SLB Limited (Schlumberger Limited) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial statement figures are generally in millions unless noted.
Business context and results
SLB provides oilfield services, technology and equipment. Third-quarter growth was led by international activity, particularly in the Middle East & Asia. International revenue represented $6.614 billion of Q3 revenue; North America contributed $1.643 billion.
| Metric | Q3 2023 | Q3 2022 | Change |
|---|---|---|---|
| Revenue | $8.310 billion | $7.477 billion | +11% year over year; +3% sequentially |
| Net income attributable to SLB | $1.123 billion | $907 million | +24% |
| Diluted EPS | $0.78 | $0.63 | +24% |
| Pretax segment operating margin | 20% | Not stated here | Up 153 basis points year over year and 73 basis points sequentially |
For the first nine months, revenue was $24.145 billion, up 19%; net income attributable to SLB was $3.091 billion, up 30%; and diluted EPS was $2.14 versus $1.65. Pretax segment operating margin was 19%, up 219 basis points year over year.
Revenue, segments and profitability
Q3 segment revenue and pretax income were: Digital & Integration $982 million and $314 million; Reservoir Performance $1.680 billion and $344 million; Well Construction $3.430 billion and $759 million; and Production Systems $2.367 billion and $319 million. Sequential segment revenue rose across all four divisions. Digital & Integration margin declined sequentially to 32%, while Reservoir Performance, Well Construction and Production Systems margins expanded to 20%, 22% and 13%, respectively.
Nine-month growth was strongest in Well Construction (+23%) and Production Systems (+22%), followed by Reservoir Performance (+21%). Digital & Integration revenue rose 4%, but its pretax margin fell 405 basis points to 32%, mainly reflecting lower exploration-data licensing revenue and reduced APS profitability.
Q3 operating expenses included $4.360 billion cost of services, $2.232 billion cost of sales, $186 million research and engineering, $81 million general and administrative, and $129 million interest expense. Q3 tax expense was $259 million and the effective tax rate was 19%.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $3.615 billion, versus $2.106 billion in 2022. Management-defined free cash flow was $1.758 billion, versus $563 million. Working capital use was $1.353 billion.
- Nine-month capital expenditures were $1.345 billion; APS investments were $391 million; and capitalized exploration-data costs were $121 million. Full-year 2023 capital investments were expected to be approximately $2.5–$2.6 billion.
- Cash was $2.488 billion and short-term investments $1.247 billion at September 30, 2023. Net debt was $9.410 billion (gross debt less cash and short-term investments), compared with $9.332 billion at year-end 2022.
- Total short- and long-term debt was approximately $13.145 billion, including $1.998 billion due within a year. Long-term debt was $11.147 billion. SLB issued $1.0 billion of senior notes in Q2 2023.
- SLB reported $3.74 billion in cash and short-term investments and $6.54 billion of available, unused committed facilities; no commercial-paper borrowings were outstanding. Management said liquidity was sufficient for business needs for at least the next 12 months and beyond.
- Nine-month dividends paid were $961 million and stock repurchases were $594 million. The company had repurchased $1.6 billion cumulatively under its $10 billion repurchase authorization by September 30, 2023.
Material changes, outlook and notable items
Management described market fundamentals as compelling, citing a multiyear industry growth cycle shifting toward international and offshore markets, increased upstream investment in long-cycle developments and production capacity, and continued demand for exploration, appraisal and gas production. SLB expects these dynamics to support profitable growth in coming years; the filing does not provide a specific revenue or earnings forecast.
SLB recorded no charges or credits in Q3. In Q1 2023 it sold its remaining Liberty Energy shares for $137 million and recognized a $36 million pretax gain. This compares with $285 million of pretax gains in the first half of 2022 from Liberty share and real-estate sales, making prior-year comparisons less comparable.
On October 2, 2023, after quarter-end, SLB, Aker Solutions and Subsea7 closed the OneSubsea joint venture. SLB owns 70% and will consolidate it; Aker Solutions owns 20% and Subsea7 10%. The transaction was not reflected in these statements, and initial purchase accounting was not complete at filing.
SLB halted shipments of products and technology into Russia from all its facilities in July 2023. Russia accounted for approximately 5% of nine-month revenue; reported Russian net assets were approximately $0.7 billion. SLB also disclosed approximately $1.2 billion of Mexico receivables, including amounts due from its primary customer, which it said were not in dispute and had not historically resulted in material write-offs. Management considers material losses from pending legal proceedings remote, while noting litigation uncertainty.
Other risks identified include geopolitical and sanctions developments, foreign exchange, inflation, customer spending, pricing pressure, supply-chain availability and costs, regulatory changes, and operational delays. The filing reported no material change in market-risk exposure since year-end 2022 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether international and offshore activity, pricing and segment-margin improvement continue, and whether Digital & Integration profitability recovers.
- How working-capital requirements, capital investments and shareholder returns affect free cash flow and net debt.
- Execution, consolidation and purchase accounting for OneSubsea, including its effect on SLB’s financial results.
- Collection and concentration risk in Mexico receivables, and the financial effects of Russia-related restrictions or further geopolitical developments.
- Whether actual 2023 capital investments remain within the stated $2.5–$2.6 billion expectation; the filing provides no specific earnings guidance.