SLB - NYSE

Good morning. My name is Megan, and I'll be your conference operator today. I would like to welcome everyone to the first quarter SLB earnings call. As a reminder, this call is being recorded. I will now turn the call over to James R. MacDonald, Senior Vice President of Investor Relations and Industry Affairs. Please go ahead.

Thank you Megan. Good morning, and welcome to the SLB First Quarter 2025 Earnings Conference Call. Today's call is being hosted from Houston, following our Board meeting in the Middle East last 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. Uncertainties that could cause our results to differ materially from those projected. 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 first quarter earnings press release, which is on our website. Finally, in conjunction with our proposed acquisition, Schlumberger Limited and ChampionX have filed materials with the SEC, including a registration statement for the proxy statement and prospectuses. These materials can be found on the SEC's website or from the party's websites. With that, I will turn the call over to Olivier. Thank you, James. Ladies and gentlemen, thank you for joining us.

On the call this morning. I'll begin by discussing our first quarter performance. I will provide updates on the evolving macro and how we manage our business in this uncertain environment. Stephane will then provide more details on our financial performance, and I will open the line for questions. Let's begin. As you have seen in our earnings press release this morning, it has been a soft start to the year. In addition to the typical seasonal activity decline in the Northern Hemisphere, and the absence of year-end product and software sales, upstream investments have remained constrained by the oversupplied oil markets. This has been amplified over the past few weeks with additional economic uncertainty stemming from the acceleration of supply raises by OPEC plus and recent tariff announcements. Again, it is more challenging, but I was proud to see our teams continue to deliver for our customers. We finished the quarter by achieving further adjusted EBITDA margin expansion year on year. Overall, across the business, first quarter revenue decreased by 3% year on year, as our strong results in North America were more than offset by lower revenue in the international market. Attributed to a combination of lower learning activity in Mexico, Saudi Arabia, and a steep decline in Russia. Excluding declines in these three countries, international revenue was steady year on year. We achieved double-digit growth in a number of markets including The United Arab Emirates, North Africa, Kuwait, Argentina, and China, as well as a solid performance in Europe and Scandinavia. Altogether, this resulted in international recount outperformance. Turning to North America, we delivered positive results driven by the offshore market, with higher sales of both digital and subsea production systems. We also saw continued growth momentum in our data center infrastructure solution business industries. However, this growth was partially offset by lower drilling revenue in US land due to weak efficiency gains. Next, let me discuss the performance of our divisions. In the core, Production System continued to lead the way, with steady revenue growth and further margin expansion. Customers continue to demonstrate strong demand for surface production systems, completions, and artificial lift. This late-cycle business is becoming more profitable, with margins increasing by 197 basis points year on year, supported by favorable activity mix execution efficiency, and conversion of improved price backlog. Specific to subsea, we remain constructive on the market outlook with a significant pipeline of projects planned over the next couple of years. I was pleased to see margins in this area expand materially compared to the same period last year as a result of strong execution and the realization of cost synergies within our subsea OneSubsea joint venture. In terms of our performance, revenue was slightly down year on year, and margins were significantly impacted by challenges on several new projects that resulted in start-up and a portion of cost overruns. We continue to see strong demand for unconventional stimulation in international markets, including The United Arab Emirates and Argentina. However, this was fully offset by lower evaluation and exploration activity as a result of lingering white space in deepwater. New well construction declined year on year due to lower drilling activity across both North America and international markets. Despite this decline, I was pleased to see that one-third of our international units actually grew year on year in the first quarter. With digital integration, growth was entirely driven by digital, where revenue grew 17% year on year as customers continue to embrace digital technologies and solutions. Customers are accelerating the adoption of digital and AI solutions to extract further efficiency and performance across the upstream lifecycle, both in planning and in operations across development and production. In our earnings press release, you can see several examples of customers adopting our digital solutions. Finally, as an update on our progress beyond oil and gas, we continue to experience positive momentum in the low carbon markets, driven by capture acquisition, as well as in our data center infrastructure solution business. Combined, revenue from CCS, geothermal, critical minerals, and data center solutions is on pace to visibly exceed $1 billion in 2025. Overall, I'm proud of the performance our team delivered this quarter, and I want to thank the entire Schlumberger Limited team for their hard work and commitment to customer success. Next, let me discuss the macro environment and how Schlumberger Limited is adapting accordingly. The industry is navigating global economic uncertainty stemming from the supply-demand imbalance and recent price announcements. In this environment, commodity prices are challenged, and until they stabilize, customers are likely to take a more cautious approach to near-term activity and discretionary spending. Beginning with the supply-demand balance, we expect to see new supply enter the market as OPEC plus has announced plans to increase their production beginning in May. This comes at a time when the macroeconomic picture remains uncertain due to global trade concerns, which have the potential to result in lower demand than originally expected for the year. Taken together, these factors are resulting in uncertain market backlog. At this point, we expect global upstream investment to decline compared to 2024, with customer spending in The Middle East and Asia being more resilient than other regions across the rest of the world. Against this uncertain backdrop, we remain focused on what we can control. We will continue to execute our strategy, deliver differentiated performance for our customers, carefully manage costs, and remain committed to returns to shareholders. In the core, we remain positive on the long-term fundamentals for oil and gas, and we will continue to deepen our partnership with our customers throughout the last second of the assets. This includes an increase in phases on the production recovery market, and we expect to unlock new growth potential and long-term resilience through opportunities for technology deployment. In digital, customers are investing in solutions to reduce cycle time, improve performance, and drive efficiency. We continue to pursue opportunities in AI, cloud computing, and digital operations. Today, we are seeing the decoupling of digital investment from upstream spending, and this will increasingly represent a unique and exciting opportunity for our business. In our business beyond oil and gas, we continue to capitalize on low carbon markets with our new energy offering, particularly in carbon capture and geothermal, while harnessing adjacencies as we have demonstrated with our rapidly growing data center infrastructure solution business. Let me quickly highlight our data center business. Over the past two years, we have engaged our hyperscalers, whom we partner with in digital, to unlock new opportunities for our business through the development of data centers. This has led to significant contract awards for the provision of manufacturing services and modular cooling units, which we are currently fulfilling. Based on our performance and unique capabilities, we are also gaining access to new opportunity pipelines, and we are expanding our technology offering with low carbon solutions to serve new potential customers. Overall, this is a very exciting and fast-growing market, driven by AI demand and expected to contribute to our diversified exposure beyond oil and gas in the coming years. Beyond our operational performance, we also have been on a journey of cost optimization and process enhancement. Moving forward, this will support our mission to protect margins despite softer customer spending. What matters in this environment is our ability to continue to generate strong margins and cash flows, deliver resilient returns to shareholders, and come out stronger. Our first quarter results demonstrate our ability to do this, and I believe that the combination of our strategy and cost actions will help to protect our business moving forward. As a result, we remain committed to returning at least $4 billion in returns to shareholders in 2025. Now before I hand over to Stephane, let me quickly share our guidance for the second quarter and the rest of the year. Specific to the second quarter, assuming there is no further escalation of tariffs, and that oil prices remain approximately at current levels, we expect revenue to be flat sequentially, excluding ChampionX, with an adjusted EBITDA margin expansion between 50 to 100 basis points. Looking at the full year, while a number of different scenarios could materialize, including tariffs and OPEC plus actions, assuming oil prices remain similar to current levels, we expect flat to mid-single-digit revenue growth in the second half of the year compared with the first half, excluding ChampionX. This will be supported by a combination of the seasonal activity uptick, new start-ups in the border, and further growth in our digital and data center business. Under these conditions, we also expect further margin expansion. Look, I know there is a lot of uncertainty in this market, but we have been here before. We are operating from a strong position and have a clear priority of preserving margins while generating robust cash flows. Our broad exposure is providing resilience against uncertainty and short-cycle weakness, as you have seen in our results today. I am confident that our people, our technology leadership, and our financial strength will clearly position us for long-term success. I'll now turn the call over to Stephane to discuss our financial results in more detail.

Thank you, Olivier, and good morning, ladies and gentlemen. First quarter earnings per share, excluding charges and credits, was $0.72. This represents a decrease of $0.03 when compared to the first quarter of last year. We recorded $0.14 of charges during the quarter. This included $0.11 of charges in connection with our cost-out program that we initiated last year, and $0.03 of merger and integration charges related to the ChampionX and Aker subsea transactions. Overall, our fourth quarter revenue of $8.5 billion decreased 3% year on year. International revenue decreased 5% year on year, largely driven by reduced activity in Mexico, Saudi Arabia, offshore Africa, and Russia. North America revenue increased 8% year on year, due to higher digital and subsea production system sales as well as strong growth in our data center infrastructure solutions business. Company-wide adjusted EBITDA margins for the first quarter were 23.8%, up 18 basis points year on year. Pretax segment operating margin was 18.3%, representing a 60 basis point decline year on year as two of our four divisions experienced lower margins partially mitigated by the effects of our cost-out program. As we navigate the current market dynamics, we will continue to exercise cost discipline and we will align our resources with activity levels in the coming quarters as necessary to protect our margins and cash flows. As it relates to tariffs, the evolving landscape clearly introduces uncertainty, which makes it challenging to fully assess their impact at this time. Broadly speaking, we are partially protected by our activity mix, with approximately 80% of our revenue derived from international markets, as well as by our diversified supply chain network that includes in-country manufacturing and local sourcing. However, parts of our operations are still potentially exposed to increasing tariffs, primarily from imports of raw material into The US in our Production Systems division, as well as exports from The US subject to retaliatory tariffs. Under the current tariff framework, the majority of the impact is on import and export flows between The US and China. So any resolution or conversely escalation between those two countries significantly impacts the tariffs we may be subject to. While those discussions are taking place, we are taking proactive steps to mitigate the potential impacts. This includes reviewing how to further optimize our supply chain and manufacturing network, as well as diligently pursuing all applicable exemptions and drawbacks. We are also actively engaging with customers to recover our tariffs-induced cost increases through contractual adjustments. We have made progress on all these fronts in the last two weeks, and we are stepping up those actions across the organization as we speak. As the second quarter progresses, and ongoing trade negotiations continue, we will hopefully gain better visibility of where tariffs may settle and the extent to which we will be able to mitigate their effects on our business. Let me now go through the first quarter results for each division. First quarter digital and integration revenue of $1 billion increased 6% year on year driven by 17% growth in digital revenue. This growth was partially offset by lower APS revenue, due to a temporary pipeline disruption that impacted production in our projects in Ecuador. While this issue has been resolved, it did cost us $0.01 of earnings in the quarter. Digital and integration margin of 30.4% expanded 380 basis points year on year entirely due to improved profitability in digital. Reservoir Performance revenue of $1.7 billion decreased 1% year on year. As strong unconventional stimulation and intervention activity was offset by lower evaluation and exploration activity. Margins of 16.6% declined 311 basis points as compared to the first quarter of last year due to the less favorable activity mix as well as project start-up costs. Well Construction revenue of $3 billion declined 12%, and margins declined 71 basis points year on year on significantly lower drilling activity. Mexico and Saudi Arabia alone represented approximately two-thirds of the revenue decrease. Finally, Production Systems revenue of $2.9 billion increased 4% while margins of 16.2% grew 197 basis points year on year. These results were driven by the resilience of our portfolio in product and recovery activities, and were augmented by significant revenue growth in our data center infrastructure solutions business. Now turning to our liquidity. During the quarter, we generated $600 million of cash flow from operations, a significant increase compared to the first quarter of last year. We generated positive free cash flow of $103 million despite the payment of annual employee incentives and the seasonal increase in receivables due to continued capital discipline working capital management. Despite the uncertain economic environment, we expect our cash flow generation to remain strong and to grow throughout the year consistent with our historical trends. Capital investments inclusive of CapEx and investments in ATS projects and exploration data were $557 million in the first quarter. For the full year, we are still expecting capital investments to be approximately $2.3 billion, excluding any impact from the anticipated closure of the ChampionX. Our net debt increased $2.7 billion sequentially to $10.1 billion. This increase largely reflects the $2.3 billion we spent on our accelerated share repurchase transaction during the quarter. This ASR transaction was completed in a pre and resulted in us reducing ultimately our shares outstanding by a total of 56.8 million shares. 47.6 million of these shares were received in the first quarter, while the remaining 9.2 million shares were received in April. The ASR transaction, together with the dividend increase announced last quarter, will allow us to meet our commitment to return a minimum of $4 billion to shareholders in 2025. Let me conclude with an update on our pending M&A transactions. While these transactions are obviously taking more time to complete than initially anticipated, we are pleased with the progress made during the quarter and continue to work towards successful closure. As it relates to ChampionX, as we announced a couple of weeks ago, the United Kingdom Competition and Markets Authority has agreed to consider our proposed actions to address their concerns as part of their Phase one review. We will continue our collaboration with The UK and other regulators towards an anticipated closing in the second quarter or early third quarter of 2025. With respect to our overspending transaction, we now expect the divestiture of our interest in the Palis APS project in Canada to close in the second quarter. I will now turn the conference call back to Olivier.

Thank you, Stephane. I think, Megan, we are ready for taking the questions from the floor. Thank you.

We will now begin the Q&A session. If you would like to ask a question, please press. Your first question comes from the line of David Anderson with Barclays. Your line is open.

Thanks. Good morning, Olivier. How are you?

Good morning, Dave. Very well.

So we've heard from a number of other service companies this week on the outlook. Some of them more sobering than others. But I think we're starting to frame sort of some of the potential outcomes for international North America. The rest of the year. You said upstream spending, you're expecting to decline this year.

But I was hoping you could maybe clarify a little bit how you see North America from here at these oil prices. And how does this factor into your guide to mid-single-digit growth in the second half of the year, in which you have a very different mix than your peers?

No, absolutely. No, thank you. Thank you, Dave, for the question. Indeed, I would like to clarify. So as you know and as we have highlighted in the prepared remarks, global upstream spend will be down year on year, with a higher decline than originally anticipated. There is no argument against that, nor against the current public data independently of the type. It's in fact itself. It's already showing down. What is important is how Schlumberger Limited is positioned against this backdrop. And now we see more downside exposure in North America than in the international market. In this negative revision. But first, if we look at our position there, we are not tied to the regional frac fleets. And, actually, are long in offshore, in digital, and in production in this market. Furthermore, we have data center solutions there. So I think if you look at it, our exposure here has been key factors leading to a strategy we initiated about five years ago. We are now reaping the benefits of having better resilience against the short-cycle exposure we have as part of North America, because of our offshore pollution market exposure, digital, and now in new business. Excluding the data center infrastructure solution, our year-on-year would have been growing. Year on year, proving that resilience is in place for now. Now flipping to international, we see less exposure or less decline proportionally directionally than in North America. As the resilience, as I said, of the Middle East and Asia, including offshore, including unconventional, including gas, will continue to play a role in holding better this market. So we have the right exposure offshore. We have the right exposure in gas internationally, partly unconventional. We are growing, as you have seen, our digital. And push and recovery remain a lot the nice exposure we have across the group. Speaking of which, I believe that the upcoming acquisition integration of ChampionX would not only enhance our resilience but improve mix in North America. And give us a further digital and further offer exposure across the world as well. So I feel good about where we are in the cycle, and I think, just wanted to reconcile a bit why we have maybe having decent performance going forward, we expect.

Great. Thank you. Very much appreciate on the different mix here. I wanted to focus on one of your core countries, Saudi Arabia. You mentioned it got off to a bit of a slow start this year. We recently heard another rig company just talked about another rig being dropped. Can you talk about how you see Saudi playing out kind of from here for the rest of the year? On the one hand, do you think conventional oil activity maybe picks up later this year with these OPEC barrels coming back in the market? And then you have the unconventional natural gas activity ramping up. So I guess I'm wondering overall, should we start to see sort of more sustained growth from Saudi starting later this year and into 2026? A lot of moving parts here if you could help us. Understand those. Thank you.

A lot of moving parts indeed. And I think, again, you have to set the clock back to what happened last year. I think an adjustment of the ambition from 13% to 12 MSC that has led to a steep decline of activity that is translating to what we are seeing today year on year on our recreated activity. Now when it comes to this year and next, I think indeed, the priority of the kingdom is clearly to stabilize the pollution and to be able to respond to this OPEC plus pool. As they materialize, in the short term at least. And to continue to execute that gas ambition to go 40% that gas. And beyond by 2030, And as such, the gas land and unconventional gas will remain a priority that we see and receive further activity increase. Now is there pending further reduction to adjust to the level of activity, adjust the commodity price like other accounts we will do. Possibly. But I think directionally, the commitment to long-term gas, the commitment to maintain and the activity that relates to maintaining these 12 million barrels MSC, will indeed represent likely an uptick as we go into 2026 for Saudi. So that's what we expect. So, yes, a lot of moving parts, but our exposure there is a we love our position in Saudi. I was just recently here, with a few more members visiting the kingdom, and I think I have the opportunity to measure firsthand the engagement, the proximity we have and the feedback on our performance that is stellar. I think we'd like to keep it that way and thank the team for what they are delivering on. On a difficult market condition. But, yes, I think, I believe that the worst is behind us from decline, and if there is some adjustment this year, I believe that the gas-led growth will help us rebound going forward.

Right. Thank you very much, Olivier.

Thank you.

Thank you. Your next question comes from the line of Scott Gruber with Citigroup. Your line is open.

Morning, sir. So I wanted to add

Morning. I wanna ask about what

EBITDA margin level you think you could defend in a modestly weaker market year on year? Previously, with the cost restructuring, it felt like you were targeting to defend 25%. It looks like, you know, take a margin slightly north of 25% in the second half to get there this year. But do you think you can get the EBITDA margin back to the 25% level in the second half? You know, excluding the impact of ChampionX?

I think excluding the ChampionX, and excluding escalation of tariffs. I think I believe that if we assume that the scenario commission we have put out but oil price remaining in check with current opportunity current level, And the guidance we gave on the growth in the second and leverage we'll have and the realizations of our cost-out program, the digital effect, and the rest. We have the ambition to grow our margin in the 25% for the full year. That's something that will ambition, but the tariff is a big question mark. And I think, if the tariff we have to stay or escalate from where they are, obviously, the impact you would have as Stephane described, I think we'll have a represent a headwind to this margin expansion in the second half.

I appreciate the color. And then turning to digital, how do you think about the cadence of digital growth in this environment? You know, on the one hand, digital is obviously an efficiency enabler. I think, you know, in that vein, it could accelerate. But on the other hand, there is some, you know, exploration spend, some discretionary spend, you know, within the digital mix. How do you think about the resilience of digital growth in this environment? We continue to think about that

At high teens growth rate for the year? I think this remains our ambition. We believe that I think this secular trend of digital adoption in the industry is actually accelerating. Now there will be some discretionary decision. There will be some pressure in there. There will be some projects that will be reconsidered. But overall, I think, we believe that the efficiency gain, both, productivity for the and effectiveness for the planning show sounds workflows. And the direct impact on the performance of the cost of ownership. Or operational workflows. I think it's still playing out and resonating very well for customers at the time they want to expect efficiency. So against the global upstream CapEx I think as we come up with the in your previous question, that we decline year on year, we are still seeing mid to high teens clearly, growth into our digital business. Driven by this secular trend that we are fully capturing. Our technology strategy and our platform strategy is clearly playing out. And you have seen the diversity of the award that we get different customers, different region, geosounds operation, progress we are making with many customers across the world. Great. I appreciate the color, Olivier. Thank you. Thank you, Scott.

Thank you. Your next question comes from Arun Jayaram with JPMorgan. Your line is open.

Yes, good morning. Olivier, I was wondering if you could elaborate on Schlumberger Limited's strategy kind of to diversify the portfolio beyond oil and gas? I think you mentioned you're on pace to exceed maybe $1 billion of revenue. This year versus, I think, $850 million last year, but maybe talk about some of the steps you're taking there. Some of the longer-term growth potential.

No. Thank you, Arun. I think, yes, I think we have initiated about three to four years ago a strategy with new energy. I think the major aspect of that that will continue to impact us in the short term are three ways. First, CCS, where we took a position to acquire capturing. And I think we have a Schlumberger Limited capturing I think is the capture technology that I think we have four active products and many products in the feed. That will continue to materialize and create a growth at them going forward. So this combined with our sequestration adjacent to the core capability in exploration and characterization of this reservoir sequestration capability, I think it's leading to visible growth on our CCS all in success, and this will continue. So we don't see the pattern slowing down. We see this as a long-term market position. We want to continue to own and grow. Geothermal, starting from commercial geothermal has been something that has been getting more focused and more adoption for customers. And now there is a lot of pilots on the new generation, on next-generation, Azure thermal that is being highly supported by the administration partly in The US. I believe this is also something that we continue to grow. And finally, I will mention the lithium direct lithium extraction. We are seeing the pilots we have successfully completed last year. The first pilot at scale in The US, I think, is again resonating very well with the critical minerals priority of the current administration. And we see this in South America. We see this in Saudi where we're actually participating in a pilot as well. So this is successful. And separately, you have seen that the data center is something that we have used I think the relationship, the engagement we had to position ourselves as a provider of manufacturing capability, manufacturing services, as well as modular cooling solutions for the data center and the success is great. And I think I'm very pleased with the price of the team. Have a plant in Louisiana that is serving this business. We have large contracts that we are fulfilling. And that has been now our growth in North America, and we expect it to continue going forward this year and next clearly. So, yes, the ambition is to go from the $850 million plus to visibly more than $1 billion when we put all of this together. I will not expect it to slow in '26, but to continue to accelerate.

Great. That's helpful. Maybe my follow-up is for Stephane and maybe just to maybe clarify some of the Outlook comments. My team tried to estimate what your outlook comments would translate into 2025 EBITDA.

Our

We're getting to somewhere between $8.4 to $8.5 billion. I don't know, Stephane, if you could maybe give us some color if that makes sense. And maybe the clarification is how are you treating Palliser and some of the tariff-related impacts in terms of the full-year outlook?

So, Arun, we will stick with revenue-only guidance for the rest of the year. As Olivier mentioned, the growth assuming current oil price more or less stays at the current level. So we stick with revenue. We think it's premature to give you an EBITDA for the second half and hence for the full year. And some of the reason is indeed the tariff the application of tariffs with we think giving you a number on tariff at this stage is would not be useful for financial modeling. Unfortunately, we'd love to, but it's quite difficult. But as I said, we are partially shielded by domestic manufacturing and sourcing, but it is clear if it stays that way, we will have an impact. We will try to mitigate it, and we are already doing that for optimization of supply chain and through ultimately trying to pass the impact to customers, but what matters at the end is that we are still seeing margin expansion in the second quarter. Despite tariffs being effective now. And this is to let you know 50 to 100 basis points as we mentioned for Q2 sequentially. And for the second half of the year, margin expansion, assuming again that our oil price stays more or less at this level, we will have growth in H2. And this will come with margin expansion. But quantifying that margin expansion, H1 to H2, it will not be the right thing for us to do today.

Totally understand. Thanks a lot, Stephane.

Thank you. Thank you.

Thank you. Your next question comes from the line of Neil Mehta with Goldman Sachs.

Yes. Thanks, team, for all this color. So, as you think about ChampionX, recognize there's some limitations about what you can say around this, but you know, where are we in terms of the gating items at this point? It does feel like we're in the end zone here, but curious here you're the red zone, but curious what your perspective is on what remains outstanding and confidence around closing.

Yes. I think as Stephane did comment on his prepared remarks, I think we are very pleased with the progress we made very recently, particularly the UK CMA authorities and obtained that they have accepted that we go into remedies extension of phase one through remedies as it has been commented, they have accepted the remedy. So now to walk through these remedies and internal them as soon as effectively we can. And that's the reason why we have increased our confidence to conclude the end of the quarter or early next quarter. Now the other outstanding, I think Norway is known to be a and I think we have been engaged very effectively the last few days and few weeks with the Norwegian authority. And I believe as well that I think we are as we commented. Going to hopefully a resolution there. So that's the reason why we maintain our confidence into the end of this quarter or early next quarter.

Yeah. Thanks. And, Olivier, we'd love you to share your thoughts on the macro, particularly from the supply side. You spent a lot of time just all around the world. Where do you expect activity if we're in a lower commodity price environment to be dialed back? What do you think is relatively price inelastic? Is there a price level at which point you see activity particularly cut back? Just your perspective on the near-term macro and then also your perspective on the long-term macro because, you know, you've had an underinvestment view that ultimately long-term, that's gonna catch up here. Does this just reinforce that?

Yeah. I think starting with the long term, maybe it's easier. I believe that the position of oil and gas to feed the energy mix of the world and progress and driven by different demands with the global South, with the AI, with the electrification, I think we'll continue to pull for the long term and this combined with the natural decline that is pressing on many basins as you've seen, We'll continue to call for replenishment and maintaining, if not increasing the first investment that we see today. So long term, the view is intact, and I think the role of the role of our store to address this the role of the commitment of execution to capacity expansion in the Middle East, the role of gas, partly to security of gas supply in Asia. And the development of unconventional international to address this I think we continue to be the area of growth that we foresee long term. To remain. I'm not talking about digital here. Now in the short term, I think it's very difficult to gauge, but I think generally speaking, the short cycle activity would be the first exposed and Americas quite a few hour of short cycle starting with the US land. I think this would be the first that certainly will have the most impact. Internationally, I think the resilience as we mentioned of the Middle East many countries are committed here. Relatively independently of oil price for their capacity expansion. And BTOE, BTOE, BTOE, and activity in some other parts of the country around the Middle East, continue to stay and or if not accelerate. Asia driven by energy security, We'll also have resilience and driven by deepwater. Activity there offshore. Deepwater activity there that is strong and not talking about China. That is holding the activity because they're based on a five-year plan, not on a necessarily on oil price of today. So you combine all this, you still have quite a few exciting pockets of growth. Geography. And you have some secular trend digital. You have increased production recovery and you have an income showing internationally that will continue to be a lot of growth. So yes, there are opportunities to capture. And there are ways to offset the decline of the short-term decline expected into the total CapEx spend. Yep.

Thanks, Olivier.

Thank you.

Your next question comes from the line of Roger Read with Wells Fargo. Your line is open.

Yes, thank you and good morning. Good morning. If we could, Olivier, just you were mentioning Deepwater there. We certainly well, it didn't sound like exploration was an uplift for you in Q1. We've certainly seen the industry start to lean into exploration a little more. And I was just wondering if you could kind of take us around the world a bit on where we are seeing things pick up. I mean, West Africa's looked good. Certainly, Latin America ex Mexico has continued to look pretty good. South America And then I was just curious anything else on that front.

Yeah. I think the reserve replacement ratio is still what drives the IOCs and many large independents and some critical NOCs to your coach to explore. And we have seen a rebound in commitment to exploration the last eighteen months. That I don't see a changing directionally. Although, there will be some discussion taken by some customers, and we have to go one customer at a time to review this. But directionally, I think, the need for replacing reserve for mild majors and the need for developing long-term oil or long-term gas play in Asia or in The offshore basis. At large, I think, remains intact. And I think you are seeing the it it was saying to FID, that we expect to be, binding up in 2627, that will impact the subsea. Business going forward. But, yes, exploration is not over. And exploration takes to form. Exploration, I think, three forms, I would say. One is the near-field exploration. In Metro Basin, Gulf Of Mexico or even Brazil or the North Sea, including Norwegian sector. And then you have the Frontier Basin, big Namibia, big Suriname, big part of Asia. Indonesia, particularly, that are seeing new fresh exploration investment. And finally, you have the other way to explore, which is digital exploration. I think this is what we are benefiting from as well. A lot of reprocessing, a lot of activity for beta processing. And hence, we are exposed to those. So, yes, I think that the exploration will remain healthy. But this year, I may suffer from discretionary decision. And from some lingering white space as we call it in deepwater.

Appreciate that.

The other question I had just because it was called out as part of this

Order, Things softer in Russia Ironically, there was an article in the press today implying that Russia activity was at a multiyear high in the first quarter. So a bit of a juxtaposition there. It's just if you could give us any more insights on what you're seeing there.

I think I will restrict my the command I'm on to from Russia, because you have taken disposition to implement sanction and critical control of activity there. And this is what has led to a deep decline in Russia, and we expect this to continue as we continue to restrain and take every measure to sanction technology access. And technical support to our team.

Appreciate that. Thank you.

Thank you.

Thank you.

Your next question comes from the line of Stephen Gengaro with Stifel. Your line is open.

Thank you. Good morning, everybody.

Morning. I was I was wondering

As you talked about the Outlook, and I was sort of focused on the production segment here. Can you talk a little bit about your views on the resiliency of that business versus other parts of the company? And maybe maybe even the margin stability or contribution to margin expansion you see coming from that segment as we go through the year?

I mean, I will not comment directionally on the margin. I think we don't we don't provide guidance on margins on our divisions. However, I think the strengths of the production system division, I think, stems from the adoption of this technology the success we have in market position across the globe, both internationally in North America. There's been a growing market in North America, US land particularly lately. I think we have the market share market gain, market position due to technology. We have fit technology. We have a unique electrical completion technology. We are unlocking some efficiency and performance on our lift. And we have some success in subsea parking processing that is in combination giving us this distraction into this, into this market. So that's the first. The secondly, I think, Deep, As You Said, We Expect That, The Long Cycle Side Of This Of This Patient System Will Be More Resilient Against This Market Uncertainty As We See. Some Of The Short Cycle, It's All About Performance. If We Maintain A Performance As We Have In The In The US land market, think we'll maintain our market position although against the tide and be able to grow in those markets. So I feel confident about the ability of the pollution system to go into the role this year. And to gain market position or to leverage the long cycle exposure possibly for success. So I feel confident, but I will not comment on a margin. We are confident that the team is executing very well. Hence, as the we contribute to protecting our margin and contribute to margin expansion going forward.

Great. Thank you. And then the second question I have was around your confidence in free cash generation for the year. I mean, you're obviously committed to returning a significant amount of cash. How do we think about you sort of stress testing that against the uncertain macro and sort of preservation of cash and balance sheet versus returning capital. Is there a stage at which you slow that down or your confidence is pretty high?

So first, thanks for the question, Steven. So we did start the year on cash flow we expected even a bit better, as I mentioned. And we are still quite confident that it will follow the pattern we usually see every year and it will increase significantly in the following quarters. And the second half is really when we make the majority of the free cash flow from here. So yes, you're absolutely right. We do stress testing H2 is uncertain as we said in the lower activity scenario, which is not the best case today. But in case commodity pricing drop further, we would actually expect headwinds on earnings to be partially offset by lower working cap requirements that would provide quite a buffer. So in many cases, we believe actually free cash flow for the year will continue clearly to support our commitment of minimum EUR 4 billion returns to shareholders. So we are confident on our cash flow, and we are confident that clearly, this commitment is not going to change.

Great. Thank you. Thank you. Thank you.

Thanks. Thank you. Your next question comes from the line of Keith Mackey with RBC Capital Markets. Your line is open.

Hi. Good morning. Just wanted to start out maybe on the margins now. Olivier, without commenting on segment margins specifically, certainly, we did see production Systems and Digital up nicely year over year, which seem to support the business very well. Can you just comment on the strategy from here relative to what you're seeing in the cycle? In terms of, you know, where ultimately the business goes relative to what we're seeing as the cycle being a later cycle in the general oil and gas market. And just how you think that all plays out with the different segments and being a more cross cross cross e and p life cycle business.

Yeah. I believe the strategy we have first and foremost, to continue to I think, leverage the market position we have. They are just a strategy we had in the NAM, as I mentioned. I think it's fit for this market condition going forward. We believe that our exposure internationally, very diverse, broad exposure both onshore onshore, offshore and gas exposure on including unconventional. Digital, and pollution, as you mentioned, I think we'll continue to support and pollution is I will call it pollution recovery, and I think that includes element of our reservoir performance division. As well as our collision system division. I think it's it will have resilience going forward. The training as you have seen, I think, as is more directly linked to the rig activity that I think in this uncertain environment has and will continue to be getting downward pressure. But I think from, as you commented earlier from the from the margin, we will continue to, anticipate like, cost action and, and go to extract efficiency from our organization to the to partially offset this and continue to focus on maintaining our margins. So we believe that as we said, mission remain intact to to protect our margins with all the commentary and and provision of of of oil price and and price. I think ambition remains intact. That in this mix, we believe that digital growth and the growing success we have in production system and the containing the margin pressure on the the result performance and what construction will result into into maintaining and protecting a large enough as much as we can. Excluding dive. As we did as we come up with.

Yeah. Appreciate the appreciate the comments there. Maybe just one more on tariffs. I know the situation is certainly incredibly fluid. But does the guidance that you've provided imply continuation of existing tariffs that are on? Or can you help us think about those pieces a little bit more?

Well, the second quarter, absolutely, yes. It's assuming current tariff unchanged. That 50 to 100 basis point margin expansion sequentially includes the current tariff framework. And again, for the second half, it will depend on the final tariff framework, which we all know will change in one way or another. So it will the margin expansion will fluctuate based on that.

Okay. Thanks very much.

Thank you.

Thank you. Your last question comes from the line of Dan Cutts with Morgan Stanley. Your line is open.

Hey. Thanks a lot. Good morning.

Good morning, Don. So

Morning. So I was maybe hoping we could dig in a little bit deeper on, new energy across your kind of five pillars and, I guess, the, I don't know if you wanna call it the six pillar with the, data center infrastructure. But I think I think you guys have done a great job of quantifying the opportunities around data center infrastructure, and kinda get the sense that among the five other pillars CCUS is maybe the largest. But as you think about your $3 billion 2030 new energy revenue, target how do you think about the contributions across those five pillars? Where do you see kinda the more or less growth potential, more or less contribution? Any color you can share there would be great. Thank you.

Yeah. I'm well not ready to, well not here to, to comment, let's say, as an update on our $2 billion ambition for new energy. But indeed, I think CCS, all in, I call it, okay, both the sequestration and all the services, including digital, that we have there will be a large component of that. Okay? Clearly. Jotamol has pretty good momentum, and I think it's too soon to say whether the unconventional or next-generation geothermal is being pursued both in Europe and in The US. With the support of the authority everywhere. I think we'll, like, we'll unlock and give us the second leg of growth. Clearly, too early to say. The lithium, as I commented, I think is a smaller opportunity, but I think it's quite exciting, and we are getting a lot of inbound requests to use the pilot and to test against the critical minimal ambition that, many of our many of our prospect customers have. Be it the mining company or be it a few companies that former MBRs that are stepping into that business. Evogene is more, next decade ambition that we have and same store for energy storage, I would say. And that the center, I think the ambition we have is continue to consolidate and leverage the success we have with this, engagement we have developed and success growth that we have developed. And expand towards low carbon solution that are the a lead for, decarbonizing the power source of, of this data center as well as providing effective cooling and support some manufacturing capacity deploy and deliver these data centers. We would have, at the end of this year, the supported more than 15, data center solution across The US. So that's quite something we have.

So, again Great. You can see all of these as a

As a sum of business that it would grow at a higher rate than the oil and gas sector for the years to come. Hence, it is again adding to the resilience and to the ability we have to navigate difficult times as we have today. And keep extracting goals or resilience across the the the

Awesome. That's all really helpful. And then maybe a quick one just on the APS, on asset performance solutions business. You know, I'm sure the highest priority is kind of getting the Palisir deal across the finish line. But how do you think about the remainder of that portfolio? My understanding is that the Ecuador asset, which is kind of fairly oil levered is the biggest remaining or perhaps only remaining component. Is that something that you guys could potentially be divesting at some point in the future, or is that an asset that you're planning on keeping? Just wondering how you think about the APS portfolio moving forward following the Palisar transaction. Thank you.

Yes. So indeed, following Palisar, we'll only be left with Ecuador, and it will remain that way. And in Ecuador, we have three projects. And as we explained in the past, these projects are quite different from equity positions such as we have in Canada. They are more like service contracts with the local NOC, with the operator. So you are actually closer to our core business here. The only difference, if I may say, is that we are paid in production equivalent through a barrel instead of an invoice for services. So at this stage, it's quite economic. These projects are providing a lot of cash flow for the company. They are providing good profitability. So considering the nature of the project, they are likely to stay at least for the have a finite contractual term, actually, which we can negotiate and extend with our customer. But at this moment, for the next few years, you have to assume they will stay within our portfolio.

Understood. Thank you both very much. I'll turn it back.

Thank you.

Thank you, Dan. Thank you. So

Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways. First, while the market outlook remains uncertain, Schlumberger Limited is positioned to demonstrate resilience through our strategy. Leveraging our global reach, innovation capabilities, differentiated digital offering, diversification beyond coal and gas, and disciplined cost management. Second, confident in our ability to continue generating strong cash flows, despite the evolving market dynamics. And we remain focused on protecting margins, and committed to increasing return to shareholders in 2025. And finally, we look forward to creating value for our customers, partners, and shareholders in the coming quarters. With this, I will conclude today's call. Thank you all for joining.