10-Q: Schlumberger Reports First Quarter 2024 Results, Announces ChampionX Acquisition

Schlumberger's first quarter 2024 results show a 13% year-over-year revenue increase, driven by international growth and the acquisition of the Aker subsea business, alongside the announcement of a definitive agreement to acquire ChampionX.

Summary

• Schlumberger (SLB) reported a 13% year-over-year increase in revenue for the first quarter of 2024, reaching $8.7 billion.
• This growth was primarily driven by an 18% increase in international revenue, which offset a 6% decline in North America.
• The acquisition of the Aker subsea business contributed significantly to the revenue increase.
• Net income attributable to SLB was $1.068 billion, or $0.74 per diluted share, compared to $934 million, or $0.65 per diluted share, in the same quarter of the previous year.
• The company announced a definitive agreement to acquire ChampionX in an all-stock transaction, with ChampionX shareholders expected to own approximately 9% of SLB's outstanding shares upon closing.
• SLB's total backlog was $5.3 billion at the end of the quarter, with approximately 65% expected to be recognized as revenue over the next 12 months.
• The company increased its quarterly cash dividend by 10% to $0.275 per share and raised its 2024 target for total returns of capital to shareholders to $3 billion.

Sentiment

Score: 7

Explanation: The sentiment is positive due to strong revenue growth, strategic acquisition, and increased shareholder returns, but tempered by seasonal declines and margin contractions in some divisions.

Positives

• Strong year-over-year revenue growth of 13% driven by international markets.
• Successful integration of the Aker subsea business contributing to revenue.
• Increased profitability in Reservoir Performance and Production Systems divisions.
• Strategic acquisition of ChampionX to expand production chemicals and artificial lift offerings.
• Increased dividend payout and share repurchase program demonstrating commitment to shareholder returns.
• Strong backlog of $5.3 billion indicating future revenue visibility.
• Positive outlook for international and offshore growth.

Negatives

• Sequential revenue decline of 3% due to seasonality, particularly in North America.
• Pretax operating margin contraction in Digital & Integration, Reservoir Performance, Well Construction, and Production Systems divisions compared to the previous quarter.
• Decline in North American revenue by 6% year-over-year.
• Increased APS amortization expense impacting Digital & Integration margins.
• Seasonal activity reductions in Russia and Asia impacting Reservoir Performance revenue.

Risks

• The proposed acquisition of ChampionX is subject to regulatory and shareholder approvals, and may not be completed.
• Failure to integrate ChampionX successfully could hinder the realization of anticipated synergies.
• The company is exposed to risks related to foreign currency fluctuations.
• Changes in oil and gas demand and prices could impact future performance.
• The ongoing conflict in Ukraine could affect global energy supply and the company's operations.
• The company is exposed to risks related to legal proceedings, although management believes the probability of material loss is remote.
• The company is exposed to risks related to the global economy and geopolitical conditions.

Future Outlook

SLB anticipates a seasonal rebound in activity in the Northern Hemisphere and robust international activity, leading to broad sequential margin expansion across all divisions and geographies in the second quarter of 2024. The company expects operators to increase investments in production and reservoir recovery, with operating expenditures becoming an increasing part of global upstream spending. SLB also expects to benefit from the ChampionX acquisition.

Management Comments

• SLB remains confident in its global revenue growth outlook for 2024, with softness in North America being offset by upside in the international markets.
• Margin expansion throughout the year is expected to be driven by tight service and equipment capacity internationally, increased technology adoption, and further operational efficiency.
• The oil and gas industry continues to benefit from strong market fundamentals driven by a growing demand outlook.
• SLB expects operators to increase their investments in production and reservoir recovery, with the goal of maximizing the efficiency and longevity of their producing assets.

Industry Context

The announcement aligns with the broader industry trend of increased international and offshore activity, as well as a focus on production and reservoir recovery. The acquisition of ChampionX positions SLB to capitalize on the growing demand for production chemicals and artificial lift solutions, reflecting a strategic move to capture a larger share of the market.

Comparison to Industry Standards

• SLB's revenue growth of 13% year-over-year is strong compared to some of its peers in the oilfield services sector, although specific comparisons would require detailed analysis of competitor results.
• The company's focus on international markets aligns with the current industry trend of increased activity outside of North America, which is also being seen in companies such as Halliburton and Baker Hughes.
• The acquisition of ChampionX is a strategic move similar to other consolidation efforts in the industry, such as the merger of Baker Hughes and GE Oil & Gas, aimed at expanding service offerings and market share.
• SLB's commitment to shareholder returns through increased dividends and share repurchases is consistent with the practices of other large, established companies in the sector, such as Chevron and ExxonMobil.

Legal Proceedings

• SLB is party to various legal proceedings from time to time, but management believes that the probability of a material loss with respect to any currently pending legal proceeding is remote.

Stakeholder Impact

• Shareholders will benefit from increased dividends and share repurchases.
• Employees may experience changes due to the ChampionX acquisition.
• Customers will have access to a broader range of services and technologies.
• Suppliers may see changes in their relationships with SLB due to the acquisition.
• Creditors will be impacted by the company's debt levels and financial performance.

Next Steps

• The company will focus on integrating the ChampionX acquisition.
• SLB will continue to execute its strategy of international growth and technology adoption.
• The company will continue to monitor market conditions and adjust its operations accordingly.
• SLB will focus on achieving margin expansion in the second quarter of 2024.

Key Dates

Keywords

Schlumberger, SLB, oilfield services, energy, ChampionX, acquisition, revenue, net income, dividends, share repurchase, international growth, subsea, digital, reservoir performance, well construction, production systems