First Quarter 2022 Earnings Release with Financial Statements (282 KB PDF) First Quarter 2022 Earnings Call Prep Remarks (134 KB PDF) First Quarter 2022 Earnings Call Transcript (184 KB) (To view the PDF file, Please get Adobe Acrobat Reader.)
Oslo, April 22, 2022 – Schlumberger Ltd. (NYSE: SLB) today announced financial results for the first quarter of 2022.
Schlumberger CEO Olivier Le Peuch commented: “Our first-quarter results put us firmly on the path to full-year revenue growth and significant earnings growth in the following year. .Compared to the year-ago quarter, revenue increased 14%; EPS, excluding charges and credits, increased 62%; Pre-tax segment operating margin expanded 229 basis points, led by Well Construction and Reservoir Performance (bps). These results reflect the strength of our core services segment, broad-based activity growth and our increasing operating leverage.
“This quarter also marked a tragic start to the conflict in Ukraine and is of serious concern. As a result, we have established local and global crisis management teams to address the crisis and its impact on our employees, business and our operations. In addition to ensuring that our business complies with In addition to the sanctions in place, we also took steps this quarter to suspend new investments and technology deployments to our Russian operations. We urge a cessation of hostilities and hope that peace will return to Ukraine and the region as a whole.
“At the same time, the focus in the energy sector is shifting, exacerbating an already tight oil and gas market. The dislocation of supply flows from Russia will lead to increased global investment across geographies and across the energy value chain to secure the world’s energy supply. diversity and safety.
“The confluence of higher commodity prices, demand-led activity growth and energy security is delivering one of the strongest near-term prospects for the energy services sector – strengthening market fundamentals for a stronger, longer multi-year upcycle – — Setbacks amid a global economic downturn.
“In this context, energy has never been more important to the world. Schlumberger uniquely benefits from increased E&P activity and digital transformation, offering the most comprehensive technology portfolio to help customers diversify , cleaner and more affordable energy.
“Year-over-year revenue growth by segment was led by our core services divisions Well Construction and Reservoir Performance, both of which grew by more than 20%, outpacing global rig count growth. Digital & Integration revenue grew11 %, while production systems revenue increased 1%. Our core services segment delivered double-digit revenue growth in drilling, appraisal, intervention and stimulation services onshore and offshore. In digital and integration, strong digital sales, exploration Growth was driven by higher data license sales and higher revenue from the Asset Performance Solutions (APS) program. In contrast, growth in production systems was temporarily hampered by ongoing supply chain and logistics constraints, resulting in lower-than-expected product deliveries. But , we believe these constraints will gradually ease, enabling backlog conversion and accelerating revenue growth for production systems over the remainder of 2022.
“Geographically, compared to the same period last year, revenue growth was broad-based, with a 10% increase in international revenue and a 32% increase in North America. All regions, led by Latin America, were broad-based due to higher drilling volumes in Mexico, Ecuador, Argentina and Brazil. International growth achieved. Growth in Europe/CIS/Africa was mainly driven by higher sales of production systems in Turkey and increased exploration drilling offshore Africa – particularly in Angola, Namibia, Gabon and Kenya. However, these growth was driven by Russia Partly offset by lower revenue in and Central Asia. Revenue in the Middle East and Asia increased due to higher drilling, stimulation and intervention activities in Qatar, Iraq, the United Arab Emirates, Egypt, Australia and throughout Southeast Asia. In North America, drilling and completion activities generally increased , plus a strong contribution from our APS program in Canada.
“Compared to the same period last year, the pre-tax segment operating income margin expanded in the first quarter, driven by higher activity, a favorable mix of offshore activities, greater technology adoption, and an improving global pricing environment. Operating leverage improved, and that in Well Construction and Reservoir Performance. Digital and integrated margins expanded further, while production system margins were impacted by supply chain constraints.
“As a result, revenue for the quarter mainly reflects the typical seasonal decline in activity in the Northern Hemisphere, with a more pronounced decline in Europe/CIS/Africa due to the depreciation of the ruble, as well as global supply chain constraints affecting production systems. Revenue in North America and Latin America was essentially flat sequentially. By segment, Well Construction revenue was slightly higher than in the prior quarter as strong drilling activity in North America, Latin America and the Middle East offset a seasonal decrease in Europe/CIS/Africa and Asia • Reservoir performance, production systems, and numbers and integration declined sequentially due to seasonal reductions in activity and sales.
“Cash from operations was $131 million in the first quarter, with a higher-than-usual accumulation of working capital in the first quarter, exceeding the expected growth for the year. We expect free cash flow generation to accelerate throughout the year, in line with our historical trend Consistent, and still expect double-digit free cash flow margins for the full year.
“Looking ahead, the outlook for the remainder of the year – especially the second half of the year – is very good as short- and long-cycle investment accelerates. It is worth noting that FIDs have been approved for some long-cycle developments and new contracts have been approved. Granted, offshore exploration drilling is resuming, and some customers have announced plans to significantly increase spending this year and for the next few years.
“As such, we believe that increased onshore and offshore activity and higher technology adoption and pricing momentum will drive synchronized growth internationally and in North America. This will lead to a sequential seasonal rebound in the second quarter, followed by significant growth in the second half of the year. , especially in international markets.
“Against this backdrop, we believe current market dynamics should allow us to maintain our full-year revenue growth targets in the mid-teens and adjusted EBITDA margins at least this year, despite the uncertainty related to Russia. The fourth quarter of 2021 was 200 basis points higher. Our positive outlook extends further into 2023 and beyond as we expect the market to grow for several consecutive years. As demand continues to strengthen and new investments focus on diversifying energy supply In the absence of setbacks in the economic recovery, the duration and scale of this upward cycle may be longer than initially anticipated.
“Based on these strengthening fundamentals, we have decided to increase shareholder returns by increasing our dividend by 40%. Our cash flow trajectory provides us with the flexibility to accelerate our capital return plans while continuing to deleverage our balance sheet and build a strong portfolio for the long-term. Invest successfully.
“Schlumberger is well-positioned at this pivotal time for world energy. Our strong market position, technology leadership and execution differentiation are aligned with significant return potential across the cycle.”
On April 21, 2022, Schlumberger’s Board of Directors approved an increase in the quarterly cash dividend from $0.125 per share of outstanding common stock paid on July 14, 2022 to shareholders of record in June to $0.175 per share, an increase of 40 % January 1, 2022.
North America revenue of $1.3 billion was essentially flat sequentially as growth in land was offset by lower seasonal sales of exploration data licenses and production systems in the U.S. Gulf of Mexico.Land revenue was driven by higher land drilling in the US and higher APS revenue in Canada.
Compared with the same period last year, North American revenue increased 32%.Very broad growth in drilling and completions activity coupled with strong contributions from our APS projects in Canada.
Latin America revenue of $1.2 billion was flat sequentially, with higher APS revenue in Ecuador and higher drilling activity in Mexico offset by lower revenue in Guyana, Brazil and Argentina due to lower drilling, intervention and completion activity and lower sales in production systems.The higher APS revenue in Ecuador was due to the resumption of production following a pipeline disruption in the previous quarter.
Revenue rose 16% year over year due to higher drilling activity in Mexico, Ecuador, Argentina and Brazil.
Europe/CIS/Africa revenue was $1.4 billion, down 12% sequentially, due to lower seasonal activity and a weaker ruble affecting all sectors.Lower revenues were partially offset by higher revenues in Europe, particularly Turkey, due to higher sales of production systems.
Revenue increased 12% year over year, mainly from higher sales of production systems in Turkey and higher exploration drilling offshore Africa, particularly in Angola, Namibia, Gabon and Kenya.However, these increases were partially offset by lower revenues in Russia and Central Asia.
Middle East and Asia revenue was $2.0 billion, down 4% sequentially due to lower seasonal activity in China, Southeast Asia and Australia and lower sales from production systems in Saudi Arabia.The decline was partially offset by strong drilling activity elsewhere in the Middle East, particularly the United Arab Emirates.
Revenue increased 6% year over year due to higher drilling, stimulation and intervention activity at new projects in Qatar, Iraq, the United Arab Emirates, Egypt, and across Southeast Asia and Australia.
Digital and integration revenue was $857 million, down 4% sequentially due to a seasonal decline in digital and exploration data license sales, primarily in North America and Europe/CIS/Africa, following the usual year-end sales.This decline was partially offset by a strong contribution from our APS project in Ecuador, which resumed production following a pipeline disruption last quarter.
Revenue increased 11% year over year, driven by strong digital sales, higher exploration data license sales, and higher APS project revenue, with higher revenue across all segments.
Digital and integration pretax operating margin of 34% contracted 372 basis points sequentially due to lower digital and exploration data license sales, partially offset by improved profitability at the APS project in Ecuador.
Operating margin before tax increased by 201 bps year over year, with improvements in all areas, driven by increased profitability from digital, exploration data licensing and APS projects (particularly in Canada).
Reservoir performance revenue was $1.2 billion, down 6% sequentially, due to lower seasonal activity, primarily in the Northern Hemisphere, and lower intervention and stimulation activity in Latin America.Revenues were also affected by the devaluation of the ruble.The decline was partially offset by strong activity in North America and the Middle East.
All regions, except Russia and Central Asia, posted double-digit year-over-year revenue growth.Onshore and offshore assessment, intervention and stimulation services posted double-digit growth, with more exploration-related activity during the quarter.
Pretax operating margin for 13% reservoir performance contracted by 232 bps sequentially due to lower profitability due to seasonally lower appraisals and stimulation activity, mainly in the Northern Hemisphere – partially offset by improved profitability in North America.
Pre-tax operating margin increased by 299 basis points year over year, with improved profitability in assessment and intervention activities in all regions except Russia and Central Asia.
Well Construction’s revenue was slightly higher by $2.4 billion sequentially due to higher consolidated drilling activity and drilling fluids revenue, partially offset by lower sales of surveying and drilling equipment.Strong drilling activity in North America, Latin America and the Middle East was partially offset by seasonal reductions in Europe/CIS/Africa and Asia and the impact of a weaker ruble.
All regions, except Russia and Central Asia, posted double-digit year-over-year revenue growth.Drilling fluids, surveying and integrated drilling activities (onshore and offshore) all recorded double-digit growth.
Well Construction’s pretax operating margin was 16%, up 77 basis points sequentially due to improved profitability from integrated drilling, impacting all regions, particularly North America, Latin America and the Middle East.This was partially offset by lower margins in the Northern Hemisphere and Asia for seasonal reasons.
Operating margin before tax increased by 534 basis points year over year, with improved profitability in integrated drilling, equipment sales and surveying services in most regions.
Production systems revenue was $1.6 billion, down 9% sequentially due to lower well production systems sales in all regions and lower subsea project revenue.Revenue was temporarily impacted by supply chain and logistics constraints, resulting in lower-than-expected product deliveries.
Year-over-year double-digit growth in North America, Europe and Africa was driven by new projects, while the Middle East, Asia and Latin America were reduced by project closures and temporary supply chain constraints.Revenue growth in production systems will accelerate over the remainder of 2022 as these constraints are tapered off and backlog conversions are realized.
Production systems pre-tax operating margin was 7%, down 192 basis points sequentially and down 159 basis points year over year.The margin contraction was primarily due to the impact of global supply chain and logistics constraints resulting in lower profitability of well production systems.
Investments in oil and gas production continue to grow as Schlumberger customers invest in providing reliable energy to meet growing and changing demands.Clients around the world are announcing new projects and expanding existing developments, and Schlumberger is increasingly selected for its performance in execution and innovative technology, increasing client success rates.Selected awards this quarter include:
Digital adoption across the industry continues to gather momentum, evolving the way customers access and use data, improve or create new workflows, and use data to guide decisions that improve field performance.Customers are adopting our industry-leading digital platforms and edge solutions in the field to solve new challenges and improve operational performance.Examples this quarter include:
During the quarter, Schlumberger launched several new technologies and was recognized for driving innovation in the industry.Customers are leveraging our transition technologies* and digital solutions to improve operational performance and reduce carbon footprints.
The growth cycle will continue to intensify as customers increasingly invest in finding new supplies and bringing them to market.Well construction is a critical part of the process, and Schlumberger continues to introduce technologies that not only improve well construction efficiency, but also provide a deeper understanding of the reservoir, enabling customers to create more value.Drilling technology highlights for the quarter:
Our industry must advance the sustainability of its operations and reduce its impact on the environment while promoting the stability of the global energy supply.Schlumberger continues to create and apply technologies to reduce emissions from customer operations and support the production of clean energy around the world.
1) What is the capital investment guidance for the full year 2022?Capital investments (including capital expenditures, multi-client and APS investments) for the full year 2022 are expected to be between $190 million and $2 billion.Capital investment in 2021 is $1.7 billion.
2) What are the operating cash flow and free cash flow for the first quarter of 2022?Cash flow from operations in the first quarter of 2022 was $131 million and free cash flow was negative $381 million, as the typical accumulation of working capital in the first quarter exceeded the expected increase for the year.
3) What does “interest and other income” include in the first quarter of 2022?”Interest and other income” for the first quarter of 2022 was $50 million.This includes a gain of $26 million on the sale of 7.2 million shares of Liberty Oilfield Services (Liberty) (see Question 11), an interest income of $14 million and an equity method investment gain of $10 million.
4) How did interest income and interest expense change in the first quarter of 2022?Interest income for the first quarter of 2022 was $14 million, a decrease of $1 million sequentially.Interest expense was $123 million, a decrease of $4 million sequentially.