SLB Limited (Schlumberger Limited) — Q1 2023 Form 10-Q
Business context and period: The filing reports unaudited results for the three months ended March 31, 2023, compared with Q1 2022 unless otherwise noted. SLB provides oilfield services, technology and equipment through Digital & Integration, Reservoir Performance, Well Construction and Production Systems.
Financial performance
- Revenue: $7.736 billion, up 30% year over year. Services revenue was $5.334 billion and product sales were $2.402 billion.
- Profit: Income before taxes was $1.161 billion versus $638 million; net income attributable to SLB was $934 million versus $510 million. Diluted EPS was $0.65 versus $0.36.
- Margins: Pretax segment operating income was $1.391 billion versus $894 million. Segment pretax margins were Digital & Integration 30%, Reservoir Performance 16%, Well Construction 21% and Production Systems 9%. The three Core Divisions—Reservoir Performance, Well Construction and Production Systems—grew revenue 34% and expanded pretax margins by more than 300 basis points year over year.
- Cash flow: Operating cash flow was $330 million versus $131 million. Free cash flow, a non-GAAP measure defined by SLB, was negative $265 million versus negative $381 million. Working capital use was $1.3 billion. Capital expenditures were $410 million; APS investments and capitalized exploration data costs were $133 million and $52 million, respectively.
- Liquidity and debt: Cash and short-term investments totaled $2.504 billion at quarter-end. Short- and long-term debt totaled approximately $12.838 billion, implying net debt of $10.334 billion under SLB’s definition, up $1.002 billion from year-end 2022. SLB reported $6.56 billion in committed bank facilities, of which $6.00 billion was available and unused; commercial paper borrowings were $559 million.
- Capital returns and investment: SLB paid $249 million in dividends and repurchased $230 million of stock in Q1. Full-year 2023 capital investments are expected to be approximately $2.5–$2.6 billion.
Changes and operating trends
- Revenue increased across all reported geographies year over year: North America +32%, Latin America +34%, Europe & Africa +41%, and Middle East & Asia +18%. International revenue grew 29%.
- Year-over-year revenue growth was strongest in Well Construction (+36%) and Production Systems (+38%); Reservoir Performance grew 24% and Digital & Integration 4%.
- Sequentially, revenue declined 2% from Q4 2022. North America grew 4%, while international revenue declined 3%, partly reflecting seasonality. Digital & Integration revenue fell 12% sequentially, primarily from lower APS revenue and seasonal digital and exploration-data license sales.
- Interest and other income included a $36 million gain from selling SLB’s remaining Liberty Energy shares; the comparable Q1 2022 gain was $26 million. The sale generated $137 million in proceeds. The effective tax rate was 18.7%, compared with 18.4%.
Outlook, risks and contingencies
- Management described the multiyear global activity outlook as very constructive, citing international and offshore activity, capacity expansion, exploration and appraisal, and demand for supply diversity. SLB expected strong Q2 growth from seasonal recovery and project ramp-ups, with broad sequential margin expansion; no full-year revenue or EPS guidance is stated in the supplied filing text.
- Management noted that North American land activity could plateau in 2023 amid lower gas prices and capital restraint by private E&P operators. It also cited seasonality, pricing, supply-chain and logistics conditions, commodity prices, foreign exchange, inflation, geopolitical conditions, sanctions and customer spending as factors that could affect results.
- Russia represented approximately 5% of Q1 worldwide revenue; net assets there were approximately $0.7 billion. SLB had suspended new investment and technology deployment in Russia in March 2022. The filing describes potential effects of the Ukraine conflict, sanctions and related restrictions as uncertain.
- Mexico receivables were approximately $1.2 billion; SLB said amounts due from its primary Mexican customer were not in dispute and that it had not historically had material write-offs related to that customer.
- SLB said material loss from pending legal proceedings was considered remote, while noting litigation outcomes are inherently uncertain. The filing reported no material change in risk factors from the 2022 Form 10-K.
Important facts for investors to verify
- Whether the substantial Q1 earnings growth and management’s expected Q2 activity and margin expansion persist, particularly in international markets.
- How working-capital requirements, negative Q1 free cash flow and planned capital investments affect cash generation and the increase in net debt.
- Whether the North American land market plateaus and how seasonality, lower gas prices and private-operator spending restraint affect activity.
- Exposure to Russia, the Ukraine conflict, sanctions and the concentration of receivables in Mexico.
- The extent to which the $36 million Liberty share-sale gain and other nonrecurring or investment-related income affect comparisons of underlying performance.
- SLB states that its Q1 results are not necessarily indicative of full-year results; the interim financial statements are unaudited.