SLB (SLB) — Q4 2023 Earnings Call Transcript

Thank you, Leah. Good morning, and welcome to the SLB fourth quarter and full year 2023 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 Olivier.

Thank you, James. Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I will discuss our fourth quarter and full year results, highlight a number of achievements and share our thoughts on the outlook for 2024 and our financial ambitions. Stephane will then provide more detail on our financial results and will open the line for your questions. Let's begin. The fourth quarter was an impressive conclusion to the year's financial results. We grew revenue both sequentially and year-on-year and we achieved cycle high margins and cash flows during the quarter. Our strong performance was fueled by the international and offshore markets and was supported by robust sales in digital and integration of the acquired Aker subsea business. Throughout the year, we witnessed continued growth in the international and offshore markets, where customers are focused on enhanced production and capacity additions. We have also seen further investments in digital technologies for planning and operational efficiency. This is driving growth today and presenting opportunities into the future. The international shift in investment has accelerated during the year, with fourth quarter revenue growth driven by the Middle East and Asia, and Europe and Africa, where we continue to benefit from long-cycle developments, capacity expansions, and exploration appraisal activities. Specific to offshore, we delivered a very strong fourth quarter as we grew our legacy portfolio and harnessed a strong performance from our OneSubsea joint venture. On this note, I would like to extend my thanks to the entire Aker subsea team who have joined us three months ago and have already contributed very well to our strong year and results. Exiting the year, our international revenue and margins reached new cycle highs, marking our tenth consecutive quarter of year-on-year double-digit revenue growth on the international front. And we delivered exceptional free cash flow of $2.3 billion in the quarter. Next, let me reflect on our accomplishments for the full year. We fulfilled our full year financial ambitions, growing revenue by 18%, surpassing our revenue growth target for the year and achieving adjusted EBITDA growth in the mid-20s. Additionally, we generated $4 billion in free cash flow, our highest since 2015. In the core, across production systems, Reservoir Performance, and well construction, we grew revenue by more than 20% and expanded pre-tax operating margins by almost 300 basis points. This was driven by strong activity internationally and offshore, new technology deployment and strong product sales. Notably, we achieved our highest ever revenue in the Middle East, led by impressive growth in Saudi Arabia, the United Arab Emirates, Egypt, and the East Mediterranean. Offshore also contributed positive momentum, led by remarkable growth in Brazil and Angola and very solid increases in the U.S., Gulf of Mexico, Guyana, and Norway. This was supported by the contribution from the acquired Aker subsea business, which enabled us to expand in certain markets, mainly in Norway and Australia. Additionally, our fit-for-basin business model continued to deliver differentiated value in North America, resulting in revenue growth outperforming to the record. In digital, we continue to witness the adoption of our digital workflows and data AI platform as customers work to enhance efficiency and returns by integrating our connected and autonomous trading data and AI solutions. We now have more than 6,000 Delfi users and have generated 125 million compute hours, both representing more than 40% growth year-on-year. As a result, we achieved full year digital revenue of more than $2 billion with our new technology platforms comprised of cloud, edge, and AI, growing at a CAGR of 60% since 2021. In new energy, we forged new partnerships and made new investments in capture technology for carbon capture and storage. We are seeing very positive momentum in this space. And we are actively participating in more than $400 million of CCS tenders globally. Additionally, in short-term and energy, we are partnering with government agencies in the Middle East on lower carbon electricity and in Europe on zero carbon heating and cooling solutions. As we advance our three engines of growth, we also continue to deliver for our customers and stakeholders by achieving our lowest-recordable injury rate and highest level of operational reliability on record. This is also reflected in industry surveys, where we are growing customer satisfaction through performance and value creation. Finally, we reduced our emission intensity across Scope 1, 2, and 3 on the path to achieving our 2025 emissions reductions commitment. Moving forward, we are well-positioned to capture further growth, and I look forward to building on this strong success in the year ahead. I want to thank the entire SLB team for delivering these impressive results. Turning to the macro. The characteristics of breadth, resilience, and durability that have defined this cycle remain fully in place. This continues to be supported by the imperative of energy security to meet rising global demand, confirming our belief in the longevity of the cycle. After a year of demand growth in 2023, we anticipate further growth in 2024 that will continue to support the ongoing multiyear investment cycle. In international markets, growth momentum is set to continue with more than two-thirds of total investment taking place in the Middle East, offshore, and gas resource plays. In the Middle East, growth will be led by Saudi Arabia and the United Arab Emirates, which continue to commit significant investments to increase production capacity in both oil and on commercial gas, followed by Iraq and Kuwait. Meanwhile, in Asia, countries such as China, Malaysia, Indonesia, and India are leading new gas exploration and development. Across our international basins, we anticipate strong activity led by Brazil and followed by West Africa and Australia. Looking across this wide baseload of activity, a significant portion is taking place offshore, while capital expenditure will continue their growth momentum in 2024. As a result, the rig count will continue to rise, mainly in the Middle East and Asia, responding to a strong FID pipeline in both shallow and deepwater. All in all, we see the potential for more than $100 billion in global offshore FIDs in both 2024 and 2025, underscoring the enduring strength of the offshore markets and supporting a very favorable subsea outlook for years to come. In this context, although geopolitical tensions persist in several regions, we do not expect any significant impact to activity in 2024, absent further escalation. Additionally, although we have witnessed short-term commodity price fluctuations over the past few months, long-cycle investment in the Middle East, offshore, and gas markets remain decoupled from short-term pricing, which will continue to support the resilience of these markets. In North America, following a noticeable moderation of activity in the later part of 2023, we anticipate capital discipline to continue. Consequently, investment levels will be sustained at 2023 exit rates with minimal increase in activity as the vision focused on sustaining record ARPU from last year. This will drive further adoption of technology as operators aim to further improve efficiency and recovery rates. Now let me explain how we expect these factors to drive our performance in 2024. In the international markets, we expect full year revenue growth reaching the mid-teens, led by the Middle East and Asia, and Europe and Africa. This growth will take place both onshore and offshore, with offshore benefiting from our newly formed OneSubsea joint venture, which enters the year with close to $4.5 billion of subsea production system backlog. We expect to deliver more than $4 billion in additional subsea bookings in 2024, an increase of more than 25% year-on-year as the market continues to expect. For clarity, when excluding the impact of Aker contribution and the expected decline in Russia, we expect double-digit international growth for the year. Meanwhile, in North America, although activity has moderated, we expect full year revenue growth reaching the mid-single digits, driven by our technology and leverage portfolio in both U.S. land and the U.S. Gulf of Mexico. Turning to the divisions. We expect all core divisions to grow led by Production Systems and Reservoir Performance. Digital integration is also expected to grow with digital growing in the high teens, primarily driven by new technology platforms, while APS remains flat. Directionally, we expect further margin expansions driven by tight service capacity internationally, pricing, and increased technology adoption. This will result in year-on-year EBITDA growth in the mid-teens. With continued growth in earnings, our profitability to generate cash, and confidence in the long-term outlook, we are pleased to announce that the Board of Directors has approved a 10% increase in our quarterly dividend. And we'll also increase our share repurchase program in 2024. Combined, we are targeting to return more than $2.5 billion to shareholders in 2024, an increase of more than 25% compared to 2023. Looking to the first quarter, we anticipate the typical pattern of activity beginning with the combined effects of seasonality and the absence of year-end digital sales. As a result, on a year-on-year basis, we expect first quarter revenue growth in the low-teens and EBITDA growth in the mid-teens. This will be followed by an activity rebound in the second quarter and further acceleration of growth in the second half of the year, particularly in the international markets. This will support the ambition we have set for full year revenue and earnings growth.

Thank you, Olivier, and good morning, ladies and gentlemen. Fourth quarter earnings per share, excluding charges and credits was $0.86. This represents an increase of $0.08 sequentially and an increase of $0.15 when compared to the same period of last year. We recorded $0.09 of charges during the fourth quarter of this year, $0.06 related to the devaluation of the peso in Argentina and the remaining $0.03 related to merger and integration costs associated with our acquisition of the Aker subsea business, which closed at the beginning of the quarter. We anticipate that we will incur additional charges as integration activities continue over the course of 2024. Our full year 2023 revenue of $33.1 million grew 18% year-on-year. While this revenue is roughly the same as the pre-pandemic level of 2019, our adjusted EBITDA in 2023 in absolute dollars was 22% higher. As a result, our full-year 2023 EBITDA margin of 24.5% has expanded 430 basis points over this period on a similar revenue base. This highlights the high grading of our portfolio over the last few years, our significantly improved operating leverage and our favorable market position, particularly internationally and offshore. Fourth quarter revenue of $8.99 billion increased 8% sequentially, with the acquired Aker subsea business accounting for approximately 70% of the increase. Fourth quarter pretax operating margin of 20.8% improved 52 basis points sequentially and 101 basis points year-on-year. Adjusted EBITDA margin for the fourth quarter of 25.3% was 95 basis points higher than the same period of last year. I will now go through the fourth quarter results for each division. Fourth quarter digital and integration revenue of $1 billion increased 7% sequentially, with pretax operating margin expanding 197 basis points to 34%. This growth was due to increased digital revenue across all areas, led by the Middle East and Asia and Europe and Africa. Reservoir Performance revenue of $1.7 million grew 3% sequentially, primarily due to increased activity internationally, mainly in the Middle East and Africa. Pretax operating margin increased 88 basis points to 21.4%, representing the highest level of this cycle, driven by higher activity and improved pricing. Well construction revenue of $3.4 billion was essentially flat sequentially as international growth of 2% was offset by a decline in North America revenue resulting from a lower U.S. land rig count. Pretax operating margin increased 35 basis points sequentially. Lastly, Production Systems revenue of $2.9 billion increased 24% sequentially, largely due to the acquired Aker subsea business. Excluding this effect, revenue grew 4% sequentially due to strong international sales. Pretax operating margin expanded 153 basis points to 15%, its highest level this cycle on higher sales of midstream, artificial lift, and subsea production systems. Looking ahead to the full year of 2024, we expect continued margin expansion in our core, driven by sustained operating leverage, a favorable geographic mix, and pricing tailwinds. In our Digital and Integration division, we expect margins to remain approximately at the same level as 2023 as digital margins will increase due to the accelerated adoption of our new technology platforms, while APS margins will decrease as a result of higher amortization expenses. All in all, as mentioned by Olivier, strong year-on-year revenue growth and continued margin expansion will result in adjusted EBITDA growth in the mid-teens in 2024 when compared to 2023. Now turning to our liquidity. We generated $3 billion of cash flow from operations and $2.3 billion of free cash flow during the fourth quarter. This exceptional performance resulted in full year free cash flow of $4 billion, which is the highest level we have achieved since 2015. This was due to a combination of very strong year-end receivable cash collections, increased customer advances, improved inventory turns, and the receipt of the prior year tax returns. As a result of this exceptional free cash flow performance, we reduced our net debt by $1.4 billion during the quarter to $8 billion. This represents our lowest net debt level since the first quarter of 2016. Capital investments, including CapEx and investments in APS projects and exploration data were $742 million in the fourth quarter and $2.6 billion for the full year. Looking ahead, we will continue to be disciplined as it relates to our capital investments. Despite the continued revenue growth, our 2024 capital investments will remain at approximately the same level as in 2023. Finally, during the fourth quarter, we repurchased 1.8 million shares of our stock for a total purchase price of $100 million. For the full year, we returned a total of $2 billion to shareholders in the form of dividends and stock repurchases. Our continued capital discipline, combined with the confidence we have that 2024 will be another year of strong cash flow generation, which enables us to increase our returns to shareholders in 2024. In this regard, when combining the increased quarterly dividend that we announced today with increased share repurchases, we are targeting to return more than $2.5 billion to our shareholders in 2024.

Thank you, Stephane. Ladies and gentlemen, I think we will start the Q&A. So Leah, back to you.

Olivier, I’m eager to hear your perspective. It’s clear you anticipate another year of significant growth in EBITDA and revenue. However, it seems like we have a number of deepwater rigs that are likely to start operating correctly soon, particularly in the second half of the year. There should be an exit rate that exceeds that growth as we move towards 2025. Do you think that's a reasonable expectation, or am I overestimating the market opportunities as we progress through this year into 2025 and 2026?

No, that's correct. I think, James, thank you for laying out the theme of offshore. Offshore is a distinct attribute of this cycle that has already delivered in terms of total activity visible beyond 2019 and includes both shallow and deepwater that have both grown visibly in the last 24 months. Shallow mainly driven by the addition of rigs that we continue to see coming in the Middle East and Asia region, and deepwater across all the deepwater basins. And we anticipate, albeit at a more moderate rate for deepwater and shallow, the rig activity to continue to increase and the exit rate of '24 to be above in terms of rig count, offshore rig count, the total exit range of ’23. As a benefit, I think both the offshore activity and deepwater, where we have the benefit of the scale with our subsea venture will benefit. Hence, we continue to see growth, not only in '24 but running out to '25 and beyond. As I said, the total FID offshore keeps paying $100 billion for each of '24 and '25, and this is not only supporting activity next year and '25 but supporting the longevity of offshore investment beyond. So we remain very constructive on that environment. And yes, we see the exit rate to be above the last December in 12 months from now.

Okay, that's great to hear. As a quick follow-up regarding CapEx, it seems like you plan to maintain it at similar levels as before, although there will be more activity. Will that number eventually need to increase? And if it does, do you still believe you can keep the CapEx to revenue ratio at 5% to 6%?

So look, James, yes, we are still going into '24 and beyond. But this level of CapEx we spent in '23, we think remains adequate for this year as well because you have to think about the mix of activities as well amongst all divisions. So we think we can very well address the upcoming growth within this envelope without having to increase normally throughout the year, unless growth is much more than expected. But we are comfortable with this, and we will remain indeed within our guidance, and it's actually the low end of our guidance on the CapEx side.

So maybe I can start off with the Middle East here. So another double-digit sequential quarter on EMEA, clearly, an enormous runway of activity in front of you the next several years between unconventional gas and the number of capacity expansion projects underway. My question is how you see top-line versus margins evolving? Can you maintain this pace of growth in the region in '24, or are we getting close to capacity in terms of the number of rigs available, service equipment, the E&C capacity here is pretty tight over there? And I guess, conversely, should we start seeing margins expand further as contracts reprice due to tightness in some. I noted that the tendering of Safaniyah was delayed by nine months. I'm wondering maybe there's some sticker shock from pricing. So perhaps is already underway, but just a little bit more details in terms of capacity and pricing in the Middle East, please?

Yes. Thank you, Dave. I think we have been very pleased with the activity and the way we have been able to turn this activity growth in the last 18 months and the last 12 months, particularly into revenue, benefiting from our strength on the ground in the Middle East. I think I would characterize beyond the capacity expansion and on commercial gas, which is a dual benefit for activity. I will also characterize the activity in the Middle East to be very broad. It's not two countries leading this; it's almost every country in the region that we see further activity and will derive from its further revenue growth. So we are not at capacity. We don't see an inflection down of our revenue growth potential in the region, benefiting from our technology market position with every national company in the region and capability for integration to harness the part of our technology into performance for our customers, hence delivering higher revenue from the rate of activity. So we are confident. When it comes to our capacity, yes, equipment capacity and everybody has been disciplined in the region. And hence, we have been responding and benefiting from pricing in the last 18 months. And as a consequence, our margins have expanded in the region and have supported what you have seen as our international margin expansion year-on-year, which has been a driver for margin expansion internationally. We expect this to continue as we execute in 2024. But again, it's a long-duration cycle, both by the nature of the investment decoupled from short-term pricing on commodities. So we remain very confident about our market position first and the market outlook and our ability to differentiate through performance, integration, technology and then continue this success in '24 and '25 and again, well into the second half of the decade.

Yes. A long way from the peak. That's pretty clear, at least that part of the region. I was wondering if we could shift over on the digital side. I know there are a number of comments in the release today regarding increasing digital adoption by your customers. I was hoping you could expand on that a little bit. Is that simply about customers using Delfi more or as they get more comfortable with it, is there a certain application gaining traction? Is there any metrics you can give us in terms of year-over-year usage from your bigger customers? And I'm also just kind of curious, in order to grow digital revenue by essentially 50% over the next two years, is this primarily coming from an increased digital adoption of existing customers? Or do you also need new customers to get to that target?

Okay. Let me come back first on some metrics that I think we have highlighted in my opening remarks. And I think this relates to the adoption of Delfi, indeed, adoption of a number of users, the use of cloud compute on our Delfi platform and the use of additional hedge or AI capability that we offer to customers. The combination of which, as I said, has grown 60% in the last two years on a CAGR rate and the adoption metrics that we shared, both for the number of users and the number of hours of compute power that we serve to our customers on the cloud have been growing by 40%. So yes, the adoption is going, both measured by, as I always said, one customer at a time that transition from our legacy desktop offering to our cloud. And by expansion of our workflows, data, and AI capability that we offer to existing or new customers. So it's a combination of a transition of the existing customers to the cloud and adoption of data and AI capability because we are offering our platform that the industry is recognizing and adopting. And finally, and maybe one of the most exciting parts that adds a dimension of growth is the digital operation, both drilling and production digital operation. You have seen some of the announcements that have been highlighted in recent weeks and months. And last week, further alignment with a partner to accelerate automation and autonomous systems. So the drilling adoption on the operation production with our partner, Cognite. And this is supplementing, I would say, the core growth of transitioning our return customers from desktop to the cloud. So you have three dimensions. You have the cloud transition with existing customers and the adoption of new customers coming to SaaS solutions. You have the data and AI. It’s a new market that is the reverse of the data management that scale into the cloud and AI, unlocking the power of data through AI in our industry; and finally, digital operation. These three trends are supporting our growth ambition, both this year and next year. And this spans all the customer segments across the globe, and you keep seeing some announcement of customer adoption on our solutions.

I want to touch on transition technologies. You noted over $1 billion in sales. And I realize a lot of these are new and focused on emissions reduction. And I believe that the bucket there is separate from new energy, correct me if I'm not accurate. Olivier, I wanted to ask about the outlook for these technologies and the growth of sales of these technologies as the uptake by customers around the world seems pretty strong. Can you speak to the multiyear outlook? And is the cadence of growth for transition technologies additive to the growth rate from the core?

No, I think you are correct first in stating that this is distinct from our focus on the five themes that we have in new energy. And this thing from the CCS, I mentioned where we have a lot of success in geothermal. And it represents a portfolio of technology that we have, that we are developing, that we are promoting to our customers that has a distinct lower emission carbon intensity compared to existing or legacy technology and has a net effect on our customer for their Scope 1 or their Scope 3 upstream as we call it, emissions, but also has the characteristic to bring efficiency. So customers are looking for low-cost, low-carbon outlook and continue to adopt this technology by contrast with alternative technology that exists in the market as they deliver not only lower carbon, but also deliver higher efficiency, which are the way we characterize this technology. So yes, we are very pleased with the adoption. Some technology are very unique, like almost zero-carbon cement solution. Some solutions are really game-changing such as some of our both processing subsea processing solutions that have a net impact on the carbon footprint of subsea operation. Some technology are disrupting for the future, such as electrical full subsea and electrical full completion technology. And hence, we are seeing accelerated adoption of this. And finally, we say that we are also seeing a following the COP 28, much more interest in our methane emission management solution, and you have had the announcement we made with Eni, supporting them as a global company to make an assessment and be assessing their emission intensity from methane and proposing abatement solutions. So this is a mix of technology that will continue to be going in our technology mix and that supports our ambition for a sustainable future and a balanced planet, but also aligned with our customers on a lower carbon, lower-cost future.

Right. Got it. Appreciate that color. And then Stephane, one for you. I appreciate the cash return target for '24. Can you also provide some broader color on the cash conversion rate? The working capital release in 4Q was very impressive. So curious thinking about the working capital outlook for '24 tax rate, etc.

Scott, yes, we were also very pleased with the fourth quarter and full year free cash flow and indeed in the fourth quarter, it came almost entirely from the working capital. So now we do expect, as I say, 2024, to be another very strong year of free cash flow, and it will show the same quarterly pattern we usually see. So in the first quarter, the working capital will clearly increase. We have the payment of annual incentives to employees as you may know. And then we'll have the reversal of certain exceptional items that occurred in the last quarter of 2023. So we'll see the effect in Q1 as usual, but then this will be followed by a gradual improvement in subsequent quarters, in line with what we observed this year. So hopefully, we can have another very strong finish of the year in 12 months from now. And deliver a strong performance as well.

Olivier, you noted the booking and backlog at OneSubsea. In the last call, you talked about some of the commercial and operational objectives. And I wanted to see if you could just talk about how customer engagement and dialogue has progressed with the enhanced offering you now have?

Thank you, Luke. Let me start with the first quarter results of our subsea joint venture with Aker and Subsea7. The results are impressive and directly contributed to the performance of our Production Systems in the fourth quarter, positively impacting both revenue and margins. We are very satisfied with this outcome. Looking ahead, our goal is to maximize synergy and fully capitalize on the current deepwater offshore cycle, which offers a strong outlook. Our priority remains to leverage our integration capabilities, as evidenced by the alliances we have announced, including one with BP. Customers are increasingly approaching us to enhance subsea integration across our SPS and SURF offerings, supported by our capacity to understand the reservoir and execute well construction. This creates opportunities for integrated asset development, streamlined tieback delivery, and improved economics in the subsea market, contributing to better production recovery. I am very optimistic about our future prospects, and the feedback from our customers has been very encouraging regarding our capabilities.

Olivier, maybe I want to touch on exploration a little bit. You talked about that on the call today. You highlighted Asia. I think you talked about China, Malaysia, India, and some of the other countries exploring for gas. I know you've talked about the exploration in the past. So we are seeing at least a little bit of a tangible recovery happening on the exploration side. Maybe you can expand on that a little bit. What do you expect over the next couple of years on both the gas and the oil side? And just maybe remind us how impactful that is for SLB?

Thank you. We have mentioned previously that there has been a resurgence in exploration activity over the past two to three years. This cycle has reintegrated exploration into the industry, driven by the need to identify new gas reserves to address supply security concerns. Additionally, there has been ongoing exploration of oil around existing offshore hubs through infrastructure-led initiatives. New Frontiers are also emerging, replicating successes seen in regions like Guyana. What's notable about this cycle is its widespread nature; exploration is taking place primarily offshore, where most of the success in discovering new reserves is occurring across both shallow and deepwater basins. This includes infrastructure-led exploration in mature markets and in New Frontiers such as Namibia, Suriname, and the forthcoming Brazilian offshore. There’s also activity on both sides of Colombia and a notable increase in exploration capacity in Asia, particularly in India, Malaysia, and China. This broad activity distinguishes the current cycle, which we believe will persist due to improved offshore economics, the appeal of low carbon intensity reserves, and the capacity for sustained production. Factors such as access to offshore acreage, enhanced economic conditions, and higher quality geological reserves have all contributed to this uptick in exploration success. Our performance in reservoir evaluation segments has benefited from this trend, alongside technological advancements like Ora, which is in high demand. Our digital segment, particularly in seismic data processing and geoscience offerings, is also gaining from this trend. We are satisfied with our market position and believe that our exploration appraisal presence will remain strong due to its diverse and extensive nature across various basins, primarily offshore.

Fantastic. Okay. I have one very quick follow-up, if I may, on the Middle East side. I know you talked about that on the prepared remarks and the Q&A early on. But just to go back to that, I think one thing you noted in the press release was that you expect the record Middle East growth to continue beyond 2025. If you can elaborate a little bit, Olivier, on what gives you the confidence, the line of sight beyond 2025? Maybe part of that is just the gas side of things, not just oil, right, but elaborate a little bit on the light of sight you have beyond 2025 on the Middle East.

Yes. I think first, you have to realize that the capacity expansion program announced by the multiple countries that have met their commitments extend from 27 to 30 plus, 30, 35, or 40 from the last country that have expanded this. And hence, I think the capacity will continue to be seen addition both land and offshore to respond to that capacity expansion. Gas, I think, is here for the long in the Middle East for two reasons. First, there are gas reserves that are really at a very good economic point, partially in Qatar, and we continue to present an LNG feed to the global gas market, but also unconventional reserves are seeing significant investment, and we expect this to actually grow fast in the coming years in two or three countries that are focused on commercial gas. So the combination of this is giving us the confidence that the record-ever investment that we have seen last year in the Middle East will continue in ‘24, ‘25 and has potential to expand well into the second half of the decade.

A couple of questions for me. The first is on EBITDA margins. Congrats on crossing that 25% EBITDA margin mark. How should we think about the margin path in 2024? And as you think about the upside and downside factors that could drive you on that metric, how should we think about that?

We anticipate growth in 2024 and ongoing margin improvement, as we mentioned earlier. Our forecast of mid-teens EBITDA growth in absolute dollars will result from revenue increases, along with margin growth in our core business and digital sectors. We continue to see margin expansion, benefiting from strong operating leverage, favorable pricing in our backlog, and the adoption of new technology. Additionally, the favorable mix, particularly with offshore contributions, is also enhancing margins. We expect this trend to continue moving forward.

No, we're very pleased with our performance in North America in retrospect in 2023 as we visibly outperformed the rig count, and we were able to grow sequentially visibly. And we expect indeed to continue to outperform the market, and it comes from multiple factors; the mix factor of exposure we have with great exposure in Gulf of Mexico as well as East Canada and Alaska, we will see a potential of technology adoption giving us the benefits of our mix. But also in the U.S. land market, I think we had a transition to a fit-for-basin and technology leverage focused portfolio in U.S. land and, to some extent, in Canada. And we have seen this as a success with the adoption of some really unique drilling technology in particular, digital CCS giving us the tailwind to outperform the market in 2023, and we see this continuing. Now the priority for customers remains clearly efficiency and recovery in U.S. land market and hence, more efficiency on the trading well construction side, more recovery, use of digital, use of ESPs, and also low carbon when it matters. We'll continue to make the impact and serve us very well. And the U.S. Gulf of Mexico and offshore market performance through integration performance to execution and reliability of our execution, I think, will continue to be paramount for our customers. And as long as we continue to deliver at this level, we'll get rewarded with market position and contract pricing. And hence, we'll be able to outperform the recount, hence our guidance up to reaching the mid-single digits in 2024 against the market outlook.

I wanted to get your thoughts on what you're observing in the international markets, particularly regarding the differences in spending behavior between the national oil companies and the international oil companies.

Thank you, Arun. At the highest level, we have observed significant progress over the last two years, particularly with a rebound in international investment by the international company. This delay is attributed to the contractual nature and decision-making processes of a national company regarding investment execution. We expect the national company to grow faster as we approach 2024, especially led by activity in the Middle East region, where the leading national oil companies are making strides. The momentum we've gained in the international oil company's sector in 2023 positions us well, and we anticipate that our strong offshore presence, along with solid exploration and appraisal efforts, will continue to propel us internationally. Additionally, we shouldn't overlook the international independents who hold market positions in some offshore markets and are successfully executing their plans. We are optimistic and looking forward to the national company accelerating its growth in 2024 relative to the international oil companies. Thank you, Leah. Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways. First, our fourth quarter and full year 2023 results underscore SLB's differential ability to generate returns throughout the cycle. We delivered strong revenue growth and free cash flow above expectations and continue to expand EBITDA and operating margins. With momentum across our three engines of growth and our returns-focused strategy in place, we will continue to build on this success in the year ahead. Second, the macro environment remains very compelling for our business with investment and activity predicated in international and offshore basins. Combined with tight service capacity and an emphasis on performance and digital, we are well positioned to expand our lead by delivering exceptional value to our customers. Finally, I remain very confident in our strategy and impressed by the outstanding performance of our teams. I'm fully confident in our ability to deliver our 2024 financial targets and continue increasing shareholder returns. I look forward to sharing our progress with you throughout the year. With this, I will conclude today's call. Thank you all for joining.