Executive Summary / Key Takeaways

• SLB, the world's largest oilfield services company, is strategically pivoting beyond traditional drilling, leveraging its international footprint, digital leadership, and expanding production/recovery portfolio to build resilience against moderating upstream investment and commodity price volatility.
• Despite a subdued start to 2025 with a 3% year-on-year revenue decline in Q1, driven by regional weakness in Mexico, Saudi Arabia, and Russia, the company demonstrated margin protection and strong cash flow generation, reflecting the benefits of its diversified portfolio and cost optimization efforts.
• Digital & Integration and Production Systems are key growth engines, with Digital revenue growing 17% year-on-year in Q1 2025 and Production Systems expanding margins significantly (197 bps YoY), highlighting the strategic shift towards high-margin, less cyclical areas and the increasing importance of production optimization.
• The pending acquisition of ChampionX (CHX) and the divestiture of the Palliser APS asset are set to further enhance SLB's focus on production and recovery, reduce commodity price exposure, and streamline the portfolio, reinforcing the strategy for long-term resilience and improved financial mix.
• SLB is committed to returning value to shareholders, targeting a minimum of $4 billion in returns in 2025, supported by robust free cash flow generation ($4 billion in 2024) and confidence in future performance despite the uncertain macro environment and potential tariff headwinds.

SLB: Forging Resilience in a Shifting Energy Landscape

Schlumberger Limited, a name synonymous with the global energy industry for nearly a century since its founding in 1926, stands today as the world's largest oilfield services provider. Its history is one of technological innovation and adapting to the cyclical nature of oil and gas markets. In recent years, SLB has embarked on a strategic transformation, recognizing the need to build resilience against the inherent volatility of upstream spending. This pivot involves leveraging its expansive international operating footprint, accelerating its digital capabilities, and strategically enhancing its portfolio, particularly in the production and recovery phase of the asset lifecycle.

The company's strategy is built upon three core pillars: strengthening its Core oil and gas services, accelerating Digital transformation, and developing New Energy pathways. This multi-pronged approach aims to capture growth in the most resilient areas of the market, decouple parts of its business from short-term commodity price fluctuations, and position SLB for the evolving energy landscape. This strategic evolution is critical in an environment where global upstream investment is expected to decline in 2025 compared to 2024, with customer spending becoming more cautious.

SLB's operational structure is organized into four key divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. While all play a role, their contributions and performance trajectories are diverging in the current market cycle, reflecting the impact of SLB's strategic focus and external market dynamics.

The Well Construction division, historically central to SLB's identity, faced headwinds in Q1 2025, with revenue declining 12% year-on-year to $2.98 billion. This was primarily due to reduced drilling activity in key regions like Mexico, Saudi Arabia, U.S. land, India, and offshore West Africa. The pretax operating margin for the segment also saw a modest decline of 71 basis points, reflecting the impact of lower activity levels. This performance underscores the segment's sensitivity to drilling rig count fluctuations, a challenge in the current environment.

In contrast, the Production Systems division demonstrated notable strength, with revenue increasing 4% year-on-year to $2.94 billion in Q1 2025. This growth was fueled by robust demand in North America for surface production systems, completions, and artificial lift, significantly augmented by the rapidly growing data center infrastructure solutions business. More impressively, the segment's pretax operating margin expanded by a substantial 197 basis points year-on-year to 16.2%. This margin expansion is attributed to a favorable activity mix, improved execution efficiency, and the conversion of improved-price backlog, indicating the benefits of SLB's focus on this later-cycle, more resilient part of the value chain. The integration of the Aker Solutions subsea business in late 2023 has also enhanced this segment, with subsea margins expanding materially year-on-year in Q1 2025 due to strong execution and synergies.

The Reservoir Performance division, encompassing evaluation, stimulation, and intervention services, saw a slight revenue decline of 1% year-on-year to $1.70 billion in Q1 2025. While unconventional stimulation and intervention activity remained strong, particularly in international markets like the UAE and Argentina, this was offset by lower evaluation and exploration activity. The segment's pretax operating margin decreased by 311 basis points year-on-year to 16.6%, impacted by the less favorable activity mix and project startup costs. This highlights the segment's mixed exposure to both resilient production-focused work and more discretionary exploration spending.

Underpinning SLB's strategic pivot is its Digital & Integration division. This segment is increasingly viewed as a key differentiator and growth engine, with digital investment showing signs of decoupling from traditional upstream spending. In Q1 2025, Digital & Integration revenue grew 6% year-on-year to $1.01 billion, driven by a significant 17% growth in digital revenue itself. This digital growth is fueled by greater adoption of digital technologies, higher sales of exploration data, and the increasing demand for AI and cloud computing solutions to enhance efficiency and performance. The pretax operating margin for the segment expanded by 380 basis points year-on-year to 30.4%, primarily due to improved profitability within the digital business. This segment's performance underscores the strategic importance of SLB's investments in this high-margin area.

SLB's technological differentiation is a cornerstone of its competitive strategy. The company is not merely a service provider but an energy technology company, investing heavily in R&D to develop proprietary solutions that offer tangible benefits to customers. A key area of focus is digital technology, including platforms like Delfi for cloud transition and Lumi for data and AI. These platforms, along with approximately 150 AI and machine learning capabilities embedded across SLB's offerings, aim to reduce cycle times, improve operational efficiency, and drive performance. For instance, AI-enabled drilling capabilities are being deployed in ultra-deepwater projects, and digitally enabled electric well completions technologies like Electris™ are being introduced to boost production and recovery while reducing total cost of ownership. These technologies provide quantifiable advantages, such as enabling more efficient data analysis, optimizing operational workflows, and potentially achieving higher recovery factors from existing assets. While precise, directly comparable performance metrics against all competitors are challenging to ascertain, SLB's consistent digital revenue growth (20% YoY in FY 2024, 17% YoY in Q1 2025) and expanding digital margins demonstrate the market's adoption and the value proposition of these technologies. The strategic intent behind R&D initiatives like the Lumi platform is to unlock the power of data and AI across the energy value chain, creating new markets and reinforcing SLB's competitive moat.

Beyond its core oil and gas segments, SLB is actively building new growth pathways in low-carbon markets and adjacent industries. Revenue from activities in Carbon Capture and Sequestration (CCS), Geothermal, Critical Minerals (like Lithium DLE), and Data Center Infrastructure Solutions exceeded $850 million in 2024 and is on pace to visibly exceed $1 billion in 2025. These areas are growing rapidly, faster than the core oil and gas business, and are largely decoupled from the upstream cycle, providing additional layers of diversification and resilience. The data center business, in particular, has seen significant contract awards for manufacturing services and modular cooling units, leveraging existing relationships with hyperscalers who are also digital partners.

In the competitive landscape, SLB operates alongside major rivals such as Halliburton (HAL), Baker Hughes (BKR), TechnipFMC (FTI), and Weatherford International (WFRD). SLB's market positioning is characterized by its leading global scale, technological depth, and integrated service offerings. Financially, SLB generally exhibits stronger profitability margins compared to many peers. For instance, SLB's TTM Net Profit Margin of 11.61% compares favorably to HAL's 11%, BKR's 11%, FTI's 9%, and WFRD's 9% in 2024. Similarly, SLB's TTM EBITDA Margin of 21.47% is competitive, though direct comparisons require careful consideration of segment mix. SLB's strategic focus on digital and integrated solutions provides a competitive edge, enabling it to command premium pricing and secure complex, high-value contracts, such as recent deepwater awards from Shell (SHEL) and Woodside Energy (WDS) utilizing AI-enabled drilling. While competitors like HAL may offer cost advantages in certain commoditized services, SLB differentiates itself through performance, technology, and the ability to integrate solutions across the value chain, aiming to reduce overall project costs and improve efficiency for the customer. The pending ChampionX acquisition, with its focus on production chemicals and artificial lift, is expected to further strengthen SLB's competitive position in the production and recovery market, an area where BKR and WFRD also compete, by expanding its portfolio and market access.

Despite the strategic strengths, SLB faces pertinent risks. The uncertain macroeconomic environment, fluctuating commodity prices, and potential escalation of tariffs (particularly impacting US-China trade flows) could impact customer spending and profitability. Regional activity declines, as seen in Q1 2025, highlight the exposure to specific market dynamics. Project startup costs and execution challenges can also pressure margins, as experienced in Reservoir Performance. The integration of large acquisitions like ChampionX carries inherent risks related to achieving anticipated synergies and retaining key personnel. However, management emphasizes proactive steps to mitigate these risks, including cost discipline, supply chain optimization, and aligning resources with activity levels.

Looking ahead, SLB's outlook reflects cautious optimism tempered by market uncertainty. For Q2 2025, the company expects revenue to be flat sequentially (excluding ChampionX), with adjusted EBITDA margin expanding by 50 to 100 basis points, assuming current oil prices and no further tariff escalation. For the second half of 2025, SLB anticipates flat to mid-single-digit revenue growth compared to the first half (excluding ChampionX), supported by seasonal upticks, new project start-ups, and continued growth in digital and data center businesses. Under these conditions, further margin expansion is expected. The company maintains an ambition to achieve a 25% adjusted EBITDA margin for the full year 2025, excluding ChampionX and significant tariff impacts. This outlook is underpinned by the expectation that global upstream investment will decline but with resilience in the Middle East & Asia and growth in digital and production/recovery offsetting weakness elsewhere.

Financially, SLB remains in a solid position. Net cash provided by operating activities was $660 million in Q1 2025, contributing to free cash flow of $103 million, despite seasonal working capital increases and incentive payments. The company ended Q1 2025 with $3.9 billion in cash and short-term investments and $5 billion in available credit facilities. Net debt increased to $10.1 billion, primarily due to the $2.3 billion accelerated share repurchase program completed in Q1 2025 and early Q2 2025, which management views as taking advantage of a perceived low valuation. This strong cash flow generation and balance sheet strength support SLB's commitment to returning value to shareholders, targeting a minimum of $4 billion in 2025 through dividends and share repurchases, following $3.3 billion returned in 2024. The recent 3.6% increase in the quarterly dividend to $0.28 per share further signals this commitment.

Conclusion

SLB's strategic narrative is one of purposeful transformation aimed at building resilience in a dynamic energy market. By leveraging its foundational strengths in international operations and technology, the company is successfully pivoting towards higher-margin, less cyclical segments like digital and production optimization. While facing near-term headwinds from regional activity slowdowns and market uncertainty, SLB's differentiated technology, ongoing cost discipline, and strategic portfolio enhancements, including the pending ChampionX acquisition and Palliser divestiture, position it to protect margins and generate robust cash flows. The commitment to significant shareholder returns underscores management's confidence in the company's ability to navigate the current environment and capitalize on long-term growth vectors in digital, production recovery, and new energy. For investors, SLB represents an opportunity to invest in a market leader actively reshaping its business mix to thrive beyond the traditional drilling cycle, backed by technological leadership and a clear focus on value creation.