trend positively, enabling us to extract more value for our products and services. As a result, we reaffirm our ambition to further expand margins as the cycle unfolds, to grow earnings to new levels in this cycle and to significantly increase returns to shareholders as further demonstrated this quarter. I remain very confident in the alignment of our strategy to formal trends in the energy market and fully trust the SLB team to continue outperforming in this context. Now before I close, I wanted to announce that ND Maduemezia will be moving to a new career opportunity in SLB after remarkable stands in his position as Investor Relations VP for the past three years. Thank you, ND, for the support and positive engagement with our investors and market analysts. Replacing ND is James McDonald, who is transitioning from his previous role as Americas Land Basin President. Welcome, James. With this, I want to close today's call and wish you all the best. Thank you. Good day, everyone.

Operator:

Ladies and gentlemen, thank you for standing by. And welcome to the SLB Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to the Vice President of Investor Relations, ND Maduemezia. Please go ahead.

Olivier Le Peuch:

Thank you, ND. Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I will cover our fourth quarter results and follow this with a quick review of our full year 2022 achievements. Then I will share some thoughts on the outlook for the full year. Stephane will then provide more detail on our financial results and we will open for your questions. To begin, we sustained growth momentum through the fourth quarter, delivering strong revenue growth and further margin expansion, both sequentially and year-over-year. The quarter was characterized by very strong activity growth in the Middle East and offshore and was augmented by robust year-end sales in Digital. Growth was once again broad-based and our operational, commercial and earnings performance was outstanding. We ended the fourth quarter with sequential revenue growth and margin expansion in North America and in all international areas. In the international markets, quarterly revenue topped $6 million for the first time in more than four years. Additionally, our international revenue growth rate has visibly outpaced the international rig count growth since the cycle trough in 2020. Service pricing, new technology and digital adoption all continued to trend positively. Looking broadly over the second half of the year, the pace of growth in North America significantly moderated. At the same time, international accelerated, growing in excess of 20% compared to the first half of the year, almost twice the growth rate of North America. We are clearly witnessing the start of a new phase of -- in the growth cycle, which will increasingly be driven by resilient international growth. This market dynamic led to a lower-than-usual cash flow performance at year-end. However, we further reduced net debt during the quarter and closed the year below our leverage target. Overall, these fourth quarter results helped us surpass our revised full year revenue guidance and we closed with EPS, pre-tax segment operating income and margins all at the highest levels in seven years. Switching to the full year, 2022 was pivotal for our industry and for SLB. It marked the second consecutive year of outperformance for the energy sector, providing further evidence of the multiyear upcycle and investment momentum that is underway. I would like to take a few minutes to reflect on what we achieved. We announced our new brand identity, with sustainability embedded in everything we do and opened a new chapter for the company. This firmly positioned helped SLB to benefit from the underlying macro trends that will shape the future of the energy, Oil & Gas Technology Innovation, Industrial Decarbonization, Digital Transformation and New Energy Systems. We executed consistently for our customers, achieving our best safety and operational integrated performance on record. We advanced our technology leadership and service quality differentiation, leading to more contract awards, higher technology adoption and increased pricing premiums. In our Core Divisions, we expanded pre-tax operating margins by more than 300 basis points. This was led by well construction, which expanded margins by more than 550 basis points. We also launched new products, services and solutions that increase efficiency and lower operational emissions. You have seen many examples of these in today’s press release. Our Fit-for-Basin, Technology Access and Transition Technologies Portfolio have fueled growth and margin expansion in every division and every geographic area throughout the year. And we continue to strengthen our Core portfolio for growth and position for future resilience and returns with the acquisition of Gyrodata and the announced joint venture with Aker Solutions for subsea. In Digital, we had strong growth in Exploration Data, INNOVATION Factori and AI solution sales, and the adoption of our new tech digital platform is accelerating. We ended the year with more than 270 DELFI customers, more than 70% growth in DELFI users and our SaaS revenue more than doubled. These positive undercurrents combined with higher APS revenue, contributed to the Digital & Integration Divisions, expanding pre-tax operating margins by more than 170 basis points. We continue to build adjacent expansion opportunities for our Digital business, both in operations data space and beyond oil and gas, such as carbon management. And in New Energy, we progressed technology development milestones, established new partnerships, particularly in CCS, and made new investments that have created a focused, yet comprehensive portfolio that offers promising growth opportunities for the future. Today, this portfolio comprises five business areas, Carbon Solutions, Hydrogen, Geothermal and Geoenergy, Critical Minerals and Stationary Energy Storage, and we are accelerating our R&D efforts to develop technology solutions that address hard to abate industrial and power generation emissions. As you see, our three engines of growth are on solid footing and are positioned for market success. In sustainability, we reduced our own carbon emissions intensity in Scopes 1 and 2, and we continue to be one of the highest ranked companies in our industry across the four rating agencies. We also made significant advances launching SLB End-to-End Emission Solution or SEES, an industry first to help our oil and gas customers address methane and other greenhouse gas emissions. Finally, for our shareholders, we demonstrated our commitment to superior returns. We increased our dividend by 40% in April 2022, followed by a further 43% increase announced today and resumed our share buyback program this month. These achievements highlight a remarkable year for SLB and speak to how we have successfully leveraged the breadth of our portfolio and our competitive strengths to deliver peer-leading outcomes for our customers and shareholders. We are primed for significant success and look forward to carrying momentum into the year ahead. I would like to extend my thanks to the entire SLB team for delivering an outstanding year. Moving to the macro, we enter 2023 against the backdrop of market fundamentals that remain compelling for both oil and gas and low carbon energy resource. First, despite concerns for potential economic slowdown in certain regions, oil and gas demand growth remains resilient. The IEA forecasts that oil and gas demand will grow by 1.9 million barrels to reach approximately 102 million barrels per day. In parallel, markets will remain tightly supplied with modest production increases offset by the end of SPR release and well productivity declines in certain regions, most notably in North America. Second, there is a greater sense of urgency around energy security. This is resulting in new investment in capacity expansion and diversity of supply. You will see this reflected in the number of new projects sanctioned, gas supply agreements signed and the return of offshore exploration, all at a pace unforeseen just 18 months ago. And third, the secular trends of digital and decarbonization are set to accelerate, driven by significant digital technology advancement in cloud and AI, favorable government policy support in New Energy investments and increased spending on low carbon initiatives by operator globally. Underpinning everything, commodity price remained at supportive levels for durable investment. In North America, spending growth is expected to be more restrained after an exceptionally strong year in 2022. Capital spending growth is expected to increase in the high teens as rig counts potentially approach a plateau. Public companies, particularly the majors, are expected to increase short-cycle spending in key U.S. land basins and drilling activity remain strong to build up well inventory and support target production increase. In the U.S. Gulf of Mexico, where we have a significant presence, we expect the strong spending uplift to continue. Turning to international, markets are poised for strong growth in the Middle East and Latin America geographically, and more broadly, in offshore and in gas. In the Middle East, we expect record levels of upstream investments, with a ramp-up in various capacity expansion projects designed to deliver more gas production and a combined oil increment of 4 million barrels per day through 2030. Offshore activity will continue to strengthen as tiebacks and new development projects mobilize and new FID’s are sanctioned, while Russian activity is expected to contract. Excluding Russia, customers’ capital spending internationally is expected to increase in the mid-teens. The combination of long-cycle oil capacity expansion projects, offshore deepwater resurgence and strong gas development activity will be a key driver for the multiyear duration of this cycle. This outlook is very favorable for SLB with multiple paths of resilient growth in Core, Digital and New Energy. On a full year basis, our ambition is to grow revenue in excess of 15% compared to 2022, supported by the step-up in international and offshore momentum, which will augment growth established in North America. As a result, year-on-year adjusted EBITDA growth will be in the mid-20s driven by further margin expansion. More specifically, in the international markets, we foresee growth in the high-teens, excluding Russia, which is set to decline this year. We expect the highest growth rates to be realized in the Middle East and in offshore markets, particularly in Latin America and in Africa. In North America, we anticipate about 20% growth supported by offshore strength, land drilling activity and higher pricing. Full year margin expansion will be driven by further positive pricing dynamics, increased technology adoption and improvements from our enhanced operating leverage, mainly internationally. Let me share with you how we see this year unfolding. Directionally, during the first quarter, we anticipate a typical pattern of activity, beginning with the combined effect of seasonality and the absence of year-end product and digital sales. Additionally, the first quarter will reflect some impact of year-on-year Russia activity decline. This will be followed by a rebound in the second quarter and further acceleration of growth trajectory in the second half of the year, particularly in the international markets. This typical pattern of activity and the favorable dynamics I described earlier combine to support the ambition we have set for full year growth and margin expansion. In addition, the beneficial impacts of an earlier than expected reopening in China, the easing of inflationary trends and any further restriction on Russian exports could lead to an acceleration of short-cycle activity globally and fast-tracking of FIDs internationally. This could present further upside over the second half of the year. I will now turn the call over to Stephane.

Olivier Le Peuch:

Thank you, Stephane. Ladies and gentlemen, I think we are ready for opening the floor to the questions.

Olivier Le Peuch:

Good morning, James.

Olivier Le Peuch:

No. Indeed, I think, let me reframe a little bit of the guidance we shared.

Olivier Le Peuch:

As we see today, the combination of offshore Middle East and broad gas investments internationally will continue to support a very solid growth internationally. We are seeing -- as we have seen in the fourth quarter an uptick into the rate of growth for Middle East and that’s driven by a commitment to oil capacity increase and further gas development. And this, as I commented briefly in my prepared remarks will lead Middle East investment to be on record ever as we anticipated in this year or next year. And as a result, will generate significant pull for our revenue going forward. But I think what I will say is that, what is characterizing international as we see it, is that it has a lot of resilience, because it’s multi-pronged. It moves multiple engines, short and long, oil and gas, offshore and onshore. And I believe that the multiyear commitments for capacity expansion and gas development in Middle East is combining with offshore long-cycle, a return of deepwater, which is the operating environment that will see the most activity increase this year and also the return or the acceleration of exploration and appraisal offshore, which would be one of the defining characteristics of the quarters to come. So when you combine all of this, you are getting a very resilient multi-pronged and multiyear sustained growth pattern for the international market. And I think that’s what we see and it will indeed support not only growth this year, but it will support year growth next year and the years to come and it will be multi-pronged and fairly broad and with multiple geographic impact.

Olivier Le Peuch:

Yeah. Yeah. Absolutely. First, I think, to define, offshore has been, I think, seeing an uptick that started about 18 months ago. We don’t see it abating and we see it continue to steadily grow. I think what is changing this year is that, whereas the shallow water environment was leading the growth to a large extent in the early part of this offshore cycle expansion. We are seeing the deepwater to catch up and including indeed exploration and appraisal activity that is set to visibly outpace international offshore activity actually. So deepwater will be the highest operating environment activity growth in 2023, and as part of it, exploration appraisal will be also outpacing and slowly rebounding. So it’s visible in multiple regions and I think you have seen East Mediterranean with a couple of announcements by two or three major announcements of gas discoveries that are set to be appraised further and then for future development. You have seen some last year announcement in the South Africa and Namibia Basin that also get additional appraisal and future development. And you have seen that the East Atlantic margin and/or Suriname and Guyana remain very hot. And finally, East Asia is also seeing some deepwater gas exploration at the same time. So you have this four or five offshore mostly deepwater areas that are seeing exploration appraisal results of gas and oil, energy -- gas and energy security and oil - pursuit of oil reserve replacements by major and by national -- large national company. So I think this is happening. And this builds on top of the very high shallow water activity that has already rebounded and is set to further accelerate in the Middle East, where be it in Saudi and UAE or in Qatar, we have a combination of oil and gas offshore development plans that are in place. So offshore outlook is strong and is here to stay for years to come.

Olivier Le Peuch:

Thank you.

David Anderson:

Hi. Good morning, Olivier. So two things really kind of…

David Anderson:

Hey. Good morning. So two things really stood out to me today, I guess, the first was you calling this a distinctive new phase of the cycle, but also really kind of what it means for the duration of the cycle, what I’d like to ask you about. So first, on the Middle East, it’s clearly now taken standard stage. You have talked about a record level of upshoot in spending in the next few years. In a lot of ways, it’s feeling like 2005 again. But I was wondering if you could talk about how this cycle could be different for SLB in this region for the perspective of the types of work you are performing, how are the contracts being tendered differently and really what that means for the pricing opportunity both within discrete services and integrated contracts?

David Anderson:

And how are the contracts different, before -- last cycle I don’t think we really talked about integrated drilling contracts or kind of LSTK contracts. I think it was mostly discrete services. So is that different today and how does that change sort of your business, I think, is there more opportunity…

David Anderson:

… is some more risk there as well?

David Anderson:

Thank you. And just a secondary question -- second question just a follow-up on what James was asking about on the offshore side. Obviously, you feel confident in the duration, we are seeing this kind of shallow water business, which you didn’t really have in the Middle East before. But thinking about the deepwater side, we are seeing rig contracting picking up materially. Petrobras, it seems to be cornering the market on deepwater rigs. So I guess my question is sort of similar to my other question, how is this different this time. Is the customer base changing much from what you see, is it going to be the same big players that we saw the last time and so is that changing much? And I am just sort of thinking that should we be expecting to see a bit more of a pronounced inflection in the second half of the year as deepwater comes on?

David Anderson:

Okay. Thank you.

Operator:

Next we go to Chase Mulvehill with Bank of America. Please go ahead.

Olivier Le Peuch:

Hi. Good morning, Chase.

Olivier Le Peuch:

I cannot comment on that industry. I think I can comment on what I see as activity outlook and what we see in our backlog and type of activity for subsea. So the undercurrent, if I was to use that terminology for subsea are very strong, because on the outlook, the mid- and long-term outlook, because of this deepwater activity that includes exploration appraisal and future development. FID -- offshore FID for 2023 is set to be the high since 2012, 2013, indicating that there is a pipeline of subsea activity in the horizon and we have seen some of it materializing in our work this year. We are seeing also some infill drilling, tieback activity, which benefited us in recent quarters and we are very reassured that the market is inflecting for further growth. And indeed, the conditions are set for price to be accretive into the margin, into the backlog going forward to build up and to resume some extent previous subsea margin. But I cannot comment on the industry at large, but I believe this is an industry that is very critical to the success of offshore development and where we see a lot of collaboration, engagement, technology development and critical technologies like subsea processing, boosting and trends are positive as we see it. And we are -- as you know, we made a strategic decision to align with -- to form a JV with Aker Solutions and Subsea 7 to address that market opportunity, and that this announcement reflects our view on the market.

Olivier Le Peuch:

Yeah. First, because you pick on it, I think, I’d like to first reflect on North America. North America has been a fantastic success in the last 18 months, 24 months. I think the rate of growth that the team has achieved both in offshore and land market has outpaced the re-growth visibly, the success in our technology offering and fit and tech access model that has been very successful there. I think as we expanded margin, as you have seen, our margin are the very, I would say, different, if not very accretive level today in North America. So this is a very good base to be on. And as the market 2023 unfolds, first there is a little bit of a shift to drilling to rebuild the DUC inventory that will favor us in a month and a couple of quarters to come before the usual plateauing or a moderation of growth in the second half. But we see an increased level of rig activity in North America, and clearly, on the momentum of -- and it’s typically it happens in the early part of the year before it plateaus in the second half and that’s nothing new. That’s a pattern that we expect, hence it will have an impact on the first quarter. And then we see a continuation of the offshore strength and in -- be it in Gulf of Mexico, in east Canada or further North in Alaska and this activity set to continue to grow in 2023. So NAM will be indeed an engine that will support growth in the first half. And by contrast, as I said, the usual pattern of seasonality internationally in the Northern Hemisphere will be offsetting this and we will also this year have the effect of the Russia year-on-year decline that we expect to impact negatively. So you have a mix there that I think we have described and but NAM will be an engine of growth in the second -- the first half.

Olivier Le Peuch:

Thank you.

Arun Jayaram:

Yeah. Good morning, Olivier.

Arun Jayaram:

I wanted to get your thoughts, Olivier, on the level of service intensity that you are seeing, particularly in the Middle East, perhaps, relative to the 2009, 2014 cycle, as well as thoughts on the spare capacity -- OFS capacity in markets like the Middle East and offshore?

Arun Jayaram:

Great. And just -- I want to follow up on this -- on performance. How -- Olivier, how are your key, call it, NOC partners differentiated in between performance, and call it, the lowest cost bid in terms of tender awards? Are you seeing more direct awards, but how is this -- how are the tendering process being impacted by this focus on performance?

Arun Jayaram:

Great. Thanks a lot.

Operator:

Our next question is from Scott Gruber with Citigroup. Please go ahead.

Olivier Le Peuch:

No. I believe that the market has still room to grow. I believe first from the activity, as I described, albeit I think, it’s very well known that the limited access to the Tier 1 inventory and acreage and the stretch on capacity in the market has created a negative inflection onto the well productivity. But we expect the major, the public to this extent and much less the private to drive the growth this year. In this market, we are well positioned, because we have a technology access model and Fit-for-Basin technology that has in drilling onshore made a performance impact and has been recognized hence has earned a premium. We have a production portfolio -- production system portfolio that is set also through our ESP or frac trees to succeed. So we see further runway both in growth and in margin expansion as the market is still stretched and similar to international market, the market recognizes the opportunity to differentiate to performance, particularly the public company. So our view is that in the North America both land and offshore. There is not only activity-based growth coming this year not to the same magnitude in land market like last year and still support also pricing, considering the stretch and considering the recognized premium on Fit technology and on performance and part and this is true both on land and on offshore environment.

Olivier Le Peuch:

No. That’s -- I think that’s a market comment directionally and in line with some independent market analysts view. This is five to or single-digit to teens digit decline and we align with this view and I think our market activity will decline accordingly.

Olivier Le Peuch:

Thank you.

Operator:

And it is from the line of Roger Read with Wells Fargo. Please go ahead.

Olivier Le Peuch:

Good morning, Roger.

Olivier Le Peuch:

Yeah. I think we have commented this before and we have commented that offshore is an intensity of 5 times revenue intensity per rig and we maintain that view, whether this can expand depending on the intensity, depending on the market mix, depending on the pricing, I think is, I would say, a floor to some extent. But, yes, we see the deepwater accelerating and I think it’s something that is not only in one region, but I think it’s pretty broad. As I commented, it’s Latin America, it’s Africa, it’s East Med and is to some extent also East Asia. Hence, this addition, I mean, we are not talking about necessarily 50 rigs, but one and twos and threes rigs in those regions. And the fact that they are relating to also a content of exploration and appraisal is creating a mix that is favorable in the quarters to come, I would say.

Stephane Biguet:

So, I think, you clearly have to distinguish the CapEx portion, which is directly correlated to the level of activity and the APS investments. So together as we guided, this is a total envelope for 2023 of $2.5 billion to $2.6 billion. Within this, the CapEx portion, as we said, we will continue to target a range of 5% to 7% of revenue. So it allows us to flex it based on activity, but we will not go above this and it will be probably pretty similar to the percentage we saw in 2022.

Stephane Biguet:

No, no, no. Not at all. Still the same target range.

Operator:

And our next question is from Luke Lemoine with Piper Sandler. Please go ahead.

Olivier Le Peuch:

Good morning, Luke.

Olivier Le Peuch:

Yeah. I think, again, to make sure we are clear on the commentary we have shared. I think I was specific about the later part of the year, the ’27 to 2030 oil capacity and gas development commitments in the Middle East, okay? Offshore, similarly, I think, it’s a typical development and FID that are being blessed and sanctioned this year and years to come, have three years to five years horizon. So combining the, what is expected to be the FID and dollar value in offshore environment in 2023 in the last 10 years with a pipeline is still strong going forward, we indeed expect three years to five years follow through on offshore from today and combining with Middle East, the rest, I think, is more related to short-cycle and it’s difficult to combine. But I think these two major growth engines internationally, I think, have the potential to sustain a very resilient growth of international environment for years to come. Indeed, that’s correct and that’s hypothesis at this point.

Olivier Le Peuch:

Thank you.

Kurt Hallead:

Hey. Good morning.

Kurt Hallead:

So, Olivier, I wanted to kind of follow up as you kind of laid out your financial targets back from your Analyst Day in November and it looks like you are very much on track to kind of meeting those targets. And I just want to get a sense now as we are kind of entering into 2023, you got -- are you getting a feeling that the market momentum in both international and offshore is even better than you thought it was when you laid out your plans for the Analyst Day in November?

Kurt Hallead:

Okay. That’s great color. And then a lot of great information around your core businesses, just kind of curious now what -- if you could give us a brief outlook on what’s happening on the New Energy side?

Kurt Hallead:

Sounds great. No. I appreciate the color. Thanks, Olivier.

Operator:

And ladies and gentlemen…

Operator:

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

Ndubuisi Maduemezia:

Thank you, Leah. Good morning, everyone and welcome to the Schlumberger Limited third quarter 2022 earnings conference call. Today’s call is being hosted from Houston, following the Schlumberger Limited Board meeting held earlier this week. Joining us on the call are Olivier Le Peuch, Chief Executive Officer; and Stephane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest 10-K filing and our other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our third quarter press release, which is on our website. With that, I will turn the call over to Olivier.

Stephane Biguet:

Thank you, Olivier and good morning, ladies and gentlemen. Third quarter earnings per share, excluding charges and credits, was $0.63. This represents an increase of $0.13 sequentially and $0.27 when compared to the third quarter of last year. This was the highest quarterly earnings per share, excluding charges and credits, since the fourth quarter of 2015. Overall, our third quarter revenue of $7.5 billion increased 10% sequentially. We witnessed a clear acceleration of growth during the quarter as evidenced by the 28% year-on-year revenue increase. Consistent with our expectations, activity shifted towards the international markets, particularly offshore. As a result, we experienced international sequential revenue growth of 13%, which significantly outpaced North America. Although we experienced volatility in certain foreign currency exchange rates across the world, the overall net effect on our revenue was negligible both sequentially and year-on-year. Turning to our profitability, pre-tax segment operating margins expanded 161 basis points sequentially to 18.7% and adjusted EBITDA margins increased 91 basis points to 23.5%. Margins also increased significantly as compared to the third quarter of last year, with pre-tax segment operating margins increasing 320 basis points year-on-year, while adjusted EBITDA margins increased 133 basis points. This significant margin expansion illustrates the benefits of the operating leverage and pricing momentum we have as well as our ability to manage inflationary headwinds. Let me now go through the third quarter results for each division. Third quarter Digital & Integration revenue of $900 million decreased $55 million sequentially, while margins were down 586 basis points to 33.9%. The effect of increased digital sales was offset by the absence of $95 million of exploration data transfer fees that we recorded last quarter. Reservoir Performance revenue of $1.5 billion increased 9% sequentially, while margins improved 209 basis points. These increases were driven by higher intervention and stimulation activity both on land and offshore. Well Construction revenue of $3.1 billion increased 15% sequentially, driven by strong activity growth both internationally and in North America as well as improved pricing. Margins expanded 403 basis points to 21.5% due to higher offshore activity, a favorable technology mix and solid pricing improvements. Finally, Production Systems revenue of $2.2 billion increased 14% sequentially, primarily driven by higher product deliveries and backlog conversion as supply chain logistics constraints continued to ease. The revenue increase was led by international markets, which grew 17% sequentially. As a result, margins returned to double-digits, increasing sequentially by 142 basis points to 10.4%, their highest level since the third quarter of 2019. Now turning to our liquidity. During the quarter, we generated $1.6 billion of cash flow from operations and free cash flow of $1.1 billion. This performance represents a significant improvement compared to the first half of the year as working capital started to unwind during the quarter despite the sequential revenue growth. Consistent with historical seasonal patterns, we expect this trend to accelerate in the fourth quarter, resulting into free cash flow improving sequentially. During the quarter, we made capital investments of just over $500 million. This amount includes CapEx and investments in APS projects and exploration data. For the full year of 2022, we are expecting capital investments to be approximately $2.2 billion as we continue to support very strong revenue growth, particularly in our Well Construction and Reservoir Performance divisions. Net debt improved by $1.3 billion during the quarter to end at $9.7 billion. This level of net debt represents a $2.7 billion improvement compared to the same period last year. Our net debt-to-EBITDA leverage is now down to 1.6x and we expect it to drop even further during the fourth quarter on a combination of higher earnings and improved free cash flow. I will now turn the conference call back to Olivier.

Operator:

[Operator Instructions] Our first question comes from the line of James West with Evercore ISI.

Olivier Le Peuch:

Good morning.

James West:

So Olivier, I wanted to touch on the biggest business right now, which is your Core and the fact that it’s strengthening so significantly, but it’s also - the core has changed over the last several years. I’d love to hear kind of your thoughts on how the next – maybe not the next quarter, but the next couple of years should play out for the Core business given where the cycle is going, how it’s heading internationally, how it’s heading offshore and how Schlumberger has positioned itself for where the increased capital spending will be?

James West:

Okay, great. That’s very helpful, Olivier. And then maybe a follow-up for me on the Digital side of your business, obviously, a successful forum in Lucerne recently. I kind of have my own kind of takeaways, I guess, from the event and the things that were announced during the event, but I’d love to hear kind of your takeaways of the level of success? How you think it went, how you see the adoption playing out of Digital?

James West:

Very good. Thanks, Olivier.

Operator:

Our next question is from David Anderson with Barclays. Please go ahead.

Olivier Le Peuch:

Good morning, David.

Olivier Le Peuch:

You’re correct. And I think the – as part of the mix as well, the international has made a comeback ahead of other basins. And you will see the next leg of growth coming from Middle East activity in the coming quarters, but I think that’s one factor. But I think technology to deliver performance, our customers are more focused on critical assets where they want execution, and they want performance enhancements and higher return on their capital, lower cost, higher return, but this translates into higher adoption of field technology, adoption of digital technology and the power of integration. So, when we have the power of integration technology adoption and are increasingly being recognized for performance and some of it through contracts that are performance-based, I think we are gaining recognition and we are, in effect, creating a net increase in the intensity of service, but also a net pricing impact. And I think that pricing has many, many dimensions, it comes from a mix of adoption of technology. It comes from the performance that – for which we are getting commercial contracts recognized and share the value of the performance it creates. And it comes from pricing – catalog pricing, as I would say, the combination of which is creating a net effect that we have been benefiting from. And indeed, particularly in Well Construction, where I think the breadth of capacity we have that is unique across the industry. The track record of benchmark of performance, the competence of our people, the digital operation transformation we did, all have impacted our cost of service delivery for one, have impacted the performance we have created for our customers and as such has created the service intensity that is creating higher earnings.

Olivier Le Peuch:

That’s a fair hypothesis going forward. I think the Middle East has been lagging the growth and the rebound primarily due to the some of the constraint on the short cycle over the last 18 months due to OPEC+, but I think the four or five countries that have set some new expansion plans have – initiated this expansion plan in the second half and are set to accelerate their expansion plan going forward. I think it includes Saudi, it includes UAE, Kuwait, Iraq and what has been the first to expand, which is Qatar, on the LNG commitment towards 2027 will continue to expand as well. So I think the combination of this will create a new leg of growth next year internationally, and we will be set to benefit from it across all the divisions.

Olivier Le Peuch:

Thank you.

Chase Mulvehill:

Thanks. Good morning, everybody. I guess maybe follow-up…

Chase Mulvehill:

Good morning, Olivier. A quick follow-up to Dave’s question around pricing or I guess maybe some of your earlier comments around pricing. I’d like to flesh that out a little bit more. And think about kind of international pricing and the potential momentum that this could see this cycle. And me, personally, I think that investors are underestimating the potential pricing momentum that international could see this cycle. I think that people forget what discipline in market consolidation and higher barriers to entry can actually do for pricing. And obviously, international ticks all those boxes. And then we haven’t invested in international, our OFS companies haven’t in almost a decade. So it seems like there is a recipe for rather quickly tightening of fundamentals in a real pricing cycle in international. So I just kind of be curious your thoughts what you’re seeing on pricing and kind of as we look forward over the next couple of years, what are your expectations on fundamental tightness that could drive some real pricing momentum?

Chase Mulvehill:

Okay. Awesome. I appreciate the color. Unrelated follow-up, if we can kind of go to the subsea business and just kind of maybe a state of the union update, just kind of general market outlook, pricing is starting to move. Maybe I don’t know if there is any updates on kind of where margins – subsea margins are today? And how much margin expansion you might be able to see over the coming year or 2?

Chase Mulvehill:

Alright. Perfect. Appreciate the color. I will turn it back over. Thanks, Olivier.

Arun Jayaram:

Hey, good morning, Olivier. I wanted to – perhaps if you could elaborate a little bit more on Well Construction. Your margins grew 400 basis points sequentially. Maybe you could elaborate on just the drivers of the margin expansion and help put some of the results at Well Construction into historical context with the top line at above $3 billion in terms of 3Q?

Arun Jayaram:

Great. Just a follow-up. One of the sources of upside versus our model was the revenue growth in Europe/CIS/Africa. I was wondering if you could help us understand, I think an over 20% increase in sequential revenues, drivers of 3Q and thoughts as we enter into fourth quarter in terms of that broader region?

Arun Jayaram:

Great. Thanks a lot.

Operator:

Our next question is from Neil Mehta with Goldman Sachs. Please go ahead.

Olivier Le Peuch:

I think first, I think I have been sharing in my prepared remarks, some guidance that’s comparing the fourth quarter to the fourth quarter of last year with mid-20s revenue growth and 200 bps EBITDA expansion. And I think from the geography of business lines, I would only comment that we see an uptick in Middle East to materialize, and we expect digital to further accelerate and to reflect the year-end sales that we typically have. So, it’s a positive outlook, continued growth, both internationally and in North America and margin expansion to set to continue its very successful journey.

Stephane Biguet:

Yes. Neil, as you saw, indeed the working capital improved quite a bit in the third quarter, this is how we predicted and it resulted into strong free cash flow. Going into Q4, you will see this accelerate as we typically see at the end of the year. So, working capital will continue to unwind and free cash flow will continue to increase. We have typically, at the end of the year, higher customer collections. We have the effect of higher product deliveries, reducing inventory. So, this is what we expect.

Operator:

Next, we go to Scott Gruber with Citigroup. Please go ahead.

Olivier Le Peuch:

Good morning.

Olivier Le Peuch:

I think it’s a very good observation. I think we expect indeed that the journey of digital transformation for our customers will take time. And I think it’s a long tail of transformation. We expect that will impact our results for a decade to come, I would say. However, we are indeed observing an inflection point that is reflecting onto the maturity of our platform and to the acceptability of this platform as the most effective platform that the customers have seen in terms of impacting their life cycle reduction, impacting the productivity of their asset team and providing them access to cloud computing resources and to digital operation capability that is not available to them today. So, we are seeing the adoption of our customers. We mentioned in the past that we have a baseline of 1,500 customers that are currently using our digital solution and our previous software suite of products. And we believe that we are today between 200 and 300 of those customers about 20% of these that have already adopted and have started to move and transition onto the platform, and we expect this to accelerate both in number of customers, but also into the expansion these customers are using – the way they are using our platform and expanding the workflows, expanding the scope, indeed, adding the data enterprise solution as a necessity to go and reset and transform their data infrastructure and then adopting workflows from subsurface workflows to operational workflows. So, there are multiple dimensions, complete intensity dimension, workflow dimension and customer – number of customer dimension that we are set to benefit for the years ahead.

Olivier Le Peuch:

I think it’s both. We believe that there is a compelling event and accompanying need and utmost priority for the oil and gas to decarbonize itself. It comes into the engagement we have and the success we are having with energy transition technology portfolio to reduce the carbon footprint or the Scope 1 and 2 of our customers. It comes in bright lights with the portfolio we have created, the SEES portfolio, end-to-end emission management for methane, in particular and getting more traction and more success with this portfolio. So, I believe that this is happening at scale, and our customers are turning into a clear, I would say, initiative – set of initiatives to reduce the oil and - the carbon footprint of their operations and to target a lower carbon oil and lower carbon gas production. So, this is the first trend, and this is happening at scale and this will include CCS opportunities that we are developing as well in parallel. On the side of this, there is a lot happening into the clean energy – and I believe that you have seen some announcement in the IRA. You have seen some announcement in the REPowerEU that are aligned with the domains we have selected, the – be it geoenergy for efficiency, be it critical mineral to lithium, or be it hydrogen with getting credits at large, and obviously, CCS with the 45Q improving to help us address not only the CCS opportunity to - that are close to our oil and gas customers, but also the ones that are close to hard-to-abate sectors. So, I believe that I will not try to contrast both, I will more recognize that both represent huge opportunity of growth, existing customers and with new customers and that we are set to grow and build opportunity on both.

Olivier Le Peuch:

Thank you.

Roger Read:

Yes. Good morning. Congratulations here on the quarter.

Roger Read:

Look forward to seeing you all in a couple of weeks. I guess what I wanted to ask is two different things. One, as you look at the margins and obviously, that’s one of the positives here and we compare – I am just going to say EBITDA margins, but you can choose whichever you want. We look back over time, you have gotten back in the right kind of neighborhood here for what we would expect Schlumberger to deliver. If we look at what you are doing in terms of better market expansion, the service intensity you have mentioned, pricing power and the digital. Should it be the kind of situation where we can start thinking about margins getting back over the next several years to levels you have seen when business is truly firing on all cylinders, or is that a little too optimistic here?

Roger Read:

That’s fair. I know that was kind of a leading question on that, but I thought I would try it. The other one is, and this might be getting a little ahead of what you want to talk about in a couple of weeks, but can you remind us where you want to take the balance sheet in terms of fee? Are you comfortable enough with where your overall debt structure is and where we would think about more of a continuous or somewhat reliable way to think about dividend increases or anything else you would do with free cash?

Roger Read:

Appreciate it. Thank you.

Operator:

And our last question will come from Luke Lemoine with Piper Sandler. Please go ahead.

Olivier Le Peuch:

Good morning.

Olivier Le Peuch:

I think it’s always difficult to compare and make analog between cycles. But I think I will more focus on what is unique about this cycle. I think the conditions are set, and it includes a few critical, I would say, factors that I think - I don’t think can be comparable and will lead to a unique cycle. One, I would say, is the global gas market is uniquely constrained and is structurally imbalanced. And I think this will lead the gas market both offshore, onshore, unconventional and conventional to continue to have a long growth cycle independently of the, I would say, some headwinds on the economic market. Second is offshore. Offshore has indeed started. Offshore, we have conditions from a breakeven price that are with all FID below $60, if not $40, that are set to support a very strong offshore environment for oil and in the gas environment, obviously, and this is very visible both in deepwater and in Middle East. Middle East will have one of the highest growths in offshore environment with more than 30 rigs. We are just contracted in the last six months by Saudi for oil development offshore. And last, I would say that the Middle East is set to have a combination of factors that include the maximum sustained capacity commitments or the enhanced capacity that has been committed by many countries in excess of forming and buying between 2025 and 2030, and we will not be surprised to see this commitment to be accelerated forward so that the Middle East is the swing producer of and expands the capacity. And the result of this because Middle East is also growing in its gas ambition and not only because of the LNG commitment from Qatar to exceed 120 MTPA by 2027, but also because the unconventional and conventional resources are being exploited for domestic and for regional markets. And all that combined, the oil capacity expansion, the gas will result into the largest ever investment cycle in Middle East. And this is starting, and this will be happening in the next 2 years or 3 years. So, 2 years or 3 years, Middle East will benefit from the largest investment cycle that we have seen. So, you have unique characteristics that can and cannot be compared with the past. So, I just want to focus on getting the best of this future market, positioning ourselves using our performance attributes, using our unique technology and preparing the team to participate at scale and being successful for our customers in this environment.

Operator:

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

Operator:

Ladies and gentlemen, thank you for standing by and welcome to the Schlumberger Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn the conference over to the Vice President of Investor Relations, Nd Maduemezia. Please go ahead.

Olivier Le Peuch:

Thank you, Nd. Good day, ladies and gentlemen. Thank you for joining us on the call. In my prepared remarks today, I will cover three topics, starting with our second quarter results and our latest view of the macro environment. Thereafter, I will conclude with our outlook for the second half of the year and its compelling attributes, which are very supportive of our raised guidance for the full year. The second quarter was a defining moment in the overall trajectory of the year, with significant growth in revenue, margin expansion and earnings per share. Our execution was solid, and directionally, all trends were positively in our favor. Strong international activity growth and steady drilling momentum in North America, sustained offshore recovery and the broadening impact of improved pricing. We leverage the power of our core, our global footprint and differentiated technology to seize widening industry activity, demonstrating our ability to capture growth in every land and offshore basin from North America to most remote international basin. This was reflected in the broad dimension of growth in our second quarter results as customers stepped up activity with a focus on increased performance and production. Overall, we effectively harness these positive dynamics and delivery very strong second short quarter revenue and earnings growth. In addition to the details provided in our earnings press release this morning, let me reiterate some performance highlights from the quarter. We recorded 14% revenue increase, the largest sequential revenue increase in more than a decade, as revenue growth exceeded rig count increase, both internationally and in North America. Year-on-year revenue growth accelerated to 20%, further sustaining robust growth momentum with a visible inflection in international markets at 50% growth over same period last year. Growth was very broad across all dimensions

Olivier Le Peuch:

Thank you, Stephane. Ladies and gentlemen, I believe we are opening the floor to the questions.

James West:

Hey, good morning, Olivier and Stephane.

James West:

So Olivier, curious how you are thinking about the evolution of the – particularly international cycle as we go through the next several quarters and really into next year? I mean we are clearly – OFS or energy is decoupling from the global economy, you are going to see some changes in probably activity levels, the mix, the pricing. It seems to me the kind of the best is still to come, I think, for the cycle. So, just kind of curious of your broad outlook for international?

James West:

Okay. Okay, got it. That’s very helpful, Oliver. Maybe a quick follow-up from me, you have your digital event coming up here in September. I’ve been following kind of the list of speakers, very impressive group that you’re assembling. And I’m curious where you see the industry now, where you see Schlumberger in the industry and the digitalization or the digital journey of the industry? It seems to be that we’re – we’ve been selecting what we seem to be inflecting even further in digital, and certainly, the results are proving that out in your income statement as well. So curious about digital.

James West:

Got it. Thanks, Olivier.

Operator:

Our next question is from David Anderson with Barclays. Please go ahead.

Olivier Le Peuch:

No. I think I believe that our team has improved its execution track record. We have, as you may remember, 3 years ago, we took some action on to our underperforming contracts. And we learned and applied some best practice, best lessons and project management to technology deployment and to the discipline in our competency management deployment and use of digital to help us execute this contract in a better way. And from the way we manage the maintenance cycle of our equipment to the way we deploy and do remote operation to control and help and support people on the ground, I think we have progressed a lot in the last few years. And as such, the major contract we are starting always has – have a learning period. But I think we are accelerating this learning period by contrast to previous cycle. And I think we are set for success on all this project before soon. And – but we always have somewhere, somehow, in international basin, in a major project start-up. And – but we expect this to be, I would say, the background that we will have going forward, but our execution, practical lesson learned, use of digital, best practice and disciplined organization, including our competency that we deploy, has helped us to accelerate the lesson learned and to reach maturity in terms of performance, margins on those projects faster than the income second. So I’m positive. And as I said, there is an inflection building up in Middle East activity that will materialize in two or three countries visibly into the second half, and will accelerate next year as we will see more offshore shallow activity partially into the VCC environment in Middle East led by the Saudi oil major development that they are accelerating for oil capacity increase towards their 2027 1 million barrel. This will translate into activity. So further activity increase will materialize, and we will benefit from it. The industry will certainly have a large ramp-up going forward. So it’s the early cycle of growth in Middle East.

Olivier Le Peuch:

No, it’s not too soon. In the second quarter, international, offshore was accretive to our growth, International, visibly, and you can see it into the ECA growth. And I think if you read some of the reports published by and others, I think you see that – you see that the outlook for 2022, 2025 on offshore investments and FID activity will outpace visibly at 2016-2019 cycle. So we have early innings of this offshore cycle, but it’s quite interesting. And it includes more exposure or more appraisal activity than we could have anticipated considering the – some of the macro, but we are seeing it from Namibia to Colombia to Asia. We are seeing interesting exploration happening to north of Brazil in the Atlantic Margin. We are seeing acceleration of appraisal and exploration that combined and increase the beneficiary mix, I would say, that we are seeing in offshore environment. So yes, we are very, very close, as we recently commented doing a conference in June. We were – we believe that the average revenue intensity that we collect from an offshore environment is – can be up to 5x or more what we collect in the land environment. And the scope that we have is quite unique from, as you said, from subsea to exploration, from data licensing to integrated rig and well construction. So it’s quite unique, and we will benefit increasingly on that offshore outlook.

Olivier Le Peuch:

Thank you, David.

Chase Mulvehill:

Hi, good morning. Good afternoon, over in Europe. I guess I want to come back to the topic on international, and maybe follow-up a little bit on James’ question. Obviously, we’ve now seen kind of three of the diversified service companies, international results. I mean, they have all surprised to the upside, so it feels like that activity may be a little bit higher than kind of what we all thought kind of heading into 2Q. But could you talk about the fundamental tightness that you’re seeing across the international market, and whether you’re seeing kind of broad-based pricing at this point or is it just kind of more pockets of pricing increases? So just a little bit on pricing across the international side?

Chase Mulvehill:

Yes, all makes sense, and we agree with you there. Can we – as a kind of a related follow-up, can you expand on kind of, I guess, maybe your ultimate earnings power of the company? Obviously, you gave us some EBITDA guidance here. And when we think about the earnings for this year, you’ll surpass last cycle’s peak. But how should we be framing kind of the earnings power of Schlumberger this cycle? And then maybe just kind of weave in the discussion around EBITDA margins and your confidence in maybe hitting the 25% mid-cycle margins that you had kind of guided as a target for kind of year-end ‘23, do you think you can kind of hit that a little bit earlier now, given that you’re outperforming on the margin side?

Chase Mulvehill:

Okay, perfect. I will turn it back over. Thanks, Olivier.

Operator:

Next, we have a question from Arun Jayaram with JPMorgan. Please go ahead.

Olivier Le Peuch:

I think it’s built on multiple units in West Africa and Europe and Scandinavia, to a lesser extent, that has been benefiting from project timing from – partially in the production system that you have seen has benefited from a significant sequential growth. A large portion of it was in Europe. The same in offshore brand, I think we have offshore brands picking up in that region. And this has been very beneficial to us, including some explore into our performance. So you combine all of this, and we have had a fairly substantial growth, and we don’t see this necessarily abating a lot in the coming quarters. So I think we see a lot of further offshore and activity both in Africa, Europe, Scandinavia accelerating, as I said, next year, and that will more than offset the risk we are facing in Russia outlook.

Olivier Le Peuch:

I think we commented on this during the last call. And I think it is an event where we invite investors and analysts to update them on our view first on the cycle, our strategy to execute on this cycle, and our long-term ambition we have for the company, building on our core and our digital and our new energy investment that we go forward. So that’s where – and you will see technology, you will see I think an element of our strategy, and we will expose all of you to the view we have on the macro and the long-term ambition for the company.

Olivier Le Peuch:

Welcome.

Neil Mehta:

Good morning, team. First question was just around…

Neil Mehta:

Good morning, Olivier. Just around your Canada APS assets, and how are you thinking about that? Are you still considering the sale? Or has the thought process changed given the macro environment? And alongside that, the monetization of the Liberty position as well. Should we be thinking that Schlumberger will look to continue to exit?

Stephane Biguet:

Sure. Look, first, as you know, we increased our dividend by 40%, starting with the July payment. So this was a first step in increasing returns to shareholders in this growth cycle. Now, as earnings and cash flows indeed continue to grow over the cycle, we will review opportunities constantly to increase returns to shareholders. And it will be either in the form of increased dividends or share repurchases. We will also see exceptional cash proceeds from our continuous portfolio high-grading program, so this will give us further optionality. We will decide between dividends and share repurchases in due time. Dividend, of course, has to be sustainable, affordable for the long-term, but share repurchases will be part of the equation as well.

Stephane Biguet:

Thank you.

Operator:

Our next question comes from Scott Gruber with Citigroup. Please go ahead.

Olivier Le Peuch:

I think – first, I think we are living through a supply-led on that. I think it’s quite unique, and it will take time before it recovers towards a demand supply balance. So, I think the quarters to come will be definitely quarters to be replenishing and securing enough spare capacity to avoid the exposure, the overexposure to risk on the energy supply. And – but you have the undercurrent that is on energy security that is clearing. And double sourcing, that is a new attribute of demand that – and supply, sorry, on supply that is doubling down. So, I think the buffer is pretty wide, in my opinion. And hence, the short-term and some of the risk on the slowing and/or inflection into the demand growth going forward, there is a decoupling and there is resilience into the investment cycle that we are seeing as we speak. So, whether this last, it’s very difficult to say how long it will last. But I think we see that this cycle is stronger, longer and pricier than we had anticipated because of those unique conditions that the security supply has just added a new dimension to it. So, I think there is a lot of space in my opinion.

Olivier Le Peuch:

No. What we are witnessing actually is that below the screen, if I may use that expression, is that we are seeing a lot of exploration and appraisal program that has been – that are being initiated with some good supplies that we are seeing in the new frontier. I call it in Namibia, call it in Colombia, all over place. And we are seeing program and support for new exploration in Asia as well. So, yes, we are cautiously optimistic that indeed, the exploration cycle is back to a scale that I think will be accretive to our mix, and will be giving us the unique exposure from our exploration data licensing and/or from our reserve performance portfolio and digital also as we typically have a lot of license and digital solutions that address the explorations, sound workflows. So, we see this as a mix that is accretive to our future, and that is coming a little bit ahead of what we could have anticipated in this cycle.

Olivier Le Peuch:

Thank you.