Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Schlumberger Ltd (SLB, Financial) reported a strong second-quarter performance with a 5% sequential revenue increase and an 11% growth in adjusted EBITDA.
- International revenue grew 6% sequentially, driven by record-high quarterly revenues in the Middle East and Asia.
- The company saw significant growth in offshore markets, particularly in deepwater basins like Brazil, West Africa, and Norway.
- Digital and integration divisions achieved highly accretive sequential growth, with digital business reaching a new quarterly high.
- Schlumberger Ltd (SLB) returned $1.5 billion to shareholders in the first half of the year through stock repurchases and dividends.
Negative Points
- North American revenue growth was constrained by weaker gas prices, capital discipline, and ongoing market consolidation.
- The company recorded $0.07 of charges related to a program aimed at realigning and optimizing support and service delivery structures.
- Well construction growth was partially offset by weaker land activity in North America.
- The company expects additional charges in the third quarter related to ongoing cost efficiency actions.
- Schlumberger Ltd (SLB) faced limitations on stock repurchases during the period between the mailing of the proxy for the ChampionX acquisition and the shareholders' vote.
Q & A Highlights
Q: Olivier, I know in your guidance for the year, you didn't use the word or highlight raise, but it seems like there was a slight EBITDA guide raise. Am I correct in that? And is the guidance for '25 now starting from a bit higher base?
A: That's a fair assessment. We had originally been guiding EBITDA growth year on year in the mid-teens, and we now foresee EBITDA growth in the range of 14% to 15%. This is driven by international margin expansion and the success we had in the second quarter.
Q: Could you highlight what you're seeing in the Middle East right now, across the region, and if there are any particular projects that make sense to highlight?
A: We see a large breadth of growth engines across the Middle East and North Africa, driven by oil capacity expansion programs and large conventional and unconventional gas projects. Countries like Saudi Arabia, UAE, Kuwait, and Iraq are running visible oil capacity expansion programs. Additionally, we are seeing acceleration in unconventional gas projects, particularly in Saudi Arabia.
Q: Can you give us your longer-term views on global natural gas markets and how they're developing? Are you expecting your overall mix of business to shift towards natural gas in the coming years?
A: We see resilience in oil capacity expansion and deepwater oil development, particularly in Latin America and Africa. Gas resilience is evident in the Middle East and Asia due to security reasons and offshore developments. We have increased our share of gas activity in the Middle East and are well exposed to this market.
Q: Could you talk a little bit about the order book for OneSubsea and how that's shaping up this year compared to last year? Are you expecting growth to accelerate in the next couple of quarters and into '25?
A: We see a strong portfolio of projects underway and a growing set of FIDs, with offshore FIDs expected to exceed $100 billion this year and next. This includes both oil and gas projects. Additionally, exploration and appraisal activities are strong across many basins, adding quarters, if not years, of growth to the deepwater outlook.
Q: How do you think about segmenting the portfolio next year when ChampionX comes in? Does the acquisition provide an opportunity to re-segment the portfolio to highlight the digital business?
A: We are looking at ways to better expose and measure our success and ambition in digital. The integration team is working on this, and we will provide more details in due time.
Q: Can you provide more color on how you see margin expansion potential shaping up for 3Q and 4Q?
A: We expect low single-digit global growth sequentially in the third quarter with margin expansion. In the fourth quarter, we anticipate an acceleration of top-line growth due to year-end product sales, leading to further margin expansion and setting a strong exit point for 2025.
Q: Could you elaborate on the concept of quality revenue growth and some of the plans to boost efficiency?
A: Quality revenue growth focuses on operational leverage, pricing upside, and technology adoption to support margin expansion. We are selectively targeting markets where we have the most operational leverage and pricing power. Additionally, we are adjusting our support structure to align with expected levels of activity, contributing to margin expansion.
Q: Can you give us a sense of D&I margin progression over the balance of the year and your thoughts on the APS business in Canada?
A: We expect digital margins to continue improving in the second half, accelerating in the fourth quarter due to higher sales and changes in digital delivery. Regarding APS, we are in the process of divesting the asset in Canada and have shortlisted potential buyers.
Q: Could you update us on your outlook for international and North America revenue growth in 2024?
A: We foresee double-digit growth internationally, excluding Aker and Russia. For North America, we initially guided positive up to mid-single growth but have revised this down due to market conditions. However, we still see opportunities for growth and margin improvement in the second half.
Q: Can you help us understand the profit uplift or cost-saving benefit from the cost efficiency programs in the back half of the year and once fully implemented?
A: We will complete all actions by the end of the year, with gradual effects on margins in the second half. The payback on these actions is typically between 9 to 12 months, contributing to our updated EBITDA guidance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
