SLB Limited: Form 10-Q for the period ended Mar 31, 2024

First Quarter 2024 Compared to Fourth Quarter 2023

(Stated in millions)

(1) Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets, certain centrally managed initiatives and other nonoperating items.

(2) Interest income excludes amounts that are included in the segments’ income ($4 million in Q1 2024; $11 million in Q4 2023).

(3) Interest expense excludes amounts that are included in the segments’ income ($3 million in Q1 2024; $4 million in Q4 2023).

(4) Charges and credits are described in detail in Note 2 to the Consolidated Financial Statements.

First-quarter 2024 revenue of $8.7 billion decreased 3% sequentially as revenue declined 3% both in North America and in the international markets due to seasonality. However, this impact was less pronounced than in prior years as robust activity gains partially offset seasonal effects.

SLB remains confident in its global revenue growth outlook for 2024, with softness in North America being offset by upside in the international markets. The dynamics of this cycle remain intact, with international and offshore growth taking place across all geographies which is benefiting all of SLB’s Divisions.

Margin expansion throughout the year is expected to be driven by tight service and equipment capacity internationally, increased technology adoption, and further operational efficiency. In the second quarter of 2024, SLB expects a seasonal rebound in activity in the Northern Hemisphere coupled with robust activity internationally, led by the Middle East, Asia, and Africa, which will drive broad sequential margin expansion across all Divisions and geographies.

The oil and gas industry continues to benefit from strong market fundamentals driven by a growing demand outlook. This is resulting in a significant baseload of activity, particularly in the international and offshore markets, closely aligned with SLB’s strengths of our business. As the cycle persists, 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. This is expected to result in operating expenditures becoming an increasing part of global upstream spending over time.

SLB is already benefiting from these investments, and its recently announced agreement to acquire ChampionX (see Note 1 to the Consolidated Financial Statements) will position SLB to further capture this growing opportunity through the addition of a leading production chemicals portfolio and a complementary artificial lift offering.

Digital & Integration

Digital & Integration revenue of $953 million declined 9% sequentially following strong year-end digital sales in the fourth quarter of 2023.

Digital & Integration pretax operating margin of 27% contracted 735 basis points (“bps”) primarily due to the seasonally lower digital sales.

Reservoir Performance

Reservoir Performance revenue of $1.7 billion decreased 1% sequentially as seasonal activity reductions in Russia and Asia were partially offset by activity increases in the Middle East, North America, and Europe & Africa.

Reservoir Performance pretax operating margin of 20% contracted 170 bps sequentially as a result of the seasonal revenue decline in international activity.

Well Construction

Well Construction revenue of $3.4 billion decreased 2% sequentially due to seasonal activity reductions across all areas.

Well Construction pretax operating margin of 20% contracted 198 bps due to the seasonal decline in activity.

Production Systems

Production Systems revenue of $2.8 billion decreased 4% sequentially driven by seasonally lower sales of subsea production systems, artificial lift, and midstream production systems.

Production Systems pretax operating margin contracted 84 bps sequentially due to the seasonally lower sales.

First Quarter 2024 Compared to First Quarter 2023

(Stated in millions)

(1) Comprised principally of certain corporate expenses not allocated to the segments, stock-based compensation costs, amortization expense associated with certain intangible assets, certain centrally managed initiatives and other nonoperating items.

(2) Interest income excludes amounts that are included in the segments’ income ($4 million in 2024; $- million in 2023).

(3) Interest expense excludes amounts that are included in the segments’ income ($3 million in 2024; $3 million in 2023).

(4) Charges and credits are described in detail in Note 2 to the Consolidated Financial Statements.

First-quarter 2024 revenue of $8.7 billion increased 13% year on year. Approximately half of the year-on-year revenue increase came from the acquisition of the Aker subsea business in the fourth quarter of 2023.

International revenue grew by 18% year on year, compensating for a softer North American market where revenue declined by 6%. Excluding the contribution of the acquired Aker subsea business, international revenue grew by 10%.

During the first quarter of 2024, SLB continued to benefit from its favorable exposure to the international markets, with year-on-year growth of 29% in the Middle East & Asia, in addition to growth of 18% in Europe & Africa.

SLB’s Core divisions—consisting of Reservoir Performance, Well Construction, and Production Systems—achieved revenue growth of 13% year on year and expanded pretax segment operating margin by more than 200 bps. This growth was supported by investments in long-cycle developments and production capacity expansions, particularly in the Middle East & Asia and Latin America.

Digital & Integration

Digital & Integration revenue of $953 million increased 7% year on year as a result of growth in digital sales in the international markets while APS revenue was flat year on year.

Digital & Integration pretax operating margin of 27% contracted 300 bps year on year due to the effects of higher APS amortization expense and lower gas prices.

Reservoir Performance

Reservoir Performance revenue of $1.7 billion grew 15% year on year due to increased stimulation, evaluation, and intervention services across all areas on land and offshore and from both exploration and production activity. More than 70% of the revenue growth was recorded in the Middle East & Asia.

Reservoir Performance pretax operating margin of 20% expanded 356 bps year on year with profitability improving internationally driven by higher activity and improved pricing from increased technology intensity in evaluation and stimulation.

Well Construction

Well Construction revenue of $3.4 billion increased 3% year on year driven by strong international activity, primarily in the Middle East & Asia.

Well Construction pretax operating margin of 20% was essentially flat year on year.

Production Systems

Production Systems revenue of $2.8 billion increased 28% year on year, mainly due to the acquisition of the Aker subsea business. Excluding the effects of the Aker subsea acquisition, revenue grew 6% year on year driven by double-digit international sales. Organic year-on-year growth was led by strong international sales of completions, surface production systems, and artificial lift.

Production Systems pretax operating margin expanded 490 bps year on year driven by a favorable activity mix, execution efficiency, and the conversion of improved-priced backlog.

Interest and Other Income

Interest & other income consisted of the following:

(Stated in millions)

Other

Research & engineering and General & administrative expenses, as a percentage of Revenue, for the first quarter ended March 31, 2024 and 2023 were as follows:

The effective tax rate was 19% for both the first quarter of 2024 and 2023.

Charges and Credits

SLB recorded charges and credits during the first quarters of 2024 and 2023. These charges and credits, which are summarized below, are more fully described in Note 2 to the Consolidated Financial Statements.

2024:

(Stated in millions)

16

2023:

(Stated in millions)

Liquidity and Capital Resources

Details of the components of liquidity as well as changes in liquidity are as follows:

(Stated in millions)

(1) “Net debt” represents gross debt less cash and short-term investments. Management believes that Net debt provides useful information to investors and management regarding the level of SLB’s indebtedness by reflecting cash and investments that could be used to repay debt. Net debt is a non-GAAP financial measure that should be considered in addition to, not as a substitute for or superior to, total debt.

(2) Includes depreciation of fixed assets and amortization of intangible assets, exploration data costs, and APS investments.

(3) “Free cash flow” represents cash flow from operations less capital expenditures, APS investments and exploration data costs capitalized. Management believes that free cash flow is an important liquidity measure for the company and that it is useful to investors and management as a measure of our ability to generate cash. Once business needs and obligations are met, this cash can be used to reinvest in the company for future growth or to return to shareholders through dividend payments or share repurchases. Free cash flow does not represent the residual cash flow available for discretionary expenditures. Free cash flow is a non-GAAP financial measure that should be considered in addition to, not as a substitute for or superior to, cash flow from operations.

Key liquidity events during the first three months of 2024 and 2023 included:

• Capital investments (consisting of capital expenditures, APS investments and exploration data capitalized) were $0.5 billion during the first three months of 2024 compared to $0.6 billion during the first three months of 2023. Capital investments for the full year 2024 are expected to be approximately $2.6 billion as compared to $2.6 billion for the full year 2023.
• In January 2024, SLB announced a 10% increase to its quarterly cash dividend from $0.25 per share of outstanding common stock to $0.275 per share, beginning with the dividend payable in April 2024. Dividends paid during the first quarters of 2024 and 2023 were $357 million and $249 million, respectively.
• As of March 31, 2024, SLB had cumulatively repurchased approximately $2.0 billion of SLB common stock under its $10 billion share repurchase program.

The following table summarizes the activity under the share repurchase program:

(Stated in millions, except per share amounts)

• During the first quarter of 2023, SLB sold all of its remaining approximately 9 million shares in Liberty and received proceeds of $137 million.

In April 2024, SLB announced that it is raising its 2024 target for total returns of capital to shareholders (consisting of dividends and share repurchases) from $2.5 billion to $3 billion. The targeted $0.5 billion increase will be in the form of additional share repurchases. SLB also set its target for total returns of capital to shareholders in 2025 at $4 billion.

As of March 31, 2024, SLB had $3.5 billion of cash and short-term investments on hand and committed debt facility agreements with commercial banks aggregating $5.0 billion, $4.7 billion of which was available and unused. SLB believes these amounts are sufficient to meet future business requirements for at least the next 12 months and beyond.

Borrowings under the commercial paper programs at March 31, 2024 were $345 million all of which were classified in Short-term borrowings and current portion of long-term debt in the Consolidated Balance Sheet. There were no borrowings under the commercial paper programs at December 31, 2023.

SLB has a global footprint in more than 100 countries. As of March 31, 2024, only four of those countries individually accounted for greater than 5% of SLB’s net receivable balance. Only one of these countries, Mexico, represented greater than 10% of such receivables. As of March 31, 2024, Mexico represented 12% of SLB's net accounts receivable balance. SLB’s receivables from its primary customer in Mexico are not in dispute and SLB has not historically had any material write-offs due to uncollectible accounts receivable relating to this customer.

FORWARD-LOOKING STATEMENTS

This first-quarter 2024 Form 10-Q, as well as other statements we make, contains “forward-looking statements” within the meaning of the federal securities laws, which include any statements that are not historical facts. Such statements often contain words such as “expect,” “may,” “can,” “believe,” “predict,” “plan,” “potential,” “projected,” “projections,” “precursor,” “forecast,” “outlook,” “expectations,” “estimate,” “intend,” “anticipate,” “ambition,” “goal,” “target,” “scheduled,” “think,” “should,” “could,” “would,” “will,” “see,” “likely,” and other similar words. Forward-looking statements address matters that are, to varying degrees, uncertain, such as statements about SLB’s financial and performance targets and other forecasts or expectations regarding, or dependent on, its business outlook; growth for SLB as a whole and for each of its Divisions (and for specified business lines, geographic areas or technologies within each Division); oil and natural gas demand and production growth; oil and natural gas prices; forecasts or expectations regarding energy transition and global climate change; improvements in operating procedures and technology; capital expenditures by SLB and the oil and gas industry; the business strategies of SLB, including digital and “fit for basin,” as well as the strategies of SLB’s customers; SLB’s capital allocation plans, including dividend plans and share repurchase programs; SLB’s APS projects, joint ventures, and other alliances; the impact of the ongoing conflict in Ukraine on global energy supply; access to raw materials; future global economic and geopolitical conditions; future liquidity, including free cash flow; and future results of operations, such as margin levels. These statements are subject to risks and uncertainties, including, but not limited to, changing global economic and geopolitical conditions; changes in exploration and production spending by SLB’s customers and changes in the level of oil and natural gas exploration and development; the results of operations and financial condition of SLB’s customers and suppliers; SLB’s inability to achieve its financial and performance targets and other forecasts and expectations; SLB’s inability to achieve net-zero carbon emissions goals or interim emissions reduction goals; general economic, geopolitical and business conditions in key regions of the world; the ongoing conflict in Ukraine; foreign currency risk; inflation; changes in monetary policy by governments; pricing pressure; weather and seasonal factors; unfavorable effects of health pandemics; availability and cost of raw materials; operational modifications, delays or cancellations; challenges in SLB’s supply chain; production declines; the extent of future charges; SLB’s inability to recognize efficiencies and other intended benefits from its business strategies and initiatives, such as digital or new energy, as well as its cost reduction strategies; changes in government regulations and regulatory requirements, including those related to offshore oil and gas exploration, radioactive sources, explosives, chemicals, and climate-related initiatives; the inability of technology to meet new challenges in exploration; the competitiveness of alternative energy sources or product substitutes; and other risks and uncertainties detailed in this Form 10-Q and our most recent Form 10-K and Forms 8-K filed with or furnished to the SEC.

This Form 10-Q also includes forward-looking statements relating to the proposed transaction between SLB and ChampionX, including statements regarding the benefits of the transaction and the anticipated timing of the transaction. Factors and risks that may impact future results and performance include, but are not limited to, and in each case as a possible result of the proposed transaction on each of SLB and ChampionX: 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; the effect of the announcement of the proposed transaction; the ability to operate the SLB and ChampionX respective businesses, including business disruptions; difficulties in retaining and hiring key personnel and employees; the ability to maintain favorable business relationships with customers, suppliers and other business partners; the terms and timing of the proposed transaction; the occurrence of any event, change or other circumstance that could give rise to the termination of the proposed transaction; the anticipated or actual tax treatment of the proposed transaction; the ability to satisfy closing conditions to the completion of the proposed transaction (including the adoption of the merger agreement in respect of the proposed transaction by ChampionX stockholders); other risks related to the completion of the proposed transaction and actions related thereto; the ability of SLB and ChampionX to integrate the business successfully and to achieve anticipated synergies and value creation from the proposed transaction, as well as the risk factors discussed in SLB’s and ChampionX’s most recent Forms 10-K, 10-Q, and 8-K filed with or furnished to the SEC.

If one or more of these or other risks or uncertainties materialize (or the consequences of any such development changes), or should our underlying assumptions prove incorrect, actual results or outcomes may vary materially from those reflected in our forward-looking statements. Forward-looking and other statements in this Form 10-Q regarding our environmental, social, and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking environmental, social, and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. Statements in this Form 10-Q are made as of April 24, 2024, and SLB disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.

For quantitative and qualitative disclosures about market risk affecting SLB, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” of the SLB Annual Report on Form 10-K for the fiscal year ended December 31, 2023. SLB’s exposure to market risk has not changed materially since December 31, 2023.

SLB has carried out an evaluation under the supervision and with the participation of SLB’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of SLB’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the CEO and the CFO have concluded that, as of the end of the period covered by this report, SLB’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that SLB files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. SLB’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to its management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure. There was no change in SLB’s internal control over financial reporting during the quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, SLB’s internal control over financial reporting.

As of the date of this filing, there have been no material changes from the risk factors disclosed in Part 1, Item 1A, of SLB’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, except as follows:

We may be unable to complete the proposed acquisition of ChampionX.

We or ChampionX may terminate the merger agreement between the parties (the “merger agreement”) in certain circumstances as described in our Current Report on Form 8-K filed with the SEC on April 2, 2024. If the proposed acquisition is not completed for any reason, including as a result of failure to obtain required regulatory approvals or if the ChampionX stockholders fail to approve the acquisition, the market price of our common stock may be adversely affected; we may experience negative reactions from the financial markets, customers, suppliers and other constituencies; we will be required to pay certain costs relating to the acquisition; and SLB may be required to pay a termination fee under certain circumstances set forth in the merger agreement.

We may fail to realize the anticipated benefits of the proposed acquisition of ChampionX.

If the acquisition is completed, the success of the acquisition will depend on, among other things, our ability to combine our business with that of ChampionX in a manner that facilitates growth opportunities and realizes anticipated synergies. If we are not able to successfully achieve these objectives, the anticipated benefits of the acquisition may not be realized fully, or at all, or may take longer to realize than expected.