SLB Limited (Schlumberger) — Q3 2022 Form 10-Q
Business context and period. Unaudited results cover the quarter and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. SLB provides oilfield services, equipment, digital solutions and related offerings across more than 120 countries.
Financial performance
| Metric | Q3 2022 | Comparable period | Change |
|---|---|---|---|
| Revenue | $7.477 billion | $5.847 billion, Q3 2021 | +28% year over year; +10% sequentially |
| Net income attributable to SLB | $907 million | $550 million, Q3 2021 | +65% |
| Diluted EPS | $0.63 | $0.39, Q3 2021 | +$0.24 |
| Income before taxes | $1.134 billion | $691 million, Q3 2021 | +64% |
For the first nine months, revenue was $20.213 billion, up 21% year over year; net income attributable to SLB was $2.377 billion versus $1.280 billion, and diluted EPS was $1.65 versus $0.90. Nine-month pretax operating margin was 17%, 285 basis points higher year over year. The filing does not provide a single consolidated operating-margin figure for Q3.
Segments and revenue mix
Q3 revenue and pretax operating margins were: Digital & Integration, $900 million and 34%; Reservoir Performance, $1.456 billion and 17%; Well Construction, $3.084 billion and 22%; Production Systems, $2.150 billion and 10%. International revenue rose 13% sequentially; North America revenue was $1.543 billion, while international revenue was $5.881 billion.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $2.106 billion, down from $2.719 billion in 2021. Free cash flow, a non-GAAP measure defined by SLB, was $563 million versus $1.699 billion.
- Working capital consumed $1.814 billion, primarily reflecting higher receivables from revenue growth and increased inventory. Capital expenditures, APS investments and capitalized exploration data costs totaled about $1.543 billion.
- At September 30, cash was $2.180 billion and short-term investments were $1.429 billion. Total debt, including current maturities, was $13.351 billion; net debt was $9.742 billion, down from $11.056 billion at year-end 2021.
- SLB reported $6.47 billion of committed credit facilities available and unused and no commercial-paper borrowings. Management said available liquidity was sufficient for business requirements for at least the next 12 months.
- Nine-month dividends paid were $600 million. SLB increased its quarterly dividend 40% in April, from $0.125 to $0.175 per share, and made no share repurchases in the first nine months.
Changes versus prior periods
Growth was broad-based, supported by higher activity, improved pricing and stronger international and North American markets. Nine-month revenue increased in all divisions; Well Construction led with 29% growth and a 555-basis-point margin improvement. Production Systems revenue grew 14%, but its nine-month margin declined 58 basis points, primarily due to logistics costs and mix. Sequentially, Q3 growth and margin expansion reflected stronger international, offshore and project activity; Digital & Integration revenue declined 6% sequentially because the prior quarter included $95 million of exploration-data transfer fees.
Net debt declined, but operating cash flow and free cash flow were lower year over year as working-capital needs increased. Capital investment was higher than in 2021.
Outlook, commentary and risks
- Management characterized industry conditions as a supply-led upcycle, citing energy-security needs, limited spare capacity, supportive commodity prices and rising upstream investment. It said revenue growth was expected to continue in 2023.
- Full-year 2022 capital investment was expected to be approximately $2.2 billion, compared with $1.7 billion in 2021. The filing does not provide specific full-year revenue or earnings guidance.
- In March, SLB suspended new investment and technology deployment in Russia. Russia accounted for approximately 6% of nine-month worldwide revenue; Russian net assets were approximately $0.9 billion. The company identified uncertainty from the Ukraine conflict, sanctions, supply chains and currency movements.
- Argentina’s parallel exchange rate was approximately 110% above the official rate at quarter-end. SLB noted that convergence could cause a loss on its peso-denominated net assets; currency controls also restrict access to U.S. dollars and remittance of earnings.
- Other risks discussed include economic and geopolitical conditions, inflation, customer spending, pricing pressure, supply-chain constraints, foreign exchange, regulation and cybersecurity. Management said the probability of a material loss from currently pending legal proceedings was remote, while noting litigation uncertainty.
Unusual items and other developments
Nine-month results included $285 million of pretax credits: $242 million from Liberty share sales and $43 million from a real-estate sale, with $266 million net of tax. SLB retained a 12% Liberty interest at September 30. The proposed subsea joint venture with Aker Solutions and Subsea 7 was expected to close in the second half of 2023, subject to approvals and customary conditions.
Investor facts to verify
- Whether revenue growth and margin expansion continue, especially internationally, and whether Production Systems margins recover.
- Whether receivables and inventory growth convert to cash, given the $1.814 billion nine-month working-capital use and lower free cash flow.
- Progress against the approximately $2.2 billion 2022 capital-investment expectation and the resulting debt and liquidity trajectory.
- Exposure to Russia, Argentina’s exchange-rate restrictions, and any effects from sanctions, geopolitical developments or supply-chain disruptions.
- Completion terms, timing and financial effects of the proposed subsea joint venture.