425: Schlumberger (SLB) Q1 2024 Earnings: International Growth Drives Strong Results, ChampionX Acquisition to Expand Production Capabilities

Schlumberger reported strong Q1 2024 results driven by international growth and highlighted the strategic acquisition of ChampionX to enhance its production and recovery offerings.

Summary

• Schlumberger's Q1 2024 revenue increased by 13% year-on-year, and EBITDA grew in the mid-teens.
• Adjusted EBITDA margins expanded for the 13th consecutive quarter.
• International revenue grew by double digits, with the Middle East and Asia showing remarkable growth of 29%.
• North America saw a revenue decline of 6% due to weaker gas prices and capital discipline.
• Digital revenue grew in the double digits year-on-year, and the company expects a visible uptick of digital sales throughout the rest of the year.
• The company maintains its ambition to grow digital revenue in the high teens for the full year.
• Schlumberger is confident in its full-year financial guidance, with strength in international activity offsetting slower growth in North America.
• The company expects sequential revenue growth internationally in the mid-single digits and North America in the low-single digits for Q2.
• Adjusted EBITDA margins are expected to expand by 75 to 100 bps in Q2.
• The company generated $327 million of cash flow from operations in Q1.
• Free cash flow was negative $222 million, but is expected to increase in the following quarters.
• Capital investments are expected to be approximately $2.6 billion for the full year.
• Schlumberger repurchased 5.4 million shares for $270 million during the quarter.
• The 2024 target for total returns of capital to shareholders has been raised from $2.5 billion to $3 billion, evenly split between dividends and share repurchases.
• The S-4 registration statement relating to the ChampionX acquisition will be filed in the next couple of weeks.
• The company anticipates $400 million in synergies from the ChampionX acquisition within the first three years.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong international growth, margin expansion, and strategic acquisitions. While there are some challenges in North America, the overall tone is optimistic and confident in achieving future financial goals.

Positives

• Strong international growth, particularly in the Middle East and Asia.
• Consistent expansion of adjusted EBITDA margins.
• Double-digit growth in digital revenue.
• Increased focus on shareholder returns with a higher target for capital returns.
• Strategic acquisition of ChampionX to expand production and recovery capabilities.
• Confidence in achieving full-year financial guidance.
• Expected sequential revenue growth in Q2.
• The company is well-positioned to benefit from the increasing demand for energy and the focus on energy security.

Negatives

• Revenue decline in North America due to weaker gas prices and capital discipline.
• Digital & Integration margins declined due to higher APS amortization expense and lower commodity prices on the APS project in Canada.
• Free cash flow was negative in Q1 due to seasonal effects.

Risks

• Slower growth in North America may impact overall revenue.
• Lower gas prices and capital discipline could continue to affect North American activity.
• The ChampionX acquisition requires approval from ChampionX shareholders.
• The company is required to suspend its share buyback program during the period after ChampionX mails its proxy for the merger until its shareholder vote.
• The ultimate outcome of the proposed transaction between SLB and ChampionX, including the possibility that ChampionX stockholders will not adopt the merger agreement in respect of the proposed transaction.

Future Outlook

Schlumberger anticipates continued activity momentum in international markets, driven by increasing global demand and a focus on energy security. The company expects to realize further growth in the strengthening production and recovery market. Specific to the second quarter, the company expects sequential revenue growth internationally in the mid-single digits and North America in the low-single digits. Adjusted EBITDA margins are expected to expand by 75 to 100 bps in Q2.

Management Comments

• Olivier Le Peuch, CEO, stated that he is very pleased with the strong start to 2024.
• He highlighted the breadth, resilience, and longevity of the current oil and gas cycle.
• He emphasized the importance of project life cycle reduction, capital efficiency, and digital adoption for customers.
• He noted that the acquisition of ChampionX will further evolve the company's portfolio to capture opportunities in the production and recovery market.
• Stephane Biguet, CFO, mentioned that the company is on track to achieve its full-year financial ambitions.
• He highlighted the expected improvement in Digital & Integration margins throughout the year.

Industry Context

The announcement reflects the ongoing trend of increasing international activity in the oil and gas sector, particularly in the Middle East and Asia. The acquisition of ChampionX aligns with the industry's growing focus on production optimization and recovery. The company's investments in carbon capture and sequestration also reflect the increasing importance of emissions reduction in the energy industry.

Comparison to Industry Standards

• SLB's international growth of 29% in the Middle East and Asia significantly outpaces the growth rates of many of its peers in those regions.
• The company's consistent expansion of adjusted EBITDA margins demonstrates strong operational efficiency compared to industry averages.
• The strategic acquisition of ChampionX positions SLB to compete more effectively with companies like Halliburton and Baker Hughes in the production chemicals and artificial lift markets.
• SLB's focus on digital transformation and carbon capture aligns with the strategies of leading energy technology companies such as Siemens Energy and ABB.

Stakeholder Impact

• Shareholders will benefit from increased capital returns and potential synergies from the ChampionX acquisition.
• Employees may experience changes due to the integration of ChampionX.
• Customers will have access to a broader range of products and services, particularly in production and recovery.
• Suppliers may see changes in procurement patterns due to the integration of ChampionX.
• Creditors are likely to view the company favorably due to its strong financial performance and strategic acquisitions.

Next Steps

• File the S-4 registration statement relating to the ChampionX acquisition.
• Obtain approval from ChampionX shareholders for the acquisition.
• Continue to execute on the company's strategy for growth in international markets.
• Focus on expanding digital revenue and improving margins.
• Integrate the ChampionX business and achieve anticipated synergies.
• Continue to invest in carbon capture and sequestration technologies.

Key Dates