SLB Earnings: Fiscal 2023 Outlook Remains Strong Despite Seasonal Headwinds Weighing on Results

SLB’s SLB first-quarter performance was slightly moderated following a very strong second half of 2022 as seasonal weather disruptions weighed on quarterly operating performance firmwide. Total revenue was $7.7 billion, decreasing 2% quarter over quarter but increasing 30% year over year. The firmwide adjusted EBITDA margin jumped 200 basis points year over year to 23%, reflecting activity and pricing gains from elevated oil and gas demand worldwide. Our $56 fair per share value estimate and narrow moat rating are unchanged following results.

Despite adverse seasonality effects this quarter, we expect SLB’s overall 2023 performance will remain quite strong, with revenue increasing 18% year over year and a firmwide adjusted EBITDA margin of 24%, by our estimate. International markets continue to steadily ramp up activity, with the Middle East presenting particularly strong opportunities this year. The Middle East is one of SLB’s largest end markets, representing roughly one third of SLB’s total business. Drilling, intervention, and evaluation activity will continue expanding throughout 2023, potentially generating record revenue for the region according to management.

Offshore production activity worldwide will be the second key driver for SLB in 2023. This quarter, offshore drilling and subsea equipment demand in the U.S. Gulf of Mexico helped to more than offset seasonal declines in North America, driving sequential sales growth of 4% in the region. Increasing subsea equipment sales in Latin America and recovering tieback activity in Africa also reflected strengthening market dynamics this quarter. Robust licensing activity will support a healthy offshore opportunity pipeline through the remainder of 2023 and over the next several years. Estimates from Rystad Energy indicate deepwater capital expenditures will average 5% growth in 2023, led by South America where deepwater investment is expected to total $28 billion for the year.