SLB (SLB) — Q1 2022 Earnings Call Transcript

Thank you, Lea. Good morning, everyone, and welcome to the Schlumberger Limited First-Quarter 2022 Earnings Conference Call. Today’s call is being hosted from Oslo, 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 first-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 today. In my remarks, I will cover our first-quarter results and achievements followed by our latest view of the market environment and our outlook for the second quarter and the rest of the year, particularly internationally. Stephane will then give more detail on our financial results, and we will open the floor for your questions. Considering the global context during the first quarter, I am very pleased with our start of the year. Sequentially, the quarter broadly reflected typical seasonal patterns, except for additional effects of the Russian ruble devaluation and a more pronounced sequential decline in Production Systems. Year-on-year, we delivered a strong increase in earnings and revenue growth along with operating margins expansion. Our results were particularly strong in Well Construction and Reservoir Performance, where we are maximizing our leading market positions, our top-tier technology, performance, and enhanced operating leverage to full effect, both internationally and in North America. All Divisions and Areas grew year-on-year, resulting in 14% overall growth. This was achieved through double-digit revenue growth internationally, and by fully capitalizing on our North America exposure with 32% revenue growth. Operating margins expanded in both North America and the international markets, and we start the year with the highest first-quarter margins since 2015. This establishes an excellent foundation for our full-year margin expansion ambition. Well Construction and Reservoir Performance, our core services Divisions, had very strong momentum to start the year. In addition, we secured several new multiyear contracts and improving commercial conditions in a number of geographies and services. Digital & Integration also posted double-digit growth compared to the same period last year, with new critical commercial contracts, and significant advance of our digital platform strategy with the launch of our first INNOVATION FACTORY in North America. In Production Systems, our core equipment Division, year-on-year growth was muted by the impact of supply chain bottlenecks, which have pushed deliveries into subsequent quarters. Despite these transitory challenges, I am very pleased with the quality and size of the backlog and orders secured in the past 12 months. With improving supply conditions, I am confident that the execution of our response plan will significantly improve backlog conversion, resulting in an accelerated revenue growth dynamic in the coming quarters. In Russia, the onset of the tragic conflict in Ukraine and corresponding sanctions impacted the later part of the quarter. We swiftly initiated a series of actions to ensure the safety of our people and implemented restrictive measures concerning new investment and technology deployment to our Russia operations. We continue to closely monitor this dynamic situation and remain hopeful for the quick cessation of hostilities. Overall, and despite unique challenges, I am very pleased with the results of the quarter. I would like to extend my thanks to the entire Schlumberger team for successfully navigating these developments and delivering an excellent start to what promises to be a year of solid growth and achievement. Turning now to the macro environment, the energy landscape has evolved significantly over the past few months. Recent events have, on one hand, resulted in a change in the pace of demand recovery, while energy security and supply diversification have also emerged as preeminent global drivers that will shape the future of our industry, in addition to decarbonization, capital discipline, and digital transformation. This new dimension will have long-lasting positive implications for energy investment over the next few years. I would like to share how we see these dynamics developing over the short- and long-term horizons, and more importantly, how these conditions will play to Schlumberger's differentiated strengths. First, in the short term, commodity prices are elevated as supply conditions continue to tighten due to the impacts of capital discipline, consistent OPEC+ policy implementation, and the potential impact of supply dislocation from Russia. The industry is responding to this high commodity price environment with accelerated short-cycle investment in North America led by private producers and a gradual increase in investment by public operators, albeit tempered by capital discipline and bottlenecks in capacity and supply chain. Internationally, short-cycle investments are set to accelerate with the seasonal rebound in the second quarter and more strongly in the second half of the year, led by the Middle East and key international offshore basins. Second, the elevation of energy security as a priority will drive further capacity expansion and optionality to deliver a more diverse oil and gas supply. This will support additional long-cycle development projects, exploration activity, and brownfield rejuvenation programs. Third, favorable conditions for product and services net-pricing improvements have clearly emerged and are expanding across both North America and the international markets. This will be a defining characteristic of this upcycle, considering the service sector's newfound capital discipline and commitment to margin expansion. These improvements are absolutely critical to support returns and investments in capacity that will be needed to deliver on both the short- and long-term oil and gas supply the world needs. The combination of these effects creates an exceptional sequence for our sector, likely resulting in a cycle of higher magnitude and duration than previously anticipated. Schlumberger has led the sector in reinventing itself over the past few years, aligning closely with industry shifts, customer needs, and increased shareholder value. Since launching our performance strategy, we targeted trends that are manifesting today by focusing on the development of fit-for-basin technologies, some of which are now unlocking much-needed energy supplies, and by reducing or eliminating GHG emissions with our Transition Technologies portfolio and our new end-to-end emissions solutions. We have also expanded manufacturing capacity in key basins, such as in North America and in the Kingdom of Saudi Arabia, to tailor fit-for-basin technology delivery. In Digital, we are enabling transformation in the sector, establishing the industry digital platform, DELFI; creating more powerful AI solutions; and leading innovation in autonomy. These advances in digital enablement are improving both customer operations and our own efficiency, as we evolve workflows and improve execution with insights from data. Today, Schlumberger is best positioned to capture the benefits of this unique upcycle, given the steady execution of our strategy, breadth of our market presence, leading technology portfolio, and our ability to derive premium pricing through our performance execution and value creation for our customers. Now I would like to share with you our outlook for the second quarter and the second half of the year. Sequentially, we expect a solid quarter of growth in both North America and the international market. Growth in North America will be led by continued short-cycle activity, offset by Canadian spring break-up. Internationally, growth will be driven by the seasonal rebound, albeit moderated by the absence of the usual second-quarter uptick in Russia, owing to the uncertainty around the ruble depreciation, the impact of sanctions, and customer activity decline. Taken together, this will result in global revenue growth around mid-single digits for the second quarter. We anticipate the operating margins to expand 50 to 100 basis points, driven by further operating leverage and the positive conditions I have outlined. In that context, our sequential margin expansion trajectory is set to resume and subsequently strengthen in the second half of the year in line with our full-year guidance. Looking further ahead, the second half of the year is shaping up to be particularly strong, based on our view of a significant pipeline of customer activity, upcoming product backlog conversion, and the growing impact of net pricing. This period of the year is typically the strongest half, and 2022 looks to be no exception. While the dynamic situation in Russia and the potential reduction in pace of demand recovery present near-term concerns, we believe the continued tightness in supply, elevated commodity prices, and supplemental investment intended to diversify oil and gas supply should represent a positive offset for 2022 and beyond. Accordingly, second half growth will be driven primarily by the international markets, led by the Middle East and key offshore basins. Indeed, the offshore activity, already growing sequentially and visibly year-on-year, will benefit from secular growth in both shallow and deepwater environments as the acceleration of infill drilling and tieback developments will combine with a resurgence of exploration drilling during the summer, and with an acceleration of long-cycle development projects ahead of 2023. Similarly, the Middle East region will benefit from the combination of reinvestment in short-cycle barrels as we approach the end of current OPEC+ agreements and from the commitment to capacity expansion in both oil production and gas developments. Additionally, 2022 is set to benefit from higher discretionary spending and higher product sales and year-end deliveries as customers secure the necessary capacity for their 2023 growth plans. Finally, and critically, we anticipate that net pricing impact will further extend in breadth and scale as the year progresses, to benefit margin expansion during the second half and become a unique attribute of this upcycle. With this backdrop, and despite the uncertainty linked to Russia, we believe that the favorable market conditions I outlined should allow us to maintain our full-year ambitions of year-on-year revenue growth in the mid-teens and adjusted EBITDA margins exiting the year at least 200 basis points higher than the fourth quarter of 2021. I will now turn the call over to Stephane.

Thank you, Olivier, and good morning, ladies and gentlemen. First-quarter earnings per share, excluding charges and credits, was $0.34. This represents a decrease of $0.07 sequentially and an increase of $0.13 when compared to the first quarter of last year. In addition, during the quarter, we recorded a $0.02 gain relating to the further sale of a portion of our shares in Liberty Oilfield Services, which brought our GAAP EPS to $0.36. Overall, our first-quarter revenue of $6 billion decreased 4% sequentially, while pretax operating margins declined 84 basis points to 15%. These decreases reflect the seasonally lower activity and product sales that we typically experience in the first quarter. The conflict in Ukraine also had an impact on our first-quarter results, although this was largely limited to the effects of the depreciation of the ruble witnessed during the last month of the quarter. While margins were seasonally lower on a sequential basis, they did increase significantly as compared to the first quarter of last year. Pretax segment operating margin increased 229 basis points year-on-year, while company-wide adjusted EBITDA margins of 21% increased 94 basis points year-on-year, despite the inflationary factors we are facing. This reflects the strength of our operating leverage, new technology uptake, and increasing pricing traction. Let me now go through the first-quarter results for each Division. First-quarter Digital & Integration revenue of $857 million decreased 4% sequentially with margins declining 372 basis points to 34%. These decreases were primarily due to the effects of seasonally lower digital and exploration data licensing sales, partially offset by improved contribution from our APS projects in Ecuador, following the pipeline disruption of last quarter. Reservoir Performance revenue of $1.2 billion decreased 6% sequentially while margins declined 232 basis points to 13.2%. These decreases were due to lower activity in Latin America and the seasonal activity reduction in the Northern Hemisphere. Well Construction revenue of $2.4 billion was essentially flat sequentially as seasonal reductions in Europe, Russia, and Asia were offset by strong drilling activity in North America, Latin America, and the Middle East. Margins of 16.2% increased 77 basis points sequentially, despite the flat revenue largely due to improved profitability in integrated drilling projects. Finally, Production Systems revenue of $1.6 billion decreased 9% sequentially and margins decreased 192 basis points to 7.1%. This was due to the effect of lower revenue following the traditionally higher fourth-quarter product sales combined with delayed deliveries and increased logistics costs resulting from global supply chain constraints. These are temporary challenges that we are diligently working to remedy. Once resolved, this will provide for favorable upside to our revenue and margins in future quarters, as our backlog is solid, and we will ultimately return to a normal pace of deliveries. Now, turning to our liquidity. During the quarter, we generated $131 million of cash flow from operations and negative free cash flow of $381 million. Our cash flow generation was seasonally low as a result of the increase in working capital requirements we always experience in the first quarter. In addition to the typical payout of our annual employee incentives in the first quarter, we saw lower cash collections following the exceptional accounts receivable performance of the fourth quarter. Our inventory balance also grew due to the product delivery delays in our Production Systems Division, but also to prepare for project start-ups in the second quarter and for the strong growth anticipated for the rest of the year. In addition, we took the decision to increase our safety stocks and lock in prices on certain long-lead items in order to secure supply and hedge against anticipated cost inflation. Although it is reflected outside of free cash flow, our overall cash position was enhanced by the further sale of a portion of our shares in Liberty, which generated $84 million of net proceeds. Following this transaction, we hold a 27% interest in Liberty. Our working capital and cash flow will improve each quarter for the rest of the year, consistent with our historical trends and we remain confident in our ability to generate double-digit free cash flow margin on a full-year basis. This will allow us to continue deleveraging the balance sheet and exceed our previously stated leverage target in 2022. Based on this and the strengthening industry outlook that Olivier described earlier, we announced today a 40% increase in our quarterly dividend. The increase will be reflected in our July dividend and will result in approximately $140 million of additional dividend payments in 2022 and $280 million on an annualized basis. This will have a minimal impact on our leverage and we will, of course, remain focused on strengthening the balance sheet. I will now turn the conference call back to Olivier.

Thank you, Stephane. I think we can open the floor to the Q&A session. Thank you very much.

Hi, good morning, Olivier. What everything has happened over the past few months…

Good morning, David.

Hi, good morning. I look over the next several years for your international business to be a primary beneficiary here. I guess my question is the ramp up of that activity. We’ve seen a lot of NOCs announced contracts, more tenders are on the way. We’ve yet to really see the materials and activity, and we don’t have a ton of visibility on that market. I was just wondering if you could just help us understand what’s happening on the ground there. It seems like it’s just a matter of timing. But are there any challenges that you’re faced with mobilizing equipment and services environment, you’re clearly confident being a second half story, you could just provide a little bit more context into how we’re getting there, please? Thank you.

No. Thank you, Dave. So indeed, first, to put things in context. I think the international growth started to be rebounding last year. I think, as you know, year-on-year in the second half last year, we had already posted more than double-digit growth year-on-year in the second half. You can see that on this quarter, we’re already at 10% growth year-on-year and the majority of our international geounits actually posted double-digit, and quite a few above 20% year-on-year. So clearly the momentum of activity pickup internationally has been initiated, and it’s not only short cycle, it’s short and long cycle as some FID have already been signed last year and more are coming in the way. So now looking ahead and trying to understand how this is hedging in the future. I think, first, there is a dynamic of call on international supply that will continue to happen as the demand recovery is happening and as the market is looking for energy security and enhanced diversification of supply. So international basins at large will benefit from this dynamic in the years to come. Secondly, you have the dynamic of short-cycle response to the tightness of supply as we face today and we will face for the quarter to come, and this will prompt not only activity of cycle in the second half of this quarter and in the subsequent quarter in all the short-cycle basins from Middle East to some short-cycle activity offshore and it will be supplemented in the second half by an acceleration of the long-cycle development. Indeed, we believe that the conditions are set for long- and short-cycle to be contributing at the same time to the supply growth of international market. And long-cycle is not only offshore, long cycle is some large capacity expansion that national company, majors, are continuing to post. And offshore market, we’ll also see the condition of major and international operator continue to expand their investment. So we are seeing this happening today. We are seeing this accelerating in the second half visibly as the combination of short and long run benefit the international market. And the OPEC+ as you know is ending their quota distribution at the end of the third quarter and this will unlock short-cycle. If you were to look at Middle East, a few countries have already made a commitment to capacity expansion in 2022 and beyond, and this will be supplementing the short-cycle investment. Offshore, you have seen some FID approval, you have seen some exploration drilling resuming last quarter that would just turn into FID and into subsea and the deepwater activity uptick in the second half and furthermore in 2023. So, the conditions are set, as I said, for both short- and long-cycles to contribute to supply from international basins, and we are very well placed to respond to this considering favorable market exposure to international markets, our market position with NOCs, and our exposure to both major and independents into key basins internationally.

So, Olivier, regarding the offshore side, you mentioned several offshore awards in the release today, which I believe span most regions. This has generally been a very high-margin business for Schlumberger. I'm curious how much of this is linked to the events of the past few months. Are you noticing projects beginning to accelerate? I imagine there would be more movement in short cycle activity compared to long cycle activity. Is that correct? Are you starting to see that take shape?

I will address two points. First, offshore markets continue to be very significant for many of our international customers. This is largely due to the improved economics of both shallow and deepwater offshore markets. Secondly, a lot of these offshore reserves are located in areas that have a favorable carbon footprint, which supports reinvestment and expansion. Additionally, advancements in technology, integration capabilities, and digital solutions have increased the efficiency and effectiveness of offshore operations. This has benefited short cycle offshore infill drilling and tie-backs, where we have notable technological advantages, as well as near-field exploration and, to a lesser extent, longer cycle projects. We are observing an acceleration in this area as major companies and some national oil companies with advantageous basins aim to expedite final investment decisions and execution to enhance supply contributions. We've already seen positive impacts, and this trend is expected to continue, independent of recent events. Recent developments will lead to a diversification and security of supply, which will positively impact offshore basins as they play a crucial role in long-term supply security.

Much appreciated. Thank you.

You’re welcome.

Hey, good morning, guys.

Good morning, Chase.

So I wanted to follow-up on Dave’s question here on the international side. I mean, obviously, it appears that this international recovery is going to exceed last cycle’s recovery. So maybe I don’t know, if you want to take a moment and kind of talk about how this will impact pricing and margin. I was actually just digging through some old models and looking at 2006, 2007, 2008 margins, and obviously, the industry margins back then were much, much better than they were last cycle. So what do you think it would take for the industry to really get back, and move towards those 2006, 2007, 2008 margins?

I think the conditions are set for directionally going there, clearly, and I think you have several factors playing. First, the level of activity expansion globally in every basin for every division is creating the condition for tightness in the capacity of supply, of the service supply and the equipment supply. And these conditions are extremely favorable for pricing power, because our operators, our customers, are looking to secure capacity and to secure delivery assurance as they reinvest into their basins, into their favorable assets to secure this participation to this supply market share. So, first, the pricing movements as I said or the pricing attributes will be a key characteristic of the cycle. Secondly, I believe that the industry has realized that technology can make a huge impact on performance, on carbon footprint, and on digitalization to deliver efficiency that we need to accelerate the cycle and deliver assurance of delivery of these extra barrels. So we believe that we have here the condition for an upside on the technology adoption, an upside on digital transformation of the industry trying to achieve operation automation, achieve drilling autonomy, in terms of operation, and all that will combine in addition to decarbonization. So you have these trends that are new, that will augment the mix effect that this market is giving us today. We have a favorable mix, international and the accretive offshore mix. We have a favorable pull and stretch on capacity of the industry with significant discipline on this side of the industry that will lead to pricing expansion. And finally, you have this adoption of digital, adoption of decarbonization, and adoption of any fit-for-basin performance technology that can make an impact, to deliver, because industry wants to deliver and participate fully to this cycle. So that’s the reason why we are positive on this cycle.

Okay. If I could follow-up quickly, you started talking about digital a little bit. I mean, there’s obviously tightening supply chain, you’ve got emerging labor constraints, you’ve got accelerated international growth, over the next 12 to 14 months, and all this should be pretty positive for digital, as the industry kind of searches for ways to do things kind of faster, smarter, and harder. So, with that said, and with that as a backdrop, have you started to see accelerated digital adoption? And if so, what parts of the international market, are you really starting to see accelerated adoption?

No. I think you made a strong case. Digital will undoubtedly enhance efficiency, performance, and transformation in the industry cycle, and everyone recognizes this, investing in digital transformation. With our platform strategy, we believe we have the most compelling offer in the market. Over the past three to five years, we have been building the foundation of our platform, and we've seen adoption accelerate last year. So far this year, I’m very pleased with the early performance of our digital business from the Digital & Integration division, which is already contributing to visible year-on-year growth. All the metrics we are tracking, including customer adoption of DELFI and the number of users utilizing our cloud-DELFI capability, are consistently up year-on-year. Adoption is occurring, and we've seen enhancements grow during the quarter, translating into contracts and growth for digital. Additionally, as we mentioned in the EPR, we announced our INNOVATION FACTORY a year ago, our digital collaborative center, with the latest addition integrated just yesterday in Oslo, Norway. These centers allow us to showcase our platform capabilities with AI and machine learning in collaboration with our partners, integrating into DELFI. Customers realize that we can accomplish a lot, and we've delivered 200 projects collaboratively, allowing them to understand the power of our platform and enabling enterprise deployment from the INNOVATION FACTORY. We are confident this will contribute positively to our growth this year and will support our margin expansion goals for the full year.

Okay, perfect. I appreciate the answer. I’ll turn it back over. Thanks, Olivier.

Thank you.

Yeah, good morning. Olivier, I wanted to get your perspective on any changes you’re seeing in customer spending behavior related to natural gas. You have very strong international and now U.S. gas prices. And just wanted to get your thoughts if you’re seeing any changes there, particularly given the fact that Russia supplies 155 BCM of gas to Europe.

It’s a very relevant question. I think it’s a very topical subject with the operators, and indeed, we are seeing operators preparing, planning and being ready for accelerating their gas supply to the world market, internationally and in North America as well. I think this is touching all aspects of exploration, development, and production of gas. And we are very pleased for our exposure, our exposure in North America and exposure internationally. Internationally, as you know, we have exposure in conventional gas. And, I think, you have seen some recent announcement of renewing contracts in commercial gas in Saudi, you are fully aware of market exposure in Qatar, that we have benefited for the last two years that have already grown visibly to commit more LNG train for supply to the world. And you have seen also that we are going to participate fully and we are participating fully into offshore integrated gas development, similar to what we did a few years back with Zohr in East Mediterranean, we are doing with an asset for fully integrated gas in Turkey in the Black Sea, where we are taking care of everything from development to the gas facility that will be from – that will deliver our first gas from this. So, we are very well exposed. And finally, unconventional gas internationally in the Middle East, particularly, is getting significant support for regional consumption and you are fully aware of the contract, very large contract, integrated contract, we have with Jafurah in Saudi Aramco. So, the exposure we have on gas is unique, conventional, unconventional, offshore, onshore. So, and finally, if I have to add one dimension of technology onto it, I was very pleased. This week we brought the Board to participate to visit in Norway. And we had the opportunity to visit excellence, our Center of Excellence, for subsea processing in Bergen, Norway, where we are manufacturing all of our processing boosting equipment to serve gas markets in deepwater subsea environment. And in particular, the subsea wet gas compression that will be deployed for Ormen Lange to extend the life of Ormen Lange gas supply to UK for the long run. So, these participate in the energy security, these participate to the gas development and production and we are very pleased with our exposure. So we are seeing signals of acceleration commitment, and we are very well leveraging that for the future.

Right. I appreciate that. My follow up is, I wanted to talk a little bit about cash returns, you increase the dividend quite significantly this quarter, but maybe Olivier or Stephane, you could talk about the framework, you’re thinking about future cash returns and how should we be thinking about further dividend increases from here?

Look, it’s a good question. Thank you. Yes, based on the market fundamentals, we highlighted, we do expect to continue generating significant free cash flow throughout the cycle. If those favorable conditions persist, as we currently anticipate, this will clearly allow us to, at the same time, maintain the strong balance sheet to fund new growth opportunities, and look for additional ways to increase shareholder returns throughout the cycle. So, this can take the form of increased dividends, share repurchases, or a combination of both. So, as it relates to a framework, we will, of course, provide further details at our upcoming Capital Market Day. At this moment, we set the dividend at that level we are comfortable with to allowing us to balance our continuing deleveraging commitments with the overall capital allocation priorities.

Great. Thank you.

Great…

Hey, Neil.

Hey, good morning, team. So first question here is, just more of a logistical question. I think in the back half of this year, the expectation is to do a capital market day. So, one, any update in terms of timing; but secondly, what do you want to achieve at that event? What are the important strategic priorities that you want to discuss with the investment community?

So on the logistical side, Neil, the Capital Market Day will be early November and you’ll receive the invitations pretty soon. I’ll let Olivier comment on the main agenda.

The main agenda, as you know, I think would be to achieve two or three key elements. The first is to lay out our updated view of the mid- and long-term outlook for our industry. And, of course, the engines that we want to participate fully into, the core, the digital, and new energy, and as such document our view of the market scenario and the way our play will expose us to fully participate in each of these three. The second, obviously, will be to articulate the elements of the strategy that will make you understand the tangible progress we have made, the critical milestones we’ll meet by 2025 or by 2030. And, finally, we’ll document, I will say, our financial ambition, and financial and capital framework to support this ambition of our strategic execution for the next five years and with the long horizon of 2030 for a target. So that’s what we are aiming to achieve at this Capital Market Day.

Thank you. So we look forward to it. And the follow-up is, can you talk about your exposure to the increased CapEx here at Saudi Aramco and ADNOC, and how you see that trickling across your segments? Where do you expect spending to increase significantly here across what business lines?

I think, generally speaking, I think, it is not only Saudi Aramco or Saudi and UAE. I think it is the GCC countries, and includes Iraq as well, I think, that set are for a significant rebound in both short cycle to respond to the unlocking the quota at the end of the year and then long cycle with capacity expansion commitments that several countries have made. So, we expect the consequence of that would be, first, in the second half of the year, activity will start to see an uptick in the form of short cycle, and that will affect both Reservoir Performance and Well Construction. And we will see also this expanding into offshore and onshore capacity expansion more into 2023. As you know, several contracts have been put in place to support this capacity expansion by this operator with the first and the industry at large. And this will see an acceleration of investment in 2023 that will expand beyond the short-cycle visibly into this new development, new capacity, beyond what is happening today on gas and unconventional happening today in some of the integrated contract we already own. So it will be widespread, I would say, and across all the divisions as we move into 2023.

Thanks, guys.

Thank you.

Yeah. So, I wanted to touch on the new energy outlook here just given how the macro has changed. Obviously, valuations in new energy have come down and your cash flow outlook has improved. So does that mean in the years ahead, we could expect Schlumberger to be investing a bit more aggressively in new energy or with a better outlook for the core, is there less urgency to build out the new energy business? How should we think about that?

No, it remains – our new energy remains a critical strategic pillar of our long-term strategy. So, we are set to continue to invest into the venture we have created. We are making tactical moves and strategic moves to accelerate organic and inorganic investment. And we continue to monitor the market and continue to hedge and grow exposure to this. So, the market condition that have slightly changed in the last few weeks, do not change our view on the new energy outlook. We have been seeing some reinvestments, and you have seen this during the quarter, into geothermal as an alternate source of energy. You have seen that geoenergy being through the Celsius Energy venture that we have created is a domain that was identified by EU, the European Union, to be invested in to substitute gas and hence, to lessen the dependency on single source of supply on gas. And I think you can certainly anticipate and see that CCS at large is growing as an opportunity for the oil industry. And for us, as we work not only with the industry as you have seen the announcement we made with PETRONAS, but also we are working beyond the industry, as you have seen previous engagement we have and continue to do so. So, I think we continue to develop and mature the technology, ready for scaling them, and we continue to make organic investments and securing inorganic opportunity to augment our capability into that space.

And then you started to touch on my follow-up, which relates to the commercial opportunity and how that developed here going forward. And it does seem like geothermal is going to get a pull here. But can you speak to the other commercial opportunities and how you think those evolve, particularly from a timing and cadence perspective, given the backdrop? Does the commercial opportunity materialize more quickly across carbon capture and hydrogen electrolyzer, etc.

I think, we have been commenting on this before. And, I think, we’ll provide a very comprehensive view at our Capital Markets Day. And, I think, the biggest and long-term bigger potential is both on CCS and the hydrogen market, we believe, first and foremost. And believe that the energy storage including lithium processing or extraction, as well as energy, stationary energy storage, as well as geo-energy, geothermal, are certainly shorter-term and mid-term opportunity that we’ll not miss to secure. But we’ll come back with more detail and a better framework for you to understand our ambition there.

I look forward to it. Thanks for the color.

Thank you.

Thank you. Good morning.

Good morning, Connor.

I wanted to ask about – thank you. I just wanted to ask about the potential recovery in the back half and particularly OPEC, you were alluding to the cessation of the supply agreement. I guess one thing that surprised us is while there have been some countries that have fallen short of their production targets, OPEC as a group has been able to raise production fairly significantly. And there hasn’t been as significant an increase in the rig count. I appreciate not all activity is captured in the rig count. But has that surprised you, and when do you think we see a sort of catch up? Do we need to return to 2019 activity levels to get to 2019 production levels?

No. First, I think the OPEC+ indeed has been very strict into implementing the policy in respect to the quota. Second, I think with very few exceptions, the GCC has been able to indeed unlock this production without significant, at this moment, significant increase in short cycle activity to support that increase. This will position into necessary investment into supporting the sustained capacity in the coming months. Until then and until now it has been that the production of some critical countries were below their sustained capacity potential, hence the need for reinvesting, the need for accelerating investment, drilling or intervention, was measured and was not necessarily disproportionate compared to the past. I think you will see that transitioning into the second half, and accelerating next year and it will combine with a capacity expansion they have committed to. So they will be a hike in activity on two fronts, the short cycle to this time sustain maximum capacity that is established and an investment that will expand this sustained capacity in the future. So that is set to happen. It wasn’t necessarily a big surprise to us. I think that Middle East was a bit behind in terms of activity rebound internationally until now, but you will see this catching up in the second half and accelerating in 2023.

All right. Thank you. That’s helpful context. Maybe just flipping over to the Russia side of things, I’m curious, in your full-year revenue growth commentary, what are you contemplating in your Russia operations? Are you expecting significant activity declines? Could you help us frame what the cessation of new investments actually means for your activity levels in the near-term here?

I think it’s obviously an extremely dynamic situation. For one, the sanctions are certainly having an impact on the Russian economy and our operation will not be immune to this effect. But as currently, currency fluctuation, as you have seen, our customer activity level today or tomorrow. So – and there is also the possibility of further sanctions, so the impact of the first quarter, as you have seen, was essentially limited to currency depreciation and dilution. It’s very difficult at the moment to predict what the impact may be in an upcoming quarter considering the uncertainty. On the flip side, as I’ve described, the environment that we see and the dynamics we see in the market, and the anticipated response to this call for energy security is creating the condition to offset this uncertainty and offset this risk. And also, the decision we have made to suspend new investments will mean that we will be able to allocate this CapEx to this upcoming opportunity effective this year, and then being able to capture this upside in activity in this dynamic environment. And as you say, should allow us to offset and keep our financial ambition intact.

All right. Thank you very much. I’ll turn it back.

Thank you.

Yeah. Thanks. Good morning.

Good morning, Roger.

I would like to ask two questions that are more or less margin focused, the first on Production Systems, which obviously is lagging, for obvious reasons. But if we don’t get a strong subsea or offshore deepwater recovery, what else can we expect that would lift the Production Systems margins as we go forward?

I believe we should distinguish between two key aspects. First, there's the temporary impact of high logistics and delivery costs due to supply chain bottlenecks, which we expect to ease over time as we navigate these challenges. We have implemented a corrective action plan that includes diversifying our sources of supply and utilizing different logistics routes. Additionally, we are committed to maintaining critical safety stock to minimize future disruptions. Despite the significant costs incurred from these disruptions, we anticipate that as we begin to tackle our backlog, the impact will become more manageable. Our backlog has grown substantially over the last few quarters, and it encompasses more than just subsea projects. We take pride in our strong market position in subsea, especially regarding our recent successes in Norway, as well as new contracts awarded in the Middle East and Brazil, particularly for artificial lift like PCP pumps in Kuwait. Furthermore, our production chemicals and midstream capabilities are harnessing the upcycle in North America. Overall, we possess a robust mix of both short-cycle opportunities in North America and long-cycle projects in deepwater and gas facilities, such as in Turkey. This combination gives us a sufficient backlog to drive growth and suggests that our Production Systems will positively contribute to our growth in the latter half of the year.

Thanks for that, that was very helpful. The other question I have is a little bit more far reaching. But as we think about, or let me say, the base case is let’s assume what’s happened in Russia stays as is, the sanctions, everything like that, through the middle of the decade, spending in other parts of the world is going to have to increase to make up for lost Russian production at a minimum lost Russian growth if not absolute lost barrels. And, I was wondering, as you look at your margins and you think about sort of an equal distribution of that spending or that production growth in other parts of the world, should it be no impact on Schlumberger’s margins, a modest positive, or a modest negative if Russia becomes a shrunken market and some of these other areas have to grow in response?

I think, I will not try to compare Russia margin with the rest of our portfolio. I think, I will look at it from strength of the cycle, from the lead market position we have, and from the starting point we have today with having restructured and reset operating leverage, the exposure with digital, the exposure with an increasing offshore long- and short-cycle mix; I think these attributes that convince us that our margin will continue to expand. As we have seen this quarter, we have increased year-on-year, both NAM and international margin. And we have been posting the best margin since, then, 2015. And, yet, despite an impact in the first quarter from Russia. So I think we’re looking at it, as you say, the big picture. The big picture includes investment in oil and gas for energy security, diversification that will have a call on international supply as well as in North America, and an increasing mix of short and long cycle as capacity needs to be expanded and the reserves that have been depleted through the last down-cycle for the last seven years will need to be expanded again. So that mix is what makes us confident in our trajectory of margin expansion, and into the potential uniqueness of this upcycle compared to past, and hence the confidence we have in a short- and long-term.

Great. Thank you.

Thank you. Good afternoon in Oslo. Just wanted to wrap up, Olivier, I wanted to ask directly, what is your view of the production trajectory for Russia, assuming the sanctions are what we see today, I know that you don’t want to be too specific with regard to the cadence of your impact over the course of this year. But do you subscribe to the idea that at best Russia pivots from a steady grower to a steady decliner under the current sanctions regime?

I think, I cannot be speculating on this market condition. I think you see the same numbers as we do see. You see that there is, as I said, a potential risk of Russia supply dislocation. I think what is important is that the demand trajectory, that is recovering, and is set to further increase next year, compared to previous prediction, not only to offset that, but to also respond to the market, I think, will be contributing to overall growth, so it’s very difficult to predict. I think, we are – this is a very dynamic situation. And we are not here to speculate on that dynamic situation. We know that we have to account for assumptions that it could be a demand dislocation. It could be a demand, or supply disruption from the Russia source of supply. Hence we know and we have seen our customers rotating and starting to anticipate and position themselves for participating in the call on supply that will happen from the second half of this year and the years to come. So that’s the only thing we can come up with.

That’s a perfectly fair answer. But maybe put otherwise, how critical would you say that Schlumberger and your Western OFS peers are relative to the domestic Russian OFS industry with regard to their ability to lean on internal OFS resources as opposed to a Western technology and kit?

We cannot speculate on this. Our top priority is to ensure the safety of our people wherever we operate, including Russia, and to comply diligently with the international sanctions in place. The consequences of these sanctions on the OFS industry in Russia will unfold over time, and I prefer not to comment on this matter at this moment.

Fair enough. But thanks for all the other answers today. I appreciate it.

Thank you very much. I believe that it’s time to close this call. So, in conclusion, I would like to leave you with three takeaways. Firstly, our first-quarter financial results represent a strong start to what promises to be a significant year for the company. In particular, the resilience and strength of our core services Divisions and the full participation in the fast-growing North America market have contributed to a very solid year-on-year growth and margins expansion. Secondly, the activity outlook is shaping up favorably as 2022 progresses and is set to support our full-year mid-teens growth ambition, despite the uncertainties in our Russia operations. Furthermore, in the later part of the year, we will gain from improving market conditions, favorable activity mix in key offshore basins and the Middle East, and broader net pricing impact across North America and international markets. Our confidence in the favorable market conditions and our mid-term outlook supports our margin expansion ambition and our commitment to generating double-digit free cash flow. As a result, we have decided to accelerate cash returns to shareholders through a visible increase in our dividend. Finally, we believe that the consequences of the current crisis will reinforce the market fundamentals for a stronger and longer upcycle, as the priority on energy security will favor reinvestment in oil and gas supply. Consequently, the outlook for the next few years is improving and, absent a global economic setback, should translate into an exceptional sequence for the industry. Thank you very much.