425: Schlumberger (SLB) Q1 2024 Earnings: Strong International Growth Drives Results, ChampionX Acquisition Set 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 (SLB) reported a strong start to 2024 with Q1 revenue up 13% year-on-year and EBITDA growing in the mid-teens.
• International revenue increased significantly, with 21 of 25 international GeoUnits showing year-on-year growth.
• The Middle East and Asia led international growth with a 29% increase compared to the previous year.
• North America experienced a 6% revenue decline due to weaker gas prices and market consolidation.
• Digital & Integration revenue grew in the double digits, and the company expects this trend to continue throughout the year.
• SLB is acquiring ChampionX to expand its production and recovery market presence, particularly in production chemicals and artificial lift.
• The company is also expanding its carbon capture and sequestration (CCS) business through a combination with Aker Carbon Capture.
• SLB maintains its full-year financial guidance, anticipating continued international activity momentum offsetting slower growth in North America.
• For Q2, SLB expects mid-single-digit sequential revenue growth internationally and low-single-digit growth in North America, with adjusted EBITDA margins expanding by 75 to 100 bps.
• The company has raised its 2024 target for total returns of capital to shareholders from $2.5 billion to $3 billion, evenly split between dividends and share repurchases.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, strategic acquisitions, and a commitment to shareholder returns. While there are some challenges in North America, the overall tone is optimistic and confident.

Positives

• Strong international growth, particularly in the Middle East and Asia, is driving overall revenue and EBITDA growth.
• The acquisition of ChampionX positions SLB to capitalize on the growing production and recovery market.
• Expansion in carbon capture and sequestration (CCS) provides opportunities in the energy transition space.
• The company is committed to returning capital to shareholders through dividends and share repurchases.
• Digital & Integration revenue is growing, with expectations for continued growth throughout the year.

Negatives

• North America revenue declined by 6% year-on-year due to weaker gas prices and market consolidation.
• 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 $222 million in Q1, reflecting seasonal effects and lower cash collections.

Risks

• The proposed transaction with ChampionX is subject to shareholder approval and regulatory review.
• Slower growth in North America could impact overall financial performance.
• Fluctuations in commodity prices could affect APS project revenue and profitability.
• The company faces risks related to global market, political, and economic conditions.
• Failure to effectively and timely address energy transitions could adversely affect the business.

Future Outlook

SLB remains confident in its full-year financial guidance, expecting continued international activity momentum to offset slower growth in North America. Specific to the second quarter, the company anticipates mid-single-digit sequential revenue growth internationally and low-single-digit growth in North America, with adjusted EBITDA margins expanding by 75 to 100 bps.

Management Comments

• Olivier Le Peuch, CEO: 'Im very pleased with our strong start to 2024.'
• Olivier Le Peuch, CEO: 'We remain focused on the quality of our revenue, capital discipline, and execution efficiency to generate strong cash flows and shareholder returns throughout the year.'
• Olivier Le Peuch, CEO: 'This cycle continues to display breadth, resilience and longevity.'
• Stephane Biguet, CFO: 'This year-on-year growth of EBITDA and EBITDA expansion is with us for the year.'

Industry Context

SLB's focus on international markets, particularly the Middle East and Asia, aligns with the current industry trend of increased investment in these regions due to strong energy demand and energy security concerns. The acquisition of ChampionX reflects a broader industry trend of companies expanding their offerings in the production and recovery market to maximize the value of existing assets. The expansion into carbon capture and sequestration (CCS) positions SLB to capitalize on the growing demand for decarbonization solutions.

Comparison to Industry Standards

• SLB's revenue growth of 12.6% year-on-year is competitive with other major oilfield service companies.
• The adjusted EBITDA margin of 23.6% is within the range of industry leaders.
• The company's focus on digital transformation aligns with the industry's push for increased efficiency and automation.
• The expansion into carbon capture and sequestration (CCS) is similar to strategies adopted by competitors such as Halliburton and Baker Hughes.
• The acquisition of ChampionX is comparable to other mergers and acquisitions in the production chemicals and artificial lift space.

Stakeholder Impact

• Shareholders will benefit from increased returns of capital through dividends and share repurchases.
• Employees will have opportunities for growth and development within the expanding company.
• Customers will have access to a broader range of technology and services, particularly in production and recovery.
• Suppliers will have opportunities to partner with SLB on its various projects and initiatives.
• Creditors will benefit from the company's strong financial performance and commitment to capital discipline.

Next Steps

• File the S-4 registration statement relating to the ChampionX acquisition.
• Obtain approval from ChampionX shareholders for the transaction.
• Continue to execute on the company's strategy for growth in international markets and digital transformation.
• Further develop and deploy carbon capture and sequestration (CCS) solutions.

Key Dates