Schlumberger - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was a soft start: revenue $8.49B (-3% YoY, -9% QoQ), GAAP EPS $0.58 (-22% YoY), and EPS ex-charges $0.72 (-4% YoY), amid sharp slowdowns in Mexico, Saudi Arabia and Russia offset by strength in North America digital and Production Systems; adjusted EBITDA margin held at 23.8% (+18 bps YoY) despite revenue pressure.
• Results missed S&P Global consensus: EPS ex-charges $0.72 vs $0.73*, revenue $8.49B vs $8.59B*, and adjusted EBITDA $2.02B vs $2.03B*, with a ~$0.01 EPS headwind from a temporary APS pipeline disruption in Ecuador.
• Management guided Q2 revenue roughly flat sequentially (ex-ChampionX) with 50–100 bps adjusted EBITDA margin expansion; H2 revenue flat to mid-single-digit vs H1 (ex-ChampionX), while reiterating a minimum $4B shareholder returns in 2025 (dividends + buybacks).
• Strategic catalysts: continued high-teens digital growth decoupled from upstream cycles; major offshore contract wins (Woodside Trion) and debt exchange execution; ChampionX regulatory progress (UK CMA remedies) supports portfolio resilience and production-recovery focus.

What Went Well and What Went Wrong

What Went Well

• Digital revenue grew 17% YoY and D&I margin expanded 380 bps YoY to 30.4%, underscoring accretive digital/AI momentum decoupled from upstream cycles: “our quarterly digital revenue grew 17% year on year” and digital is “leading the second phase of revenue expansion”.
• Production Systems posted revenue +4% YoY with pretax margin up 197 bps YoY to 16.2% on improved mix, execution and price backlog conversion; subsea margins expanded materially YoY.
• Cash generation improved: cash flow from operations $660M (+$333M YoY) and positive FCF $103M, supporting a commitment to return at least $4B to shareholders in 2025.

What Went Wrong

• International softness: revenue -5% YoY led by sharp drilling reductions in Mexico and Saudi Arabia, lower offshore Africa activity, and steep decline in Russia; Q1 revenue -3% YoY overall.
• Reservoir Performance margin compressed 311 bps YoY (to 16.6%) on lower evaluation activity and startup/operational cost overruns in several new projects.
• Seasonality and absence of year-end product/software sales drove sequential declines across divisions with adjusted EBITDA -15% QoQ and pretax segment margin -232 bps QoQ.

Transcript

Operator (participant)

Good morning. My name is Megan, and I'll be your conference operator today and would like to Welcome everyone to the First Quarter SLB Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. You may remove yourself from the queue by pressing star two. As a reminder, this call is being recorded. I will now turn the call over to James R. McDonald, Senior Vice President of Investor Relations and Industry Affairs. Please go ahead.

James R. McDonald (SVP of Investor Relations and Industry Affairs)

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 Stéphane 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, SLB 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 parties' websites. With that, I will turn the call over to Olivier.

Olivier Le Peuch (CEO)

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. Then I will provide updates on the evolving macro, and how we will manage our business in this uncertain environment. Stéphane will then provide more details on our financial performance, and we'll 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 of 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 releases by OPEC+ and recent tariff announcements.

Against this more challenging backdrop, I was proud to see our teams continue to deliver for our customers, and 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 markets, attributed to a combination of lower drilling activity in Mexico and Saudi Arabia and a steep decline in Russia. Excluding declines in these three countries, international revenue was steady year-on-year, and 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 rig count performance.

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 solutions business in this region. However, this growth was partially offset by lower drilling revenue in U.S. land due to rig efficiency gains. Next, let me discuss the performance of our divisions. In the core, production systems continue 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 a 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 startup and operational cost overruns. We continue to see strong demand for unconventional oil 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 deep water.

In Well Construction, revenue 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. In digital integration, growth was entirely driven by digital, where revenue grew 17% year-on-year as customers continued 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 solution 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 SLB team for their hard work and commitment to customer success. Next, let me discuss the macro environment and how SLB is adapting accordingly. The industry is navigating global economic uncertainty stemming from the supply-demand imbalance and recent tariff 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+ has announced plans to increase their production beginning in May.

This comes at a time where the macroeconomic picture remains uncertain due to global trade concerns, which have the potential to result in lower liquids demand than originally expected for the year. Taken together, these factors are resulting in uncertain market backdrop. 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'll continue to execute our strategy, deliver differentiated performance to 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 life cycle of their assets.

This includes an increase in phases on the production and recovery market, where we expect to unlock new growth potential and long-term resilience through opportunity for technology deployment. In digital, customers are investing in solutions to reduce cycle time, improve performance, and drive efficiency, and will 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'll 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 elaborate on 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 obtained a significant contract award 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, and moving forward, this will support our ambition 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 return at least $4 billion in returns to shareholders in 2025. Now, before I hand over to Stéphane, 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 price remains approximately at current levels, we expect revenue to be flat sequentially, excluding ChampionX, with an adjusted EBITDA margin expansion between 50-100 basis points.

Looking at the full year, while a number of different scenarios could materialize, including tariffs and OPEC+ actions. Assuming oil price remains 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 startups in deep water, 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're 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 cycles of weakness, as we have seen in our results today.

I'm 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 Stéphane to discuss our financial results in more detail.

Stéphane BIGUET (CFO)

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 Carbon Capture. 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 Systems sales, as well as strong growth in our data center infrastructure solutions business. Company-wide adjusted EBITDA margin for the first quarter was 23.8%, up 18 basis points year-on-year. Pre-tax 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 U.S. in our production systems division, as well as exports from the U.S. subject to retaliatory tariffs. Under the current tariff framework, the majority of the impact is on import and export flows between the U.S. and China. Any resolution or, conversely, escalation between those two countries can significantly impact 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 rollbacks. We are also actively engaging with customers to recover tariff-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 & 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 & 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 startup 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 production 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 $660 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 and 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 APS 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 transaction. 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 April 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 U.K. and other regulators towards an anticipated closing in the second quarter or early third quarter of 2025. With respect to our other pending transaction, we now expect the divestiture of our interest in the Palliser APS project in Canada to close in the second quarter. I will now turn the conference call back to Olivier.

Olivier Le Peuch (CEO)

Thank you, Stéphane.

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

Operator (participant)

We will now begin the Q&A session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of David Anderson with Barclays. Your line is open.

David Anderson (Managing Director)

Thanks. Good morning, Olivier. How are you?

Olivier Le Peuch (CEO)

Good morning, Dave. Very well.

David Anderson (Managing Director)

We have heard from a number of other service companies this week on the outlook, some of them more sobering than others, but I think we are starting to frame sort of some of the potential outcomes for international North America for 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 international North America from here at these oil prices, and how does this factor into your guide for mid-single-digit growth in the second half of the year, which you have a very different mix than your peers?

Olivier Le Peuch (CEO)

No, absolutely not. Thank you, Dave, for the question. Indeed, I would like you to clarify. As you know, and as we have already prepared remarks, global upstream spend will be down year-on-year, and we've had a decline than originally anticipated. There is no argument against that, nor against the current public data, independently of the tariff impact itself. It's already slowing down. What is important is how SLB's position against this backlog.

Now we see more downside exposure in NAM than international market in this negative revision. First, if we look at NAM and our position there, we are now tied to the regional frac fleet, and actually, we are long in offshore, in digital, and in production in this market. Furthermore, we have data center solution there. I think if you look at it, our exposure here has been refactored due to a strategy we initiated about five years ago, and we're reaping now the benefit of having better resilience against the short-cycle exposure we have as part of NAM because our offshore production market exposure, digital, and now the new business. Even excluding the data center infrastructure solution, our year-on-year will have been growing year-on-year, proving that resilience is in place for NAM.

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 into holding better this market. We have the right exposure in offshore. We have the right exposure in gas internationally, particularly unconventional. We are growing, as you have seen, our digital and production recovery remain the nice exposure we have across the globe. Speaking of which, I believe that the upcoming acquisition integration of ChampionX will not only enhance our resilience, but improve our mix in North America and give us further digital and further offshore exposure across the world as well.

I feel good about where we are in this cycle, and I think I just wanted to reconcile it a bit while we have maybe a bit different performance going forward we expect.

David Anderson (Managing Director)

Great. Thank you. Very much appreciated on the different mix here. I wanted to focus on one of your kind of 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 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 into the market? And then you have the unconventional natural gas activity ramping up.

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.

Olivier Le Peuch (CEO)

Yeah, a lot of moving parts indeed. I think, again, you have to step 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 into what we are seeing today year-on year-on our rig-related activity.

Now, when it comes to this year and next, I think indeed the priority of the kingdom clearly to stabilize production and to be able to respond to this OPEC+ pool as they materialize in short term at least, and to continue to execute their gas ambition to go 40% of gas and beyond by 2030. As such, the gas land and the unconventional gas will remain a priority that we'll see and receive further activity increase. Now, is there pending further reduction to adjust to the level of activity and adjust to the commodity price like other countries will do? Possibly, but I think directionally, the commitment to long-term gas, the commitment to maintain, and the activity that relates to maintaining this 12 million by MSC will indeed represent likely an uptick as we go into 2026 for Saudi. That's what we expect.

Yes, a lot of moving parts, but our exposure there is we love our position in Saudi. I was just recently here with a few more members visiting the kingdom, and I think I had the opportunity to measure firsthand the engagement, the, I would say, the proximity we have and the feedback on our performance that is stellar. I think we like to keep it that way and thank the team for what they are delivering on the difficult market condition. 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.

Great. Thank you very much, Olivier.

Thank you.

Operator (participant)

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

Scott Gruber (Director)

Yes, good morning.

Olivier Le Peuch (CEO)

Morning, Scott.

Scott Gruber (Director)

I wanted to ask, morning. I wanted to ask about what even the margin level you think you can 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 take a margin slightly north of 25% in the second half to get there this year. Do you think you can get the even margin back to the 25% level in the second half, excluding the impact of ChampionX?

Olivier Le Peuch (CEO)

I think excluding the ChampionX and excluding escalation of tariffs, I think.

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

Scott Gruber (Director)

I appreciate the color.

Turning to digital, how do you think about the cadence of digital growth in this environment? On the one hand, digital is obviously an efficiency enabler. I think in that vein, it could accelerate. On the other hand, there is some exploration spend, some discretionary spend within the digital mix. How do you think about the resilience of digital growth in this environment, and should we continue to think about that high teens growth rate for the year?

Olivier Le Peuch (CEO)

I think this remains our ambition. We believe that this secular trend of digital adoption in the industry is actually accelerating. There will be some discretionary decision. There will be some pressure here and there. There will be some projects that will be reconsidered.

Overall, I think we believe that the realization of the efficiency gain, both productivity for the and effectiveness for the planning geoscience workflows and the direct impact on the performance total cost of ownership for operational workflows, I think is still playing out and resonating very well for customers at the time they want to extract efficiency. Against the global upstream CapEx, I think, as we commented in the 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. You have seen the diversity of the world that we get, different customers, different regions, geoscience operation progress we are making with many customers across the world.

Scott Gruber (Director)

Great. I appreciate the color, Olivier. Thank you.

Olivier Le Peuch (CEO)

Thank you, Scott.

Operator (participant)

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

Arun Jayaram (Research Analyst)

Yeah, good morning. Olivier, I was wondering if you could elaborate on SLB strategy kind of to diversify the portfolio beyond oil and gas. I think you mentioned you're in 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 and some of the longer-term growth potential.

Olivier Le Peuch (CEO)

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 measure aspect of that will continue to impact us in short term in three ways.

First is yes, where we took a position to acquire Capturi, and I think we have our SLB Capturi venture that I think is the capture technology that I think we have four active projects and many projects in the field that will continue to materialize and create a growth pattern going forward. 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 business, and this will continue. We do not 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 focus and more adoption for customers.

There is a lot of pilot on next generation geothermal that is being highly supported by the new administration, particularly in the U.S. I believe this is also something that will continue to grow. Finally, I will mention the lithium direct lithium extraction, where I think the pilot we had successfully completed last year, the first pilot at scale in the U.S., is a gain resonating very well with the critical minerals priority of the current administration. We see this in South America. We see this in Saudi, where we are actually participating into a pilot as well. This is successful. Separately, you have seen that 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 this data center. The success is great. I think I'm very pleased with the progress of the team. We have a plant in Louisiana that is serving this business, and we have large compact that we are fulfilling. That has been an area of growth in North America. We expect it to continue going forward this year and next, clearly. Yes, the ambition is to go from the $850 million plus to visibly more than $1 billion when we put all of this together. We're not expecting to slow in 2026, but to continue to accelerate.

Arun Jayaram (Research Analyst)

Great. That's helpful. Maybe my follow-up is for Stéphane, 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. We're getting to somewhere between $8.4 billion-$8.5 billion. I don't know, Stéphane, if you could maybe give some color if that makes sense. Maybe the clarification is, how are you treating Palliser and some of the tariff-related impacts in terms of the full year outlook?

Stéphane BIGUET (CFO)

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 stay at the current level. We'll stick with revenue. We think it's premature to give you an EBITDA for the second half and hence for the full year. Some of the reason is indeed the tariff, the application of tariff. We think giving you a number on tariff at this stage would not be useful for financial modeling.

Unfortunately, we'd love to, but it's quite difficult. 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 through optimization of supply chain and through ultimately trying to pass the impact to customers. What matters at the end is that we are still seeing margin expansion in the second quarter, despite tariff being effective now. This is to the tune of 50-100 basis points, as we mentioned for Q2 sequentially. For the second half of the year, margin expansion, assuming again that oil price stays more or less at this level, we will have growth in H2, and this will come with margin expansion.

Quantifying that margin expansion, H1 to H2, it would not be the right thing for us to do today.

Arun Jayaram (Research Analyst)

Totally understand. Thanks a lot, Stéphane.

Stéphane BIGUET (CFO)

Thank you.

Olivier Le Peuch (CEO)

Thank you.

Arun Jayaram (Research Analyst)

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

Neil Mehta (Managing Director)

Yeah, thanks, team, for all this color. As you think about ChampionX, recognize there's some limitations about what you can say around this, but 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 in the red zone, but curious what your perspective is on what remains outstanding and confidence around closing.

Olivier Le Peuch (CEO)

Yeah, I think as Stéphane did come on his prepared remarks, I think we are very pleased with the progress we made very recently, particularly with the U.K. CMA authorities, and obtained that they have accepted that we're going to remedies extension of phase one through remedies, as it has been commented, and they have accepted remedies. We now have to walk through these remedies and implement them as soon as effectively we can. That's the reason why we have increased our confidence to conclude at the end of the quarter or early next quarter. Now, the other outstanding, I think Norway is known to be outstanding, and I think we have been engaged very effectively the last few days and few weeks with the Norwegian authority. I believe as well that I think we are, as we commented, going to hopefully a resolution there.

That's the reason why we maintain our confidence into the end of this quarter, early next quarter.

Neil Mehta (Managing Director)

Yeah. Thanks. Olivier, we'd love you to share your thoughts on the macro, particularly from the supply side. You spent a lot of time all around the world. Where do you expect activity, if we're in a lower commodity price environment, to be dialed back? Where do you think it's 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've had an under-investment view that ultimately long-term that's going to catch up here. Does this just reinforce that?

Olivier Le Peuch (CEO)

Yeah, I think starting with the long-term, maybe it's easier.

I believe that the position of oil and gas to see the energy mix of the world and progress and driven by different demands, be it the global south, be it the AI, or be it the electrification, I think will continue to pull for the long term. This, combined with the natural decline that is pressing on many bases, as you've seen, will continue to call for replenishments and maintaining, if not increasing, the sort of investment we see today. Long-term, the view is intact. I think the role of offshore to address this, the role of the commitment of execution to capacity expansion in the Middle East, the role of gas partly through security of gas supply in Asia, and the development of unconventional international to address this, I think will continue to be the area of growth that we foresee long-term to remain.

I'm not talking about digital here. In short term, I think it's very difficult to gauge, but I think generally speaking, the short-cycle activity would be the first exposed. Americas has quite a few area of short-cycle starting with the U.S. 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 independent of oil price for their capacity expansion. Be it the UAE, be it Kuwait, and activity in some other part of the country around the Middle East would continue to stay and, or if not accelerate.

Asia, driven by energy security, will also have resilience and driven by deep water activity there, offshore deep water 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 necessarily on oil price of today. You combine all this, you still have quite a few exciting pockets of growth geographically. You have some secular trend, digital. You have increased production recovery, and you have unconventional internationally that will continue to be area of growth. Yes, there are opportunities to capture, and there are ways to offset the decline of the short-term decline we expect into the total cap expense.

Neil Mehta (Managing Director)

Yep. Thanks, Olivier.

Operator (participant)

Thank you. Your next question comes from the line of Roger Reed with Wells Fargo. Your line is open.

Roger Reed (Senior Energy Analyst)

Yes, thank you. And good morning.

Olivier Le Peuch (CEO)

Good morning.

Roger Reed (Senior Energy Analyst)

Maybe if we could, Olivier, just you were mentioning deep water there. 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. 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. I was just curious, anything else on that front?

Olivier Le Peuch (CEO)

Yeah, I think the reserve replacement ratio is still what drives the IOCs and many large independents and some critical NOCs to continue to explore. We have seen a rebound in commitment to exploration the last 18 months that I don't see changing directionally, although there will be some discretion taken by some customers.

We have to go one customer at a time to review this. Directionally, I think the need for replacing reserve for majors, and the need for developing long-term oil or long-term gas play in Asia or in the offshore bases at large, I think remains intact. I think you are seeing it translating to FID that we expect to be piling up in 2026, 2027, that will impact subsea business going forward. Yes, exploration is not over. Exploration takes two forms. 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 the Norwegian sector. Then you have the frontier basin, be it Namibia, be it Suriname, be it part of Asia, Indonesia particularly, that are seeing new fresh exploration investment.

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 data processing. Hence, we are exposed to those. Yes, I think that the exploration will remain healthy, but this year may suffer from discretionary decision and from some lingering white space, as we call it in deep water.

Roger Reed (Senior Energy Analyst)

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 multi-year high in the first quarter. A bit of a juxtaposition there. Just if you could give us any more insights on what you're seeing there.

Olivier Le Peuch (CEO)

I think I will respect my comments on too from Russia because we have taken this position to implement sanctions and critical control of our activity there. This is what has led to a deep decline in Russia. We expect this to continue as we continue to restrain and take every measure to sanction technology access and technical support to our team.

Roger Reed (Senior Energy Analyst)

Appreciate that. Thank you.

Olivier Le Peuch (CEO)

Thank you.

Operator (participant)

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

Thank you. Good morning, everybody.

Olivier Le Peuch (CEO)

Good morning.

Stephen Gengaro (Managing Director)

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 even the margin stability or contribution to margin expansion you see coming from that segment as we go through the year?

Olivier Le Peuch (CEO)

I mean I will not come on directionally on the margin, I think we don't provide guidance on margins on our divisions, however I think the strengths of the Production Systems division, i think is stems from the adoption of t his technology and the success we have in market position across the globe, both international in North America has been growing market in North America U.S. land particularly lately. So I think you have a 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 Artificial Lift. We have some success in subsea, particularly in processing, that is in combination giving us this traction into this market. That is the first. Secondly, I think, as you said, we expect that the long-cycle side of this Production Systems will be more resilient against this market uncertainty as we see it. Some of the short cycle, it is all about performance. If we maintain our performance as we have in the U.S. land market, I think we will maintain our market position or go against the tide and be able to grow in those markets.

I feel confident about the ability of the Production Systems to continue to grow this year and to continue to gain a market position or to leverage the long-cycle exposure, particularly deep water for success. I feel confident, but I will not comment on the margin. We are confident that the team is executing very well and will contribute to protecting our margin and contribute to margin expansion going forward.

Stephen Gengaro (Managing Director)

Great. Thank you. 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?

Stéphane BIGUET (CFO)

First, thanks for the question, Stephen. We did start the year on cash flow as we expected, even a bit better, as I mentioned. 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. The second half is really when we make the majority of the free cash flow for the year. Yes, you're absolutely right. We do stress testing. H2 is uncertain, as we said, in a 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.

In many cases, we believe actually our free cash flow for the year will continue clearly to support our commitment of minimum $4 billion returns to shareholders. We are confident on our cash flow, and we are confident that clearly this commitment is not going to change.

Stephen Gengaro (Managing Director)

Great. Thank you.

Stéphane BIGUET (CFO)

Thank you.

Olivier Le Peuch (CEO)

Thank you.

Operator (participant)

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

Keith Mackey (Director)

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 seemed 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 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 E&P lifecycle business?

Olivier Le Peuch (CEO)

Yeah, I believe the strategy we have, first and foremost, to continue to, I think, leverage the market position we have, the adjusted strategy we had in the NAM, as I mentioned, I think is fit for this market condition going forward. We believe that our exposure internationally, very diverse, broad exposure, both onshore, offshore, and gas exposure, including unconventional, digital, and production, as you mentioned, I think will continue to support. And production, I will call it production recovery.

I think that includes element of our Reservoir Performance division as well as our Production Systems division, I think will have resilience going forward. The drilling, as you have seen, I think is more directly linked to the rig activity that I think in this uncertain environment has and will continue to be getting downward pressure. I think, as you commented earlier, from the margin, we will continue to anticipate, take cost action, and continue to extract efficiency from our organization to partially offset this and continue to focus on maintaining our margins. We believe that, as we said, the ambition remains intact to protect our margins with all the commentary and provision of oil price and tariff.

I think our ambition remains intact that in this mix, we believe that digital growth and the growing success we have in Production Systems and containing the margin pressure on the Reservoir Performance and well construction will result into maintaining and/or protecting our margin as much as we can, excluding tariff, as you commented.

Keith Mackey (Director)

Yeah, appreciate the comments there. Maybe just one more on tariffs. I know the situation is certainly incredibly fluid. 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?

Stéphane BIGUET (CFO)

For the second quarter, absolutely. It's assuming current tariff unchanged, but 50 to 100 basis point margin extension sequentially includes the current tariff framework.

Again, for the second half, it will depend on the final tariff framework, which we all know will change in one way or another. The margin extension will fluctuate based on that.

Keith Mackey (Director)

Okay. Thanks very much.

Olivier Le Peuch (CEO)

Thank you.

Operator (participant)

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

Dan Kutz (Equity Analyst)

Hey, thanks a lot. Good morning.

Olivier Le Peuch (CEO)

Good morning, Dan.

Dan Kutz (Equity Analyst)

Good morning. 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 do not know if you want to call it the sixth pillar with the data center infrastructure. I think you guys have done a great job of quantifying the opportunities around data center infrastructure and kind of get the sense that among the five other pillars, CCUS is maybe the largest.

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 kind of the more or less growth potential, more or less contribution? Any color you can share there would be great. Thank you.

Olivier Le Peuch (CEO)

Yeah. I'm ready to—I'm here to comment, let's say, as an update on our 3B on the ambition for new energy. Indeed, I think CCS, all in, as I call it, both the sequestration and all the services, including digital that we have there, will be a large component of that, clearly.

Geothermal has quite a good momentum, and I think it's too soon to say whether the unconventional or next-generation geothermal, as is being pursued both in Europe and in the U.S. with the support of the authority everywhere, I think will 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 mineral ambition that many of our prospect customers have, be it a mining company or be it a few companies that are former and guys that are stepping into that business. Hydrogen is more next decade ambition that we have and the same for energy storage, I would say.

Data 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 solutions that are in need for decarbonizing the power source of this data center, as well as providing effective cooling and support some manufacturing capacity, deploy, and deliver these data centers. We will have, at the end of this year, supported more than 15 data center solutions across the U.S. That is quite something we're proud of. You can see all of this as a sum of business that it will 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 growth or resilience across the future.

Dan Kutz (Equity Analyst)

Awesome. That's all really helpful. Maybe a quick one just on the APS, on the asset performance solutions business. I'm sure the highest priority is kind of getting the Palliser deal across the finish line. How do you think about the remainder of that portfolio? My understanding is it's 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 Palliser transaction. Thank you.

Stéphane BIGUET (CFO)

Yes.

Indeed, following Palliser, we'll only be left with Ecuador, and it will remain that way. In Ecuador, we have three projects. 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. 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. At this stage, it's quite economic. These projects are providing a lot of cash flow for the company. They are providing good profitability. Considering the nature of the projects, they are likely to stay at least for they have a finite contractual term, actually, which we can negotiate and extend with our customer.

At this moment, for the next few years, we have to assume they will stay within our portfolio.

Dan Kutz (Equity Analyst)

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

Stéphane BIGUET (CFO)

Thank you.

Olivier Le Peuch (CEO)

Thank you, Dan.

Operator (participant)

Thank you.

Olivier Le Peuch (CEO)

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, SLB is positioned to demonstrate resilience through our strategy, leveraging global reach, innovation capabilities, differentiated digital offering, diversification beyond oil and gas, and disciplined cost management. Second, we are confident in our ability to continue generating strong cash flows despite the evolving market dynamics. We remain focused on protecting margins and committed to increase returns to shareholders in 2025. 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.

Operator (participant)

This concludes today's conference call. You may now disconnect.