SLB Limited: Form 10-Q for the period ended Jun 30, 2024

Second Quarter 2024 Compared to First Quarter 2024

(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 ($9 million in the second quarter of 2024; $4 million in the first quarter of 2024).

(3) Interest expense excludes amounts that are included in the segments’ income ($3 million in both the first and second quarter of 2024).

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

Second-quarter 2024 results reflected broad-based sequential international revenue growth and margin expansion across all Divisions. SLB's Core Divisions—Reservoir Performance, Well Construction, and Production Systems—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.

Second-quarter 2024 global revenue of $9.1 billion grew 5% sequentially, led by the Middle East & Asia which increased 6%. The increase in this area was driven by capacity expansions, gas development projects, and production and recovery. SLB also continued to benefit from its enhanced offshore exposure, particularly in deepwater basins across Latin America, Europe & Africa, and in the US Gulf of Mexico. Consequently, pretax operating margin improved sequentially in each of the four Divisions.

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, including long-cycle gas and deepwater projects, production and recovery activity, and the secular trends of digital and decarbonization. This represents a strong backdrop for SLB to continue its margin expansion journey.

Digital & Integration

Digital & Integration revenue of $1.1 billion increased 10% sequentially due to higher digital revenue while Asset Performance Solutions (“APS”) revenue was flat. Growth in digital revenue was driven by the increased adoption of SLB’s digital solutions and higher exploration data license sales.

Digital & Integration pretax operating margin of 31% expanded 435 basis points (“bps”) sequentially, primarily due to improved profitability in digital following strong exploration data license sales and higher uptake of digital solutions.

Reservoir Performance

Reservoir Performance revenue of $1.8 billion grew 5% sequentially due to increased intervention and stimulation activity across all geographic areas, with approximately 70% of the growth coming from the Middle East & Asia.

Reservoir Performance pretax operating margin of 21% increased 98 bps sequentially with profitability improving across the international markets driven by higher activity.

Well Construction

Well Construction revenue of $3.4 billion increased 1% sequentially primarily driven by strong measurements and fluids activity internationally.

Well Construction pretax operating margin of 22% expanded 125 bps sequentially due to the international activity increases in measurements and fluids.

Production Systems

Production Systems revenue of $3.0 billion increased 7% sequentially driven by the international markets with strong activity in Europe & Africa, followed by Latin America and the Middle East & Asia.

Production Systems pretax operating margin of 16% expanded 146 bps sequentially due to improved profitability in subsea production systems and artificial lift.

Six Months 2024 Compared to Six Months 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 ($13 million in 2024; $- million in 2023).

(3) Interest expense excludes amounts that are included in the segments’ income ($7 million in both 2024 and 2023).

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

Six-month 2024 revenue of $17.8 billion increased 13% year on year. Approximately 50% 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. Excluding the contribution of the acquired Aker subsea business, international revenue increased by 11% driven by higher activity in the Middle East & Asia. North America revenue decreased by 6% primarily due to lower drilling in US land.

Digital & Integration

Digital & Integration revenue of $2.0 billion increased 9% year on year due to digital growing in line with SLB’s ambition of full-year growth in the high-teens.

Digital & Integration pretax operating margin of 29% contracted 298 bps year on year due to the effects of higher APS amortization expense and lower gas prices.

Reservoir Performance

Reservoir Performance revenue of $3.5 billion increased 13% year on year due to increased stimulation and intervention activity, with approximately 75% of the revenue growth coming from the Middle East & Asia.

Reservoir Performance pretax operating margin of 20% expanded 276 bps year on year on improved profitability in the international markets driven by higher activity and improved pricing from increased technology intensity.

Well Construction

Well Construction revenue of $6.8 billion increased 2% year on year. This revenue increase was driven by 8% growth internationally, primarily in the Middle East & Asia, partially offset by a 16% reduction in North America largely due to lower drilling in US land.

Well Construction pretax operating margin of 21% was essentially flat year on year.

Production Systems

Production Systems revenue of $5.8 billion increased 29% year on year mainly due to the acquisition of the Aker subsea business. Excluding the effects of the Aker subsea acquisition, revenue grew 8% year on year driven by a 13% increase in international sales. Organic year-on-year growth was led by strong international sales of artificial lift, surface production systems, and completions.

Production Systems pretax operating margin of 15% expanded 425 bps year on year driven by a favorable activity mix, execution efficiency, and conversion of improved-price 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 second quarter and first quarter of 2024 and the first six months of 2024 and 2023 were as follows:

Charges and Credits

SLB recorded charges and credits during the first six months of 2024 and 2023. These charges and credits, which are summarized below, are more fully described in Note 2 to the Consolidated Financial Statements. SLB did not record any charges or credits during the second quarter of 2023.

2024:

(Stated in millions)

18

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 six months of 2024 and 2023 included:

• Working capital consumed $2.0 billion of liquidity during the six months ended June 30, 2024 compared to $1.3 billion during six months ended June 30, 2023 primarily driven by receivables and accounts payable offset in part by improved inventory efficiency.
• Capital investments (consisting of capital expenditures, APS investments and exploration data capitalized) were $1.2 billion during the first six months of 2024 compared to $1.2 billion during the first six months of 2023. Capital investments for the full year 2024 are expected to be approximately $2.6 billion, which is the same level as 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 six months of 2024 and 2023 were $751 million and $605 million, respectively.
• As of June 30, 2024, SLB had cumulatively repurchased approximately $2.5 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 second quarter of 2024, SLB issued $500 million of 5.00% Senior Notes due 2027, $500 million of 5.00% Senior Notes due 2029, and $500 million of 5.00% Senior Notes due 2034.
• During the second quarter of 2024, SLB and Aker Carbon Capture ASA (“ACC”) announced the closing of their previously announced joint venture. The new company combines technology portfolios, expertise, and operation platforms to support accelerated carbon capture adoption for industrial decarbonization at scale. At closing, SLB paid NOK 4.1 billion ($0.4 billion) in cash to ACC for the purchase of 80% of the shares in Aker Carbon Capture Holdings AS (“ACCH”), which held the business of ACC. ACC is also entitled to performance-based payments of up to NOK 1.4 billion if certain targets are met over the period from 2025 to 2027.

After a lock-up period of three years, ACC is entitled to sell its 20% interest in ACCH to SLB during a period of six months for a price based on the fair market value of the combined business subject to a floor of NOK 1.0 billion and a ceiling of NOK 2.1 billion (the “put option”). Additionally, after the expiration of the put option, SLB has the right to purchase ACC’s 20% interest in the combined business during the following six months for a price based on the fair market value of the combined business subject to a floor of NOK 1.5 billion and a ceiling of NOK 2.6 billion.

• 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 June 30, 2024, SLB had $4.0 billion of cash and short-term investments on hand and committed debt facility agreements with commercial banks aggregating $5.0 billion, $4.6 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.

SLB has a global footprint in more than 100 countries. As of June 30, 2024, only three of those countries individually accounted for greater than 5% of SLB’s net receivable balance. One of these countries, Mexico, represented greater than 10% of such receivables. As of June 30, 2024, Mexico represented 15% of SLB's net accounts receivable balance. In July 2024, SLB issued a credit default swap ("CDS") to a third-party financial institution for a notional amount of $550 million relating to a borrowing provided by the financial institution to SLB's primary customer in Mexico. This borrowing was utilized by the customer to pay approximately $645 million of SLB's outstanding receivables in July 2024. 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 second-quarter 2024 Form 10-Q, as well as other statements we make, contain “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; 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; 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; the ability to secure government regulatory approvals on the terms expected, at all or in a timely manner; litigation and regulatory proceedings, including any proceedings that may be instituted against SLB or ChampionX related to 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 July 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, other than the risk factors disclosed in Item 1A of SLB’s Quarterly Report on Form 10-Q filed on April 24, 2024, which is hereby incorporated by reference into this Quarterly Report on Form 10-Q.