SLB (SLB) — Q4 2022 Earnings Call Transcript

Thank you, Leah. Good morning. And welcome to the SLB fourth quarter and full year 2022 earnings conference call. Today’s call is being hosted from Houston, following our 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 you, Olivier.

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

Thank you, Olivier, and good morning, ladies and gentlemen. Fourth quarter earnings per share, excluding charges and credits was $0.71. This represents an increase of $0.08 compared to the third quarter and an increase of $0.30 or 73% when compared to the same period of last year. In addition, we recorded a net credit of $0.03, which brought our GAAP EPS to $0.74. You can find details of the components of this net credit in the FAQs at the end of our earnings press release. Overall, our fourth quarter revenue of $7.9 billion increased 5% sequentially and 27% year-on-year. All divisions posted sequential revenue growth led by Digital & Integration and Reservoir Performance. From a geographical perspective, North America revenue grew 6% sequentially, while international revenue grew 5%, led by the Middle East. Fourth quarter pre-tax operating margins of 19.8% improved 104 basis points sequentially and 393 basis points year-on-year. Notably, over 70% of our GeoUnits posted their best margins since 2016. Adjusted EBITDA margin for the quarter of 24.4% was 219 basis points higher than the same quarter of last year, exceeding the guidance we provided at the beginning of the year. Let me now go through the fourth quarter results for each division. Fourth quarter Digital & Integration revenue of $1 billion increased 12% sequentially, with pre-tax operating margins expanding 386 basis points to 37.7%. This growth was driven by year-end exploration data licensing sales in the Gulf of Mexico and Africa. Reservoir Performance revenue increased 7% sequentially, while margins expanded 146 basis points, primarily due to new projects and activity gains internationally, led by the Middle East and the offshore basins. Well Construction revenue of $3.2 billion increased 5% sequentially, due to strong activity from new projects and solid pricing improvements internationally, particularly in the Middle East and in Latin America. Margins of 21% declined 50 basis points, as improved profitability from the higher activity in the Middle East and Latin America was more than offset by the onset of seasonal effects in the Northern Hemisphere. Finally, Production Systems revenue of $2.2 billion was up 3% sequentially on higher international sales of artificial lift, completions and midstream production systems, partially offset by reduced sales of valves and subsea production systems. Margins improved 32 basis points due to favorable technology and project mix. Now turning to our liquidity. Cash flow from operations during the quarter was $1.6 billion and free cash flow was $855 million. This performance did not reflect the increase we typically experience in the last quarter of the year as free cash flow was $200 million lower than in the previous quarter. This was due to a combination of the following four factors. First, we experienced extraordinary year-on-year fourth quarter revenue growth of 27%, representing incremental revenue of almost $1.7 billion. Second, our inventory balance increased 22% year-on-year to support our increasing product backlog driven by the sizable share of tender awards we have secured going into 2023. Third, we pulled forward certain investments in CapEx in order to fully seize the continued revenue growth expected in 2023, particularly in our Well Construction and Reservoir Performance divisions. As a result, our capital investments increased $255 million sequentially. Our full year 2022 capital investments were therefore $2.3 billion, as compared to our initial guidance at the beginning of the year of $1.9 billion to $2 billion. Despite this increase, the CapEx portion of our capital investments was still at the midpoint of our 5% to 7% of revenue target. Lastly, lower-than-expected year-end accounts receivable collections contributed to reduced free cash flow. As you may recall, we had exceptional cash collections in the fourth quarter of 2021. We did not achieve the same level of year-end collections as last year, and as a result, our DSO in Q4 2022 was approximately five days higher than at the same time last year. However, it is worth noting that our 2022 year-end DSO was the second best we have achieved going back at least two decades. Therefore, this is just a timing issue. Beyond free cash flow, our overall cash position was enhanced by the partial monetization of our investment in the Arabian Drilling Company, an onshore and offshore drilling rig company in Saudi Arabia. ADC completed an initial public offering during the fourth quarter and in connection with this IPO, we sold a portion of our interest in the secondary offering that resulted in us receiving net proceeds of $223 million. We currently have a 34% interest in ADC. We also sold an additional portion of our shares in Liberty, which generated $218 million of net proceeds during the quarter. We currently have a 5% interest in Liberty. As a result of all of this, we ended the year with net debt of $9.3 billion. This represents an improvement of approximately $400 million sequentially and $1.7 billion compared to the end of 2021. This also represents our lowest net debt level since the first quarter of 2016. Consequently, our net debt-to-EBITDA leverage is now down to 1.4. In addition, our gross debt reduced by almost $2 billion during the year. We repaid in the fourth quarter $900 million of debt that matured and repurchased $800 million of notes that were going to come due in 2024 and 2025. As a result of our strong operating results and the net debt reduction, our return on capital employed for 2022 was 13%, representing its highest level since 2014. Now looking ahead to 2023. We expect total capital investments consisting of CapEx and investments in APS and exploration data to be approximately $2.5 billion to $2.6 billion, as compared to $2.3 billion in 2022. Based on this, our capital investments will grow at a slower pace than our expected revenue growth in 2023. As a result, and when taking into account our 2023 guidance for EBITDA to increase in the mid-20s when compared to 2022, we are confident that our free cash flow will increase significantly in 2023. Accordingly, we reaffirm our ambition to deliver a minimum average of 10% free cash flow margin through the 2021 to 2025 period. This will allow us to continue increasing returns to shareholders as we leverage both the length and strength of the current growth cycle. Specifically, for 2023, we expect to distribute visibly more than 50% of our free cash flow to our shareholders between dividends and stock buybacks. Today, we declared the 43% increase in our quarterly cash dividend to $0.25 per share, in line with our announcement at our recent Investor Day event. In addition, we have resumed our share repurchase program this month and are targeting a minimum amount of $200 million for the quarter. For 2023, we are targeting to return a total of $2 billion to our shareholders in the form of dividends and buybacks.

I will now turn the call over to Stephane. Thank you, Stephane. Ladies and gentlemen, I think we are ready for opening the floor to the questions.

Hey. Good morning, Olivier. Good morning, Stephane. So I guess the first thing I wanted to touch on, Olivier, is the international business had a really strong second half, particularly strong fourth quarter. But from everything I understand and see in the market is, we are really just getting started with ramping activity, particularly in the Middle East, particularly in some of the offshore markets, but we are in the early stages of that and so there should be a further acceleration in international activity. I know you gave some guidance for 2023 in terms of what you are anticipating in terms of revenue and EBITDA. But how would you characterize the next several quarters we will see, of course, the normal seasonality in 1Q, but as we get into kind of 2Q, 3Q of next year, we should see kind of big volume increases, and then of course, price increases on top of that?

No, I think I should clarify some of the guidance we provided. Currently, the combination of offshore activities in the Middle East and widespread gas investments globally will continue to drive strong international growth. We have observed an increase in the growth rate for the Middle East in the fourth quarter, which is fueled by a commitment to increasing oil capacity and advancing gas development. This aligns with my earlier statements, as we expect Middle East investments to reach record levels this year or the next, significantly boosting our future revenue. Additionally, the international market showcases remarkable resilience due to its diverse drivers, including both short and long-term oil and gas initiatives, offshore and onshore projects. I believe that the long-term investments in capacity expansion and gas development in the Middle East, combined with the recovery of deepwater offshore projects, will lead to a noticeable increase in activity this year. Furthermore, we anticipate a resurgence in exploration and appraisal offshore, which will be a key feature in the upcoming quarters. All these factors combined create a robust, multi-faceted growth trajectory for the international market. We foresee that this will not only support growth this year but also sustain growth in the following years, characterized by broad, multi-faceted impacts across various regions.

Right. That’s exactly what we are seeing. So excellent there. And then maybe if I could hone in just as a follow-up on the offshore markets, because that’s an area where SLB has an increased market share, it’s also a high technology area of the business. Could you maybe talk through some of the things that are happening in offshore, shallow water plus really the deepwater area and especially what you are seeing in exploration and appraisal, because that’s, as you said, the defining characteristic here and we haven’t seen exploration in, well, a long time, so I’d love to get your thoughts there?

Absolutely. Offshore has been experiencing growth that began around 18 months ago, and we expect this trend to continue. This year, there's a shift as deepwater activities are catching up to shallow water, which previously led growth in this offshore cycle. Exploration and appraisal activities in deepwater are set to outpace international offshore activities. In 2023, deepwater will see the most significant growth in operational activities, with exploration and appraisal also on the rise. This is evident in several regions. In the East Mediterranean, there have been major announcements regarding gas discoveries that are to be appraised for future development. Additionally, last year saw significant announcements in the South Africa and Namibia Basin, along with continued appraisal and development plans. The East Atlantic margin, especially in Suriname and Guyana, is still highly active, while East Asia is pursuing deepwater gas exploration. These areas are showing promising results in gas and oil exploration, underscoring energy security and the need for oil reserve replacements by both major and large national companies. This growth complements the strong activity in shallow waters, particularly in the Middle East, where offshore development plans in Saudi Arabia, the UAE, and Qatar combine oil and gas initiatives. The outlook for offshore remains robust and is expected to last for many years.

Very good. Thanks, Olivier.

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

Hi.

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

No. Thank you, Dave. I want to first address your comment on durability. I genuinely believe that the international cycle we are entering, particularly with the Middle East becoming part of the growth engine, is poised to be very durable. The key driver of this is the commitment from several countries to expand their oil production capacity, as we can see that tight supply is here to stay and is pushing the market. This is also happening alongside regional gas development across multiple countries. This trend is not short-lived; these are long-cycle projects in offshore and onshore oil and gas developments, including unconventional resources. Thus, the durability we are discussing is set to last for years. The targets for expansion vary from 2027 to 2030, depending on the specific country and their ambitions regarding sustained capital production. What is quite unique is the combination of offshore and onshore oil and gas activities, both conventional and unconventional. For instance, Qatar's conventional gas development is expected to increase further, and Saudi Arabia and the UAE are making strides in unconventional developments. Additionally, there is significant gas development potential in the East Med region. The combination of offshore and onshore work provides a unique opportunity, especially considering the rebound in shallow water activities. This unique situation allows us to outperform by utilizing our local content and customer-centric engagement in the region. We're well-positioned to achieve record revenue in the Middle East during this cycle, surpassing the previous peak from 2014 by a significant margin.

How are the contracts different now compared to the last cycle? I don't think we discussed integrated drilling contracts or LSTK contracts much then; it was primarily about discrete services. Is that the case today, and how does that impact your business? Is there more opportunity?

I think the defining feature of this cycle is performance. It’s all about performance. Our ability to succeed in this integrated contract, as highlighted in our recent press release regarding the Jafurah contract, has allowed us to enhance our performance to match some of the top results in North America. Performance will determine market share allocation and influence technology adoption. Our capacity to adapt our technology, as we did in Qatar and other areas, along with our focus on local content, particularly in Saudi Arabia, is creating opportunities to secure this contract and leverage a pricing premium for technology adoption in deploying Digital solutions. You may have noticed our recent announcement regarding our sustainability platform with Saudi Aramco, and we anticipate more announcements to follow. We are establishing our future in the Middle East on multiple fronts, emphasizing performance and execution. While technology adoption, differentiation, and LSTK are part of our operational landscape, they do not constitute the largest segment of our business in the Middle East.

Thank you. I have a follow-up question regarding the offshore sector. You seem confident about the duration and we are noticing an increase in shallow water activities which were not prevalent for you in the Middle East previously. However, concerning deepwater operations, we observe a significant rise in rig contracting. Petrobras appears to be securing a strong position in the deepwater rig market. My question is similar to my earlier one: how is this situation different this time? Is there a noticeable shift in the customer base, or will it mainly consist of the same major players from the past? Should we anticipate a more significant turning point in the latter half of the year as deepwater development progresses?

Yeah. I think that’s what we are predicting as well. I think, as I have indicated, the deepwater, we see the highest activity uptick compared to shallow and land, because land is being impacted by the activity compression and decline in Russia internationally and hence this is what we anticipate as well and we don’t expect this to stop at the end of the quarter or next year. So this trend is set to continue indeed.

Hey. Good morning, everyone. So…

Hi. Good morning, Chase.

Good morning. You've covered a lot regarding international outlook, pricing momentum is starting to increase, and we touched on Dave's question about offshore. I would like to delve deeper into subsea. We are hearing many positive anecdotes, with strong margins beginning to be recorded in the backlog. Could you share your insights on the subsea market, the fundamentals you are observing, and whether you believe the industry, beyond just Schlumberger, can return to the peak margins seen during previous cycles in the subsea sector?

I can't comment on that industry directly, but I can share insights on the activity outlook and what we are experiencing in our backlog related to subsea. The underlying trends in subsea are very promising, particularly looking at the mid- and long-term perspectives, driven by deepwater activities that encompass exploration, appraisal, and future development. The offshore final investment decision for 2023 is anticipated to be the highest since 2012, indicating a significant pipeline of subsea projects on the horizon. We have already seen some of these projects materializing in our work this year. Additionally, we are experiencing benefits from infill drilling and tieback activities in recent quarters, providing us with confidence that the market is turning towards further growth. The current conditions appear favorable for enhancing margins and building backlog, pointing towards a revival of previous subsea margins. While I can't speak for the industry as a whole, I view it as essential for the success of offshore development, marked by increased collaboration, engagement, and technological advancement in critical areas such as subsea processing and boosting, with positive trends ahead. We've made a strategic decision to form a joint venture with Aker Solutions and Subsea 7 to seize this market opportunity, and this announcement reflects our outlook on the sector.

Yeah. Absolutely. All right. And just one follow-up unrelated, if we kind of look at 1Q and just kind of think about the moving pieces, you walked through some of this with international seasonality. I didn’t hear anything kind of explicitly on North America, but I don’t know if you can kind of just step us through 1Q moving pieces between North America and international and maybe some color around margins?

I’d like to start with North America, which has seen great success over the past 18 to 24 months. The team's growth rate in both the offshore and land market has significantly outpaced expectations, thanks to our technology offerings and access model. Our margins have improved, reaching a strong and accretive level in North America, providing a solid foundation for us moving forward. As we look into 2023, we anticipate some shifts in drilling activity aimed at rebuilding the DUC inventory, which should benefit us in the coming months before we see the usual plateau or moderation in growth during the second half of the year. There's been an increase in rig activity in North America, which generally occurs early in the year before it levels off later on, so we expect to see this impact the first quarter. Additionally, we anticipate continued strength in offshore operations across the Gulf of Mexico, eastern Canada, and northern Alaska, with growth expected in 2023. North America will indeed be a key driver of growth in the first half of the year. In contrast, we also recognize that the typical seasonal patterns internationally in the Northern Hemisphere may counterbalance this, along with a negative impact from the year-on-year decline in Russia. Overall, there's a mix of factors at play, but North America will act as a growth engine in the first half of the year.

Okay. All right. Perfect. I will turn it back over. Thanks, Olivier.

Thank you.

Yeah. Good morning, Olivier.

Good morning, Arun.

I wanted to get your thoughts, Olivier, on the level of service intensity that you are seeing, particularly in the Middle East, compared to the 2009 and 2014 cycles, as well as your views on the spare capacity of OFS in markets like the Middle East and offshore.

I would like to first reflect on the service intensity we are experiencing. There is significant expansion occurring alongside a strong focus on performance, which has resulted in increased service intensity in our contracts. We are actively involved and are leading in many areas due to our performance. Additionally, we have significantly enhanced our asset efficiency, allowing us to deliver this performance-focused service intensity to our customers without raising our capital expenditure intensity. We are maintaining our target of 5% to 7% total capital expenditures, as highlighted in our guidance today. This discipline in our capital spending is crucial, as it helps us to optimize pricing in the market. Pricing is primarily driven by performance, which earns us a premium, alongside our unique technology that either enhances performance or supports decarbonization as part of the transition technology tailored for the region. Furthermore, the current tightness in the capacity market, particularly evident in the Middle East and offshore, contributes to positive pricing trends.

Great. I want to follow up on performance. Olivier, how are your key NOC partners differentiated in terms of performance and the lowest cost bid regarding tender awards? Are you seeing more direct awards, and how is the tendering process being influenced by this emphasis on performance?

I believe there has been a significant impact. Looking at the Kimberlite survey that has just been published, we have maintained our position as the top-performing supplier based on technology, delivery, service quality, and operational efficiency. This recognition is leading to either direct awards or the ability to negotiate premium pricing for our services or technologies that reflect our differentiated performance. The industry evaluates suppliers based on performance, and we are confident that we have set the benchmark. We will continue to pursue advancements within our organization through technology, operational processes, and digital operations to enhance our performance and deliver value to our customers, who in turn acknowledge this with a premium.

Yes. Good morning. You guys posted some pretty impressive margins in North America last year. Do you think most of the margin benefit overall and the share gain benefit within drilling services from your new strategy has now been captured, does there the market is going to stagnate here onshore for a period. I am just curious about your ability to potentially still deliver exit-to-exit growth onshore in North America or whether the benefits from a share perspective and from a margin perspective that had largely been captured?

I believe there is still potential for growth in the market. While limited access to Tier 1 inventory and capacity constraints have negatively impacted well productivity, we anticipate that major public companies, and to a lesser extent private ones, will drive growth this year. Our position in this market is strong due to our technology access model and Fit-for-Basin technology, which have demonstrated performance improvements in onshore drilling and earned us a premium. Our production system portfolio, including ESP and frac trees, is also designed for success. We see opportunities for both growth and margin expansion as the market remains tight, and similar to the international market, there is a recognition of the value of performance differentiation, especially among public companies. In North America, both land and offshore, we expect activity-based growth this year, although not as significant in the land market compared to last year. There will still be support for pricing given the constraints and the recognized premium associated with Fit technology and performance, applicable to both land and offshore environments.

Great. No. I appreciate all that color. And then just turning to Russia, you mentioned that Russian activity will be trending lower in 2023. Is that a market comment or does that apply to your activity in the country as well?

I believe that’s a comment on the market generally and aligns with the views of some independent market analysts. We're expecting a decline in the range of five to potentially teens in percentage terms, and we agree with this perspective. I think our market activity will reflect that decline.

We can take the next call now?

Hi. Thanks. Good morning.

Good morning, Roger.

I’d like to revisit your positive comments on the increase in offshore activities, especially in deepwater. Could you share your thoughts on how this affects SLB as we transition from conventional land rigs to international land rigs, shallow water, and then deepwater? What kind of revenue multiples and potential margin expansions can we expect as we move across those segments?

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

Okay. And then my unrelated follow-up is to come back on the CapEx. Understand 2022 running a little hot and the growth rate a little slower in 2023 based on that accelerated CapEx. But what’s the right way for us to think about CapEx as a percent of revenue, because for a bit, it seemed like kind of 5% to 6% running a little above that in 2022 and by my own calculations maybe still running above that in 2023. So I just wondered if there’s been a change in how you are thinking about it or it just reflects market conditions as we look into 2023 in the middle of the decade?

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

Okay. Great. So no change in how you are thinking about the investments and how that affects return on capital employed and everything going forward?

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

Hey. Good morning. You have…

Good morning, Luke.

Good morning. You have outlined 2023 international growth and at your investor event kind of give us some parameters around 2025, but then your comments today about international growth could keep going through 2027 and possibly to 2030. I think we are all pretty familiar with Middle East, strong growth offshore as well, growing substantially, but what do you see as some kind of the later cycle growers or is this cycle mainly Middle East and offshore?

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

Hey. Good morning.

Good morning, Kurt.

So, Olivier, I wanted to follow up on the financial targets you outlined during your Analyst Day in November. It appears that you are on track to meet those targets. As we enter 2023, are you sensing that the market momentum in both international and offshore markets is even stronger than you anticipated when you shared your plans in November?

No, I believe that overall, we have maintained our market assumptions and the macro environment we expected. I would like to make two points. First, this year's dynamics may see some upside due to the economic recovery and reopening in China, which could lead to a market upcycle and an acceleration in final investment decisions later this year, positively affecting our outlook. Secondly, based on my recent visit to the Middle East and the discussions I had with various customers there, I can affirm the strong commitment to capacity expansion and gas development programs, which I believe will remain resilient despite market conditions. While we have limited our guidance to 2025, it is becoming increasingly clear that this cycle may extend, and we will have the capacity to support growth beyond 2025, both through offshore projects and as the Middle East growth engine develops.

Okay, that’s great information. I’m curious if you could provide a brief outlook on what’s happening with New Energy.

I am very pleased with the progress in New Energy. Over the last six months, we have clearly defined our strategy. We discussed this extensively during the Capital Market Day, outlining the five key areas where we are investing in technology. We are focusing on partnerships and investments in equity and critical partners to enhance our market approach and ensure our success. We are making progress in each of these areas and have seen some announcements related to carbon capture and storage, which I believe is gaining significant momentum. We are involved in numerous projects this year and have established partnerships, including one with Linde for blue ammonia, blue hydrogen, and gas processing. We have also invested in RTI for carbon capture. Furthermore, we are advancing in geoenergy with Celsius, which is a crucial technology that has the potential to impact how heating and cooling are managed in buildings and cities in Europe. We have a positive long-term outlook and will share more updates on this. Overall, we are making progress across these domains, whether through pilots, early commercial contracts, or technology milestones. We will keep you updated on our progress so you can evaluate our developments as we work towards our goals for 2030 and the upcoming decade. I remain optimistic and encouraged by the feedback we receive from our partners and customers. Sounds great. No. I appreciate the color. Thanks, Olivier. Thank you. Thank you very much. So I believe at this time to conclude. Ladies and gentlemen, as we conclude today’s call, I would like to leave you with four key takeaways. First, our 2022 results represent another positive step in our financial and operational performance journey. Financially, we realized broad revenue growth and margin expansion, closed the fourth quarter with year-on-year EBITDA margin expansion ahead of our initial guidance and further reduced net debt. Operationally, the year was transformative, as we executed our strategy across our three engines of growth and communicated our new brand purpose and identity. This firmly positions SLB to be the leader in the energy sector across multiple opportunities and time horizons. Second, the macroeconomic environment remains highly supportive of a resilient upcycle in both oil and gas and low carbon energy solutions. This is fundamentally driven by demand growth amidst very tight supply and further boosted by the prioritization of energy security and decarbonization. These market conditions will continue to support steady growth in global oil and gas upstream investment for years to come and will prompt additional investments in low carbon energy solutions for a balanced planet. Third, the oil and gas industry is entering a new phase in the upcycle marked by the inflection in the Middle East and the strengthening of offshore activity. Taken together, this signals the onset of a new growth pattern internationally. These dynamics are closely aligned with our strengths and will enable us to benefit from a favorable pricing environment and further technology adoption. Additionally, we believe that the secular trends in Digital Transformation and decarbonization will only accelerate across all markets, presenting an advantaged position for SLB. Finally, based on our confidence in the strength of the upcycle, our favorable market exposure and strong financial results, we reaffirm our ambition to significantly expand shareholder’s returns in 2023, through a commitment to more than double the returns when compared to 2022 through a combination of increased dividends and share buybacks. I could not be more satisfied with SLB’s position at the onset of 2023 and have full confidence in our team’s ability to fully seize the new phase of this upcycle and accelerate our investment for the future. We look forward to once again exceeding your expectations throughout this year. Thank you very much for your time.