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

Third Quarter 2024 Compared to Second 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 ($16 million in the third quarter of 2024; $9 million in the second quarter of 2024).

(3) Interest expense excludes amounts that are included in the segments’ income ($4 million in the third quarter of 2024; $3 million in the second quarter of 2024).

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

SLB delivered strong third-quarter 2024 results, achieving earnings growth and margin expansion due to its ongoing focus on cost optimization, greater adoption of SLB’s digital products and solutions, and the contribution of long-cycle projects in deepwater and gas.

This performance was achieved despite an environment where short-cycle activity growth softened, and some international producers exercised cautious spending triggered by lower oil prices and ample global supply, while land activity in the US remained subdued. Third-quarter 2024 global revenue of $9.2 billion was essentially flat with the second quarter of 2024. Revenue grew sequentially in the Middle East & Asia and offshore North America but was offset by a decline in Latin America, while Europe & Africa revenue was flat sequentially.

Although some customers have adopted a more cautious approach to their near-term capital expenditures and discretionary spending amid lower commodity prices, most projects are progressing as planned. Recent geopolitical events have further highlighted the importance of long-term energy security and reducing potential supply disruptions. SLB is well-positioned to navigate the evolving market conditions by leveraging its unique exposure to long-cycle projects in international, deepwater, and gas markets.

Digital & Integration

Digital & Integration revenue of $1.1 billion increased 4% sequentially due to higher digital revenue while Asset Performance Solutions (“APS”) revenue was flat. Digital revenue grew 7% sequentially driven by the increased adoption internationally of our cloud, AI, and edge technology platforms.

Digital & Integration pretax operating margin of 36% expanded 456 basis points (“bps”) sequentially, mostly due to improved profitability in digital, following higher uptake of digital products and solutions and cost efficiencies.

Reservoir Performance

Reservoir Performance revenue of $1.8 billion was flat sequentially as revenue grew in offshore North America and Latin America, offset by declines in Europe & Africa and Middle East & Asia.

Reservoir Performance pretax operating margin of 20% contracted 53 bps sequentially largely due to lower profitability in evaluation.

Well Construction

Well Construction revenue of $3.3 billion declined 3% sequentially on lower revenue in measurements and fluids driven by lower drilling activity in Latin America, US land, and Saudi Arabia.

Well Construction pretax operating margin of 22% declined 19 bps sequentially due to reduced activity both in North America and internationally.

Production Systems

Production Systems revenue of $3.1 billion increased 3% sequentially with growth primarily driven by higher sales of surface production systems and completions.

Production Systems pretax operating margin of 17% expanded 110 bps sequentially with improved profitability in surface production systems, completions, and artificial lift.

Nine Months 2024 Compared to Nine 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 ($31 million in 2024; $2 million in 2023).

(3) Interest expense excludes amounts that are included in the segments’ income ($13 million in 2024; $10 million in 2023).

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

Nine-month 2024 revenue of $27.0 billion increased 12% year on year. Approximately 50% of the year on year revenue increase came from the acquisition of the Aker Solutions subsea business ("Aker") in the fourth quarter of 2023.

International revenue grew by 16% year on year. Excluding the contribution of the acquired Aker subsea business, international revenue increased by 8% primarily driven by higher activity in the Middle East & Asia. North America revenue decreased by 3% due to lower drilling in US land.

Digital & Integration

Digital & Integration revenue of $3.1 billion increased 10% year on year due to digital revenue growing in line with SLB’s ambition of full-year growth in the high teens.

Digital & Integration pretax operating margin of 31% declined 69 bps year on year primarily due to the effects of higher APS amortization expense and lower gas prices.

Reservoir Performance

Reservoir Performance revenue of $5.4 billion increased 11% 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 167 bps year on year due to improved profitability in the international markets driven by higher activity and improved pricing from increased technology intensity.

Well Construction

Well Construction revenue of $10.1 billion was essentially flat year on year. International revenue grew 5%, primarily in the Middle East & Asia, largely offset by a 15% reduction in North America largely due to lower drilling activity in US land.

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

Production Systems

Production Systems revenue of $8.9 billion increased 30% year on year mainly due to the acquisition of the Aker subsea business. Excluding the effects of the Aker subsea acquisition, revenue grew by 8% year on year driven by strong international sales across the portfolio.

Production Systems pretax operating margin of 16% expanded 391 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)

Interest income was $52 million for the third quarter of 2024 and increased $14 million as compared to the second quarter of 2024. This increase was driven by higher cash and short-term investment balances.

Interest income was $129 million for the first nine months of 2024 and increased $70 million as compared to the first nine months of 2023. This increase was primarily driven by higher average cash and short-term investment balances as well as increased interest rates.

Other

Research & engineering and General & administrative expenses, as a percentage of Revenue, for the third quarter and second quarter of 2024 and the first nine months of 2024 and 2023 were as follows:

Charges and Credits

SLB recorded charges and credits during the first nine months of 2024 and the first quarter of 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 and third quarters of 2023.

2024:

(Stated in millions)

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)

19

(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 nine months of 2024 and 2023 included:

• Capital investments (consisting of capital expenditures, APS investments and exploration data capitalized) were $1.9 billion during both the first nine months of 2024 and the first nine 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 nine months of 2024 and 2023 were $1.1 billion and $961 million, respectively.
• As of September 30, 2024, SLB had cumulatively repurchased approximately $3.0 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)

20

• 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, SLB Capturi™, 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.

As of September 30, 2024, SLB had $4.5 billion of cash and short-term investments on hand and committed debt facility agreements with commercial banks aggregating $5.0 billion, all of which was available. 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 September 30, 2024, only three of those countries individually accounted for greater than 5% of SLB’s net receivable balance. Only one of these countries, the United States, represented greater than 10% of such receivables. As of September 30, 2024, Mexico represented 9% of SLB's net accounts receivable balance. (See Note 8 to the Consolidated Financial Statements). 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.

On October 17, 2024, SLB entered into a definitive agreement to sell its interest in the Palliser APS project in Canada. Under the terms of the agreement, SLB will receive cash proceeds of approximately $430 million, subject to closing adjustments that are typical for such a transaction. The transaction, which is subject to regulatory approval and other customary closing conditions, is expected to close late in the fourth quarter of 2024. SLB recorded revenue of approximately $0.4 billion during the nine months ended September 30, 2024 relating to this project.

FORWARD-LOOKING STATEMENTS

This third-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 October 23, 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.