SLB Limited (Schlumberger Limited) — Second-Quarter 2023 Form 10-Q
Quarter ended June 30, 2023; filed July 26, 2023. Figures are unaudited and in U.S. dollars. Unless otherwise noted, amounts are in millions.
Business context and reporting period
SLB provides oilfield services, equipment and technology through Digital & Integration, Reservoir Performance, Well Construction and Production Systems. Results reflect growth led by international and offshore markets. International revenue represented nearly 80% of global revenue, with offshore constituting approximately half of international revenue, according to management.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $8,099 | $6,773 | $15,835 | $12,735 |
| Income before taxes | $1,293 | $1,152 | $2,454 | $1,790 |
| Net income attributable to SLB | $1,033 | $959 | $1,967 | $1,469 |
| Diluted earnings per share | $0.72 | $0.67 | $1.36 | $1.02 |
| Cash from operations | Not stated for quarter | Not stated for quarter | $1,938 | $539 |
| Free cash flow | Not stated for quarter | Not stated for quarter | $721 | $(500) |
- Q2 revenue increased about 20% year over year; SLB-attributable net income increased about 8%. For the first six months, revenue rose 24% and attributable net income rose 34%.
- Six-month pretax segment operating margin was 19%, up 264 basis points year over year. Sequentially, Q2 revenue grew 5% and pretax segment operating income increased to $1,581 from $1,391 in Q1.
- Six-month operating cash flow improved to $1.94 billion from $539 million. Working capital absorbed $1.29 billion; capital expenditures, APS investments and capitalized exploration data costs totaled $1.22 billion.
- At June 30, cash was $1.93 billion and short-term investments were $1.26 billion. Short-term borrowings and current debt were $1.99 billion; long-term debt was $11.34 billion. Management-defined net debt was $10.14 billion, up from $9.33 billion at year-end 2022.
- Current assets were $16.15 billion and current liabilities $12.16 billion. SLB reported $3.19 billion of cash and short-term investments and $6.57 billion of available, unused committed debt facilities. No commercial paper borrowings were outstanding.
- SLB paid $605 million in dividends and repurchased $443 million of stock during the first six months. It had repurchased $1.5 billion under its $10 billion program by June 30.
Material changes versus comparable periods
- Six-month revenue growth was broad based: North America increased 22% and international revenue increased 25%. Well Construction revenue rose 30%, Production Systems 29%, and Reservoir Performance 24%; Digital & Integration rose 2%.
- All divisions except Digital & Integration expanded six-month pretax segment margins year over year. Digital & Integration margin declined 515 basis points to 32%, reflecting lower exploration-data licensing sales and reduced APS profitability. Other divisions’ margins improved on higher activity, pricing, mix and, for Production Systems, easing supply constraints.
- Q2 segment revenue increased sequentially in all divisions, led by Reservoir Performance (+9%) and Digital & Integration (+6%). Digital & Integration margin expanded 438 basis points sequentially to 34%; Reservoir Performance rose 248 basis points to 19%; Well Construction rose 115 basis points to 22%.
- Six-month 2022 results included $285 million of pretax gains from Liberty share and real-estate sales, versus a $36 million Liberty-share gain in the first quarter of 2023 and no Q2 2023 charges or credits. The prior-year gains make the year-over-year comparison less comparable; the 2023 Liberty gain is also nonrecurring.
Outlook, management commentary, risks and unusual items
- Management expects international spending to build further momentum in the second half of 2023, while North America moderates as anticipated. It cited long-cycle offshore projects, production-capacity expansions, returning exploration activity and gas demand as supportive drivers.
- Full-year 2023 capital investments are expected to be approximately $2.5–$2.6 billion, compared with $2.3 billion in 2022. Management said available liquidity should meet business requirements for at least the next 12 months and beyond.
- In July 2023, SLB announced it would halt product and technology shipments into Russia from all SLB facilities worldwide. Russia accounted for approximately 5% of first-half revenue; net assets there were approximately $0.7 billion at June 30. Further sanctions, conflict developments, currency movements and supply-chain effects could affect operations and asset values.
- SLB had approximately $1.0 billion of receivables relating to Mexico. The filing says amounts due from its primary Mexican customer were not in dispute and that SLB had not historically experienced material write-offs for that customer.
- SLB identifies exposure to foreign exchange, inflation, customer spending and pricing, raw-material availability, supply-chain disruption, geopolitical conditions and regulation, among other risks. Management considered material loss from pending legal proceedings remote, while noting litigation outcomes are uncertain.
- SLB hedged approximately 75% of projected oil production for the remainder of 2023 and 35% for the first half of 2024 for one APS project. The filing also describes foreign-currency and cross-currency debt hedges.
Important facts for investors to verify
- Whether international and offshore activity, pricing and margin gains continue to offset expected North American moderation.
- Cash conversion and working-capital requirements, particularly as receivables and inventories increased during the first half.
- Debt and net-debt trends following the $1 billion issuance of 2028 and 2033 senior notes, and the scale of dividends and share repurchases relative to free cash flow.
- Execution of the $2.5–$2.6 billion 2023 capital-investment plan and the returns from APS projects.
- Effects of the Russia shipment halt, sanctions and other geopolitical developments on revenue, receivables and assets.
- Digital & Integration recovery, including APS project performance and exploration-data licensing revenue.