SLB (SLB) — Q3 2021 Earnings Call Transcript

Thank you, Lea. Good morning and welcome to the Schlumberger Limited, Third Quarter 2021 Earnings Conference Call. Today's call is being hosted from the Schlumberger Doll Research Center in Boston, following the Schlumberger 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'll be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore 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’ll turn the call over to Olivier.

Thank you, ND. Good morning, everyone. I appreciate you joining us on this call. In my remarks today, I will discuss three topics: our third quarter results, our perspective on the near-term macro environment, and the significant growth opportunities ahead. I will also provide insights on the Middle East and offshore markets as well as our initial growth outlook for 2022. Afterward, Stephane will elaborate on our financial results, and we will open the floor for questions. Our third quarter results further highlight our focus on returns, consistent execution, and a favorable portfolio mix. We maintained our growth momentum, achieving a fifth consecutive quarter of margin expansion, and recorded the highest pretax operating margin since 2015, with cash flow from operations exceeding $1 billion. Let me share some performance highlights from the quarter across our core, digital, and new energy segments. In our core operations, margin expansion was primarily driven by Well Construction and Reservoir Performance, where we capitalized on sequential growth, pushing operating margins in both divisions above mid-teens, the highest in the last three years. We improved revenue quality, aided by a beneficial activity mix and increased uptake of new technologies that led to strong margin expansion. Internationally, we saw growth across all three areas, with revenue rising 11% year-on-year, aligning with our target of double-digit revenue growth compared to the second half of 2020. Our international margins expanded further, exceeding prepandemic levels and reaching their highest since 2018. In North America, we experienced sustained revenue growth, albeit affected by temporary supply and logistics disruptions. Margins continued to expand, maintaining operating margins firmly in double digits. We are also pleased with the substantial activity pipeline we secured during the quarter through competitive bids, direct awards, and contract extensions. Many of these included net pricing improvements, leveraging our distinct performance, integration capabilities, and technology. These successes enhance our market position, creating a long-term stream of activity and a platform for further technology adoption and digital deployment, solidifying our leadership as we enter an exceptional growth cycle. We are delivering on our performance strategy, which is increasingly impacting our top- and bottom-line results, both domestically and internationally. As the cycle accelerates, we will utilize our advantageous platform to capture exciting growth and outperform the market in our core operations moving forward. Regarding our Digital segment: we made progress on our platform strategy this quarter, expanding our offerings through the acquisition of Independent Data Services and investing strategically in DeepIQ to enhance our digital technology and the adoption of AI solutions in our industry. In digital production operations, we partnered with AVEVA to enhance edge and IoT solutions, complementing our Agora platform and Sensia solutions. In digital drilling, we successfully completed the first fully automated section drilled offshore at the Hebron platform for ExxonMobil in Canada, as noted in our earnings release. This is a significant advancement for our industry, especially offshore, and indicates a tremendous opportunity to employ digital technology for improvements in well construction safety, performance, and carbon footprint. We are witnessing accelerated adoption of digital solutions in our industry. Although we are still in the early stages, we are enthusiastic about transitioning the majority of our software customer base, over 1,700 companies, to our digital platform in the coming years. This growing adoption will create an expanding array of digital revenue streams over the long term as we move every customer to new digital solutions for their data, workflows, and operations. In New Energy, we enhanced our portfolio by investing in stationary energy storage through EnerVenue, a company with a unique metal-hydrogen battery technology. This represents a new set of opportunities and expands our total addressable market in a sector with significant growth potential. In geoenergy, following the success of our pilot program in France, Celsius Energy secured five commercial contracts in Europe. This is a significant milestone in Celsius's commercialization roadmap for being a low-carbon solution for heating and cooling buildings, contributing to global emission reduction efforts. To sum up our performance this quarter, we again demonstrated remarkable progress in our strategic execution across our portfolio, yielding outstanding results. I extend my gratitude to the entire Schlumberger team, not only for achieving another strong quarter but for their dedicated efforts to create lasting value for our customers and shareholders. Now, turning to the near-term macroeconomic outlook and the growth opportunities before us, market fundamentals have steadily improved throughout 2021, particularly in recent weeks, with oil and gas prices reaching recent highs, inventories at their lowest in history, a rebound in demand, and encouraging trends in managing the pandemic. This enhancement in industry fundamentals, coupled with OPEC+ actions and sustained capital discipline in North America, firmly sets the stage for an exceptional multiyear growth cycle ahead. All international regions are poised to benefit from this favorable environment, a scenario not seen internationally since the last supercycle. Growth will occur at varying rates across different basins, operating environments, and customer groups, resulting in a sustained multipronged growth cycle. Our broad exposure positions us advantageously to seize this growth opportunity fully. For instance, the growth inflection is already clearly visible in Latin America, driven by renewed exploration and the commencement of long-cycle development campaigns. Activity strengthened throughout 2021, and revenue in this market has already returned to 2019 prepandemic levels. This year, revenue growth in Latin America is at 30%, with widespread activity across countries including Argentina, Brazil, Ecuador, and Guyana. We expect this growth trend to accelerate further in the coming years due to ongoing long-cycle development campaigns. Conversely, in the Middle East, where activity was comparatively subdued in 2021, market conditions are set for a significant uptick in activity in the upcoming quarters. The combination of short-cycle activity to fulfill supply commitments, strategic oil capacity expansion, and the acceleration of gas development projects will drive substantial investment throughout 2022 and beyond. Our recent successes in tender awards further bolster our market position, and our strong presence and commitment will enable us to benefit from this promising outlook in the region. The offshore markets are also positioned for a solid resurgence this cycle, with rig activity increasing for the third consecutive quarter internationally. We expect this trend to build on the notable rise in development FIDs in the coming years. Innovations in technology, digital solutions, and integration are improving performance offshore, from discovery through well construction, production, and recovery, fostering conditions for offshore operators to reinvest confidently during this cycle. In North America, the imminent resumption of lease sales in the Gulf of Mexico, where we hold a significant market share, will boost additional offshore growth as operators take advantage of the basin's prolific production capabilities and existing infrastructure to extract more value from core upstream positions via exploration and tiebacks. Together, these factors will yield a broad offshore resurgence, driven by IOCs enhancing their competitive hubs, independents accelerating development on recently acquired assets, and NOCs unlocking their gas and oil reserve recovery potentials. Our technological, digital, and integration capabilities serve as critical advantages in this market landscape, leading to significant new contract awards both internationally and domestically. Finally, we are thrilled with our customers' positive response to our Transition Technologies portfolio and the rapid adoption of these technologies that mitigate the carbon impact of oil and gas operations. This portfolio focuses on addressing fugitive emissions, flaring, and electrification, and is already assisting customers in decarbonizing operations, advancing our net-zero goals while strengthening our sustainability leadership within the industry. Looking ahead to the fourth quarter, we expect another quarter of growth across all our divisions. Growth will primarily come from Production Systems and Digital & Integration, benefiting from a year-end sales boost, tempered by typical seasonal effects in Reservoir Performance and Well Construction. This is expected to yield an overall sequential growth rate comparable to the previous quarter. With our fourth quarter outlook, we anticipate achieving our goal of double-digit international growth for the second half of 2021 when compared to the second half of 2020. This will contribute to full-year revenue growth, both internationally and in North America, after adjusting for the effects of divestitures. Building on the third quarter operating margin and recent highs, our goal is to maintain this level of margin performance in the fourth quarter. As a result, for the full year, we remain confident in achieving the high end of our guidance of 250 to 300 basis points EBITDA margin expansion, laying a strong foundation for growth in the coming year. Now, I would like to conclude my prepared remarks with our preliminary views for 2022. In light of the favorable environment I mentioned earlier, our confidence in entering an exceptional growth cycle is solidified. At this early stage in the planning cycle, and barring setbacks in economic and pandemic recoveries, we expect robust global upstream capital spending growth. This growth will influence all basins, across every operating environment, short- and long-cycle activities, and every customer group. In North America, we anticipate capital spending growth of around 20%, impacting both onshore and offshore markets. Internationally, we expect growth momentum to strengthen, with early signs indicating robust capital spending growth in the low- to mid-teens, driven by both short-cycle activities and the initiation of multiyear capacity expansion plans. Through our performance strategy, we have fortified our position across numerous dimensions. In North America, we have improved our market stance and are now positioned for accretive growth onshore, as well as benefiting from strong offshore growth in the Gulf of Mexico. Internationally, we have cultivated a multiyear pipeline of strong activities in the most productive basins, leading the supply response in both oil and gas. More importantly, we have significantly enhanced our earnings growth potential, as demonstrated by multiple quarters of margin expansion. In North America, we anticipate our operating margins will exit the year at the highest since 2015, providing an excellent platform for ongoing margin expansion. Internationally, we are also set for leading margin expansion as we transition into 2021 with margins above prepandemic levels. The combination of strong activity growth and operating leverage will support sustainable margin expansion. Additionally, due to our fit-for-basin and Transition Technologies strategies and tightening of capacity, we foresee favorable conditions for broader net pricing gains in the coming years, both in North America and international markets. Lastly, as a result of our digital platform strategy and growing customer adoption, we expect to accelerate our digital journey, leading to increased revenue and earnings growth. Consequently, we foresee further margin expansion in 2022, supporting substantial earnings growth potential, and we are increasingly confident in achieving our mid-cycle adjusted EBITDA margin target of 25% or higher, while maintaining a double-digit free cash flow margin throughout the cycle. I will now hand the call over to Stephane.

Thank you, Olivier, and good morning, ladies and gentlemen. Third quarter earnings per share, excluding charges and credits, was $0.36. This represents an increase of $0.06 compared to the second quarter of this year and an increase of $0.20 when compared to the same period of last year. In addition, we recorded in the third quarter a $0.03 gain relating to a startup company we had previously invested in. This company was acquired during the quarter and as a result, our ownership interest was converted into shares of a publicly traded company. Overall, our third quarter revenue of $5.8 billion increased 4% sequentially. Pretax operating margins improved 120 basis points to 15.5% and have now increased 5 quarters in a row. Margins expanded sequentially in 3 of our 4 divisions, with very strong incremental margin in both Reservoir Performance and Well Construction. This performance was due to a favorable geographic mix, driven by continued international revenue growth, as well as a favorable technology mix with increased exploration and appraisal activity and new technology adoption. Company-wide adjusted EBITDA margin of 22.2% in the quarter increased 90 basis points sequentially. It is worth noting that this margin expansion was achieved despite the well-documented disruptions in global supply chain systems and inflation in select commodities and materials, as well as in logistics. Through our global supply chain organization, we are successfully engaging with our suppliers and customers to jointly navigate inflationary trends. We are collaborating with our customers to optimize planning, and where applicable, make the necessary adjustments through existing contractual clauses or negotiations. As a result, so far, we have largely been able to shield ourselves from the inflation effects. As the growth cycle accelerates, we will continue to be proactive, dynamically adjusting sourcing strategies and leveraging our diverse global manufacturing footprint and supply network. Let me now go through the third-quarter results for each division. Third quarter Digital & Integration revenue of $812 million was essentially flat sequentially as lower sales of digital solutions were offset by higher APS revenue. Pretax operating margins increased 154 basis points to 35%, largely as a result of improved commodity pricing in our Canada APS project. Reservoir Performance revenue of $1.2 billion increased 7% sequentially. This revenue growth was entirely driven by higher international activity. Margins expanded 202 basis points to 16%, largely due to higher offshore and exploration activity, as well as accelerated new technology adoption. Well Construction revenue of $2.3 billion increased 8% sequentially due to higher land and offshore drilling, both internationally and in North America. Margins increased 230 basis points to 15.2% due to the higher drilling activity and a favorable geographical mix. Finally, Production Systems revenue of $1.7 billion was essentially flat sequentially, while margins decreased 27 basis points to 9.9%. Now, turning to our liquidity. Cash flow from operations was once again strong as we generated $1.1 billion of cash flow from operations and free cash flow of $671 million during the quarter. This represented a significant sequential increase when adjusting for last quarter's exceptional tax refund of $477 million. We paid $42 million of severance during the quarter. Excluding these payments, the working capital impact on our cash flow was neutral despite the revenue increase. This was driven by a very strong DSO performance. We expect the fourth quarter to show another quarter of strong free cash flow generation, which positions us favorably to achieve our ambition of delivering full-year double-digit free cash flow margins. As a result of this strong cash flow performance, net debt decreased sequentially by $588 million to $12.5 billion. During the quarter, we made capital investments of $399 million. This amount includes CapEx, investments in APS projects, and multiclient. For the full year 2021, we are now expecting to spend approximately $1.6 billion on capital investments. In total, during the first 9 months of the year, we have generated over $2.7 billion of cash flow from operations and $1.7 billion of free cash flow. As a result, we have been able to progress significantly on our commitment to deleverage the balance sheet. This is evidenced by the fact that gross debt has decreased by almost $1.5 billion since the beginning of the year. Net debt has reduced by $1.4 billion during the same period. Overall, I am very pleased with our cash flow performance and the progress we are making towards strengthening the balance sheet. This will provide us with greater flexibility in our capital allocation. I will now turn the conference call back to Olivier.

Thank you, Stephane. So I think we are ready for the Q&A session at this point.

So Olivier, 5 sequential quarters in a row of margin growth and really strong execution. How do you think about or how are you considering or planning for continued strong execution as revenue starts to really accelerate as we go into next year?

Thank you, James, for your question. We are very proud and satisfied with our performance over the last five quarters. These results highlight our ability to leverage restructuring, enhance our portfolio, and build a solid foundation during the past 18 months. Looking ahead, I believe there are a few key factors that will support our margin expansion, as we have seen in the last quarter. Firstly, the market outlook appears favorable, particularly in regions where we hold a strong international position, especially in the offshore Middle East. Secondly, performance will continue to be a crucial differentiator. Our technology offerings, fit-for-basin solutions, Transition Technologies, and integration capabilities will have a significant impact, adding value to our services in Well Construction, Reservoir Performance, and Production Systems. We anticipate an acceleration in digital adoption as we continue to advance our digital platform strategy, which is nearing completion. This will contribute positively to our growth and earnings. Lastly, as revenue and activity rise both internationally and in North America, we will see a tightening of the market, which will improve pricing conditions. By combining our favorable market position, proven track record, premium technology adoption, and integrated digital contracts, we are well-positioned to achieve our goal of a 25% or higher EBITDA margin by mid-cycle.

That's very helpful, Olivier. Following up on that, this is the first cycle where we'll see digital significantly impact the business. We have seen widespread adoption, but we have not yet experienced the growth cycle that typically accompanies it. How do you see this developing? Will it enable you to capture more market share through improved margins? What role does digital play in a strong growth cycle like the one we are projecting?

I think I will highlight 3 things that will be a result of our success and our investment and leadership in digital. First, obviously, the acceleration of digital adoption by customers through our workflow, data, and digital operation offering, and you are seeing elements of this being announced every quarter. And you will continue to see this unfolding across the different customer groups and across different geographies. So this will mean accretive growth in 2022 to our top line by the digital offering we have. The second aspect is the long-tail effect beyond the cycle. I believe that the effect certainly will last, considering the very significant size of our customer portfolio, the fact that customers are going into it over the long run. We are seeing multiple effects of revenue streams being deployed across multiple quarters and multiple years across the different customer groups we are addressing. And finally, this is generating margins fall-through that are accretive to earnings and will continue to help us operate D&I at or above 30% or mid-30s and also will result in our ability to extract from digital operations and our own operation, particularly integrated performance in Well Construction and Reservoir Performance, the ability to extract more efficiency and hence to expand and support margin expansion on those divisions.

I have a few questions regarding the unconventional contracts you announced in Saudi Arabia and Oman. Could you clarify the pricing mechanisms involved? Are they lump sum contracts or is there a daily baseline for stages? Additionally, where are you sourcing the necessary equipment? Do you have all the equipment needed, and does it require capital investment? I would appreciate more background on these contracts.

I think these contracts are large integrated contracts that we have been winning on our value proposition based on performance, on demonstrated efficiency, and ability to deploy technology that makes an impact on execution. We do have the capacity in place. We have demonstrated to pilots and/or to engagements that we had before that we could deliver the required performance that the customers are expecting. And we have priced it accordingly and we demonstrated during the last few years that we have improved our ability to engage, digitalize our operation, and work with customers to get these integrated contracts, whether it’s LSTK or other, to be performing and delivering the margins and earnings we need. So we will continue to extract value from these contracts over a period of time. So we are very proud of winning those contracts. They are based on performance; they are based on technology and our team on the ground has done a great job of demonstrating they could take these contracts and get value for customers and for ourselves.

And then, in terms of the equipment required, do you need to add equipment? Do you need to build out at all?

No, we have started to mobilize this equipment that we have already in place. And obviously, this will pull equipment from other places where we had it. But we have the equipment in place and we’re able to deliver on the committed contracts we are taking in both Oman and in Saudi.

And so my other question is around offshore. You seem to be a bit more optimistic than most on the offshore market. You announced several awards recently. Are you confident enough to say we're at an inflection point you think, in offshore spend, which I would think would be quite accretive to your margins with higher utilization of OneSubsea? And also all the technology you have in well construction, you also mentioned digital as well. Could you just kind of talk a little bit about maybe kind of how you're seeing this unfolding over the next year or so?

Yes, I think I remain constructive about the offshore environment for a couple of reasons. First, because this offshore environment has been strengthening steadily for the last few quarters, and that's been the rig activity has been increasing lately. And I think we have, in the offshore international market, been growing in the mid-teens, year-on-year and in H2 over H2. So that's proof that this activity is translating into revenue opportunity. And I think the offshore markets, both particularly internationally, have been growing and rebounding in the last two to four quarters. But now, looking ahead and looking at the activity, we see a lot of leading indicators. First, the FIDs. If you look at the actual FID of this year, or if you look at the projection of some of the WoodMac projections recently published, showing that there will be in excess of $100 million of offshore FIDs, most likely sanctioned by the end of this year, and that will almost double next year. And out of this, 50% of that will be deepwater. So there is an acceleration of FID back to the 2019 level that is on the horizon. And that is a result of IOCs going to exploit their advantaged basin and focusing hubs, the National Oil Company exploiting and unlocking the oil and gas reserve to participate in the supply. And finally, there has been a lot of assets trading hands in the last few quarters. And these international independents are also pursuing accelerated FID in different basins we are exposed to. The result of that is subsea backlog is growing. We are definitely above 1 book-to-bill ratio. And we will certainly be growing year-on-year in excess of 30% or 40% of booking from 2020 to 2021. So we are indeed quite positive and constructive, and this plays very well to our portfolio because this Well Construction, Reservoir Performance in exploration appraisal, in large offshore contracts are getting the benefit, and it was very visible during the third quarter. So you could take this as a proxy of the future.

I guess first thing, kind of a macro kind of higher-level question about this investment cycle. There seems to be this growing narrative out there that the oil and gas industry is going to continue to under-invest this cycle given the discipline narrative of the E&P industry and also this energy transition focus. And, obviously, you talked to more E&P and oil and gas producers than probably anybody worldwide. And so, given the commentary that you expect exceptional growth in a multiyear cycle in the oil and gas industry, this obviously leads you to believe that there's not going to be this under-investment going forward. So maybe if you can provide some color around this and thoughts around the disconnect between some investors’ perceptions that you're not going to see a reinvestment cycle going forward.

I think the condition set is a unique combination that we are living with: from the result of under-investment in the last 5 to 7 years, combined with a reset that we have experienced in the industry during 2020, and also an elevated capital discipline, partly North America. When you combine this and look at the demand outlook that will surpass the GDP growth expected for the next 2 or 3 years, that will surpass the 2019 level sometime next year. I think the result will create a pull on international supply and will create a necessity for reinvestment in our industry. So the questions are very simple. There's an anticipated deficit of supply if there is no reinvestment in our industry. We have seen that many NOCs have signaled that they are set to reinvest in their capacity going forward. The IOCs are concentrating on their advantaged basins. They will not be the ones leading the growth in this cycle, but they would be the ones pursuing still the advantaged basin to generate the cash they need to transition to new energy. The independents are taking benefit of this position, have inherited some prolific assets and are redeveloping those assets with our support and the support of the entire industry to participate in the supply. So I think the conditions are set undoubtedly, that this demand will have to be met with supply and this supply cannot come with inventory, nor can it come from only releasing the OPEC spare capacity. More will have to be built. Hence it will create activity growth in the coming years. And it is not only a short in 2022. This FID I talked about and this capacity expansion in the Middle East are long-term projects that will have long-tail effects beyond the '22-'23 horizon.

I have a quick follow-up question for clarification on your guidance. For the fourth quarter, did you mention flat margins? Are those flat consolidated margins, or flat margins for each segment? In other words, could the margins actually increase due to a favorable mix?

No, we don't disclose or provide guidance at that detailed level. We're expecting a stable global margin, aiming to maintain very high margins in the mid-teens globally for the company regarding both operating margins and EBITDA margin. The key focus for us is the exit rate and its implications as we enter 2022, serving as a foundation for margin expansion moving forward. The current mix is contributing to this stable margin in the mid-teens, which is our goal, and we take pride in sustaining this level of margins.

Yes. My first question is, Olivier, there's 3 to 4 million barrels of productive capacity offline from OPEC. And as the cartel methodically brings back this output, call it in 4K BD increments. I wanted to get your thoughts, is this creating any near-term service opportunities for you? And I was wondering if you could maybe elaborate on any shifts globally in spending from maintenance CapEx type spending, to growth and in productive capacity, oil and gas, and what this means for Schlumberger.

Yes, I believe OPEC+ will keep gradually releasing oil to stay ahead of supply compared to demand. We are also observing increased intervention activities in OPEC+ countries, where there is mobilization for intervention stimulation, as well as lifting and production maintenance efforts. This highlights the impact on short-cycle activities. It will also involve rig remobilization for infill drilling to help support additional barrels in countries that can expand rapidly. Furthermore, we are witnessing a shift towards long-cycle activities, as gas development is picking up speed, exemplified by Saudi Arabia's Jafurah announcement and ongoing large-scale gas projects in the Middle East and beyond. Several countries in the region are also committed to increasing permanent production capacity, especially looking towards 2024-2027, depending on the country. Therefore, while short-cycle activities are influenced by these developments, there is also significant growth in underlying long-cycle activities.

Just on the first point here. I just wanted to return to Chase's question and just think through some of the dynamics in the fourth quarter here. So I would think with digital being an area that you called out as particularly strong in the fourth quarter, as well as some activity growth that you're expecting, it would seem, assuming that supply chain issues aren't getting worse, that you would naturally have some expansion in the margin in the fourth quarter. So I'm just curious, what I'm sort of missing in that framework. What type of issues are you seeing or accounting for?

No, it's a mixed effect. You need to consider two factors: first, the production system faced some delays related to logistics and supply, which will lead to a significant catch-up in the fourth quarter. This segment, where we are pleased with the double-digit margin, expects margin expansion; however, this will slightly dilute our overall margin. This will counterbalance some of the anticipated benefits from a strong digital sales performance as we close the year. Additionally, there is the seasonal effect in the Northern Hemisphere and a lower mix of exploration and appraisal, which will impact the seasonality of Reservoir Performance. This is something that occurs every year. The third quarter generally sees higher margins due to the probable offshore operation mix, but there tends to be a decline for one or two quarters before a strong rebound every spring. When you combine all these factors, we expect to maintain our margin at the current level, which is quite remarkable as we head into 2022 on a solid note.

You're feeling better about your mid-cycle, 25%-plus EBITDA margin target, which seems warranted given the backdrop here. But if I just look at consensus estimates, at least the market believes it would take you a while to achieve. So if you kind of extend consensus, assume 10% annual growth in '24, '25, extend the 30%-ish type incrementals, the market is forecasting in '22 and '23, it would actually take about 5 years to get to 25%-plus EBITDA margin. Do you think you can outpace 30% incrementals over the next few years and hit that 25% margin faster than 5 years?

I believe it's not a question of if, but rather when we will reach and surpass the 25% EBITDA target. We have already been achieving over 30% recently. The market conditions that we anticipate moving forward are favorable, given the right combination of basin and operating environment which supports our margin. Our adoption of technology, integration performance, and enhancements through digital operations are setting the stage for us, ahead of pricing adjustments, to maintain a positive outlook. Therefore, we are indeed aiming to achieve this milestone within 5 years.

I want to return to Arun’s question about deleveraging. As you consider the optimal capital structure, is 2x net debt to EBITDA still your benchmark for the business? Given your insights on cash flow, when do you anticipate reaching that target?

It's a good question, Neil. You could say that 2x is a reasonable level throughout the cycle. In an up-cycle, given the cash we generate, we might feel comfortable going below 2x, which would provide us with the needed flexibility to explore growth opportunities and potential additional returns for shareholders. Therefore, we might not stop at 2x; this could be an interim step, and I think of 2x as an average throughout the cycle.

I would like to revisit the goal of achieving a 25% EBITDA margin, but perhaps consider it from a different perspective. There's the usual cyclical recovery, which means you'll see certain improvements in utilization and pricing. You mentioned that digital plays a significant role in this. I'm curious about how you might prioritize these factors as you aim for the 25% target. Do you see it as evenly distributed, like a third for each aspect, or perhaps a 50-50 split? I'm interested in your thoughts on how we should approach this.

I think it would be difficult to give you a precise outlook because this will depend on every division and almost on every geography, depending on a mix outlook we foresee. But suffice to say that I think our operating leverage will indeed be a base for margin expansion to the way we execute with efficiency using our own digital transformation to execute and extract performance from our execution. So that's the base. Above that, I will place the technology first and technology mix adoption from Fit-For-Basin that are highly differentiated and successful in all basins. I will include the Transition Technologies that are starting to emerge as a unique differentiator. And it will include also the integration delivery performance in integration contracts. And then indeed, and you are correct, our digital expansion will be favorable on top. So I think you have these 3 things, but I don't want to be starting to create a boundary between these, I don't think it's appropriate. And I think it will depend on every basin and every division will have a different trajectory, but we are confident that across the profile we have considering the international mix, considering the offshore, considering the technology adoption that is coming back, I think we have the path forward. So thank you very much. I would like to conclude the call and leave you with a few key takeaways. First, during the third quarter, our growth momentum was sustained, both internally, internationally, and in North America and drove peer-leading margin expansion, reflecting our operating leverage, advantaged market position, and increased technology adoption. We also generated sizable free cash flow, allowing us to materially reduce our net debt. Secondly, our performance in execution, our proven integration capabilities, and our differentiated technology and digital portfolio are increasingly resonating with our customers and have resulted in sizable awards in the quarter across the Middle East, offshore, and in gas development, in particular, all critical markets as the up-cycle unfolds. Thirdly, we're confident that the momentum of this up-cycle will continue allowing us to close this year with another quarter of revenue and earnings growth, resulting in full-year sequential growth internationally and pro forma North America, and full year margin expansion on the high-end of our guidance. Finally, with the backdrop of strengthening demand in the energy markets, the macro conditions are increasingly set for an exceptional multiyear growth cycle unfolding broadly during 2022, both internationally and North America and resulting in significant earnings growth potential for Schlumberger. Ladies and gentlemen, I could not be more satisfied with our strategy execution progress to date, the enthusiasm of our entire team, and the elevated trust of our customers. I look forward to the coming quarters with increased confidence. Our returns-focused strategic execution has created the conditions for a unique outperformance in our core and digital offering at the onset of this up-cycle whilst elevating our sustainability commitment and accelerating our new energy strategic initiatives. Thank you very much.