Slb NV ($SLB) Q2 2025 Earnings Call

Thank you, James. Ladies and gentlemen, thank you for joining us on the call. Before we begin, I would like to officially welcome the ChampionX team to SLB. Earlier this week, we shared the news that our transaction is now complete. And this is the start of an exciting new chapter for our company. I could not be prouder to lead the company at this juncture, building on an unmatched talent pool and portfolio of technologies to serve our customer and create value for our shareholders. Now, as we move into this quarter, I would like to start by walking you through our second quarter performance. Then I will share how we see the broader macro environment evolving, comment on our new chapter with ChampionX, and what that means for our business in the second half of the year. After that, Stephane will provide more details on our financial performance, and then we will open the line for your questions. Let's begin.

This was a solid quarter for SLB and as we delivered steady revenue and slight EBITDA margins expansion despite the considerable macro headwinds and market volatility of the past few months. These results are a clear reflection of our broad operating footprint, our technology leadership, and our strong execution. In international markets, revenue grew by 2% benefiting from pockets of growth in the Middle East, Asia, and North Africa, offsetting sequential headwinds in Saudi Arabia and certain offshore markets. Specific to the Middle East and Asia, long-term fundamentals for oil remain strong, and both conventional and unconventional gas are providing an additional tailwind for activity across the region. During the quarter, we experienced strong growth in Iraq, the UAE, Kuwait, East Asia, China, and Australia. Meanwhile, in North America, although revenue declined sequentially, we continue to outperform the market led by increased sales across most of our business lines in production systems and higher digital sales in US land. The revenue decline stemmed mostly from the seasonal spring breakup in Canada and non-repeat of exploration data sales in US offshore. In the offshore market, certain projects have pushed to the right, most notably in sub-Saharan Africa. However, we continue to maintain a steady backlog in one subsea, and there's a significant number of offshore projects preparing for FID. Altogether, these dynamics reinforce our confidence in the long-term growth for this market.

Next, let me discuss the performance of our divisions. In the quarter, production systems led the way again this quarter benefiting from increased sales of artificial lift and midstream production systems. Overall, our service quality and reliability continue to differentiate our offering in this space, and we have been awarded several new projects during this quarter. Meanwhile, in well construction, revenue was flat to slightly sequentially with growth in Iraq, the UAE, North Africa, and Nigeria offset by lower activity in Namibia and North America. In reservoir performance, revenue declined slightly due to lower evaluation and stimulation activity partially offset by solid international work. Turning to digital and integration, our digital revenue remained steady with double-digit growth across a combination of our platforms, applications, and digital operations offset by lower exploration data this quarter. We now have more than 7,800 users across the Delfi platform representing double-digit growth year on year. This is a continued reflection of our customers' focus on unlocking through digital higher levels of performance and efficiency in their assets. Finally, we continued to exhibit growth in CCS where we successfully executed several large-scale projects in the carbon market this quarter. We are now participating in the entire value chain from point of capture with SLB capture to permanent storage with SLB sequestrate. This combined offering is being successfully utilized at the Longship CCS project in Norway, and believe this will continue to present new opportunities for our carbon solutions business. All in all, this quarter was challenging with lots of moving parts. Yet, we produced solid results. Considering the uncertainty and market volatility, the entire SLB team has delivered remarkably well. Having met with many customers during the quarter, I'm assured of our differential performance and the trust that our customers continue to place in us.

Next, I will discuss what we are seeing in the macro environment and how we expect this to evolve over the second half of the year. During the first half of the year, the oil and gas industry demonstrated its strength and resilience proving that it can operate through uncertainty without a significant drop in upstream spend highlighting the different attributes of this cycle. As we look to the second half of the year, the macro environment continues to be uncertain, particularly with the announcement of new OPEC+ supply releases into a well-supplied market. For the moment, the commodity buys are being absorbed by peak summer demand, channel stocking, and the replenishment of global crude inventories that are sitting below 5 years historical average. All in, while sustained release could exert pressure on commodity price in the near term, the removal of the overhang of OPEC+ voluntary cuts would allow for market stabilization over time. While it is difficult to predict the outcome from the combination of further supply release, the sustained geopolitical risk, and lingering tight negotiations, it is fair to assume sustained resilience in the market outlook absent of a dramatic shift in commodity price. Regionally, the Middle East and Asia will continue to display the most resilience in the short term driven by lower activity and a sustained focus on energy security. Meanwhile, advantageous projects will lend support to a steady market across Europe, Africa, and the Americas. In contrast, land activity across North America and Latin America have the greatest downside risk due to short cycle spend. Globally, we expect operators to remain focused on critical in-flight development projects and an acceleration of efficiency gains with a heavier focus on production recovery and continued investment in digital and AI.

Next, let me describe this growing market and the opportunity that we see with ChampionX. Today, customers are on a quest to unlock and optimize the full production potential of their assets while improving efficiency in the reservoir recovery phase of their operations. This is creating a less cyclical and growing market opportunity that is more OPEX-driven and is less sensitive to short-term commodity cycles. The addition of ChampionX enhances our portfolio by providing the capability we need to lead this effort. ChampionX strength in production chemicals and actually lift enhances our portfolio in two essential and fast-growing segments that are critical to long-term asset performance. In production chemicals, ChampionX adds scale, vertical integration, and a strong global manufacturing footprint to deliver solutions to address the rising demand from aging infrastructure and complex wells. Our combined actually lift portfolio adds the breadth to optimize production across the full life cycle of the well. Additionally, ChampionX brings a unique digital production technology portfolio that will expand into new markets and new applications. Integrating these capabilities in SLB's existing portfolio will allow for greater innovation and customer value creation. As we take a further step toward delivering a fully integrated service offering anywhere in the world from reservoir to surface facility, from completion to decommissioning. Geographically, this acquisition also expands our broad global reach. ChampionX deep presence in North America pairs well with SLB's international leadership enabling us to bring their technologies to new markets while also deepening our capabilities in the US. Taken together, this is a highly complementary fit. One that strengthens our portfolio, accelerates our growth in regional markets, and reinforces our ability to deliver value at every stage of the production life cycle. And just as important, we are combining two organizations that share a strong culture of innovation, operational excellence, and customer focus. Overall, this would enable us to integrate the full production landscape with the best people, the deepest domain expertise, and most innovative technology solutions. Guided by a shared passion for innovation and a commitment delivering for customers in every basin around the world. I'm truly excited to welcome the ChampionX team to SLB and look forward to what we will achieve together.

Now, before I hand over to Stefan, let me quickly share our guidance for the second half of the year. Starting August 2025, we will begin consolidating ChampionX into our results. Therefore, we expect second half revenue to be between 18.2 billion and 18.8 billion for the second half. This second half increase will be a result of the 5 months contribution of ChampionX, combined with steady revenue in our legacy SLB business compared to the first half, driven by growth in production systems and digital, fully offsetting the anticipated activity decline in the US and certain deepwater markets. Moreover, revenue will be backloaded in the fourth quarter, reflecting a full quarter of ChampionX, as well as the seasonal uplift from year-end digital and product sales. We also expect second half EBITDA margins to be flat compared to the second quarter, inclusive of the ChampionX contribution and inclusive of about 20 to 40 basis points for DICE impact. I will now turn the call over to Stefan to discuss our financial results and the plan for ChampionX financial integration in more details.

Thank you, Stefan. I believe we are ready for your questions.

Yeah, thank you, Dave. So, so first to be to be coming back to the to the guidance, I think the guidance reflects, from the low to the high guidance, flat to LSD, with potential to go around beyond this. So, we have definitely growth, we project growth in the second half compared to the first half when accounting for the moving parts, in and out of our portfolio. Clearly. Okay, and driven, as we said, driven by the production system ChampionX combination getting a an uplift in the second half of the year, particularly in the third fourth quarter, and also by digital year-end sales. This combination more than offsetting, if you like, some of the headwinds that are in selective market, still affecting the drilling activity and to this extent the reservoir performance, portfolio. So, all of this, to come coming back to your question about selective customer adjustment, I believe that, the major adjustments, in international market, largely beyond us, and people have been prepared and adjusting, their, spending rates and their activity outlook, to account for the uncertainty and somehow the the, declining, commodity price that they have seen during this one. However, as we have seen more recently, the short cycle, market has been more, reactive to the to the persistent, slightly lower, commodity price anticipated. Yet, all in, we are seeing this as a resilient market going forward, assuming that, the price will stay range-bound to what we have seen between, 60 and 65 or 60 and high 60s. I think, we believe that, there are few things at play that could change this, but, most of the most of the cuts and most of the adjustment in select selective market and selective, country have been have been done with exception, as I said, of the of the low cycle of the short cycle, particularly in North America and some market internationally that are short cycle. So, hence we are That's the reason why we guided the way we we guided the second half.

Yeah, so first to comment on what we have seen for the last 12 to 18 months, we have seen white space developing, and indeed the least critical projects shift to the right, but we still have seen the rich pipeline of advantaged projects that are key for the portfolio of international operators, but partly the IOCs, to be going forward with anticipated FID, and you see it in Suriname. Then the Namibia effect is an effect of a long period of appraisal exploration success that is now going into a deep, I would say, learning and decision for the way forward. So I will not try to overreact onto the Namibia temporary effect, but I'm more excited about what I see in Americas at large for oil, with some other Africa assets that are going in phase three or that are reaching FID. Obviously in Central America there are the Suriname assets, the Brazil very sustained activity, and Guyana actually sustained activity as well as Gulf of Mexico combined. I think it probably is a market that has only upside going forward. And by contrast, in the Eastern Hemisphere, driven by gas market from Indonesia big discovery to Mozambique soon to be relaunched, and still East Med as a very prolific and exciting basin. I think I see the conditions that are set for indeed a rebound directionally in the years to come, and certainly I think the hypothesis of 2026 is a valid hypothesis that I think we will have to look forward to see unfolding.

Thank you.

I think I will not try to comment on it because the definition of a production market is something that I think we'll have to come back and give you a little bit more detail on our combined portfolio. But I would say that three treatments that we drive synergy that we drive this market to grow in our minds. First and foremost, I think the customers, our customers, after those, our customers and operators are focused on trying to extract more value from production recovery phase of the asset to contrast with early and competition of development phase of the asset. They're trying to get the most of the existing aging asset to make sure that they extend the plateau, they improve the performance, and they improve the recovery to extract more from the existing asset. So the unique combination that we have access to with the addition of ChampionX give us an unmatched portfolio. And I think I'm not talking about only production system. Actually, if the production chemistry, I'm talking about intervention, I'm talking about the surface equipment, I'm talking about the ability that we have to integrate, innovate, and add digital. So what we drive growth in this is our ability to partner with our customers to provide integrated offering beyond the specific of this absolute production chemistry and add digital capability to it and offer end-to-end solution that includes well services, well intervention, and includes equipment at the surface that can help enhance the production capabilities. So we see this as a market that will have more resilience, less cyclicality because it's inclusive of OPEX expense and the long-term resilience and long-term growth that will certainly outpace the global CAPEX market for the decade to come. That's what we see, and we see this as a white space, as an innovation space, and as a space where customers are very pleased to see in the feedback we have got, the engagement we had, they look forward to see what we can put together by innovation, by integration, and with digital in this market. So we are quite excited.

So Scott, first maybe on 2025 as a reference, we kind of anticipated the soft activity and brought down the total capital investment 10% lower compared to last year. So we are basically at maintenance CAPEX level this year and at the very low end of our 5 to 7% CAPEX as a percentage of our revenue range. So going forward, if we see growth, we will certainly add growth CAPEX to that. We have that agility, and ChampionX clearly brings down that percentage a bit more, but we are already very low. We may or may not change the range, but ChampionX is clearly helping with the low capital intensity. Regarding EBITDA to free cash flow conversion, we don't really track it that way. We prefer looking at free cash flow margin. You know, that we are looking on a full cycle basis to be above 10% of revenue in terms of free cash flow margin, and we are exceeding this now as we speak and intend to do the same going into the following years, partially because of the positive contribution from ChampionX.

Thank you.

Okay, quite a lot packed into the question here. The first indeed, I think it is clear now that the total market is in slight decline in 2025 compared to 2024. We see it both more in North America than we see it internationally. There is more resilience in Middle East and Asia market due to both the commitment to oil capacity expansion, the development of unconventional and conventional gas across the region, and the focus on energy security in Asia. So that provides a bit of a buffer, and I think that's very visible. As we have commented before, internationally, the other international market I think is impacted by two aspects this year: the white space in deepwater market, the Mexico that has been reducing significantly activity that is under restructuring and reaching a new bottom in terms of activity, and some of the short cycle activity in the rest of partly in Latin America. North America, I think there is no secret that the short cycle has been declining in the last couple of months more deeply than everyone would anticipate. So it will represent certainly the highest drag onto the total CAPEX for the year. Now before we talk about inflection, I would like to talk about resilience. Now that this adjustment has been done in the first half, I believe as we have demonstrated in our second half outlook when correcting for the in and out, we are anticipating growth, and this is because we believe that there is resilience on some part of the international market. There is still appetite for executing the most advantaged projects with some unconventional development or some large gas or oil development that are under play. And we believe that our market position that we have, which is hedged across different business lines, across different geography, give us the resilience that I think you see in our numbers in the second half. So I think now inflection, if we look at that, I'm trying to look ahead and directionally, I think looking beyond 2025, we believe that we continue to see the attribute of a cycle rebound, okay, that will be driven by several, by first the fundamentals of energy market and the reaffirmation of the critical role of oil and gas supply. So specifically, if I would like to look directionally ahead and beyond 2025, we're anticipating that the combination of the liquid market rebalancing and the continued investment in oil capacity expansion in the Middle East, the exciting global gas supply both conventional and unconventional in North America, and the robust pipeline that I commented before in offshore deepwater projects, and finally the increase of production recovery focus for the customer will combine with digital and AI trend to lend support to growing investment going forward. We see that this is directionally shaping up. I will not comment on exact timing, but I think I will first remind everybody that there is resilience in this market despite the small uncertainty, and the future is still rich with a lot of projects internationally, rich with gas driving back activity in many parts of the world, and rich with a long-term deepwater project that will add really intensity going forward.

We could. I think let us give you a little bit more color onto this guide that we could give and share in 3Q versus 4Q. So first at very high level, we have gathered that the second half will be back-end loaded. And now more specifically to the third quarter, we expect first this third quarter will be impacted first by addition of two months of ChampionX. That's a positive addition. By negative addition of the fourth quarter absence of Paliser following its divestiture. By also the impact negative I would say of activity decline in the US and certain offshore market. And finally and more recently by an incident that we have had on the Ecuador pipeline disruption. This would translate all in into a slightly higher revenue sequentially from Q2 to Q3. Now trying to contrast this with Q4, with respect to the fourth quarter we see revenue to be higher by high single digits versus the third quarter as an optic. Reflecting first the full quarter of ChampionX. And secondly the seasonal activity uplifts we will see from year-end digital and product sales. I hope I gave you a little bit more color on the top line and the Q3 and uptick in Q4 that will help cycle back the relative revenue in Q3 and Q4.

No, absolutely. I think we are very blessed to have two very highly complementary portfolios both technically and geographically. And I think the strength of ChampionX in the US, the ability to innovate locally with their customers, I think is something that we want to expand, apply to some of the other business we are running into North America to also have better impact, more focused impact, and more fit technology to our customer base in the US and hence benefit as a level of side synergy if you like from our operating model and engagement model of customers in North America. But secondly and critically, I think using the bold portfolio both of Solvay and of ChampionX, of chemical production and the ability to innovate of ChampionX into the international market where we have established a go-to-market access and established customer relationships. So yes, we would expect this first from the complementarity of portfolio and from the market access. But secondly, as I mentioned before, I think the customer feedback we got beyond access to certain technologies that exist today, they believe that by combining our domain subsurface recovery capability including reservoir performance and dimension, our digital and our integration track record, they believe that I think we can help them unlock the value of some assets internationally, and they are very much interested to see what is next in our value proposition beyond just an expansion of our product portfolio into international market. So integration, digital, domain subsurface integration, I think will be what will drive the synergy going forward beyond the geographical expansion as I mentioned.

No, integration, I think the team has worked hard for the last 12 months to do integration planning. I think we are very pleased to launch it yesterday live with all the ChampionX employees, and I think the reception is very strong. I think we have a very strong workbook and playbook for integration that will touch all aspects of organization, process, and onboarding, but also obviously much more importantly, I think the way we face together the customers and trying to create this revenue synergy, this white space with the combined portfolio. So there is really an effort has been made to prepare this from day one, and I think we will be in the next few weeks and months holding out this integration playbook and be in a position to start to capture revenue synergy clearly very soon and add to these established cost synergies that will be executed immediately. So I was very pleased with the progress, very pleased with the reception of the Schlumberger, the ChampionX team, and also very pleased, extremely pleased with the feedback that we're receiving when engaging customers that want to preserve the ChampionX strengths but at the same time excited to see the innovation, to see the expansion as I said, integration, digital capability that we can add, and subsurface domain that unlock some more value both in North America and internationally. So good progress, strong team, fully aligned, and quite an exciting start.

Well, I'm not sure and I would not want to comment on behalf of the decision that the government and Pemex will do. I think they need to go through the motion of restructuring and addressing the critical issue they were facing and finding the bottom and then rebounding. We believe we are there. We are just waiting now to see what are the next steps that could help unlock the value of obviously the assets in Mexico and dynamic of Pemex to rebound from this. We stand ready, we've been in the country for decades and we are ready to respond, be it on the gas development or oil development. We are not only working for Pemex in Mexico, we are working with independents, local independents that have been very active, and we have a very exciting project for Woodside deepwater Mexico starting early next year that we are all prepared for both subsea and well construction that I think we're excited about that is adding dimension to the Mexico rebound. So difficult to predict what is next. We continue to work very closely with partnership with Pemex and trying to get some more intelligence from the government, but I don't want to be commenting more on this. And again, we remain focused on doing the best and adapting to the market activity there.

Yeah, we don't split typically. I think we have been commenting just this quarter that I think the combination of cloud, legacy application that is desktop, and digital operation is going at double digit. We have a significant uptick in the second half of the year. We said mid to high teens in the past. I think we are continuing to ambition to be as committed to go and certainly to outpace significantly. What matters is to outpace significantly the rest of the market and be in mid teens or by contrast with the much lower and declining CAPEX. So decoupled activity, decoupled investment profile is what we are accessing. And yeah, I think it's a long, as I say, it's a long digital transformation, it's a long journey we have started with the industry, and I think our leadership between cloud, between digital operation, between legacy desktop or in expansion data as a combination, we continue to do everything to make sure that it's highly differentiated in terms of growth rate compared to the rest, and we expect this to be the case for the foreseeable future. And as you have seen the market, the margin have improved. We expect the margin to further improve in the second half of the back end of the year, back in the fourth quarter, and becoming accretive and remaining accretive highly in terms of margins and continuing to be accretive in terms of top line growth. So I think we commented on some usage characteristics that link to the cloud adoption. We have seen this quarter, just to give you a data point, 40 million CPU hours being consumed, 50% more than last year at the same time. We have seen also almost 1,000 wells being drilled using DrillPlan, one of our planning cloud applications that we use, and we got customers. So I think we continue to see momentum, and we are confident that I think it will be for sure much higher growth than the rest and one of the highest growth business lines we have in SLB. And you will from Q3 get more detail, and we will disclose this transparently so that the value that we can extract from this will be recognized by investors.

Well, obviously we have, as you know, decided to establish a new platform that we call Lumi for data and AI adoption across our customers. And I think we are very pleased with the early impact. This had a lot of POV as we call it, a lot of early test and adoption across really all the segments of our customer base, attracted by the ability to connect and to integrate data and to have a toolbox of AI capability that we offer from our partners, so that AI workflows can be enabled through our platform by customers and letting the customer play with their data and using our toolbox to then use GenAI or to use AI capability on top. That's what is exciting, that's what customers are coming to our platform for, and that's what the early success of Lumi is giving us. So yes, I think continue momentum there, and this is only the early steps of that adoption.

Thank you, Megan. Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways. First, SLB diverse portfolio and broad operating footprint enable us to overcome regional winds and evolving micro dynamics, deliver solid results as we demonstrated this quarter. Second, we are increasing exposure to the growing production recovery market with the addition of ChampionX. Our combined portfolio, technology capability, and digital leadership will position SLB to unlock value for customers while delivering best-in-class workflow integration across production chemicals and intervention. And finally, global oil and gas market have thus far proven resilient, and we are optimistic about the opportunities ahead and our ability to deliver steady growth in the second half of the year. With this, I conclude today's call. Thank you all for joining.