Ladies and gentlemen, thank you for standing by, and welcome to the Schlumberger Earnings Conference Call. At this time, all participants are in a listen only mode. Later, there will be an opportunity for your questions and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to the Vice President of Investor Relations, N.
D. Madhu Amazia. Please go ahead.
Thank you, Leah. Good morning, and welcome to the Schlumberger Limited Second Quarter 2021 Earnings Conference Call. Today's call is being hosted from Paris, following the Schlumberger Limited Board meeting held earlier this week. Joining us on the call are Olivier Lepuche, Chief Executive Officer and Stephane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we'll be making today are forward looking.
These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest 10 ks filing and our other SEC filings. Our comments today may also include non GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our Q2 press release, which is on our website. With that, I will turn the call over to Olivier.
Thank you, Andy, and good morning, ladies and gentlemen. Thank you for joining us on the call. In my prepared remarks today, I will cover 3 topics: our 2nd quarter results, The near term industry macro environment and the outlook for the Q1 and the remainder of the year. Finally, I will share my perspective on how Schlumberger is positioned for sustained outperformance in this macro context. Stephane will then give more details on our financial results, and we will open the floor for questions.
Our Q2 results demonstrate very broad strength in our core portfolio as we continue to fully capitalize on the short and long cycle activity recovery across divisions, operating environments and geographies both in North America and internationally. The combination of revenue quality, solid execution and vastly improved operating leverage Deliver the 4th consecutive quarter of margin expansion. Let me share with you some performance highlights during the quarter. Internationally, the depth and diversity of our portfolio enabled us to take hold of the recovery in the 2nd quarter, Restoring margins to pre pandemic levels, ahead of the anticipated acceleration in this market. In North America, we achieved our double digit margin ambition, and a key milestone in our 2021 financial targets.
All divisions fully leveraged activity recovery to post sequential top line growth and significant margin expansion, including Production Systems, which reached double digit margins during the quarter. Growth and margin expansion were led by Reservoir Performance and Well Construction, both posting growth internationally and in North America. Reservoir performance growth was driven by the exploration and seasonal recovery, high offshore activity and new technology adoption, all of which resulting in sequential margin expansion in excess of 2 70 basis points. While construction accelerated its rate of growth sequentially, outpacing headcount growth both North America and internationally with strong contribution from offshore basins. U.
S. Land, the division grew more than 30%, double the sequential rig count growth rate over the quarter. This does not only reflect Enhance market participation, but also improving revenue quality. And cash flow finally from operation was $1,200,000,000 enabling us to begin deleveraging the balance sheet this quarter. In addition to the impact of operating leverage, there were 2 contributing factors to this financial ad performance: 1st, the offshore activity mix and second, technology adoption.
The offshore rebound in the second quarter was led by high single digit deepwater growth partly in Brazil and also included mid teens growth in exploration and appraisal activity across Europe and the Middle East. This market condition presented a favorable mix and resulted in higher revenue quality for both reservoir performance and well construction. In addition, as customers commit to future offshore development activity, we received significant deepwater awards for our 1 Subsea business line, resulting in a doubling of the booking volume versus the prior quarter and a year to date book to bill ratio exceeding 1.5. The other contributing factor is increasing new technology uptake. The rate of adoption of our latest generation technology increased by 1 third during the quarter and included in particular Transition Technologies, Digital and Feed 4 Basin Solution, which benefited all divisions and most basins.
This is a clear recognition of the performance impact our technologies generate for our customers and it gives us increased confidence in in the contribution of technology adoption toward margin expansion in this upcycle. In addition, we continue to advance our digital and new energy strategies, extending the reach of our digital platform with a number of key agreements and awards as customers forge ahead with their digital transformations. And in New Energy, We continue to progress all of our ventures, including the recently announced strategic collaboration with Panasonic North America to develop our new battery grade lithium production process in Clayton Valley, Nevada. Finally, during the Q2, we announced our commitment to achieve net 0 greenhouse emissions by 2,050. I'm very proud to lead the 1st service company that have set a net zero ambition that includes Scope 3 emissions.
We have laid out an approach to climate change that is science based, aligned with the 1.5 degree Celsius target of the Paris Agreement and is built on a comprehensive near term roadmap to achieve our goal with interim milestones in 2025 and 2030. As a company that prides itself on technology innovation, we aim to net the balance of emissions we produce in 2,050 with carbon negative action. These plans also include the launch of our transition technology portfolio to support our customers on their journeys to net zero, such as the avoidance of flaring with OraWar and technology and the traffic call of Cinnara CO2 membrane separation technology as you have seen in this morning's release. Amid the ambition of the launch of Transitions Technology is an opportunity to contribute to the decarbonization of the industry, building through innovation, a resilient future that delivers higher carbon, higher value and lower carbon. Overall, I'm very pleased with our revenue quality, solid execution, enhanced market participation both in North America and internationally and most importantly, The translation of all of these elements into another successive quarter of margin expansion.
I want to thank here the entire Schlumberger team as they continue to execute and deliver outstanding performance for our customers and our communities despite COVID impact in several parts of the world. Next, I would like to share my view on the macroeconomic environment supporting our industry. While the rise of the COVID-nineteen delta variant and resurgence of related disruption could impact the pace of economic reopening, recent market projections continue to affirm and improving global economic outlook. Global GDP growth is now expected to approach 6% in 2021 and more than 4% in 2022, which will continue to drive a progressive recovery of oil demand. This outlook is supported by recent oil demand updates, which reflect the anticipation of wider vaccine enabled recovery, improved mobility and additional fiscal stimulus in large economies through the second half of the year.
Looking forward, the IEA projects that global oil demand will reach 100,000,000 barrels per day and surpass pre COVID levels by the end of 2022 in the absence of further policy change. If oil price have elevated levels, the supply response to this demand recovery is developing broadly as anticipated. Indeed, this combination has resulted in a call on short cycle pollution as well as an uptick in long cycle project reflected in new FIDs and encouraging recovery in both offshore development and near field exploration activity through the Q2. In North America, this super response is reflected in rig count and factory trends, which sustained strong growth through the first half of the year. Private operator led activity growth, which resulted from the acceleration of DUC completion and increased lean activity to replenish DUC inventory.
By contrast, the embrace of capital discipline by the public operators is highlighted by the rig count still being significantly below the Q1 2020 total, despite WTI price exceeding pre pandemic levels. In this context, despite a solid activity growth outlook, We maintain our view that the North America market will be structurally smaller than in previous cycle as a consequence of capital discipline and industry consolidation. Moving to international markets. The deficit of investment needed in to deliver the required oil supply will prevent a sustained growth opportunity, particularly in the low cost advantaged basins. We remain constructive on a structural pull on international supply and a resulting activity impact.
This was already visible in the Q2 with a strong seasonal rebound and offshore recovery despite the impact of COVID disruption in part of Asia and in the Middle East. This also marked the 2nd consecutive quarter of international rig count growth. Looking forward, we see favorable conditions for durable investment growth driven by the combination of action by agencies, internationally focused investment by public E and P operators and the expectation of continued supply discipline by OPEC plus or in response to the steady evolution of demand. The current pace of international tendering contract awards and increasing book to bill ratio support this view. Against this backdrop, Schumacher is extremely well positioned, both in international markets and in North America.
Our market exposure is biased to accretive growth. And with a series of new contract wins, our leading digital and Fit for Basic Technology portfolio and our performance strategy will create value for our customers and deliver industry leading returns. Turning to the Q3 outlook. In North America, we see another quarter of growth, albeit somewhat moderating in U. S.
Land, led by private operators and horizontal oil drilling and a seasonal recovery in Canada. North America Offshore remained resilient, albeit with the hurricane season in view. Moving to the international markets. Positive growth momentum is expected to continue through the Q3 across all areas. Short cycle activity will be augmented by longer cycle project starts up.
In this context, directionally, We expect our global Q1 revenue to grow by mid single digits, led by Reservoir Performance and Rail Construction divisions, while our pretax segment operating margins and should further expand by 50 to 100 basis points. With this outlook for the Q3, we remain confident in achieving double digit international growth in the second half of twenty twenty one when compared to the second half of twenty twenty. As a consequence, an absent further COVID setback in operational recovery, we now foresee full year revenue growth both internationally and in North America when excluding the impact of divestiture. With activity recovery ahead of us through the Q3 and strong signal of a durable recovery beyond that, we cannot clearly see a path to the high end of our full year EBITDA margin expansion guidance for 2021. Looking further ahead, the fundamentals remain very favorable.
With a growing economic rebound, supportive oil prices and the demand and super outlook, all representing a set of unique conditions that will support an exceptional growth cycle. Furthermore, this cycle will be broad based across geographies and operational environment, land, offshore, North America and particularly international markets. The Q2 was a strong indication of the future outlook and a testament of our restored earnings power under these conditions. In summary, I'm very pleased with our strong quarter, 2nd quarter results across our entire portfolio, which demonstrates the effectiveness of our strategy in delivering our long term I will now pass the call to Stephane.
Thank you, Olivier, and good morning, ladies and gentlemen. 2nd quarter earnings per share was $0.30 This represents an increase of $0.09 compared to the Q1 of this year and an increase of $0.25 when compared to the same period of last year excluding charges. There were no charges or credits recorded during the 1st or second quarters of 2021. Overall, our 2nd quarter revenue of $5,600,000,000 increased 8% sequentially. North America revenue increased 11% sequentially, while International revenue increased 7%, both outpacing respective rig count growth.
Pre tax operating margins were 14.3% and have now increased 4 quarters in a row. This represents the highest margin since the Q4 of 2015. Notably, margins expanded sequentially across all four divisions. This performance was driven not only by the Seasonal rebound in the Northern Hemisphere, but also a favorable revenue mix as a result of increased offshore activity, New technology adoption and increased exploration and appraisal activity. Company wide adjusted EBITDA margin of 21.3 percent for the 2nd quarter, increased 118 basis points sequentially and is the highest since the Q3 of 2018.
I am very pleased with this margin performance, which reflects the benefits of significant operating leverage we have created through the combination of the high grading of our portfolio and our cost reduction program. This performance also gives me the confidence that we will continue to increase margins in the Q3 and beyond. Let me now go through the Q2 results for each division. 2nd quarter digital and integration revenue of $817,000,000 increased 6% sequentially, while pretax operating margins increased 147 basis points to 33%. These increases were primarily driven by strong digital solution sales.
Reservoir Performance revenue of $1,100,000 increased 12% sequentially. This revenue growth was entirely driven by higher international activity, which resulted in international revenue increasing by 13%. Margins expanded 373 basis points to 13.9%, largely due to the seasonal recovery in the Northern Hemisphere and increased offshore and exploration activity as well as favorable technology mix in the Middle East and Africa. Well, construction revenue of $2,100,000,000 increased 9% sequentially, while margins increased 209 basis points to 12.9%. These improvements were driven by strong performance both in North America and internationally.
U. S. Land revenue grew by over 30%, significantly outpacing the increase in rig count. International activity increased beyond the seasonal rebound as many countries experience double digit revenue growth. Finally, Production Systems revenue of $1,700,000,000 increased 6% sequentially and margins increased 146 basis points to 10.2%.
These increases were primarily driven by higher activity in Europe, Africa and North America. Now turning to our liquidity. During the quarter, we generated $1,200,000,000 of cash flow from operations and positive free cash flow of $869,000,000 despite severance payments of $72,000,000 amounts included the receipt of a $477,000,000 US federal tax refund relating to prior years. This refund helped support our deleveraging efforts during the quarter. In this regard, our gross debt decreased by $861,000,000 during the quarter.
We have begun to execute on our commitment to deleverage, as demonstrated by the early redemption in June of all $665,000,000 of notes that were coming due in September. We also repaid $246,000,000 of commercial paper the lowest level since the Q4 of 2017. During the quarter, We made capital investments of €351,000,000 This amount includes CapEx, investments in APS Projects and multi client. For the full year 2021, we are still expecting to spend between $1,500,000,000 to $1,700,000,000 on capital investments. In total, during the first half of twenty twenty one, we generated over €1,600,000,000 of cash flow from operations and over €1,000,000,000 of free cash flow.
These amounts are fully expected to increase in the second half of the year, consistent with historical trends. As a result, we remain confident in our ability to achieve double digit free cash flow margin for the full year of 2021 and beyond. This will allow us to continue to deleverage the balance sheet and provide us with flexibility in our capital allocation. One last part worth highlighting is that during the quarter, we replaced Our €750,000,000 credit facility with a new 3 year €750,000,000 sustainability linked revolving credit facility. The terms of this facility are aligned with the interim emissions reduction targets disclosed as part of our net zero emissions commitment announced this quarter.
This is a first for Schlumberger and further demonstrates our commitment to fully participate in the decarbonization of the industry. I will now turn the conference call back to Olivier.
Thank you, Stephane. I think we are ready to open the floor for questions. Thank you.
Thank And our first question is from the line of James West with Evercore ISI. Please go ahead.
Hey, good afternoon Olivier and Stephan.
Good morning, gents.
So Olivier, really strong performance and execution in the second Quarter kind of across the board and really from margin performance, I thought. What's the sustainability of this type of margin improvement as we go through the back half of this year and in Probably 2022 when things really get going and the cycle really takes off.
Yes. Thanks, Thanks, James. You are correct. I think we were very proud of this margin expansion. I think there were several factors that I will highlight first on the second quarter and then Project, we believe we have sustainability of margin expansion.
So first and foremost, I think the performance was led by Revenue expansion, revenue growth. I think revenue growth has worked out to be at or ahead of our expectation both internationally In North America, I think credit to our team, credit to the customer centricity, the new organization and our performance. Secondly, I think the we have seen a significant effect of our operating leverage as well as operational efficiency playing in full light during the quarter. And we expect this to be the base of our margin expansion for the quarters to come. So this was in full display in all divisions and has led to this significant margin expansion, particularly in the service led reservoir performance and well construction.
Thirdly, the revenue quality, as we call it, Was led by activity favorable activity mix coming from the seasonal rebound in some basins, some region and that included an offshore mix that was favorable to those 2 divisions as well as well as an exploration appraisal uptick, Mid teens exploration appraisal offshore quarter on quarter during the Q2. So when you combine this, this is representing a revenue mix Quality that I think is unique. This was supplemented by technology adoption. Technology adoption linked to our Fit for Basic solution for customer that are seeing success digital, as you heard during the remarks prepared by Stephane and lately, the new Technology transitions transition technology portfolio, combination of which is gaining revenue quality that is then impacting favorably our margins. Lastly, and this was only noticeable in North America, we had a couple of green shoots on pricing And well construction that also is starting to be recognized.
So project this forward, I think the seasonal rebound will not always be there every quarter. The unique exploration appraisal uptick mix that we got also will not repeat, but you can count on us to leverage the future growth in industry both in North America and internationally to seize the operating leverage and operating efficiency we have, the favorable mix and the technology adoption that should fuel our margin expansion going forward.
Right. Okay. Well, that certainly provided a good glimpse into what the renewed earnings power of Schlumberger is. Perhaps if we could touch on digital for a second because it's kind of in a league of its own at this point. The technology adoption It seems to be continuing to be strong and maybe accelerating margins were a bit ahead of at least what we were expecting.
What is your outlook there on the digital side as we go through the next few quarters and especially again on 2022 and 2023?
I think the progress we made this quarter was 2 fold. 1st, progress on our platform strategy. We continue to complete the platform foundations, The partnership, the enablement that give us extended market access such as what we are using from the IBM and RADAR technology to access Hybrid cloud and unlock, if you like, about 1 third of the addressable market by this hybrid cloud and in country Solution we provide, and I think we have made much progress there. And I think we are in the 8th or the 9th inning, if you like, on the Platform readiness for full scalability and expansion. And we made progress on the adoption of Delphi as you have seen some enhancements.
And we continue to progress on the rolling outs for the clients that have already adopted Delphi. Hence, our revenue on the Delphi and the new technology of digital was Significantly accretive to our growth, significant accretive to DNI and resulting to margin expansion flow through that was visible this quarter. So that will not continue the same every quarter. It depends on the seasonality and on the specific, but expect directionally to continue to
grow. Okay, great. Thanks Olivier. Thank you, James.
And our next question is from David Anderson with Barclays. Please go ahead.
Hi, good afternoon Olivier. So Clearly, we're starting to see the international upstream market starting to pick up as you noted double digit increases in many countries. I noticed you didn't mention Saudi, which I would expect to start picking up in the coming months. So when do you think that piece falls into place? And how do you see the cadence for Middle East Activity through the end of this year and kind of what does that mean for 2022 growth?
I would think it kind of at this point, it'd be surprised if growth wasn't up at least double digits internationally, Especially with the positive commentary around offshore. Just wondering if you could comment, please.
Yes. First, in short term, I would like to reiterate my Positive commentary on the Q2 growth, it was all basins, all division internationally, so it was broad and inclusive of Middle East. Now in the context of the Middle East in particular, the growth was maybe more muted or less aggressive and less accretive to the overall growth than over basins and there are a couple of reasons for that. And the first and foremost reason is relating to the supply constraints that are still outstanding On the PEG and as such, muting some of the short cycle activity that we could have expected to rebound faster. So now going forward, There are a couple of factors that will play favorably, short term and mid term.
Short term, there will be a relief of some of the supply constraints that will continue to inch up The short cycle activity including Saudi, there is a commitment in Middle East for gas development. I think Qatar was the first to expand their commitment and we have benefited greatly from that rebounding activity for the last Couple of quarters and this will extend also to a couple of our country, including Saudi. And lastly, as we turn into 2022, You have heard some signal from couple of countries in GCC that have signaled that they will commit to Production capacity increase to fulfill their opportunity to gain share as there will be a pool of international supply. So this will result from 2022 in combination of short cycle, gas development and long cycle across that region, and hence, they will catch up and they will certainly be a region that will lead the activity growth and will support in second half of double digit year on year H2 and next year into a strong growth going forward. Finally, if I have to make a comment on this, I think you may have seen some contract wins and contract award in Middle East.
And we believe that on top of this activity growth, we have the potential to outperform and then getting a further tailwind to our growth going forward.
So if we look a little bit further out, you've kind of talked big picture about EBITDA exceeding 2019 levels with only about 50% of that lost revenue Just wondering if anything has changed in that view either in terms of that timing of that growth coming, that revenue coming back or the EBITDA levels, has anything sort of changed in that kind of longer term view that we're thinking about.
No. Obviously, with the results we just delivered, we are Increasing our confidence in our ability to reach and expand our margin going forward as the cycle unfolds. So starting with the next 2 or 3 years, we see now A strong case for a double digit floor as an activity growth with an upside scenario. We see that the contract wins and the market position we have will benefit us to pull from this additional growth going forward. And The operational leverage, the activity mix, including offshore and the technology adoption, including digital, we all carry to the condition as I come out earlier to expand our margins.
So the ambition we have set to recover the net EBITDA dollar with less than half of the about half of the revenue Recovery, I think, are still valid. Hence, a mid cycle ambition to expand the margin visibly is in full play.
Great. Thank you, Olivier.
Thank you.
Next, we have a question from Chase Mulvehill with Bank of America. Please go ahead.
Hey, good morning everybody. I guess the first question Good morning. Good morning, Olivia. First question, just kind of wanted to ask about Inflationary pressures, obviously, supply chain seems to be tightening across the industry. We hear about raw material cost inflation.
So maybe if you could just take a moment and talk about your ability to kind of control the supply chain and control calls and are either pass along calls on the OFS side and also on the Cameron side as well.
No, it's a very valid question and it's something that we observe and some fact and some trends that has materialized in some And this is going up, but I believe that the toolbox we have and the professional and very experienced organization we have in our Planning and supply chain and manufacturing organization that are used to manage some inflationary pressure has allowed us to mitigate and edge at this inflationary pressure and contain cost inflation into our under our roofs. Now when and as this happens and on the specific soluristics or specific material, We are engaging with our customer using the contract terms we have to leverage an adjustment, and we have done so with success to several customers. So We are confident that the combination of our supply chain capability with global and local leverage and the customer centricity engagement approach we have, ability to sit and discuss commercial terms, Give us the ability to support this and continue to drive forward and expand our margin.
Awesome. Quick follow-up here probably for Stephan. When we think about free cash flow, obviously, it's going to be accelerating As you get into 2022, you'll be doing deleveraging as you talked about, paying down some debt. But at what point Should we think about incremental cash coming back to shareholders, probably a dividend bump first and then maybe buybacks, but is there a certain leverage ratio that we should be looking at or thinking about you guys targeting before you kind of think about increasing the
Yes, yes. We Chase, we do have a target leverage ratio at this stage. It is Going down to less than 2 times net debt to EBITDA. Now with our strong cash flow performance and the EBITDA expansion, We are quite confident that we can achieve this target sometime by the end of 2022. Now we will, of course, need to continue investing in our core business to fully reap the benefits of this growth cycle, But this will be done with the same discipline we are exercising today and within the target range of 5% to 7% for the operating part of our CapEx, I.
E. Including APS and MultiClient. So accounting for this, however, we will still generate significant excess cash flow throughout the growth cycle. This is, of course, very good news. It gives us optionality in our capital allocation, particularly to execute our strategy and to fund our new horizons of growth.
Now whether it relates to our core portfolio or expansion into digital or new energy, any new investment will be looked at under the Beyond that, indeed, we will continue to review our shareholder distribution policy based on the sustainability of cash flows and potential exceptional cash inflows, for example, proceeds from Divestiture, so this is where we will take it.
Okay,
perfect. I'll turn it back over. Thanks everybody.
And our next question is from Scott Gruber with Citigroup. Please go ahead.
Yes. Good afternoon. Great quarter. Thank you, Scott. So just a clarification question to start.
The 10% free cash Conversion rate relative to revenues, we should be including the tax refund when we think about the conversion rate for the full year. Is that correct, Stefan?
Yes, you should actually, but you have a few offsets, not necessarily in the same quarter, but we continue to pay severance payments. I'm talking about offsets to the tax refund, Scott. So we continue to pay severance payments with the tail end. The process is finished, There are still payments coming. So when you put all of it together, the tax refund is not fully a plus.
Now Excluding the exceptional items going opposite way tax refund and severance, we can actually still generate the 10% plus Free cash flow margin, so we should be exceeding now that we have the tax refund for sure.
Yes. Got you. Got you. And then I was actually surprised to see the well construction share gains in the U. S.
Is super impressive. Was that kind of a one time catch up just with high oil prices, customers now willing to pay up for your technology? Or Do you see continued share gain potential onshore, whether it's well construction or elsewhere, even in light of Private is really driving the growth. Are you seeing gains with private? Just some color on U.
S. Share gain potential would be great.
No, absolutely, Scott. We are very proud of this achievement. And let me give you the 3 drivers for it In terms of top line growth, 1st and foremost performance in the way we execute, and I think has led to from cementing to drilling, They're actually doing a bit to market share gain with both private and with operators, public operators in the U. S. The second factor is that as you remember as part of our North America strategy, PIPOC that we did initiate 2 years ago, we accelerated our technology access, Giving access of fit for basic technology to some local Didi company that are then using, renting or buying equipment and using it to serve their local customers, mostly if not exclusively private.
So this has been growing and quarter on quarter, and this is helping us to reach market and expand our market share beyond what we could do through our service arm. And finally, as I mentioned in one of my response earlier, we had some green shots where our performance went in high demand. Our Directional Drilling Equipment was seen as unique to deliver the curve. Hence, we could extract some pricing Crossing premium, so the combination of these 3 have delivered this 30 plus quarter on quarter top line delivery far outpacing The account goes. So there are some exceptional as always, but I would expect that the dynamic and directionally this to continue Going forward, I'll pass you to
market share gain. Impressive. Good to hear. Thanks for the color. Thank you.
Next, we go to Conor Lina with Morgan Stanley. Please go ahead.
Yes, thanks. I wanted to ask about labor. Obviously, you had to take the challenging decision to reduce your workforce dramatically last year. I'm curious as we now look back towards growth, how well positioned are you to capitalize on the market demand? Do you have excess labor?
Do you need to hire substantially? And I'm particularly curious in international regions where you may have some more long cycle constraints on that.
Yes. It's a very good question. It's something that we're working out to continue to make progress. But I think in a nutshell, I think The step change we did in some of the operational environment, operational practice, including digital operation, has given us the opportunity to respond on the first peak of this cycle without deploying the same resource set as we had in the past, Hence, getting direct efficiency gain as we mobilize and grow with the cycle. Going forward and already initiating Some geographies where we had more than double digit growth, as I mentioned.
We had access to some resource that we onboarded during the quarter to respond to the contract we are winning. So the long cycle actually nature of international give us a bit more long term visibility to this condition. Hence, our market approach is to target specific geographies and business lines where we believe we can be generating accretive returns and growth and prepare for it by mobilizing ahead the resource or are moving resource to address those. So I think we have a global access to talent. We are using a lot and at scale this remote operation.
So it is a challenge for us to respond to high demand, but we believe that we have the operational on time to make it a success.
Thank you. That's helpful context. Sort of similar question, but on the Steel or equipment side of things. Basically, I'm wondering if you could based on your expectations for how much Activity will grow over the next, call it, 6 to 12 months. As you look in some of the more differentiated markets and the more consolidated Supplier markets, called Middle East, Offshore, etcetera.
Do you feel that there is adequate equipment to meet continued growth beyond that point? Do you feel the capacity will be tightening Significantly, just appreciate an update there. Thanks.
I think in the early part of the cycle, I think We will use and initially we'll use the excess supply that came from the compression of activity that came through the last 2 years. And but again, we have Very much professionalize our planning and supply organization. And I think from the come on to the asset that we have To deploy, I think we are trying to take a long term view and scenario based view on the future, looking beyond the 12 months horizon and I'm starting to prepare and put some options, so that we can respond to this growth, going forward. So early parts will not necessarily create The tightness, but the mid cycle for sure before the mid cycle, this will carry the condition for tightening supply and hence
Next, we go to Neil Mehta with Goldman Sachs. Please go ahead.
Good morning, team. The first question is around portfolio Perhaps you guys can weigh in on how you're thinking about the path for asset monetization, Thinking Canada, maybe the Middle East, what are the opportunities and how large could the asset sale market be For first one, Vijay.
So look, Neil, hi. We as it relates to the divestitures We disclosed last quarter, first, the APS asset in Canada. It's both are progressing as planned, by the way. So in Canada, we have more than 10 Looking at the information in our data room and we plan to receive 1st round offers by the end of next month. Good news is that the economics keep on improving, so we are hopeful we can achieve a successful transaction.
The Middle East rigs likewise progressing. We are negotiating with the shortlisted bidders. They have completed their due diligence and it's going as planned. So I think really these are the 2 divestitures. You know that we have over equity positions where we have options for monetization in the future, such as our Liberty stake, but this is something we will the timing and the magnitude we'll look at in due time.
Yes, great. And then, we appreciate some of the comments you made on Saudi broadly, but maybe you could just step back and talk about OPEC Plus including Other regions within that cartel and the plus side of OPEC, How are you seeing activity trends here? And what role do you think Schlumberger is going to play in terms of building out capacity that they are talking about?
I think first, we have a I would say privileged market position with most of the NOCs in this OPEC Plus consortium. We have seen across the broad spectrum of these NOCs Activity is starting to build back, seasonal rebound playing strongly in Russia. And we expect, as I said, this short cycle to recover for the next 2 to 4 quarters as the demand will be lifted The constraints will be lifted and we see that more than 1 or 2 countries will actually commit to this capacity extension. And we have the footprint, we have the relationship, we have the Fit for Basin to leverage and then to respond to this capacity buildup and this growth opportunity in those from Russia to Middle East particularly. So I feel confident that this market share Pursuit that as the market comes back from 2022, 2023, we'll be giving us an opportunity to leverage our market position and move up.
Thanks, Philippe.
Thank you.
Next, we go to Arun Jayaram with JPMorgan Chase. Please go ahead.
Yes, good morning. Maybe just a follow-up to Neil's question on NOCs. I guess you're seeing some positive activity trends from the NOCs. And would you characterize these activities thus far as just More regarding sustaining capital requirements or are you seeing any potential mix shift in terms of increasing productive capacity? And again, we did note some increases, I guess, on the exploration side in terms of your revenue base.
Yes. I think as I commented before, we have to distinguish first the gas and the oil market. And on gas market, I think the activity has been more sustained and has seen in Qatar A significant commitment to accelerate the Northfield redevelopment and extension. So that has been very positive and we have the benefit of that exposure. And the gas remain steady and supported elsewhere.
On oil, you have a mix, but in short term, it's mostly a short cycle in anticipation of the supply constraints relief. And for 2 or 3 of the countries that participate to the They have already made public commitments that they will expand and they will participate at scale into the post rebalance, if you like, of the supply and then participate to the capture of international share supply into 2023. So that will mean plan that will materialize from planning from contract and from execution into 2022.
Great, great. Olivia, you recently provided some longer term outlook comments for new energy siting called a 10% kind of growth CAGR as you help your clients decarbonize. I was wondering if you could give us some thoughts on maybe the baseline for that long term forecast and areas of your transition technology portfolio that you're seeing perhaps the greatest traction as we sit here today.
Yes. Let me first clarify and not mix in the same under the same umbrella. The new energy portfolio that we have developed with the purpose To create a new chapter beyond Oil and Gas to participate in scaling to the energy transition from hydrogen to CCS and Geoenergy or lithium as you have heard from the transition technologies that we believe are very pertinent to the decarbonization of our oil and gas industry, Helping our customer to reduce their footprint, so to footprint to reduce their GHG emission. And in this context, We are focusing on flaring elimination or reduction, and you are using in particular the ORA wireline technology to avoid returning the fruits to the surface and burn and dispose through to flame and do the reservoir characterization and testing In situ, if you like, and that's a unique technology that has significant impact on both efficiency and on the CO2 footprint for everyone using it. And we are looking at methane emission detection and containment.
And we are looking at, As you have seen in the press release this morning, also the Cinnara CO2 membrane that have superior performance for large Yes, acid gas treatment if you want to do CO2 second question and capture. So you have these two aspects. So The transition technology will come more and more into play and most of the customer I meet asking us whether we can help them and have a conversation engagement on to methane detection, flaring or other techniques that eliminate or reduce significantly footprint CO2 on every operation on their Scope 3 upstream, if you like, in addition to their Scope 1 direct emission. And then in the Panuator and that will be part of our Technology growth, technology adoption in the quarters to come. And then longer term, we will build on our new energy portfolio that we are building.
And then once we have to build this, we will grow at scale from hydrogen to CCS and Bioenergy with Celsius For the heating and cooling of buildings to lead some production if the pilot that we are initiating and the contribution from Panasonic give us the opportunity to do so. So these are 2 different avenues for growth, short term and long term.
Thanks for the fulsome answer. Appreciate it.
Thank you.
Next, we go to Tommy Moll with Stephens. Please go ahead.
Good morning and thanks for taking my questions.
Good morning. Good morning, Tommy.
I wanted to start on your digital and integration margin. Your incremental this quarter was notably higher versus the trend and an impressive one at that. Fair to say that the full year for 2021 ought to be shaping up above the 30% type of range that we talked about last quarter? And then as you look beyond, is there any kind of through cycle or normalized way you would frame the
So look, Tommy, yes, it is shaping up to be slightly above The 30% at this level, we are happy anyway with 30%. In Q2, There is a bit of seasonality actually on software and maintenance sales, which are lower in Q1. So it's Kind of normal to see a nice uptick between Q1 and Q2. So however, throughout the year on a full year basis, yes, We'll be a bit above 40% now. This is the kind of margins, which throughout the cycle, this is a fixed Cost business, so as we accelerate the deployment of our digital solutions and the adoption improves, We could see margins increasing from there.
So it's quite a healthy business and this is why we're focusing on it basically.
Thank you. That's helpful. And I wanted to follow-up with a big picture question on your new energy strategy. If you think about from a strategic standpoint, You're the largest service you're the largest platform globally with the oil and gas incumbent. What, if any, advantages does that confer on you visavis some of the smaller pure plays attacking Some of these markets, the scale and the customer relationship that you have.
And then if you also think about the other side of the equation where Their cost to capital may in fact be much lower than yours. And so you potentially have a different algorithm by which you decide how to allocate capital across these opportunities. So how do you think about when to put capital to work versus when the ask may be a little bit too rich and you're going to preserve your dry powder for another opportunity? Thanks.
Very good question. I think 1st and foremost, I think let me highlight the I think 2 different, I would say factor that will indeed leverage our current platform. First is the global deployment capability we have. We can industrialize and ship technology and deploy technology anywhere in the world, and we have done so for more than 80 or 90 years. I think our ability to create franchise in every country from technology developed centrally or we developed locally, I think it's something that is unique and I think that differentiates from many of the pure play.
The relationship we have and the customer base we have today We'll be occasionally and I think we'll be in the sense of the CCS where our customer have opportunity to participate or in some of the downstream operation where they have a carbon capture or blue hydrogen opportunity, it would be an opportunity for us to continue to work with that customer base and expense. And at the same time, some of these companies are turning into integrated energy company that will also participate at scale in the same market as we do. So that solution will be useful, but I will more, I will say highlight the global deployment capability. Now when it comes to capital allocation, capital deployment, I think it's very difficult to pinpoint to you specific here. I think we will again Continue to mature this venture, prepare for scale as we start to, I would say progress on our milestones, progress on our partnership and progress on our business model and the supply chain model that are quite different from the one we experienced today.
And then in that context, we'll make the appropriate capital allocation decision to be accretive to our long term growth and to our returns.
Thank you. I appreciate it and we'll turn it back.
Thank you.
And ladies and gentlemen, our final question comes
Thank you. Olivia, you mentioned the return to 100,000,000 barrels of consumption and sort of a share shift from North America to international where the oil is coming from. I'm curious if you think that The international activity needs to surpass 2019 levels to deliver that much oil and what you think the time line is to get there?
I think in short term, the rebalance will be mostly down to the release of the spare capacity that I think exists. Now if you look at the current production of the U. S, which is 1,500,000,000 barrel, about or about below in U. S. Land, below what it was in early 2020.
This gap has not yet been bridged, and I think I do not expect this to be bridged as we exit 2022. So there will be an increment of oil supply that will be pulled on international market that the market Can't deliver today, but for sustainability in 2023 2024, the market will have to commit capacity. Hence, This is the reason why in Middle East and other country, you see this future commitment of capacity and this is the reason why you see the return of offshore and the commitment of FID, we have 50 FID about already to date. We expect to be 100 FID, most of them in offshore at the end of the year. This is 50% more than it was last year, and the trajectory is towards 150% and over 50% increment after that.
So now going forward and expanding beyond, I would expect within the next 2 to 3 years, obviously, with this Dynamic and the Puna International Supply will create the flow of activity to reach and or exceed at the level of 2019 activity within that timeframe.
Okay, great. Very helpful. Separately, on you mentioned APS a couple of times in the press release. It sounds like maybe activity has ramped a bit in Canada where you have a bit more oil price exposure. I'm just curious How investors should think about the sensitivity to oil price from APS at this point?
And then if you do have a successful transaction and sell the business, just How material of a shortfall in cash flow would that create just vis a vis what we're seeing right now?
I'll take these questions. So look, the actually, the activity itself didn't really change, and activity here is more measured in terms production, of course. So we did have a bit of a nice windfall on increased WTI in second quarter from our Canada asset, but it's in the grand scheme of things, it's not material. In Ecuador, by the way, at this level Of WTI, our tariffs are either fixed or when they are variable, they are capped and we have Past that cap, so there is little sensitivity to oil price at this level besides Canada. Now it makes it a very good time to actually monetize our assets, right?
It has generated cash flow lately because of the oil price and the investment level we put in there. Historically, it's an asset that requires quite a bit of CapEx. And so when we close the transaction, we shouldn't see a big impact on our cash flow and we'll get, of course, Hopefully, a very good proceeds from the transaction.
Yes. Wonderful. Thank you very much.
Thank you.
And speakers, I'll turn the conference back over to you for closing remarks.
Thank you very much. So to conclude the call, I would like to leave you with a few key takeaways. First, the Q2 results clearly demonstrate both the strength of our market position, particularly internationally, with second share growth in all divisions and basins and our significant operating leverage resulting in more than 200 basis Activity and customer trends observed during the quarter reinforce our conviction in an increasingly favorable outlook, with a broad recovery across all basins and operating environments and with a much improved contribution from new technology adoption. 3rd, and absent further COVID setbacks impacting activity or economic rebound, We are confident that the momentum for this upcycle, both North America and internationally, will continue during the second half of twenty twenty one and will lead to another quarter of growth and margin expansion. As a consequence, we remain confident in our second half guidance shared previously for international growth and have increased our confidence in our full year margin expansion and cash flow generation.
Finally, as we look further ahead, the conditions are set for an exceptional growth cycle in response to the call for supply in 2022 and future demand growth in sub second years. This will increasingly favor international supply impacting land and offshore short and long cycle globally. Ladies and gentlemen, our returns focused strategy, International footprint, digital decarbonization and new energy strategic initiatives are highly differentiated and we support our outperformance ambition throughout the cycle and beyond as we continue to write a new chapter for the company. Thank you very much.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT and T teleconference. You may now disconnect.