SLB Limited (Schlumberger) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results; financial amounts below are in U.S. dollars unless stated otherwise.
Business context and performance
SLB provides oilfield services and products globally through Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. Management said stronger activity across regions, improving pricing, and favorable exploration and offshore mix supported accelerating growth. Revenue increased sequentially in all four divisions.
Key financial metrics
| Metric | Q2 2022 | Comparable period |
|---|---|---|
| Revenue | $6.773 billion | $5.634 billion in Q2 2021; up 20%. Up 14% sequentially from Q1 2022. |
| Income before taxes | $1.152 billion | $542 million in Q2 2021. |
| Net income attributable to SLB | $959 million | $431 million in Q2 2021. |
| Diluted earnings per share | $0.67 | $0.30 in Q2 2021. |
| Pretax segment operating margin | 17.1% | Up 212 basis points sequentially; management said this was the highest quarterly level since 2015. |
Q2 interest and other income included $259 million of pretax gains: $216 million from Liberty share sales and $43 million from a real-estate sale. These items increased reported earnings and should be considered when assessing underlying performance.
For the six months ended June 30, revenue was $12.735 billion, up 17% year over year; net income attributable to SLB was $1.469 billion versus $730 million. Diluted EPS was $1.02 versus $0.51. Pretax segment operating margin was 16%, up 258 basis points year over year.
Cash flow, debt, and liquidity
- Six-month operating cash flow was $539 million, down from $1.649 billion in the first half of 2021. Working capital consumed $1.9 billion, principally reflecting higher receivables from revenue growth and increased inventory.
- Six-month free cash flow, as defined by the company, was negative $500 million, compared with positive $1.028 billion a year earlier. Capital investments were approximately $1.0 billion, including capital expenditures, APS investments, and capitalized exploration data costs.
- At June 30, cash was $1.893 billion and short-term investments were $923 million. Total debt was approximately $13.847 billion, including $901 million of short-term borrowings and current maturities; reported net debt was $11.031 billion, slightly below $11.056 billion at year-end 2021.
- Committed credit facilities totaling $6.54 billion were available and unused; there were no commercial-paper borrowings. Management said cash, investments, and available facilities were sufficient for business requirements for at least the next 12 months.
- SLB increased its quarterly dividend by 40%, from $0.125 to $0.175 per share, announced in April. It made no share repurchases in the first half of 2022.
Material changes, outlook, and risks
- Sequential Q2 revenue grew 12% internationally and 20% in North America. All divisions expanded sequentially; Production Systems benefited from increased deliveries and backlog conversion as supply-chain and logistics constraints eased.
- For the full year 2022, capital investments were expected to be approximately $2 billion, compared with $1.7 billion in 2021. Management expected resilient global oil-and-gas activity growth in 2022 and beyond, supported by energy security, attractive break-even prices, and the need to expand production capacity, while acknowledging near-term global slowdown concerns.
- SLB suspended new investment and technology deployment to its Russia operations in March. Russia represented approximately 5% of worldwide revenue in the first half of 2022; net assets there were approximately $1.0 billion at June 30. The company cited uncertainty from the Ukraine conflict, potential additional sanctions and trade restrictions, supply-chain effects, and ruble movements.
- Other disclosed risks include inflation, pricing pressure, raw-material availability and cost, supply-chain challenges, customer spending and credit conditions, foreign-exchange movements, and geopolitical and economic uncertainty. Management considered material losses in pending legal proceedings remote, while noting litigation outcomes are uncertain.
- Backlog was $3.1 billion at June 30, with approximately 60% expected to be recognized as revenue over the next 12 months; management noted the business does not have significant backlog.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operations versus the $259 million of Q2 pretax disposal gains.
- Whether revenue growth converts to operating cash flow as receivables and inventory rise, and whether planned capital investment remains near $2 billion.
- Whether pricing and segment-margin improvements persist, particularly in Production Systems, where first-half margin declined year over year.
- How Russia-related operations, assets, collections, sanctions, and the Ukraine conflict may affect future results.
- Whether the backlog converts on schedule and whether the higher dividend is supported by sustained cash generation.