SLB Third-Quarter Earnings Call - SLB LIMITED

Explicit Guidance:

• Q4 2026 Revenue: Expected at approximately $10 billion, representing a 5–7% sequential increase, assuming Middle East revenue remains flat sequentially at ~$1.9 billion.
• Q4 2026 Margins: Adjusted EBITDA margins projected to expand by 100–150 basis points.
• Q4 2026 Segment Revenue: Combined core divisions expected to increase sequentially by low single digits; Production Systems to grow high single digits; Well Construction flat to low growth; Reservoir Performance essentially flat; Digital revenue expected to increase in line with historical year-end trends.
• Full Year 2026 Financials: Free cash flow expected to see a meaningful step-up in Q4 driven by inventory drawdown and collections. Capital investments (CAPEX + APS) for the full year expected at approximately $2.5 billion. Stock repurchases on track to reach ~$2.4 billion. Total shareholder returns for 2026 expected slightly above $4 billion.
• FY2026 Digital Performance: Adjusted EBITDA margins expected to exceed 35% for the full year; revenue growth anticipated to be in double digits year-on-year.
• 2027 Market Outlook: Global oilfield services (OFS) market activity expected to grow in the mid-single digits year-on-year, assuming Middle East activity remains at second-half 2026 levels.
• 2027 Digital Growth: Digital business expected to continue its established trajectory, with an ambition to maintain double-digit or higher year-on-year growth.
• 2027 North America Data Center Run Rate: On track to surpass $2 billion as an exit run rate by end of 2027 (from >$1 billion in 2026).
• 2027 Venezuela Revenue: Expected to grow multifold compared to 2026, with potential to reach or exceed the historical peak level of $1 billion.
• 2027 One Subsea Backlog: Anticipated to surpass the $9 billion booking target set for the two-year period, translating to visible revenue growth in 2027, 2028, and beyond.
• 2027 ChampionX Margins: Continued margin expansion expected as international scale-up and synergies offset inflation.
• 2027 Margin Catalysts: Middle East activity normalization and resolution of regional disruption viewed as a catalyst for margin expansion, though specific 2027 margin rates not quantified; full margin outlook to be provided in January 2027.

Business-Segment Outlook:

• Production Systems: Positioned as >50% of the portfolio; driven by production recovery, artificial lift, completions, and chemicals. Strong growth expected across short-cycle (intervention/stimulation) and long-cycle (One Subsea) activities.
• Digital: Three primary growth vectors identified: (1) Digital Operations (automation in drilling and production), (2) Digital Exploration (benefiting from exploration upcycle), and (3) Data & AI (Lumi, AI Tera) as a disruptor. Hillops predictive analytics now monitoring >20% of active international rigs (>60% YoY growth).
• Data Center Solutions: Accelerating as a distinct growth engine; geographic expansion into Asia initiated; leveraging Kelvion acquisition (announced) to enhance thermal management capabilities.
• Well Construction: Growth driven by offshore drilling in Asia, seasonal recovery in Canada, and double-digit increases in Argentina, Guyana, Brazil, and U.S. land; long-term visibility improved by recent multi-year Salyu Zaramco contract (450+ wells).
• Reservoir Performance: Benefits from customer investment in restoration/optimization of existing assets and evaluation for new developments.
• One Subsea: Flow of awards continuing; recent Mozambique project (ExxonMobil Deepwater Rovima) selected to deliver subsea production systems, contributing to 2027+ visibility.

Market and Competitive Outlook:

• Global Upcycle: Industry characterized as an inflecting upcycle with broad expansion in exploration, development, and intervention.
• Deepwater: FIDs (Final Investment Decisions) expected to increase >30% year-on-year in 2026; projects advancing from sanctions to execution across Latin America, Africa, Eastern Mediterranean, and Asia.
• Exploration: Renewed activity in 2026–2027 driven by need to replace reserves; new licensing in Brazil, Eastern Med, and West Africa; interest in frontier basins (Namibia, Suriname, Guyana, North Sea). SLB expects to participate in ~80% of high-impact exploration waste globally.
• Venezuela: Accelerating activity led by international oil companies (IOCs); U.S. and European operators expanding presence; expected to be a "multifold growth" driver for SLB in 2027.
• Middle East: Near-term uncertainty persists; longer-term outlook strengthening due to energy security needs and reserve replacement.
• Competitive Position: SLB positioned to outperform the mid-single-digit market growth due to differentiated exposure to long-cycle offshore, exploration, and production recovery.

Macro / Industry Outlook:

• Energy Security: Ongoing disruptions reinforce the need for reliable, geographically diverse supply, supporting international opportunities.
• Reserve Replacement: Structural challenge of offsetting natural decline following years of limited exploration is driving renewed investment in exploration and development.
• Geopolitics: Middle East tensions are the primary near-term uncertainty; resolution viewed as a powerful catalyst for deferred activity and 2027 upside.
• Crude Price Resilience: Growth drivers expected to be resilient to crude prices moderating to $65–$70 due to inventory drawdowns and the strategic necessity of energy security.
• Inflation: Inflation effects in 2027 expected to be less severe as current levels are "baked in"; pricing pressures in core divisions expected to abate.

Strategic Initiatives:

• Calvion Acquisition: Targeting closing in the first half of 2027; integration team active; expected to accelerate industrial partner role in AI infrastructure and expand data center content opportunity.
• ChampionX Integration: Synergy targets ($200M after 18 months) expected to be met by end of 2026; margins expanding sequentially for fourth consecutive quarter.
• Capacity Expansion: New manufacturing center in Canada for Meta data center project; expanding manufacturing/integration capabilities in Asia.
• Digital AI: Continued investment in AI and digital operations capabilities; 750,000+ feet of automated drilling delivered in Q3 (up ~50% YoY).
• Global Footprint: Expansion of addressable market via major U.S. operators entering international markets (Africa, Latin America, Asia, Middle East).

Risks and Headwinds to Outlook:

• Geopolitical Escalation: Further escalation of Middle East conflict could delay activity and negatively impact 2026 and 2027 performance.
• Revenue Dependency: Q4 and 2027 guidance assumes Middle East revenue remains flat at H2 2026 levels; upside is contingent on resolution.
• Integration/Execution: Delays in Calvion closing or integration challenges; ramp-up costs for new data center projects.
• Collection Timing: Free cash flow magnitude in Q4 depends on customer collection timing in specific countries.
• Inflation: Persistent inflation on chemicals and other inputs could pressure margins if not offset by synergies/pricing.
• Market Timing: Potential lag in the "inflection" of the upcycle if exploration or deepwater projects face delays.

Management Tone on the Future:

• Confidence: High confidence in a "durable multi-year international investment cycle" with visibility into 2027.
• Characterization: Described as an "inflecting upcycle" with "broad expansion of activity."
• Catalysts: Resolution of Middle East tensions and continued deepwater/exploration momentum viewed as significant upside catalysts.
• Differentiation: Strong belief in the ability to "visibly outperform" the market through a balanced mix of short and long-cycle activities.
• Caution: Explicit caveats regarding Middle East uncertainty and the conditional nature of margin expansion in 2027.

Miscellaneous:

• Pension Strategy: Completed a $187M non-cash settlement to de-risk the largest pension plan (obligations and assets reduced by ~90%); plan remains well-funded.
• Cash Flow: Q3 generated $828M free cash flow; full-year returns to shareholders expected >$4B (dividends + buybacks).
• One Subsea: Recent award in Mozambique for ExxonMobil's Deepwater Rovima project serves as a flagship for long-cycle development.
• North America: Q3 revenue up 7% sequentially; driven by land recovery (ChampionX, artificial lift) and offshore strength; data center solutions emerging as a new growth vector.