The offshore sector remains a “growth engine” for SLB due to the overall resiliency of the offshore market, especially in Africa and Latin America. While third quarter revenue grew for the company, SLB lowered expectations going into the fourth quarter and into 2025.
SLB CEO Olivier Le Peuch remained positive during the company’s Oct. 18 earnings call, even as Chinese demand slows, OPEC visibility darkens and commodity prices face pressure due to oversupply concerns.
“This year, I think the total offshore FID [final investment decision] will approach $100 billion, and we expect that this rate of $100 billion, the FID for offshore will remain at that level or higher for the next two or three years,” Le Peuch said during SLB’s Oct. 18 earnings call. “The cumulative over 2023 to 2026 of offshore will exceed $500 million of offshore FID—and that’s a sign that [offshore] will be a growth engine for the industry going forward.”
However, SLB, like Liberty Energy, have both revised guidance lower, according to Lloyd Byrne, an equity analyst at Jefferies.
“This was not a surprise. It was the magnitude of the reductions that surprised investors,” Byrne said in an Oct. 20 report. Both oilfield service firms appeared to be offering guidance that was far more cautious than investors expected amid concerns of an oversupplied global oil market.
TD Cowen’s Marc Bianchi, said SLB delivered a third quarter essentially in line with consensus estimates, but the fourth quarter and 2025 outlook appear headed toward missing consensus expectations by about 5%.
For the company’s fourth-quarter, that would translate to SLB generating EBITDA of $2.4 billion and earnings per share of $0.92, “though we suspect consensus will gravitate to something closer to $2.35B and 90c [$0.90].”
“This compares to pre-call consensus of $2.5B and 97c [$0.97],” he said.
SLB also tempered 2025 expectations with an early view of growth expectations that calls for low- to mid-single digit international spending growth and flat to down North American spending, “translating to ~2.6% total revenue growth,” Bianchi said in an Oct. 21 report.” Our sense is this was consistent with leading edge expectations, however the 3Q results and guided downside to 4Q24 starts everything from a lower level.”
However, he noted that SLB's digital business appears to be on track to generate about $2.2 billion of revenue with the company targeting growth to to $3B in 2025. “This would suggest just flattish proforma revenue for the balance of the business which could be conservative,” he said.
SLB executives still predict sustained investment in global upstream projects, driven by energy security concerns and a growing emphasis on gas in the energy transition.
“Gas will continue to play an increasing role in the energy transition, while oil will remain a large part of the energy mix for decades to come,” Le Peuch said.
SLB’s third-quarter 2024 revenue surpassed the previous quarter, despite a flat revenue environment and changing commodity prices. SLB reported $9.2 billion in revenue for the quarter, a slight raise from the previous quarter’s $9.14 billion, and free cash flow of $1.81 billion.
The company remained stable in international markets, but especially in the Middle East and Asia where the company emphasized oil capacity expansions, offshore projects and strong gas activity, Le Peuch.
Such projects include SLB’s Turnwell Industries Joint Venture with ADNOC and Patterson-UTI in the United Arab Emirates, a turnkey drilling contract to drill 141 wells with Kuwait Oil Co. and a two-year contract from Shell Oman.
Declines in Latin America and onshore drilling due to low gas prices were offset by production activity in North Africa and heightened offshore activity in the Gulf of Mexico.
Long-cycle development projects in the GoM and Asia benefitted the company’s production systems division and high sales of surface production systems, completions and artificial lift boosted the division in North America and the Middle East. Revenue grew by 3% to $3.1 billion for the ninth consecutive year of market expansion.
And, SLB’s digital and integration division grew 7% sequentially and 25% year-over-year with a quarterly revenue high of $1.1 billion. With customers increasingly focused on cloud computing and automation solutions, the company anticipates full-year revenue growth for its digital business to be bolstered by the launch of new products and strategic partnerships.
In September, SLB rolled out its Lumi data and AI platform to provide advanced data capabilities for clients across the energy value chain. Collaborations with NVIDIA and Amazon Web Services aim to drive generative AI solutions and expand access to SLB’s Delfi digital platform.
“Today, we offer approximately 150 AI and machine learning capabilities across our products and solutions, and we continue to work with our customers and partners to innovate and deploy new ones,” said Le Peuch.
The reservoir performance division remained steady with $1.8 billion in revenue even as margins contracted slightly due to an unfavorable technology mix, supported by increased intervention activity in international markets.
Conversely, lower rig count and project completions internationally and in North America caused the company’s well construction division to decline to $3.3 billion.
M&A update
SLB executives said they hope to close on the pending ChampionX acquisition, likely in the first quarter of 2025. In April, SLB entered into an agreement to buy ChampionX in an all-stock transaction that valued the company at roughly $7.74 billion.
A separate transaction to sell interests in the Palliser APS project in Canada is expected to close by the end of the year and provide approximately $430 million in cash proceeds.
“SLB is well positioned to navigate this evolving macroenvironment through our differentiated portfolio and strategic approach across core, digital and new energy,” said Le Peuch.
Bianchi said the Palliser sale’s also carried a large retirement obligation liability with a present value of $280 million and un-discounted value of $1B that will also transfer from SLB to the buyer.
“Annual revenue is said to be $500MM (we estimate ~25% of APS) with EBIT margins in the high 30s which translates to ~$250MM of EBITDA,” he said. “While proceeds imply a low multiple of EBITDA, we believe the liability drove a meaningful discount.”