10-Q: Schlumberger Reports Strong International Growth and Margin Expansion in Q2 2024

Schlumberger's second quarter 2024 results show significant international revenue growth and margin expansion across all divisions, driven by strong performance in the Middle East & Asia and increased deepwater activity.

Summary

• Schlumberger (SLB) reported a strong second quarter in 2024, with total revenue reaching $9.139 billion, up from $8.099 billion in the same quarter of 2023.
• Net income attributable to SLB was $1.112 billion, compared to $1.033 billion in the second quarter of 2023.
• The company saw a 5% sequential increase in global revenue, with the Middle East & Asia leading the growth at 6%.
• International revenue reached its highest level since 2014, driven by capacity expansions, gas development projects, and increased production and recovery activities.
• SLB's digital business also experienced growth, with digital revenue increasing by 10% sequentially.
• The company's pretax operating margin improved sequentially across all four divisions.
• SLB expects continued momentum in international markets and further margin expansion in the second half of the year.
• The company has increased its 2024 target for total returns of capital to shareholders to $3 billion and set a target of $4 billion for 2025.
• SLB completed a joint venture with Aker Carbon Capture ASA, paying NOK 4.1 billion for 80% of the shares in Aker Carbon Capture Holdings AS.
• The company also announced a definitive agreement to purchase ChampionX Corporation in an all-stock transaction, expected to close in late 2024 or early 2025.

Sentiment

Score: 8

Explanation: The document presents a strong positive outlook with significant growth in revenue and profitability, particularly in international markets. The strategic acquisitions and increased shareholder returns further boost the positive sentiment. However, some challenges remain in North America and with working capital.

Positives

• Strong international revenue growth, particularly in the Middle East & Asia.
• Sequential margin expansion across all divisions.
• Increased digital revenue and adoption of digital solutions.
• Positive momentum in key resilient markets.
• Enhanced offshore exposure, particularly in deepwater basins.
• Increased shareholder returns through dividends and share repurchases.
• Strategic acquisitions and joint ventures, such as the Aker Carbon Capture joint venture and the acquisition of ChampionX.
• Strong free cash flow generation.
• Improved profitability in subsea production systems and artificial lift.
• Increased activity in intervention and stimulation across all geographic areas.

Negatives

• North America revenue decreased by 6% year-on-year, primarily due to lower drilling in US land.
• Digital & Integration pretax operating margin contracted 298 bps year-on-year due to higher APS amortization expense and lower gas prices.
• Working capital consumed $2.0 billion of liquidity during the six months ended June 30, 2024.
• The company recorded a severance charge of $111 million due to a program to realign and optimize its support and service delivery structure.
• SLB has a significant portion of its net accounts receivable balance in Mexico, representing 15% as of June 30, 2024.

Risks

• The company is exposed to risks related to changing global economic and geopolitical conditions.
• Changes in exploration and production spending by SLB's customers could impact revenue.
• The company faces foreign currency risk and inflation.
• There are risks associated with the integration of acquired businesses, such as ChampionX.
• The company is subject to regulatory risks and changes in government regulations.
• The ongoing conflict in Ukraine could impact global energy supply.
• SLB faces challenges in its supply chain.
• There is a risk of operational modifications, delays, or cancellations.
• The company is exposed to pricing pressure.
• There is a risk of unfavorable effects of health pandemics.

Future Outlook

SLB expects ongoing momentum in the international markets, strong digital sales, and its cost efficiency programs will unlock further margin expansion in the second half of the year. The company also sees a long tailwind of growth opportunities beyond 2024, including long-cycle gas and deepwater projects, production and recovery activity, and the secular trends of digital and decarbonization.

Management Comments

• Second-quarter 2024 results reflected broad-based sequential international revenue growth and margin expansion across all Divisions.
• SLB's Core Divisions continued to build on their positive momentum and its digital business accelerated, resulting in the highest quarterly international revenue since 2014.
• These results demonstrate SLB's strong position in key, resilient markets, as it continues to benefit from elevated activity in the Middle East & Asia, particularly in gas, and SLB's clients increased investments in deepwater basins, exploration, and digital.
• Looking ahead to the second half of the year, SLB expects ongoing momentum in the international markets, strong digital sales, and its cost efficiency programs will unlock further margin expansion.
• Beyond 2024, the fundamentals of this cycle remain in place, and there is a long tailwind of growth opportunities.

Industry Context

The results reflect a positive trend in the oilfield services sector, with increased activity in international markets and a focus on digital solutions and deepwater projects. The acquisition of ChampionX and the joint venture with Aker Carbon Capture also indicate a strategic move towards diversification and energy transition.

Comparison to Industry Standards

• SLB's performance in Q2 2024 shows a strong recovery and growth compared to the previous year, outpacing some of its competitors in terms of international revenue growth.
• Halliburton, another major oilfield services company, also reported strong international growth in their recent earnings, indicating a broader industry trend.
• Baker Hughes, while also showing growth, has been focusing more on its energy transition portfolio, which is a different strategic approach compared to SLB's focus on core oilfield services and digital.
• The acquisition of ChampionX is a significant move for SLB, positioning it to compete more effectively with companies like Ecolab in the chemical solutions space.
• The joint venture with Aker Carbon Capture aligns with the industry's increasing focus on decarbonization, similar to initiatives by other companies like TechnipFMC and Saipem.

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 returns of capital through dividends and share repurchases.
• Employees may be affected by the workforce reductions and restructuring program.
• Customers will benefit from SLB's enhanced service offerings and digital solutions.
• Suppliers may see increased business opportunities due to SLB's growth.
• Creditors will be impacted by SLB's debt management and liquidity.

Next Steps

• SLB will continue to focus on international market growth and margin expansion.
• The company will integrate the ChampionX acquisition and continue to develop its digital solutions.
• SLB will continue to execute its share repurchase program and dividend payments.
• The company will monitor and manage its exposure to risks, including geopolitical and economic factors.

Key Dates

Keywords

Schlumberger, oilfield services, revenue, net income, international growth, margin expansion, digital solutions, deepwater, Middle East & Asia, share repurchase, dividends, Aker Carbon Capture, ChampionX, energy transition, carbon capture