SLB NYSE: SLB executives told investors the company’s first quarter was heavily affected by operational disruptions tied to conflict in the Middle East, while pointing to growth in Digital and Production Systems and reiterating longer-term confidence in upstream investment and the company’s strategic growth areas.
Middle East conflict pressured activity and margins
Chief Executive Officer Olivier Le Peuch opened the call by acknowledging SLB’s employees and customers in the Middle East and described the first quarter as “a challenging start of the year,” citing “severe disruption in the Middle East” that impacted revenue and earnings.
Le Peuch said customer actions to safeguard personnel and assets led to “an initial wave of operational shutdowns,” followed by further curtailments tied to production shut-ins as the conflict persisted. He said the impact was “most pronounced in Qatar due to force majeure and the suspension of offshore operations, and in Iraq due to security conditions,” with a more gradual impact from offshore rig shutdowns elsewhere in the region.
CFO Stephane Biguet said first-quarter revenue fell by “just over $1 billion or 10.5%” sequentially, a decline about $200 million worse than management had expected in January due to March disruptions. SLB’s adjusted EBITDA margin was 20.3% in the quarter, down 346 basis points year-over-year, with Biguet citing “high decrementals” from the Middle East revenue impact, additional logistics and materials costs due to supply chain disruptions, and other factors including tariffs, project mix, and pricing headwinds in select markets.
First-quarter results: EPS down; revenue up reported, down ex-ChampionX
Biguet reported first-quarter earnings per share, excluding charges and credits, of $0.52, down $0.20 versus the prior year. The company recorded $0.02 of merger and integration charges, “primarily related to the ChampionX transaction.”
Global revenue totaled $8.7 billion, up 3% year-over-year on a reported basis. However, excluding the impact of the ChampionX acquisition, Biguet said revenue declined $607 million, or 7%, year-over-year.
By division, SLB described a split between areas that grew year-over-year and those most affected by the Middle East disruption:
- Digital: Revenue of $640 million increased 9% year-over-year. Biguet said growth was “primarily driven by 87% growth in Digital operations,” while annual recurring revenue ended the quarter at $1.02 billion, up 15% year-over-year. Digital pre-tax operating margin was 20.9%, “essentially flat” year-over-year, though adjusted EBITDA margin declined due to lower amortization tied to the mix of exploration data sold.
- Reservoir Performance: Revenue of $1.6 billion decreased 6% year-over-year, which Biguet attributed to lower stimulation and intervention activity due to Middle East disruptions. Pre-tax operating margin was 16.1%.
- Well Construction: Revenue of $2.8 billion decreased 6% year-over-year due to lower activity in the Middle East, partially offset by higher offshore drilling activity in Europe, Africa, Latin America, and North America. Pre-tax operating margin fell to 15.2%, with Biguet citing conflict-related impacts and pricing headwinds.
- Production Systems: Revenue of $3.5 billion increased 23% year-over-year, which SLB attributed to ChampionX. Excluding ChampionX, revenue declined 6% year-over-year. Production Systems pre-tax operating margin was 14.2%, down year-over-year amid lower profitability in surface Production Systems, completions, and OneSubsea.
On OneSubsea, Biguet said first-quarter pre-tax margin was 14.4% versus 18.1% a year earlier, pressured by “the concurrent wind down of several large programs and the initiation of new projects with high start-up costs.” He said OneSubsea margins are expected to increase over the remainder of the year. Biguet also disclosed OneSubsea backlog was up 5% year-over-year.
Digital and data centers highlighted as strategic growth areas
Le Peuch said Digital continued to build momentum, pointing to “145% year-on-year” growth in automated footage drilled as customers adopt Digital and AI-powered solutions. Biguet said Digital margins are “historically lowest in the first quarter due to seasonality” and reiterated the company expects full-year Digital adjusted EBITDA margin “at least equivalent” to last year’s 35%.
Executives also discussed SLB’s data center solutions business, which Le Peuch said grew 45% year-over-year and remains on track to exit the year at a $1 billion run rate, with growth expected to accelerate in 2027. Le Peuch cited the company’s recent announcement to serve as the modular design partner for “NVIDIA DSX AI factories” and said SLB had made progress securing additional customers that improve visibility into 2027 and 2028 demand.
During Q&A, Le Peuch added that SLB is evaluating additional M&A opportunities in the data center area, naming thermal management as one example of a potential portfolio complement.
ChampionX integration and production recovery focus
Management repeatedly tied the ChampionX acquisition to SLB’s “production recovery” strategy. Le Peuch described production recovery as increasingly essential as the industry faces “structural challenges in replacing reserves and sustaining production from existing assets,” arguing that technologies to enhance recovery and extend the life of mature fields “are essential.”
Le Peuch said Production Systems growth reflected ChampionX and that SLB remains on track to achieve its synergy target. Biguet said ChampionX margins in the quarter were higher than in both the fourth quarter and the prior-year first quarter, and “were accretive to both Production Systems and total SLB’s margins.”
Asked about early integration progress, Le Peuch said ChampionX has been “accretive” and described customer feedback during a recent board visit to Midland, Texas as positive, with customers “very pleased with the integration progress.”
Second-quarter scenario: Middle East headwinds offset by other international markets
Given uncertainty around the duration of geopolitical disruption and higher procurement and logistics costs, Le Peuch said it was difficult to provide precise second-quarter guidance. Under a scenario where disruption persists through mid-quarter and then gradually eases, he said the sequential revenue and earnings decline in the Middle East would be “fully offset by all other international markets combined,” which are expected to deliver mid- to high-single-digit revenue growth with improved margins. North America revenue is expected to be flat sequentially in that scenario.
Biguet quantified the potential impact, stating that under the same assumption Middle East disruption would reduce second-quarter EPS by an incremental $0.06 to $0.08 versus the first quarter, due to lost revenue and higher procurement and logistics costs. On the divisional outlook under that scenario, Le Peuch said Digital and Production Systems are expected to grow globally, while Reservoir Performance and Well Construction are expected to decline globally.
Executives also addressed cost pressures tied to the conflict. In response to a question from Goldman Sachs, Le Peuch cited logistics and transportation as the most impacted cost line item, followed by raw materials derived from petroleum products, “including chemicals.” He said SLB was seeking to recover some costs through inflation pass-through clauses and negotiations with suppliers and customers.
On liquidity and capital returns, Biguet said net debt increased $797 million sequentially to $8.2 billion, while cash flow from operations was $487 million. Free cash flow was slightly negative at $23 million, which he attributed to annual employee incentive payments, seasonal working capital increases, and delayed collections in the Middle East. SLB repurchased $451 million of stock in the quarter, and Biguet reiterated expectations to repurchase a minimum of $2.4 billion for the full year, while targeting more than $4 billion returned to shareholders in 2026 through dividends and buybacks.
Closing the call, Le Peuch said the conflict had created near-term disruption but also reinforced the importance of “secure and reliable energy,” which he said should support oil prices above pre-conflict levels and create a constructive backdrop for oil and gas investment. He also noted 2026 marks 100 years of SLB.
About SLB NYSE: SLB
SLB NYSE: SLB, historically known as Schlumberger, is a leading global provider of technology, integrated project management and information solutions for the energy industry. Founded by Conrad and Marcel Schlumberger in 1926, the company develops and supplies products and services used across the exploration, drilling, completion and production phases of oil and gas development. Its offerings are intended to help operators characterize reservoirs, drill and complete wells, optimize production and manage field operations throughout the asset lifecycle.
SLB's product and service portfolio spans reservoir characterization and well testing, wireline and logging services, directional drilling and drilling tools, well construction and completion technologies, production systems, and subsea equipment.
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