SLB Third-Quarter Earnings Call - SLB LIMITED

Explicit Guidance:

• Q4 2026 Revenue: Expected to reach approximately $10 billion, representing a 5–7% sequential increase (driven by ~$1.9 billion flat revenue in the Middle East, ~83% of Q4 2025 levels, and higher digital/product sales).
• Q4 2026 Margins: Adjusted EBITDA margins expected to expand by 100–150 basis points.
• Q4 2026 Core Divisions: Combined revenue expected to grow at low single-digit sequential rates; Production Systems leading with high single-digit growth; Well Construction and Digital growing in line with historical trends; Reserve Performance expected to be flat.
• Q4 2026 Digital: Revenue expected to increase in line with seasonal trends; full-year adjusted EBITDA margins for Digital expected to exceed 35%; Digital revenue growth for the full year anticipated to be double digits year-on-year (driven by 11% YTD growth).
• FY 2026 Capital Investments: Total CAPEX expected to be approximately $2.5 billion.
• FY 2026 Share Repurchases: On track to repurchase approximately $2.4 billion of stock; total shareholder returns expected to slightly exceed $4 billion.
• FY 2027 Market Activity: Global O&G service activity expected to grow in the mid-single digits (assuming Middle East remains at H2 2026 levels); SLB core divisions expected to visibly outperform this rate.
• FY 2027 Financials: Specific 2027 revenue and margin guidance to be provided in January; margin expansion anticipated if Middle East resolves, with pricing pressures expected to abate.

Business-Segment Outlook:

• Production Systems: Projected to lead 2027 growth, driven by the integration of ChampionX (aiming for $200M synergies by end of 2026), One Subsea backlog visibility extending into 2027–2029 (targeting >$9B in bookings), and exposure to both short-cycle intervention and long-cycle offshore.
• Digital: Growth trajectory expected to continue at double digits or higher in 2027, fueled by automated drilling (nearly 50% YoY growth in Q3), HiLops adoption (>20% of active rigs), and emerging AI/Data vectors (Lumi and Tela offerings).
• Data Center Solutions: Positioned as a "meaningful growth engine" with a run-rate target of >$2 billion by end of 2027 (up from ~$1 billion run-rate in 2026); accelerating momentum expected to continue post-Calvion acquisition closure.
• Geographic Exposure:
  • Venezuela: Revenue on track to more than double in 2026; potential for multiple-fold growth in 2027 with ambitions to reach historical peaks of $1 billion+.
  • North America: Resilient growth expected in 2027 driven by land production recovery, offshore (including Alaska), and data centers.
  • Middle East: Near-term flat revenue in Q4 2026; long-term upside dependent on conflict resolution, with significant upside potential in 2027 from deferred activity and Sacyr Zaramco contracts (450+ wells over 3 years).
  • Deepwater/International: One Subsea awards and backlog expanding across Latin America, Africa, and Asia; FIDs expected to increase >30% YoY in 2026.
  • Exploration: Leading position to capture >80% of high-impact exploration well activity; new opportunities in Brazil (Pelotas Basin), Suriname, Guyana, Namibia, and the Eastern Mediterranean.

Market and Competitive Outlook:

• Industry Cycle: Confirmed as an "inflecting upcycle" characterized by diversified investment in production recovery, renewal of exploration (offsetting natural decline), and long-cycle offshore development.
• Supply/Demand Dynamics: Structural need to offset natural decline and replace reserves following years of limited exploration; energy security concerns reinforcing diverse supply needs.
• Competitive Positioning: SLB positioned to outperform the market due to differentiated exposure to "strongest areas of activity" (deepwater, exploration, production recovery) and expanded portfolio via ChampionX and Calvion.
• Pricing/Capacity: Pricing pressure in core divisions expected to abate in 2027; capacity constraints in the Middle East addressed by keeping resources in place to leverage operating leverage upon recovery.

Macro / Industry Outlook:

• Geopolitics (Middle East): Q4 and 2027 assumptions hinge on the conflict not escalating; resolution viewed as a "powerful catalyst" for deferred activity and a rebound that could exceed pre-conflict levels.
• Energy Security: Reinforced by market disruptions; driving investment in geographically diverse supply sources.
• Commodities: Management asserts growth drivers are resilient even if crude moderates to $65–$70, citing inventory drawdowns and energy security mandates as sustaining factors.
• Regulatory/Geopolitical (Venezuela): Accelerating international oil company (IOC) entry and NOC partnerships driving a multi-year investment cycle in Venezuela.
• Inflation: Cost inflation effects expected to normalize or be baked into 2027 margins; some inflationary pressure on chemicals noted but largely offset by synergies.

Strategic Initiatives:

• Calvion Acquisition: On track for closing in H1 2027; will accelerate position in AI infrastructure build-out by combining thermal management capabilities with data center solutions; integration team active.
• ChampionX Integration: Synergy target of $200 million to be achieved by end of 2026 (18 months post-acquisition); margins expected to remain accretive despite chemical inflation; international expansion planned for 2027.
• Capacity Expansion: New manufacturing center in Canada for Meta project; satellite manufacturing capabilities deployed in Asia; investment in facilities and talent to support data center growth.
• M&A Appetite: Current focus on executing the Calvion deal; future M&A will depend on market development, with primary focus on organic growth and increasing "share of wallet per gigawatt" in data centers.

Risks and Headwinds to Outlook:

• Geopolitical Escalation: Further escalation in the Middle East could delay the realization of deferred activity and upside in 2027.
• Execution Costs: Ramp-up costs for new data center projects and integration expenses for acquisitions could impact short-term margins.
• Collection Timing: Magnitude of Q4 free cash flow step-up depends on the timing of collections in specific countries.
• Inflation: Continued inflation, particularly in chemical inputs, could pressure margins if synergies do not fully offset them.
• Crude Price Volatility: While deemed resilient, significant drops in oil prices could impact operator capex if energy security narratives do not hold.
• Market Mix: Rapid growth in lower-margin businesses (e.g., Data Centers) could impact overall blended margins.

Management Tone on the Future:

• Confidence Level: High confidence in a "durable multi-year international investment cycle" and SLB's ability to visibly outperform the market in 2027.
• Trend: Describes the market as an "inflecting upcycle" with "clear visibility" extending beyond 2027.
• Hedges: Guidance relies on "assumptions" regarding Middle East stability; management explicitly notes that 2027 margins will depend on a complex equation of mix, inflation, and Middle East resolution, deferring specific 2027 margin numbers to January.

Miscellaneous:

• One Subsea Backlog: Anticipated to surpass $9 billion in bookings over the next two years (2025–2026), supporting revenue growth through 2028–2029.
• Automated Drilling: Delivered 750,000 feet in Q3 (nearly 50% YoY increase).
• Pension Plan: Completed settlement to de-risk largest plan (reducing obligations/assets by ~$900M), improving future cost visibility.
• Free Cash Flow: Expected meaningful step-up in Q4 driven by lower inventory and higher collections; Q3 generated $828 million free cash flow.