SLB (SLB) — Q4 2020 Earnings Call Transcript

Thanks, Lea. Good morning. And welcome to the Schlumberger Limited Fourth Quarter and Full-Year 2020 Earnings 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 fourth-quarter press release, which is on our website. With that, I will turn the call over to Olivier.

Thank you, ND. Good morning, ladies and gentlemen. Thank you for joining us on the call. In my prepared remarks today, I will cover three topics, starting with our fourth quarter performance and my perspectives on what we accomplished in 2020. Thereafter, I will share our view of the 2021 outlook and the ambition we have set at the start of a new growth cycle. Stephane will then give more details on our financial results and we will open the floor to questions. First, let me start by thanking the women and men of Schlumberger for their resilience and outstanding performance in an exceptional year. The Schlumberger team significantly improved both safety and service quality, two strong foundations of our performance strategy, despite COVID-19 adversity. In fact, this performance proved to be a critical differentiator for our customers, allowing us to strengthen our market position. This contributed to ending the year on a very strong note, and I am extremely proud of the results in the fourth quarter and our momentum headed into the New Year. In the fourth quarter, we delivered solid sequential revenue growth in both North America and the international markets and in all four Divisions. We also recorded another quarter of sequential margin expansion, and cash flow from operation before severance was more than $1 billion. The recovery in the international markets and offshore, particularly deepwater, has commenced and was broad, with more than half of our international business units posting sequential growth, including most in the MEA region. Our offshore long-cycle exposure and favorable positions in the short-cycle markets combined to deliver this peer-leading sequential international growth ahead of rig activity. In North America, we posted strong double-digit revenue growth and sequential margin expansion, both onshore and offshore. Notably on land, our well construction and surface systems growth exceeded pressure pumping and outpaced rig count. This underscores the strength of our market position and breadth of services supporting shale activity and complementing our partnership with Liberty going forward. All-in-all, this was a very strong fourth quarter where we demonstrated the scale of our market exposure, the strength of our international franchise, the reset of our earnings power, and a very solid free cash flow conversion. Now, let me give you my perspective on what we achieved last year. First, in line with our returns-focused strategy and as a response to the unique crisis, we restructured the Company globally, and in North America, we scaled to fit and high graded our portfolio. Internationally, we organized around key basins, addressed underperforming business units and contracts, and divested our Argentina APS asset. These actions have reset our operating leverage, and we exited 2020 with EBITDA margins restored to 2019 levels. Through 2021, we will build on this earnings power and visibly expand our margins. Second, we capitalized on growth drivers for the future, positioning our new Divisions ahead of the recovery cycle, aligned with our customers’ workflows and key drivers in the new industry landscape, the digital transformation imperative, the mandate for sustainable and lower carbon operations, and the priorities for step change in Production & Recovery, maximizing reservoir performance, and well construction integration and efficiency. On digital, I am particularly proud of our achievements in 2020, both internally and externally. Through our industry digital platform strategy, we are enabling digital transformation at scale, unlocking significant value and leading innovation across the digital domain in our industry. This is further demonstrated by the highlights in our release this morning, which include enterprise-wide deployments, AI partnership, and expanding use cases of our digital platform. As a result, digital was the most resilient of our businesses during 2020, only second to subsea long-cycle, and is set to initiate an accretive growth cycle from 2021. Third, we launched Schlumberger New Energy to establish market positions and develop differentiated groundbreaking technology in multiple low or zero-carbon energy ventures. Our New Energy portfolio is very diverse and includes ventures in hydrogen, CCUS, lithium, geothermal, and geo-energy. As you have seen in this morning’s earnings release, we announced significant progress with Celsius Energy and Genvia. In fact, we have made progress in every New Energy venture in 2020, enabling us to scale or to prepare entering commercial agreements for these ventures during 2021, an essential step in our clear ambition to position Schlumberger at the forefront of new and sustainable energy technology in the coming years. New Energy is a platform for long-term growth, and we will be making more announcements on these ventures over the coming weeks and months. Finally, last year, we accelerated our engagement with customers to provide solutions for the decarbonization of oil and gas operations and reinforced our commitment to improving our ESG performance. Specifically, we progressed on the adoption of both TCFD and SASB frameworks to increase the transparency of our environmental disclosures, resulting in the high-grading of our rating in the CDP Climate Change Program assessment to a peer-leading A minus. We also delivered a 15% reduction of our Scope 1 and 2 GHG emissions intensity within one year, well on our path to our stated 2025 emissions reduction goal. Now, I’d like to share some of our views on the 2021 outlook. Absent of a new setback in the pandemic control and economic recovery, we see constructive macro drivers developing through the course of the year. In the near-term, disciplined OPEC+ supply actions are supporting oil prices well above crisis levels, while demand is projected to build up throughout the year. The exact magnitude and scale of demand inflection will be driven by the pace of global vaccine rollouts, easing of lockdowns, and coordinated economic stimulus through 2021. In North America, we anticipate continued momentum and a strong start to 2021 in land markets as activity continues to build up towards maintenance levels, both in well construction and completions. However, U.S. production will still be visibly below previous production levels, as continued capital discipline and the impacts of consolidations will cap the spending level, and the rate of growth may slow in the second half due to budget exhaustion. As a consequence, we anticipate growth in NAM to be in the mid-teens when contrasted with the run-rate of the second half of 2020, excluding OneStim. In this scenario and as the market starts to rebalance, the call on international supply will increase, and we do expect to see an acceleration of the international recovery, both short and long-cycle, after the seasonal dip in the first quarter. Thus, in 2021 we anticipate the international activity to build up from the second quarter and in the second half of the year to exceed the second half of 2020 by double digits. This macro backdrop is very favorable to Schlumberger both in North America and internationally. We expect all Divisions, including Reservoir Performance on a pro forma basis excluding OneStim to post full-year incremental growth compared to the second half of 2020 with the growth trajectory across the different Divisions shaped by the NAM-international mix and the relative exposure to short and long-cycle markets. Building on this combined NAM and international activity recovery, our new operating leverage will support a very significant EBITDA margin expansion in 2021 with an ambition to achieve 250 to 300 basis points improvement versus full-year 2020, and consequently visibly above 2019 margins. In North America, this ambition will be supported by restoring double-digit margins in 2021 as a result of our strategic actions combined with the strength of our offering outside of pressure pumping and strong contribution from the offshore business unit. Internationally, with more than 80% of revenue coming from markets that will experience activity momentum, we see the combination of a favorable long and short-cycle mix, the breadth of our market exposure, and our unique fit-for-basin technology as key drivers for margin expansion throughout 2021. I will now pass on to Stephane to discuss our financial results in greater detail.

Thank you, Olivier, and good morning, ladies and gentlemen. Fourth quarter earnings per share, excluding charges and credits, was $0.22. This represents an increase of $0.06 sequentially and a decrease of $0.17 when compared to the same quarter of last year. Overall, our fourth-quarter revenue of $5.5 billion increased 5% sequentially. This revenue growth was equally driven by our North America and international businesses. The sequential international growth of 3% is especially notable, considering the seasonality effects we experienced in Russia in the fourth quarter. We indeed saw tangible signs of recovery in several key offshore markets. Companywide adjusted EBITDA margins for the fourth quarter increased 73 basis points sequentially to 20.1%, which is back to our full-year 2019 level. We have reached this milestone earlier than what we had previously committed to. This performance translated into a sequential incremental EBITDA margin of 34%, which illustrates our improved operating leverage following the restructuring of the Company. During the fourth quarter, we completed two key previously announced transactions, the divestiture of our North America low-flow business and the contribution of our OneStim North America pressure pumping business to Liberty Oilfield Services. We look forward to working alongside Liberty to maximize the value of our partnership as the activity in North America land rebounds. As of year-end, we have completed more than 90% of our ongoing restructuring program that will permanently remove $1.5 billion of fixed cash costs on an annual basis. The early signs of recovery in the international offshore markets, combined with the high-grading of our North America portfolio and the near completion of our restructuring efforts, will all support strong margin expansion in the future as the industry recovery unfolds. In particular, we can count on the strength of our international business, which despite a very challenging macro backdrop in 2020, generated EBITDA margins of close to 24% on a full-year basis. These margins are set to improve going forward. Let me now go through the fourth quarter results for each division. Fourth quarter Digital & Integration revenue of $833 million increased 13% sequentially while margins increased 507 basis points to 32.4%. These increases were driven by strong APS results in Ecuador, as well as higher digital solutions and multi-client sales internationally. Reservoir Performance revenue of $1.2 billion increased 3% sequentially. This increase was driven by higher OneStim activity in North America. OneStim revenue during the fourth quarter of $274 million increased 25% sequentially. This increase was partially offset by seasonality in Russia and lower activity in the Middle East & Asia. Despite the improved North America revenue, margins decreased 84 basis points to 8%, largely driven by Russia. While OneStim’s margins did improve in the fourth quarter, they were still highly dilutive to both our North America and our Reservoir Performance margins. In fact, our fourth quarter Reservoir Performance margins would have been approximately 400 basis points higher, excluding OneStim. Well Construction revenue of $1.9 billion increased 2% and margins increased 42 basis points to 10% due to increased activity in North America, Latin America, Africa, and the Middle East & Asia, partially offset by seasonality in Russia. Finally, Production Systems revenue of $1.6 billion increased 8% sequentially as international and North America revenues increased 7% and 11%, respectively. Margins increased 82 basis points to 9% due to higher revenue contribution from subsea and improved profitability in surface production systems. Now turning to our liquidity. During the quarter, we generated $878 million of cash flow from operations and $554 million of free cash flow, despite making $144 million of severance payments. Excluding the significant severance payments we made, our full-year 2020 free cash flow margin is very close to double-digits. This gives us the confidence that we will achieve our ambition of double-digit free cash flow margin in 2021, and in turn, begin deleveraging the balance sheet, which is a top priority for us. For the sake of clarity, this double-digit ambition includes the effects of changes in working capital as well as any severance. Our net debt improved sequentially by $46 million, despite an unfavorable currency impact of $223 million. Net debt at the end of the year was $13.9 billion, a year-on-year increase of $753 million. Approximately $600 million of this increase is due to changes in exchange rates that impacted our foreign currency-denominated debt. These currency movements are fully hedged and therefore will not result in any incremental net cash outflow. During the quarter, we made capital investments of $324 million. This amount includes CapEx, investments in APS projects, and multi-client. For the full-year 2020, we spent $1.5 billion on capital investments. In line with our capital stewardship program, for 2021, we are expecting to spend between $1.5 billion to $1.7 billion on capital investments. The CapEx portion of these investments is expected to be towards the lower end of our previous guidance of 5% to 7% of revenue. I will now turn the conference call back to Olivier.

Thank you, Stephane. I think we are ready for taking the questions from all of you.

Hey. Good morning, guys. So, Olivier, international seems to me like it’s accelerated maybe a bit faster than we had talked about previously. And it sounds like you’re growing more optimistic on the outlook for the second half and certainly for ‘22 and ‘23, based on probably what you’re seeing with tenders. And you guys have just a truly differentiated position in the international market. So, maybe could you touch on both your differentiated position, but also kind of what you’re seeing in terms of potential growth profiles over the next several years in international?

Thank you, James. As you've seen, we believe we have reached the low point for international markets in the third quarter, and we expect to see a rebound in the fourth quarter. This was achieved even as the rig count decreased. We've leveraged the diversity of our offerings, both short and long-cycle, to mitigate some of the rig contraction in certain international markets. We believe that the range of our services, combined with our performance recognized by customers, positions us well to gain market share as activity picks up. Additionally, we offer distinct technology solutions tailored to specific basins and digital tools that customers appreciate and are eager to adopt for enhanced efficiency. Looking ahead, we anticipate the market will accelerate beyond the inflection point we expect in the first quarter, which will likely experience a seasonal dip. We foresee the possibility of achieving or surpassing double-digit growth rates between the second half of this year and the second half of next year. We expect this growth to continue and strengthen into 2022 and 2023.

Right. Okay, very good. Olivier, there was a significant increase in digital margins sequentially. Is this market trend expected to continue, or is this just a peak due to fourth-quarter sales that may level off in the future? It’s already a highly profitable business for you, but how should we consider that margin profile moving forward?

No. First, I think, let me comment briefly on the fourth quarter results. Indeed, the fourth quarter result of the Digital & Integration division was a combination of very strong APS execution, multi-client sales that came from the seasonal effect of multi-client sales during the fourth quarter and international sales and success in our digital business. Going forward, we see beyond this exceptional performance. We still are confident that we’ll be able to maintain on a full-year basis the 30% or so margins for the division of integration and digital going forward.

Hi, good morning, Olivier. There’s a slight variation from the way James asked about the international markets. Considering that we expect global oil demand to largely recover in 2023, I’m curious about the pace of growth in different international markets. Each market behaves a bit differently, so I’d like to know which ones you expect to rebound first and which may take longer. Could you provide some insights on how you view the different regions moving forward?

I think it’s difficult to decipher this or to bring granularity out to 2023 on how the market will recover per region. But globally speaking, I think, there will be an element of short and long cycle. So, we believe first that the region that were the most impacted and Latin America is one, will have recovery growth that will come maybe first because it’s a combination of short and long cycle. We believe that the short cycle that exists in the Middle East would favor that region both in the short and midterm. We believe that Russia and Asia as well will benefit. And we believe that later in the cycle, from the second half of this year and later, the offshore market at large will start to benefit from long growth, but I think it’s very difficult to give a granular view of this. I think the short-cycle will benefit from sometime later this year, and the long cycle will be accelerating, we believe, in ‘22 and ‘23.

Okay, understood. And on the digital side, you talked about digital being a core part of your growth strategy in the next couple of years. You talked about digital solutions and software increased internationally. I’m just curious as to what type of demand pull you’re getting from customers? Is this further penetration of DELFI in terms of getting the platform to customers or is this new applications? You had mentioned a number of countries in which I do normally think about in terms of digital adoption, Russia, Scandinavia, and the like. Can you just kind of talk about what that customer pull is these days on digital, and maybe how you think that could evolve over the next couple of years?

Very good question, Dave. The demand we are seeing from customers is multi-faceted. Customers are eager to enhance the efficiency of their workflows, leading to greater productivity in their planning, field development, and evaluation of reservoir potential. This demand is driving interest in our workflow solutions, where we are evolving our desktop offering and transitioning to the cloud for improved scalability, productivity, and collaboration. Another significant demand revolves around data utilization. Customers are aiming to extract more value from their existing data and are seeking AI and machine learning tools that the industry can offer. The OSDU platform, which we've actively contributed to, is being adopted, and customers are engaging with us on this front. An example of this is our announcement this morning regarding AIQ in the Middle East, where we aim to develop an AI solution in partnership with ADNOC and Group 42 to leverage data insights in the cloud. Additionally, we observe customers pushing towards enhanced digital operations in their drilling and well construction processes, seeking improvements in efficiency from their existing assets. These three areas of demand are evident, and we have offerings tailored to each. The OMV announcement this morning primarily addressed the first two areas related to workflows and data, while we also highlighted our advancements in digital operations in previous announcements. Overall, we see customer interest in advancing from desktop solutions to cloud-based workflows, unlocking data value through cloud technologies and new digital solutions like OSDU, and optimizing operations with edge applications that incorporate automation and AI. This trend is evident across various regions and customer types.

So, nice to see the strong incremental margins in Q4 with really digital being an impressive contributor. Also appreciate the guidance around margins for ‘21. I thought you said 250 to 300 basis-point margin expansion in ‘21 versus ‘20 I believe is the comment. And maybe you could just discuss that or pull that apart a little bit on the biggest drivers of this expansion, is it digital predominantly or other divisions, and maybe thoughts across the divisions as far as margins? And then, around North American margins, timing of when you think potentially you could reach that double-digit level?

Yes, good question, Angie. Let me clarify what we mentioned this morning. Our goal for 2021 is to increase margins by 250 to 300 basis points or higher if market conditions permit, compared to the full year of 2020. This will surpass the 2019 margins on a full-year basis. We believe this increase will be driven by three main factors. First, the full advantages of our restructuring efforts, as we achieved over 90% of our $1.5 billion permanent structural cost reduction by the end of 2020. Second, our improved portfolio in North America, which should enable us to achieve or exceed double-digit margins in 2021 under current market conditions. Lastly, the additional margins from our international operations, which we anticipate will benefit from efficiency measures, including digital operations, a favorable market mix, and our advanced technology that will help differentiate us and enhance international margin growth. When these elements come together, we expect a noticeable year-on-year margin expansion of 250 to 300 basis points or more compared to 2019, even with a significant decline in top-line revenue. For each division, we expect to see margin expansion on a full-year basis. It's not just about digital; Reservoir Performance will benefit from the exit of OneStim, contributing to margin improvement. Well Construction will also gain from efficiencies and market growth, and production and digital segments are anticipated to achieve margins between 20% and 30% for the entire year. I hope this clarifies the margin mix, rationale, and the drivers for this expansion.

No, that’s very helpful. I really appreciate the detail, Olivier. So, maybe we could talk a little bit about New Energy. Obviously, you have a lot of initiatives that are currently announced and apparently more to come. But maybe you could specifically talk about the Genvia and hydrogen and the opportunity around electrolyzer and then geothermal energy and maybe the timeline and where the biggest opportunity set is amongst the two.

I won't go into detail on every point, but I would like to touch on Genvia. We have partnered with several organizations, including research institutions in France, to industrialize and commercialize solid-oxide electrolyzer technology, which aims to enhance the efficiency of electrolyzers used for green hydrogen production. By 2030, the global market is anticipated to reach around 70 gigawatts of installed electrolyzer capacity. We aim to play a significant role in this market and capture a share through our solutions. Our approach involves delivering electrolyzer capacity for various applications, primarily for hydrogen production, and occasionally for dual-use in fuel cells. Over the next few years, our goal is to develop this technology further. We plan to technically demonstrate our advancements in the coming quarters and provide prototypes to partners who will utilize them in fuel cells or hydrogen production. Subsequently, we will make a key decision within two to three years regarding large-scale manufacturing to seize market opportunities. Our strategy across all ventures involves a multi-step process: we invest in technology, collaborate with market partners to assess viability, de-risk the project, commercialize it, and prepare for scaling. Instead of pursuing large capital projects, we are leveraging our expertise in subsurface technologies applicable to carbon capture and storage and geothermal energy. Additionally, we are utilizing our industrialization capabilities and global presence to collaborate with partners worldwide and contribute to the energy transition on an international scale.

So, I wanted to come back to the international recovery question and ask it a slightly different way. When I think about the U.S., the U.S. has transitioned from gross mode, to call it, maintenance plus mode. But, when I think about the rest of the world, most markets abroad were closer to that maintenance mode pre-pandemic with a few exceptions in there. But Olivier, how do you think about what this means for recovery potential on a multiyear basis? Over the next few years, how close could the activity set abroad get to the pre-pandemic level just given kind of the starting point where we were kind of from more of a maintenance mode in many of these countries pre-pandemic?

Yes. Thank you, Scott. I think if we assume and take the hypothesis that the market indeed will converge towards maintenance mode in the U.S., we have to remember that through this crisis, U.S. production has gone down by 2 million barrels. And if we assume that the next two or three years will not give us the activity, intensity, and investment to recover this 2 million barrels, what will happen is that this 2 million barrels will have to be supplied internationally. Hence, the market share of supply will change in favor of international market. When you equate this and assume that the oil demand will go back to the 2019 level by 2023, and some are predicting earlier by 2022, I think this will create the condition for the budget spend internationally to actually match the 2019 by the 2023, 2025 latest horizon. Hence, it matches our hypothesis that we can return EBITDA of 2019 in the period of 2023 to 2025 as we’ll benefit from this market rebound international from now to 2023. So, that’s our hypothesis going forward is that the market supply share will rebalance slightly, will favor international and will, as a consequence, pull international activity to 100% or more in the next two or three years.

That makes a lot of sense. And maybe just a little bit of color on working capital in ‘21, should be somewhat of a headwind, not necessarily a bad thing as it reflects demand recovery. But just how should we think about it, either in terms of an aggregate number or on an intensity basis, if you want to give us some color on days outstanding for the key items?

Scott, I'll take this. Looking back at 2020, our cash flows experienced only a modest release from working capital. In contrast, when we consider growth in 2021, we don't anticipate a significant increase in working capital. There may be some increase as activity rises, but our working capital intensity isn't very high, so we aim to keep this increase minimal. Simultaneously, we will benefit from the full-year impact of our cost-reduction program, which includes all cost savings and disciplined capital expenditure. Therefore, we don't view working capital as a major challenge. We believe we can offset this with strong underlying cash flow performance, and we are confident in achieving a double-digit free cash flow margin in 2021.

So, back to D&I margins, if you don’t mind. A lot of moving parts here in 2020 given what happened in Ecuador. You touched on some of the drivers of the sequential improvement in Q4. It was also up 900 basis points year-on-year. So, could you maybe just unpack which of the drivers were the biggest components of that delta? Was it digital? Was it APS efficiencies and streamlining? I was just asking for help in squaring the difference between historicals and now the expected plus 30% trajectory going forward.

I believe it's a combination of factors. You highlighted the key components. Looking ahead, we anticipate that EPS will make a strong contribution with robust performance. We've significantly improved our performance in this area. We're reintegrating digital as a part of our strategy moving forward. We expect to sustain the level of EPS performance we've achieved in the past two quarters. We've also divested some investments in APS, which has helped enhance its margins. The projected growth and margin improvement from digital will work together to keep us at the levels I mentioned, in the high-20s or 30s.

And if we just think about the drivers of the 250 to 300 basis points of improvement in margin year-on-year in ‘21, how much will be attributed to pulling out OneStim, and then divestments and just year-on-year improvement of let’s say a full year of production in Ecuador, so that’s the impact of APS. If we take those two components out, how much enhancement is there for the rest of the portfolio? I know that may not be a calculation you have necessarily offhand. But trying to think about, aside from those two big items, trying to see how much of the rest of the portfolio is improving on a margin basis, thanks to the rest of the cost efforts.

So, Sean, actually, the few items you mentioned, they do of course help the margin. But, when you look at the global margin, taken together, those three items are not that material. So, the margin tailwind is mostly from the cost-out program actually, optimizing and resetting our earnings power. And from the incrementals on the international activity and the mix you’ve seen on our international margins, even on a full-year ‘20 basis, which was not the best, the best are pretty high. So, most of the margin expansion comes from there and cost-out program with a little bit of help from the factors you mentioned, on a global basis.

Thank you for all the color so far. So, Olivier, the question I have for follow-up is again on the international front, since it’s a major point of emphasis. It seems like your commentary with respect to the offshore recovery is notable in the context that other peers didn’t really explicitly reference that. So, two things. I’m kind of curious as to what you are seeing from the customer base that’s giving you that level of conviction to specifically highlight that? And then, second, given the fact that your peers haven’t really explicitly stated it, it would lead, at least me to believe that you have some unique opportunities that your peers may not.

No, thank you. First, I want to talk about the actual results. If you look at the specific countries and basins where we experienced growth, particularly in the GeoUnits, we saw sequential growth in the fourth quarter. Offshore GeoUnits from Guyana to Brazil and other areas in West Africa did grow. This is a fact that we can link to our market position and the market share we hold in those areas. Notably, some locations, including Guyana, showed year-on-year growth compared to Q4 2019, indicating we gained traction there. This growth resulted from a rebound in the deepwater market, where we saw an increase in the rig count in Q4 compared to Q3, despite some decline in other rig activities during the same period. I believe the offshore deepwater sector specifically is on an upward trend. Looking ahead, we do not foresee any regression in this trend. Excluding the seasonal effects typically seen in the first quarter, we expect further growth. Our projections indicate that deepwater will experience substantial gains in 2021, while shallow water and land operations will only see limited growth. Overall, this situation strengthens our established market position, which was evident in the fourth quarter, and our expected rebound in long-cycle contracts for deepwater boosts our confidence that offshore will significantly contribute to our international recovery in the latter half of the year.

Okay. That’s great. That’s great color. And then, my follow-up is going to be on the New Energy front. You were very informative about the things that you have going on right now. I’m kind of curious, right, as investors look at opportunities to participate in the energy transition and companies like yourselves look to participate in that energy transition, I just wondering if you can give us some general sense as to what you think the total addressable market could be for the services and technology and the partnerships that you are currently involved in, say, over the course of the next three to five years? Any insights on that would be really helpful.

Yes. I believe we will take the next few weeks and months to better prepare communications regarding the specifics of each venture. Certainly, before mid-year, we plan to provide you with a clearer picture of our involvement. Importantly, each of the ventures we are engaged in has significant potential within the total addressable market. Our ambition is to establish a Division that will complement our existing four Divisions within this decade. We are confident that the markets for hydrogen, carbon capture utilization and storage, geothermal energy, and lithium are very promising. While I won’t go into details, I want to highlight the installation of 70 gigawatts of electrolyzer capacity that needs to occur over the next 10 years. This reflects the urgency of the situation. Additionally, there will be 800 million tons of carbon capture and storage needed by the end of the decade, with projects aiming to work with emitters to enable carbon capture and sequestration. The demand for lithium oxide for high-density batteries is also expected to rise significantly in the coming decade. Each of these ventures presents a unique and rapidly growing market opportunity. Our distinct advantages include relevant expertise, particularly in carbon capture and geothermal energy, a proven track record in industrialization and technology development at scale, and our ability to partner effectively to deliver technology solutions globally. You can expect announcements in the upcoming weeks and months that will showcase our capabilities at scale.

I guess, if we could kind of talk about 1Q a little bit, and kind of maybe give us some color, maybe directionally, or if you want to quantify maybe what you think kind of North America revenues would be up or down if you back out OneStim? And then, maybe some color around international revenues, and then, maybe the margin progression. Obviously, you’re pulling out OneStim, but then you put in the equity income from Liberty, so just trying to help us maybe directionally on EBIT margins as well.

If I understand your question correctly, you are inquiring about the first quarter. We have indicated in our prepared remarks and our earnings release that we expect a usual seasonal dip following a strong quarter, particularly in the international market. This is a pattern we observe annually and have witnessed for the past decade. We do not anticipate a significant downturn this year but rather a typical seasonal effect impacting regions such as Russia and parts of China in the first quarter. Regarding North America, I want to clarify the difference between offshore activity and land market activity. Offshore, we are transitioning from a quarter where we had notable subsea deliveries and multi-client work, which significantly influenced the fourth quarter into the first quarter. In the land market, we expect the continuous increase in activity to carry on from the growth rates seen in the latter part of last year, which we believe will persist, reflected in both rig and completion activity.

Okay. And then on the margin side, as you pull OneStim out, do you think that margins can hold flat or be higher on a quarter-over-quarter basis?

The margin will see some revenue declines, and there will be a slight decrease. However, it won't be as significant as usual due to the OneStim impact as we head into Q1, especially for NAM. Therefore, the NAM margin is not expected to decrease, and overall, we should be able to maintain a similar level of margin.

Okay. And then, pre-COVID, you were talking about divestitures. You were working on land rigs. And then you messaged that APS in Canada would be entertained over the medium term. So, now that macro conditions are getting a little bit better, could you kind of update us on your view on some of these divestitures?

We are still actively engaged on various fronts. In Australia, we continue to explore transactions related to rigs. In the Middle East, we have made some progress, but there is nothing to announce at this time. The format has changed slightly from what we previously considered, but it remains under consideration. In Canada, our APS project known as Palliser is showing improvements in the macroenvironment for this asset. There is a growing interest, and we believe there is potential value to be gained. We expect to be ready to initiate a formal process in the coming months. There is significant interest in Canada, and we hope this leads to positive developments this year.

Maybe just circling back to the line of questioning around the first quarter. A lot of moving pieces with OneStim and such. Could you maybe comment on how you see first quarter shaping up relative to consensus? I see EBITDA of about $1 billion right now for consensus.

I believe we are experiencing seasonal impacts on the international side. However, there is a positive effect from OneStim. Overall, we are focusing more on the full year rather than just the first quarter. We expect that operating margins will remain stable as we move through the first quarter, despite a slight downturn from the seasonal impact internationally, which will be partially offset by performance in North America.

Okay. Thanks for that, Olivier. The other thing that struck me was CapEx. So, you mentioned the CapEx would be at the low end of the 5% to 7% range, but on an absolute basis, the midpoint is up a bit, but your overall revenue is down a bit. I understand there is APS and multi-client. Maybe you could break those out for us and expand a little bit more on how you see CapEx shaping up over the course of the year.

Sure. So really, as a reminder, we are really looking at the capital investments altogether, right, the CapEx portion, as you mentioned, APS and multi-client. And there, in 2020, we spent $1.5 billion. It was quite a reduction from 2019, a 45% reduction, more than what the revenue reduced actually, so the intensity reduced in 2020. So, we start from a very low base. We may maintain it around the $1.5 billion, but we want to leave ourselves a little bit of room to capture the growth we are starting to see, particularly in the international market. We want to be ready to deploy CapEx in the most lucrative markets, and we don’t want to miss the opportunity. So, we will monitor and modulate accordingly, but we will stay within the $1.5 billion to $1.7 billion. As it relates to CapEx only, yes, I think it will be closer to 5% with the current equipment, the capacity we have and the capital efficiencies we have realized. But we leave a bit of flexibility. We’ll monitor, but we’ll stay within the range we stated for total capital investments.

Yes, we will maintain our focus on capital discipline. Our aim is to provide ourselves with options, which is reflected in our guidance. We will remain adaptable and work on improving efficiencies in our existing fleet to limit capital expenditures in the future. We are committed to staying at the lower end of our 5% to 7% target for capital expenditures.

Yes. Thanks. I kind of wanted to return to the digital integration business a little bit. So, hey, very much appreciated that you disclosed the value of the OMV contract, I think a lot of people are trying to figure out how to think about the market for this business. I guess, what I’m wondering if you could frame is, given that size of the contract, is this a small contract relative to the opportunities that you’re looking at? Is it mid-sized contract? Is it a large contract? How should we think about if you continue to expand your customer base, how that can roll through? And then, are there additional considerations?

Go ahead. Go ahead, sorry. We got an interruption here. Go ahead, please, Connor.

Okay. Thank you. So basically, the question is, can you frame the size of the OMV contract? I’m curious, relative to the size that you’ve disclosed there, how significant is this contract relative to the opportunities that you’re looking at? And can you help us understand the life cycle of a typical contract with a customer in Digital & Integration? Is this a relationship that evolves and grows over time? And can you quantify maybe how significant that opportunity could be?

Great question, Connor. We are very proud of the large enterprise deployment contract we earned with OMV, and we will collaborate with them over the next few quarters to implement our solution and develop unique AI workloads that will significantly improve their operational efficiency. It's important to recognize that, while this is a substantial contract, we have customers whose contract sizes can be even larger than what we just announced. The range of contracts we have with our customers varies widely, from those who want on-demand access to simulation computing to others who are ready to transition all their workflows, data, and enterprise solutions to the cloud, similarly to what OMV is doing with us. For instance, we are seeing contracts that range from single million-dollar investments to large multi-hundred million-dollar long-term agreements. Typical engagements involve transitioning data and workflows, and they include a shift to a Software-as-a-Service or Data-as-a-Service model for the long term. These contracts typically last 5 to 10 years and encompass both the transition phase and the operational phase of the agreement.

That’s very helpful. And I guess, maybe you could help us understand, I think, typically, these types of contracts have maybe relatively breakeven or at least lower margin profiles at the beginning and then expand over time. Should we think about that for you guys? I mean, if we’re in sort of early days for some of these digital initiatives, is there a margin tailwind that we should expect?

No, I will not comment that way. I think, it depends on every contract on the commercial condition we negotiate with the customer. There is always obviously a technology investment that we have been doing for the last five years. And we continue to invest in technology. And every project and every commercial engagement is different. So, it’s very difficult to make any projection or any trends. I believe that we gave a little bit of indication of the highly accretive margins, and we believe that this is true and holding true for the entire portfolio we have and would not want to comment project or contract by contract.

Okay, okay, understood. Maybe just to sneak one more in here. Just to continue to enhance your digital initiatives, do you feel that you need to step up your capital expenditure or your research and development at this point to achieve some of the goals that you’ve laid out, specifically the doubling of that business over time?

No, we believe that we have created a very significant investment in the last five years when we created a foundation of this DELFI, Agora, OSDU foundation. We are working with partners to augment the capability of this foundation as per the announcement we made with IBM and the collaboration we have with Google and Microsoft. And we’ll continue to work with partners, continue to spend and allocate a large portion of our engineering effort into this. And we believe that we are well covered to create the growth pattern that we have announced going forward. Thank you, Connor. As we wrap up, I want to share three key takeaways. First, our strong results in the last quarter reflect a broad improvement across divisions, both in North America and internationally. This highlights our solid market positioning and the effectiveness of our strategic execution this year. We are beginning 2021 from a strong foundation, having reset our earnings potential. Second, as demand gradually returns throughout 2021, we expect North American activity to stabilize while international activity is set to rebound and accelerate in the latter half of the year. This is in line with our evolving portfolio and established market positions, leading all divisions to achieve incremental growth in 2021 compared to the second half of 2020, and for the company to significantly improve full-year margins over 2020 and clearly surpass 2019 levels. Third, our strategic execution has positioned us to seize growth opportunities in this new landscape, where digital advancements are essential for industry efficiency, and where innovation and technology will reshape field development, asset performance, and production and recovery. We are focusing our investments on these growth drivers while also advancing our expansion into New Energy initiatives to prepare for the future. We are transforming our company and consistently delivering financial results that exceed our goals. Our organization is on a new path of performance with promising, yet resilient returns, and exciting growth opportunities in our core industry and beyond. Thank you very much.