SLB Limited 2026 Q3 Earnings Call

Good morning and welcome to the SLB third quarter 2026 earnings conference call. Today's call is being hosted from New York City following our board meeting held earlier this week. Joining us on the call are Olivier Le Peuch, Chief Executive Officer, and Stephane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. For more information, please refer to our latest 10-K filing and other SEC filings, which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter earnings press release, which is on our website.

With that, I will turn the call over to Olivier.

Thank you, James, and good morning, ladies and gentlemen. Thank you for joining us. Today, I will begin with our third quarter performance. I will then discuss the evolving macro environment and the fundamentals supporting our outlook as we approach 2027. Finally, I will share our expectations for the fourth quarter. Stéphane will then provide additional details on our financial results, and after that, we'll open the line for your questions. Let's begin. The third quarter was marked by broad-based sequential revenue growth across each of our geographical areas and core divisions, with pre-tax segment operating margins expanding across all four divisions. This was driven by the gradual recovery in the Middle East, steady growth in North America, and continued momentum across the international offshore basins, including Latin America, Europe and Africa, and Asia.

Within the Core divisions, Production Systems led the way, supported by higher OneSubsea revenue and strong sales of production chemicals and artificial lift in North America and the Middle East. Notably, ChampionX delivered its highest quarterly revenue since the acquisition, with margins expanding sequentially for the fourth consecutive quarter. Well Construction growth was driven by double-digit increases across Argentina, Guyana, Brazil, and U.S. land, along with a seasonal recovery in Canada, complemented by strong offshore drilling in Asia. Sequential growth was also driven by higher drilling activity and fluids demand in the Middle East. While the near-term pace of recovery in the Middle East remains uncertain, the longer-term outlook continues to strengthen. This is reflected by Saudi Aramco's recent award of four integrated Well Construction contracts to SLB, covering more than 450 wells over an initial three-year term.

These multi-year awards significantly improve our revenue visibility and expand our participation in development activity across the kingdom by bringing together our Digital drilling workflows, automated technologies, and integrated Well Construction portfolio. Reservoir Performance also delivered strong sequential growth, led by increased stimulation and intervention activity alongside an uptick in evaluation. This demonstrates that customers are investing in both restoration and production optimization of existing assets and evaluation of reservoirs to support new development. Our results this quarter continue to demonstrate the benefits of our strategic focus on production and recovery. Our production business, encompassing all Production Systems and some of the offerings in Reservoir Performance, now represents more than 50% of our portfolio, with a leading position across every major basin and a balanced mix of short- and long-cycle activity, including exposure to resilient OpEx spend.

This provides a durable foundation with greater revenue visibility and resilient performance across market cycles. Taken together, growth across all Core divisions reflects the characteristics of an inflecting upcycle, with broad expansion of activity across exploration, development, and intervention as operators ramp up efforts to restore production and bring new capacity online. In Digital, third quarter revenue was steady sequentially, and margins remained strong despite Digital exploration sales declining following exceptional sales in the second quarter. Customers continue to recognize the benefit of AI and Digital operations, and we delivered more than 750,000 automated feet of drilling this quarter, an increase of nearly 50% year-on-year. Additionally, the Hellops predictive analytics, our intelligent real-time monitoring and advisory system, is now monitoring more than 20% of active international rigs, representing year-on-year growth of more than 60%.

As you can see, adoption continues to accelerate, and we are very pleased with the progress of our Digital business. Revenue has grown 11% year to date, and we have clear visibility into higher sales in the fourth quarter. As a result, we anticipate finishing the year with double-digit year-on-year growth and adjusted EBITDA margins exceeding 35%. Finally, Data Center Solutions continued strong growth trajectory, supported by the progression of existing projects and geographic expansion into Asia. During the quarter, we continued to invest in facilities and talent to expand our execution capacity, including a new manufacturing center in Canada to support the Meta data center project that is essential to meet surging customer demands. Upon closing of our recently announced acquisition of Kelvion, the Kelvion portfolio will also benefit greatly from this momentum and will accelerate our ambition to become a leading industrial partner into the AI infrastructure build-out.

In summary, I am extremely proud of our third quarter performance, and I want to thank the entire SLB team for delivering these results. Their focus on execution, innovation, and our customer centricity continues to make the difference. Let me now turn to the macro environment and the fundamentals supporting our outlook as we approach 2027. Ongoing disruptions continue to reinforce the importance of energy security and the need of reliable, geographically diverse source of supply. At the same time, the industry continues to face the structural challenge of offsetting natural decline and replacing reserves following several years of limited exploration. Collectively, these conditions are supporting a broader and increasingly diversified international opportunity. In the near term, this will support production intervention and overall short-cycle activity. Longer term, this is providing a strong foundation for the progression of offshore developments, renewed exploration, and new areas of investment emerging across several markets.

Let me briefly discuss how these long-cycle dynamics are evolving. Deepwater represents one of the industry's most advantage source of new supply, combining attractive project economics, material resource development, and long-duration production. We continue to see this opportunity broaden across Latin America, Africa, the Eastern Mediterranean, and Asia, with FID expected to increase more than 30% year-on-year in 2026 and many projects advancing from sanction into execution. For SLB, this momentum is reflected in the continued flow of OneSubsea awards, further strengthening our backlog and increasing visibility into 2027 and beyond. One example is our recent award in Mozambique, where OneSubsea was selected to deliver subsea Production Systems for the first phase of ExxonMobil deepwater Rovuma LNG development. This project will contribute to an important new source of global gas supply and further demonstrates the progression of large, long-cycle deepwater development into execution.

In addition, fundamentals for exploration are improving as operators seek to replace reserves and diversify supply following several years of restrained investment. We see this materializing through new licensing activity in Brazil, the Eastern Mediterranean, and West Africa. Growing interest in frontier basins such as Namibe and preparations for future campaigns across deepwater markets, including Guyana and Suriname. As exploration assumes a greater role in our customer portfolio, SLB's leading position across exploration data, subsurface modeling, and evaluation technologies position us to capture this growing opportunity. So far this year, SLB has participated in the evaluation of approximately 80% of completed high-impact exploration wells globally, many of which are concentrated in frontier and deepwater basins. Beyond deepwater and exploration, international markets are offering new pathways for growth, with opportunities broadening across conventional and unconventional resource in the Middle East, as well as key emerging markets.

In this context, Venezuela represent a particularly significant growth driver for SLB. Following more than a decade of limited investment, activity in the country is accelerating, led by international oil companies. For SLB, this is already translating into revenue growth. Our revenue in Venezuela is on track to more than double this year, with strong momentum among U.S. and European E&Ps, supporting the potential for multifold growth in 2027. At the same time, major U.S. shale operators are expanding internationally, entering new countries and partnering with NOCs. This trend further broaden the addressable market, particularly in exploration deepwater developments across Africa, Latin America, and Asia, as well as in conventional and unconventional resources in the Middle East. Looking across these dynamics, long cycle offshore developments, renewed exploration, Digital adoption, and U.S. operators expanding globally all confirm a durable multiyear international investment cycle with clear visibility into 2027.

With market-leading position across our core divisions, recently established leadership position in global production, differentiated Digital capabilities, and an unmatched global footprint, SLB is uniquely positioned to capture this upside. Now let me conclude with our expectations for the fourth quarter and our first view of the 2027 market outlook. Over the past several weeks, the Middle East has continued to experience heightened tensions. Given the ongoing uncertainty, our fourth quarter outlook assumes Middle East revenue remains flat sequentially at approximately $1.9 billion, representing about 83% of revenue generated in the first quarter of 2025. Based on this assumption and supported by continued deepwater momentum as well as the typical year-end strength in Digital and product sales, we expect overall fourth quarter revenue to reach approximately $10 billion, representing an increase of 5%-7% sequentially.

As a result, when excluding the Middle East, global fourth quarter revenue is expected to grow in the high single digits year-on-year. We also expect adjusted EBITDA margins to expand 100-150 basis points. At the division level, we anticipate combined revenue from the core division to sequentially increase by low single digits, led by high single-digit growth in Production Systems and with Well Construction Reservoir Performance essentially flat. In Digital, revenue is expected to increase in line with fourth quarter historical trends, led by significant uptake in typical year-end Digital exploration sales. This outlook provides clear evidence that the next phase of life cycle is underway. While our near-term outlook remains dependent on geopolitical developments, an eventual resolution of regional disruption in Middle East would unlock deferred activity and serve as a powerful catalyst for accelerated growth in 2027.