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Your conference will begin momentarily. Please continue to hold.
Ladies and gentlemen, thank you for standing by. 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 call over to Simon Ferrant, Vice President of Investor Relations. Please go ahead.
Good morning, good afternoon, good evening, and welcome to the Schlumberger Limited 2020 earnings call. Today's call is being hosted from Houston following the Schlumberger Limited Board meeting held earlier this week. Joining us on the call are Olivier Labouche, Chief Executive Officer and Stephane Bigay, Chief Financial Officer. For today's agenda, Olivier will start with the call with his perspectives on the quarter and our updated view of the industry macro, after which Stephane will give more details on our financial results, then we'll open up for questions. As always, before we begin, I'd like to remind the participants that some of the statements we're 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 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 Q1 press release, which is on our website. Now I'll turn the call over to Olivier.
Thank you, Simon, and good morning, ladies and gentlemen. I hope everyone is safe and well. This morning, I'm going to comment on 3 topics: our Q1 performance how we are managing today's increasingly difficult operating environment and how we see the outlook for the Q2. Before I do that, I would first like to thank the Schlumberger people around the world who are demonstrating great resilience and adaptability. I'm very proud of our team and of what they have achieved in the Q1.
Despite the complications from the COVID-nineteen outbreak, they delivered strong organizational performance throughout the quarter. We kept very close to our customer as the crisis developed, and we were able to maintain wayside operations with only minimal disruption across a few countries. The feedback I've received from our customers has been both positive and appreciative of our operational performance. Despite the difficulty of the situation and the duress under which our people have been working, Q1 was one of the best quarter in terms of service quality and actually the best quarter ever in safety performance. Let's start with the perspective on our Q1 results.
The resilience of our performance given the COVID-nineteen related disruption and the early impact of the oil price collapse delivered earnings of $0.25 per share, only marginally short of our original expectation. Quarter was characterized by the usual combination of seasonal impact in the Northern Hemisphere and the sequential decline of product and software sales. However, towards the end of the quarter, activity started to decline in several basins due to the 1% of the drop in oil price and the increasing challenges posed by COVID-nineteen. The most severe impact was in North America land, where customers were fast to react with a sharp 17% cut in rig count. In our business segments, the Reservoir Characterization revenue closed the quarter sequentially down 20%, partly on seasonal effects, but also as a consequence of customer curtailing their discretionary and exploration spending in the latter part of the quarter.
The margin decline on the absence of significant multi cloud software license sales, weak exploration mix and lower contribution from discretionary software sales. Drilling revenue declined sequentially on seasonal effects and the collapse in North America late in the quarter, but despite resilience with margins flat sequentially on our operational execution and our focus on underperforming business units as well as continued success in our technology access strategy. Production revenue declined on lower activity in international markets and weaker APS results. While production margin declined 100 basis points driven by the weaker international activity, the success of our OneStream scale to fit strategy in North America matched resource to market needs and optimize our operational footprint. Cameron revenue was seasonally lower and suffered from the exposure of the short cycle business in North America.
International Cameron revenue was also lower as we halted manufacturing in Italy and Malaysia in response to local restrictions to mitigate the spread of the COVID-nineteen virus. Despite this negative effect, Cameron margin increased sequentially, driven largely by this quarter's favorable mix in the 1 subsea portfolio. Looking at North America land in more detail. A timely acceleration of our NAS strategy protected margins from excessive sequential decline. We began the quarter having scaled our 1 steam fleet to fit the market, which resulted in higher utilization and minimal frac Canada gaps.
However, once oil price began to collapse in March, customer rapidly dropped rigs and frac crews. Along with well construction and completion activity decreasing, the technology mix switched from driving performance to saving costs. We reacted rapidly by stacking frac fleets to protect our margin and had reduced capacity by more than 27% and reduced our CapEx plan by 60% by the end of the quarter. In contrast, our international revenue closed 2% ahead year on year or 4% when accounting for the 2019 business divestiture. Growth was resilient in key Schlumberger markets across Russia and Central Asia, Saudi Arabia and Bahrain, Far East Asia and Australia, Northern Middle East, Latin America North and Norway and Denmark.
Our Q1 cash flow from operations more than doubled year on year to $784,000,000 as a result of our heightened focus on collections and our resilience in key international markets. Let me now talk about what we are doing to protect the company and how we are focused on cash, liquidity and the strength of our balance sheet in a period of high uncertainty as the depth and extent of the Corolla virus impact on global oil demand remains unknown. First, and after an in-depth review of the possible outcomes of the new oil order we are facing, we have made the very difficult but necessary decision to reduce our dividend by 75%. This will protect our cash and liquidity in the current environment, while giving us greater flexibility going forward. We'll continue to exercise stringent capital stewardship, while retaining the ability to balance any capital return to shareholders as operational condition evolve.
2nd, we have reduced our capital investment program by more than 30% across CapEx, APS and MultiClient. We're also reducing our research and engineering investment by more than 20% in the Q2 to reflect the necessary adjustments to our 2020 commercialization program. 3rd, we have accelerated and increased our structural cost reduction in North America in alignment with the scale to fit strategy initiated during the Q4, adjusted for the new environment. As a result, we have unfortunately had to reduce our workforce in North America by close to 1500 people during the Q1. We continue to decisively implement structural change during the Q2, both in North America and internationally to align our cost base with the anticipated short term and second half activity outlook, with full understanding that the pace and scale of decline is still uncertain, but would be more abrupt than during any recent downturn.
Finally, we have also taken exceptional temporary measures to conserve cash by implementing furloughs across many parts of our organization, both in North America and internationally, and by reducing compensation for the executive team and for the Board of Directors. The result of this action represents a significant step towards protecting the company cash and liquidity in the face of the significant uncertainties. I believe that our response so far has been swift and effective as demonstrated by our margin and cash flow performance during the Q1, while providing service to all of our customers with unique resilience and performance across all bases. Stephane will discuss the strength of our balance sheet, our access to liquidity and our capital investment program in more detail in few minutes. Before that, let me give you our perspective for the Q2.
Despite the recent agreements by the world's largest oil producer to cut production, Q2 is likely to be the most uncertain and disruptive quarter that the industry has ever seen. We are therefore not in a position to provide guidance for the next quarter as we face 2 degrees of uncertainty beyond the severe impact of oil demand contraction and the level of commodity oil price. First, it is very difficult to model or predict the frequency of magnitude of the COVID-nineteen disruption on field operations. 2nd, it is too early to judge the impact of recent OPEC plus decision on the level of international activity as well as its repercussion on storage level globally and related risk of production shut ins. Let me, however, share our view on the key activity trends starting with North America.
We anticipate both rig activity and frac completion activity to continue to decline sharply during the Q2 to reach a sequential decline of 40% to 60%, which matched the full year budget adjustment guidance shared by most operators in North America Land. This will represent the most severe decline in drilling and completion activity in a single quarter in several decades. Internationally, we see a less severe sequential decline as some long cycle offshore and land development market should remain relatively resilient will partially offset the exploration activity drop as well as the expected activity adjustments that will result from the OPEC plus decision. Directionally, at this time and excluding the seasonal rebound of rig activity in Russia and China, the international rig count is expected to decline by low to mid teens sequentially. However, this will vary greatly by basin and per customer.
We have been successful during the Q1 in providing the market with resilience and performance. We anticipate building on this success, and we'll fully leverage our unique international franchise to retain optimum activity mix going forward. As the quarter develops and we get more clarity on the timing and shape of demand recovery and better understand the OPEC plus deal implementation and compliance, we'll be able to discuss our outlook for the second half of the year with you. Let me conclude by reinforcing the enormity of the task ahead. It will require a level of response and depth of resilience that have yet to be fully realized.
The actions we have taken so far have been focused on those things we can control in protecting our business. Have clear priority on cash and liquidity in an uncertain industry and global environment. Continue to take the steps necessary to protect the safety and health of our people and pursue our ambition to be the performance partner of choice for our customers. The future of Industry pose difficult challenge for people and for the environment, but continues to offer a unique opportunity. I believe that the resilience and performance of our people, our technology leadership and our financial strength will clearly position us for success as the industry rebounds from this unprecedented downturn.
On to you, Stephane.
Thank you, Olivier. Good morning, ladies and gentlemen, and thank you for participating in this conference call. 1st quarter earnings per share, excluding charges and credits, was $0.25 This represents a decrease of $0.14 sequentially and $0.05 when compared to the same quarter of last year. During the quarter, we recorded $8,500,000,000 of pre tax charges, driven by current market conditions and valuations. These charges primarily relate to goodwill, intangible assets and overall long lived assets.
As such, this charge is almost entirely non cash. You can find details of its components in the FAQs at the end of our earnings press release. These impairments were all recorded as of the end of March. Therefore, the Q1 results did not include any benefit from reduced depreciation and amortization expense as a result of these charges. However, going forward, depreciation and amortization expense will be reduced by approximately $95,000,000 on a quarterly basis.
Approximately $45,000,000 of this will be reflected in the Production segment. The remaining $50,000,000 will be reflected in the corporate and other line item. The quarterly after tax impact of these reductions is approximately $0.06 in EPS terms. I will now summarize the main drivers of our Q1 results. I will not go into much detail as Olivier already provided some key highlights, but I will spend more time updating you on our liquidity position.
Overall, our Q1 revenue of $7,500,000,000 decreased 9% sequentially. Pretax segment operating margins decreased 181 basis points to 10.4%. 1st quarter Reservoir Characterization revenue of 1,300,000,000 dollars decreased 20% sequentially, while margin decreased 839 basis points to 14%. The sequential drop was a combination of seasonal effects and early signs of customer curtailing discretionary expenditures. Drilling revenue of $2,300,000,000 decreased 6% while margins were flat at 12.4%.
Approximately half of that revenue decline was due to the divestiture of our fishing and remedial tools business at the end of the 4th quarter. Production revenue of $2,700,000,000 decreased 6% sequentially and margins declined 98 basis points to 7.8%. Cameron revenue of $1,300,000,000 decreased 10%, while margins slightly increased by 57 basis points to 9 excluding charges and credits was 17% in the first quarter as compared to 16% in the previous quarter. Please note that it is going to be challenging to provide guidance around our effective tax rate going forward as discussed in further detail in the FAQ at the end of our earnings release. Let me now turn to our liquidity.
During the Q1, we generated $784,000,000 of cash flow from operations. As Olivier mentioned, this is more than double what we and invested $163,000,000 in Asset Performance Solutions or APS projects. We completed the sale of our interest in the Bandurria Sur block in Argentina during the quarter. The net proceeds from this transaction, combined with the proceeds we received from the divestiture of a smaller APS project, amounted to about $300,000,000 Looking forward, after considering the Argentina divestiture and reduction in the rest of our project portfolio, our EPS investments for the full year will not exceed 500,000,000 dollars With this, as well as the significant reduction of our operating CapEx engaged during the quarter, our total capital spend for 2020, including APS and MultiClient, will now be approximately $1,800,000,000 This represents close to a 35% decrease as compared to 2019. On the balance sheet side, we took a series of steps during the Q1 to reinforce our liquidity position.
First, we ended the quarter with total cash and investments of $3,300,000,000 While this cash balance is higher than what we generally like to carry, this was a conscious decision, and I am very comfortable with it considering the current situation. Our net debt increased by only $171,000,000 during the quarter, closing at $13,300,000,000 which is more than $1,000,000,000 lower than the level we were at a year ago. During the Q1, we issued €400,000,000 of notes due in 2027 and another €400,000,000 of notes due in 2,031. These notes carry a weighted average interest rate of 2% after being swapped into U. S.
Dollars. We also renewed during the quarter our revolving credit facilities. These committed facilities amount to a total of $6,250,000,000 and do not mature until between February 2023 February 2025. We ended the quarter with $2,700,000,000 of commercial paper borrowings outstanding. Therefore, after considering the $3,300,000,000 of cash on hand, we had $6,800,000,000 of liquidity available to us at the end of the quarter.
In addition, we entered last week into another committed revolving credit facility for €1,200,000,000 This is a 1 year facility that can be extended at our option for up to another year. We can also upsize the facility through syndication. To date, we have not grown on this facility. Finally, our short term credit ratings, which are critical to maintain our privileged access to the commercial paper markets, were just recently reaffirmed by both Standards and Poor and Moody's. In light of our available liquidity and the various actions undertaken during the quarter, our debt maturity profile over the next 12 months is quite manageable.
We only have $500,000,000 of bonds coming due in the Q4 of this year and another $600,000,000 coming due in the Q1 of 2021. Our preference is to refinance these obligations with new bonds, market permitting. To close, let me come back to what is probably the most important decision of the quarter as it relates to capital allocation. In this environment, our strategic priority is obviously on conserving cash and further protecting our balance sheet. To this end, we have taken the prudent decision to reduce our quarterly dividend by 75%.
The revised dividend still supports shareholder value proposition by maintaining both a healthy yield and a reasonable payout ratio as we navigate within certain times. It also allows for prudent organic investment, while maintaining the self discipline required under the capital stewardship program that we have committed to. Finally, it gives us flexibility to adjust our capital return policy in the future, whether through increased dividends or stock buybacks when operating and business conditions improve. I will now turn the conference call back
you, Stephane. Thank you for this clarification. So ladies and gentlemen, I think we will open the floor for Q and A at this point.
Thank And our first question is from James West with Evercore ISI. Please go ahead.
Hey, good morning, Olivier and Stephane.
Good morning, James.
So Olivier, in terms of capital allocation strategy going forward, I know we have the dividend cut today, which is clearly a prudent move in light of the current environment, although we're going to stabilize and figure out how this market unfolds here in the next quarter or so. How do you think about capital allocation through this downturn? Previously, you guys were countercyclical and getting into the SPM. You've obviously disbanded that. So I doubt that's an area of capital.
But how are you thinking about the allocation of capital?
So James, as you know, we have as part of the strategy reaffirm our capital stewardship program and has had a strategy step. And I think under that umbrella, we did reaffirm our priority for our capital allocation. And our cash from free cash flow from operation typically will be directed towards 3 buckets. The first one to maintain and support our ongoing operation, and that's part of what we do in the sense of under strict capital allocation for the CapEx. The second one being, obviously, to maintain the strength of our balance sheet and to address the debt level that we need to maintain the right ratio and finally, the dividend.
Any excess cash beyond that, I think, will be directed towards either business opportunity that represents an accretive return to our capital under the new program of capital stewardship or return redistribution to the shareholder in the form of buyback or in the form of future increase of our dividend. That's the way we will continue to use the framework under this condition. Stephane, do you want to
add anything? You're covered. Thank you.
Okay.
And our next question comes from the line of Sean Meakim with JPMorgan. Please go ahead.
Thank you. Good morning.
Good morning, sir.
So maybe just to follow on
to that, so good to hear the updated thoughts around capital allocation. Can we then maybe just kind of dovetail into thinking about sources and uses of cash? The balance sheet has a pretty front loaded maturity cadence over the next couple of years. So the $4,000,000,000 that you'll keep on the balance sheet from the reduction of dividend that certainly will help. You closed the Bandurria Sur
Operator, we lost Soren.
Yes. One moment, please. I apologize, Mr. Meakim. Please go ahead with your question.
I apologize.
Sure. Can you hear me now?
Yes, we can.
Great. Okay. Sorry about that. So the main question is about sources and uses of cash. The balance sheet maturity cadence is pretty front loaded through 2023.
And so it'd be great to hear about how you think about sources and uses over the next couple of years to address that part of the balance sheet. Thank you.
Good morning, Sean. Thanks for the question. For the upcoming maturities, at least in the next 12 months, as I said, they are pretty well spaced and the amounts are quite reasonable. So, really, what we will do is our objective is to refinance those maturities with new bonds or if cash permits, we will pay down some of that debt to maintain the credit rating that we are targeting. And what we are targeting is really to ensure that we keep a strong investment grade credit in this cyclical environment.
So, this will really be the way we will deal with the upcoming maturities, if that answers your question.
We have Sean, we have been on a continuous basis, we have been using bonds to refinance the materials that were coming. I think we did, as you heard, Stefan, today, we had 2 new bonds that were issued during the Q1 in euro that was swapped back to dollar. And I think we have done that all along and as part of our program, and this was reviewed during the Finance Committee, and there was an envelope agreed and approved by the Board going forward to refinance a large amount and go after the bond market to address those. We are confident with the current investment grade we have that will be successful in tapping in those market.
And our next question is from Angie Sedita with Goldman Sachs. Please go ahead.
Thanks. Good morning. Good afternoon, guys. So for Olivia or Stefan, maybe you could talk a little bit further about the cost cutting and you can give us some parameters potentially around the dollar size of the cost cutting and the degree that it is fixed versus variable. If certain impact in certain segments are impacted more so than others?
And beyond Q2, if we look into Q3 and Q4, thoughts around decremental margins?
Yes, quite a lot, Angie. Good morning. So I think so first, I think I'll stay quite generic in the statement I will make on purpose because I think there is a lot of uncertainty into the level of outlook activity wise in the second half of the year. We are starting to understand when the quarter will land this quarter in North America, and we have taken action to address and rightsize the organization. And I talked about a 40% to 60%.
So you can understand that the organization will be adjusted towards that end. And I think it will affect more or less across all product line. And once team will be certainly rightsized on the high end of that framework. And we certainly have to execute faster the strategy of rightsizing or scale to fit, as we call it. Hence, when talking about the structure costs and the fixed structure costs, That's why we will put some effort to make sure that the restructure and the feed for basin and the hub concentration we are putting for 1 steam in the next few months will be addressed 1st and foremost in parallel with the variable cost action that we are taking.
So North America is fairly clear because the activities, direction and drop of activities are already well understood. Internationally, I think it varies a lot from one geography to the next. And there is still a lot of uncertainty, partly with regard to the decision by the national company to cut the extent on which they will cut or not. So we are more prudent in our approach internationally, but we are as well executing there and doing both the structure fixed structure and as well as variable in the coming weeks. So to give you a number, I don't think there is a number we can quote.
The number will keep evolving, but it will be likely to be in excess of $1,000,000,000 if we want to just talk about compensation going forward on an annual basis. And this number will certainly change as we go forward. So all in all, we continue to follow the curve, as we call it, albeit this year, it's steeper and evolving faster. And we're addressing both the fixed and the variable as we have done in previous downturn.
And our next question is from Scott Gruber with Citigroup. Please go ahead.
Good morning, Scott.
I want to touch on working capital. Given your end market forecast, how should we think about working capital? Is there any way to dimension the potential benefit to cash this year or potential range of where days outstanding to land at the end of the year? And any lessons learned from the last cycle that can help the working capital this cycle?
Yes, Scott. We indeed expect to see our working capital winding down over the next few quarters as activity reduces. Now the magnitude of that working capital release is dependent on several factors, of course. And probably the most significant you're asking about lessons learned here is the pace of cash collections we receive from our customers. So, immediately, as we saw the environment deteriorating, we refocused our entire organization on cash collections, and you have seen the early signs of this through our cash flow performance in Q1.
So, now, as much as we are working to prevent it, we could see payments being delayed over the next few quarters, but we will keep a very close eye on this. Now, we may see some offsets to the positive working capital effects from restructuring cash costs as we continue to adjust our structure. But definitely, we will see from a normal working capital trend, we will see a release.
And next we have a question from Bill Herbert with Simmons. Please go ahead.
Good morning. Two questions related to operating cash flow. First, I'll hit the working capital one again. Typically in a downturn, your international customers are slow pay, if not everybody. And if you looked at 2015, it was a consumer of cash of $500,000,000 or close to it.
Will it be a source of cash or a consumer cash? And then secondly, your guidance with regard to depreciation, I think I heard you say down $95,000,000 from what Q1 or Q4? Thank you.
Yes. So, on the working capital, you're right. The first year of the previous downturn, we did have a consumption from the receivable. And again, we'll try to prevent this. We know the hotspots and we keep a close eye on it, but there are some places where payments can be delayed for sure.
On the D and A, yes, I did say $95,000,000 It's pre tax, obviously, and it's compared to the Q1 of this year. So, dollars 95,000,000 lower D and A going forward from Q1 2020 reference.
Next, we go on to a question from Kurt Hallead with RBC. Please go ahead.
Hey, good morning. Good afternoon.
Sir, I wanted to thank
you for all the color so far in a difficult environment. I want to follow-up on a couple of specifics. First on reservoir characterization, you had pretty substantial decline in margins in the Q1 here. And one is get a sense as to what may have been driving that and to whether or not that is now a new sustained kind of margin dynamic in reservoir characterization?
So Kurt, I think the reason why we had such a margin decline is due to 2 factors. The first is the fact that we had a severe top line decline of 20% sequentially. That's not unusual, but it was on the low side of what we on the high side, what we typically see seasonally. And I think that they come out associated with this. Secondly, there were a few disruption during the quarter that added to the cost that could not be recovered during the quarter.
And 3rd, and maybe the most important one, I think, is that the decision by the operator to start to tighten the purse in the later part of the quarter did impact what is typically making the quarter in the Q1, which is the sales of multi client license sale and also the discretionary software. So the Q1 is typically a low quarter for margin in Reservoir Characterization, seasonal effect, But this was compounded by the severity of the curtailment of spent in the latter part in the last 6 weeks of the quarter that impacted what typically contributes positively to your Q1 quarter or any quarter, which is the end of the quarter sales for software for MultiClient. So we expect this to continue indeed. However, we expect the seasonal effect to recover somewhat, albeit the exploration budget will be lower by about 40% from last year, that's the estimate, from our engagement with the customer.
Okay. And then my follow-up question would then be on Cameron. In that context, margins there were fairly strong. I think we can all expect that orders and FIDs and everything will wind up being pushed to the right. So I guess my question would be more along the lines of the projects that are in backlog.
How should we think about the margin progression in Cameron as the rest of the year evolves? There
was there are 2 factors that did influence, one positive and one the quarter, and one of them will continue. So the negative factor that impacted the common margin related to the short cycle impact in North America, declining more than we had anticipated. And this decline will continue. We are taking action to maintain or to control the decremental on that aspect. And the second factor was favorable mix in the 1 Subsea long cycle business.
So the mix of this will continue going forward. We expect this to be slightly declining in the Q2 because we will see more decline in North America, as was clearly highlighted in this call. And the favorable mix of 1 subsea will not repeat in the same magnitude for the next quarter. However, we still feel that the long term backlog we have in 1 Subsea and to some extent in the new award we got in long lead drilling will support sustaining the margin somehow in the long term.
Okay, great. Thank you.
And next we go to a question from David Anderson with Barclays. Please go ahead.
Great, thanks. Good morning Olivier. Two questions on the international front there. You highlighted spending being down 15% this year. It's obviously really different buckets that you're seeing out there.
You've got onshore versus Latin America. Everything's kind of moving at different rates. Could you just kind of give us our thoughts generally on how you see all the different moving all the different parts moving? And then secondarily, if you could just kind of dig in on kind of Middle East, Russia and China. Help us kind of collectively, how big is that part of your business?
I'm not expecting you to give me a percentage number, but just kind of just give us a sense because I would think that would be kind of the more stable part of your portfolio over the next 12 to 24 months.
Yes. As you correctly said, Dave, I think there is a lot of moving parts. The rig projection that we are using as a proxy for future activity, I think, keep moving to the right or keep declining, okay? And we have seen that in the recent weeks. I think we stabilized during the Q2 due to the decision that some OPEC plus member will take as the outcome of their commitments will get clearer.
But this being said, as we commented before, when I exclude Russia and China, which have a seasonal effect in the Q2, it is favorable. When I exclude that, the decline of rig activities is low to mid teens sequential decline of rig in short term. The viability of that varies a lot. We said that the some of the West Africa, Europe and to a lesser extent Gulf of Mexico are getting more impacted than we will get in some of the land Middle East activity or even China Offshore or Australia or Qatar Offshore that will actually go up. So there is a lot of moving parts, as you said.
But generally speaking, there are pockets of resilience that are either linked to long term gas or oil development offshore and onshore. And some of it could be like in Guyana, some of it could be Qatar Gas Offshore, some of it can be Deepwater Australia or China Offshore or could be Land Russia. All of this is making a pocket of resilience that we are trying to benefit from where we either have strong or very strong market position such as in Russia and Qatar offshore, for example, and we will exploit and leverage this during the Q2. And some of it, we will be trying to position our performance to get the most out of the activity. So that's a mix going forward.
So pockets of up and down that would keep evolving. So that's the best I can share at this moment, Dave.
I appreciate that. And maybe just a follow-up question on your APS portfolio. The last time we went through all this, we had some issues that there's more oil price exposure than I think a lot of us realize. Can you just talk about I know that portfolio is a lot smaller today, but how much is tied to the oil price versus the fixed tariffs? And I know payments is kind of a question we have.
And maybe you could also just comment on where Ecuador is right now and when you think operations could resume there? Thanks. I'll
take the question, Dave. So on the oil price exposure, it's about half of our EPS revenue is on fixed tariff on service fee, while the other half has some element of indexation to oil or the gas prices. On that latter part, a good portion is already at the contractual minimum even with the oil prices we had in the Q1. So, the lower oil prices will not make it worse. All in all, when you take all of this into account, we are not talking about a significant direct impact on our earnings at the lower oil prices of today.
So, it's not a significant effect. On your second question regarding Ecuador, I don't think it's really appropriate for me to speculate on what specific customers will do from a payment standpoint. However, our total receivable balance in Ecuador was below $500,000,000 at the end of March, and we received timely payments during the quarter. So we will be watching this very closely. But so far the quarter was in line.
Thanks, gentlemen. Appreciate it.
And our next question is from the line of Chase Mulvehill with Bank of America Securities. Please go ahead.
Hey, good morning. Good morning, Chase. Good morning, Olivier. So I just wanted to ask real quickly about COVID-nineteen and obviously the impacts that it's having today. But if we think longer term, how do you think that the COVID-nineteen will impact how you operate over the medium to longer term?
I guess, kind of what I'm asking here is, do you expect maybe to accelerate any remote operating maybe less reliant on China or anything maybe less reliant on China or anything like that. So just kind of structurally, do you see any changes over the medium to longer term as a result of what's happening for COVID-nineteen?
Yes, very good question, Chase. So let me first come on to the way we did react and we did act and support our operational customer doing this period. So we actually put in place from mid January a full crisis management team looking at all aspects for us 1st and foremost looking at the way we're protecting the health for people and managing the support of logistics, supply chain and manufacturing. And we did that for the last 3 months now, going at full scale across all organization. And by doing that, we started to mitigate and understand the alternate path we have for logistics.
We started to second source and or better understand the risk we were having towards some supply exposure between China or elsewhere in the world. And actually, we had no disruption. The disruption we had were related to shut down states or government mandated in Malaysia or in Italy that we cannot offset. But aside from this, we're actually showing extremely good resilience on the logistics and the movement of people as we have a lot of people that are on every country local, and we do not depend as much as some of our peers and or some of the operator onto flying team or international commuter in most of the country where we operate. So we had extremely good resilience.
We did not let our customer down in any rig mobilization or in any product delivery at this point. So I think our resilience from multiplicity of channel we have used for the 2nd sourcing and the resilience of diversity and edge we have on our supply and manufacturing, I think, has been helping us. Now going forward, you are totally right. And I think we have accelerated our remote operation and automation of some of our operation. In the month of March, we had more than 60%, 60%, 60% of our drilling operation that were using remote operation.
So we have been exploiting with success the remote operation by reducing the footprint of our people on the rig side, having very positive impact on HSE, helping and supporting them remotely with an impact on service quality and providing efficiency and cost that benefit both the operator and ourselves. So this will continue. We'll accelerate. We have an excellent platform internally, and we have our Delphi platform externally. MoneyClare now starting to adopt our drilling, in particular, remote operation and automation.
This is accelerating as we speak. Another example, Chase, is as we were deploying Delphi, and you may have seen that into the earnings press release for Woodside. We were getting the request to accelerate due to the COVID restriction, accelerate the deployment of the cloud based infrastructure so that the asset team, the geo scientists of our customer could work from home and have the full access to their data and to their powerful geoscience application. We're able to deploy and accelerate and with great satisfaction and success, and this has been used as an example going forward. So yes, it will be a differentiation that we'll use going forward.
All right. Appreciate the color. One quick follow-up. Obviously, globally, we're starting to see some producing wells being shut in and obviously that's probably going to accelerate over the next couple of months or 2. But as we think about these wells that are shut in and as they come back online, could you talk to the impact that the service activity impact or the revenue that could impact your business as these wells are having to be brought back online, maybe the back half of this year, kind of early into next year?
It's difficult to say, it's Chase. I think first, I think it's difficult to judge the magnitude of the number of shut ins. It will depend on how fast and how much there will be an excess of supply going into topping the storage tanks. So I think it depends on reservoir. It depends on the location.
But generally speaking, yes, I think every well that is shut in, when it's put back, needs to get a bit of weller management, scaling and stimulation activity. So that will favor the service activity at large whenever it comes back on the campaign of reservicing those wells and providing intervention and stimulation to make them back flowing at a maximum capacity. So that will indeed be a positive, if I may, effect as we exit this very difficult period and we start to recover the full capacity of the oil producing field.
Awesome. Thank you. I'll turn it back over.
And our next question is from the line of George O'Leary with Tudor, Pickering, Holt. Please go ahead.
Good morning. Just wanted to start off on the offshore side. From an offshore perspective, shallow and deepwater rig count activity begins this downturn kind of at lower levels or well off prior cycle peak. So wondered if you could provide any color on how we should think about Schlumberger's offshore exposure entering this downturn versus prior cycles, whether as a percentage of revenue, just some kind of ballpark way to think about offshore exposure for you all?
As you said, I think we have not recovered far from it. The level of activity we have deepwater before the previous downturn, The deepwater partly in the floating floater market has been recovering maybe 10% to 20% from the trough, that's about it, for the last 3 years. There has been more rebound, albeit not fully recovered, on the shallow water market. So obviously, this is a big part of our international portfolio as this key to the industry. Do I see it forward?
I think I believe that the deepwater will decline as much as the shallow, albeit think it will not decline to the same magnitude that it had in the last downturn. There is not so much to give. And there are quite a few large projects that are active today that will continue to operate. So I see both shallow and deepwater declining in months to come. And I think the indication and the number I shared before, double digit to mid teens decline, sequentially applied to both actually.
And I think we'll manage it, but I don't think that it will be the same magnitude far from it, partially for the Deepwater.
Okay. That's very helpful color. And then secondarily, just aside from now having Cameron in the fold and you guys sold marine seismic vessels businesses, there's been a lot of changes and you guys have been doing kind of yeoman's work to structurally change the business and become more fixed cost CapEx light. But what notable way should we think about the Schlumberger portfolio being different, I. E, more resilient entering this downturn versus prior down cycles?
I think a major part of it will come from our exposure in North America, where we have made a decision to accelerate a new strategy, scale to fit and also asset light technology access. That's a major element of resilience in this downturn that will impact positively our way forward. And second, I would say is our digital strategy that I think we have invested into the last downturn to give us the benefit and certainly that will be leveraged with what has happened with remote operational automation and combination of executing our asset light, particularly in North America and any, I would say, high volume basins, and some of it will be in overseas and in Middle East or in China or elsewhere, we will accelerate our technology access asset light strategy and digital will complement this. So I believe that going forward, we will gain better resilience from our exposure and support from digital and asset light through technology access.
Thank you, Olivier.
And next, we have a question from Chris Voie with Wells Fargo. Please go ahead.
Thank you. Good morning. I wanted to ask about the international margin side. So if you look back to the last downturn 20 14 plus margins, it looks like held in quite well in the 1st year after the decline in activity. But then there was a pretty meaningful decline in 2016 as that year reflected more the new work that was awarded at lower prices and also cost absorption.
Going into this one, if we assume a similar setup where most of the work that still happens in 2020 has been already awarded, but in 2021, would be new work. I think it's a little bit different in that, there's less pricing to give, but potentially less cost available to cut as well. Could you maybe walk through how the margin profile going forward might compare this time around compared to last time?
Yes, it's difficult to comment until we as I said earlier, we get better clarity on the second half of the exact mix of international adjustment as well as we get more clarity on the when the COVID-nineteen crisis is getting an exit, a steady exit so that it will give us better indication on 20 21 outlook. But this being said, and you pointed out yourself, I think there is much less price in concession and to concede in this cycle. So that will get a little bit of a different profile of margin compression going forward. I believe that we'll be able to fare better in this cycle true cycle our margin compression that we have had in the previous one due to a lesser exposure to price decline, for 1 2, better efficiency, including some element of digital in our ability to operate and flex our operating capacity with the activity. And I would say also possibly better resilience in some of the market that we mentioned before where we have a stronger position.
Okay. That's helpful. And if I could get in a quick follow-up. In the release, you commented on how many fleets have been reduced in North America through the end of March. I'm wondering if you can give any color on how much further you might have cut at this point.
And there's a lot of speculation that fleet count in North America might go extremely low. Just curious if you can give any color on what you're seeing just at the leading edge there?
Yes. We are seeing the flat fleet going low, very low. But I think our trough, we anticipate will still be above 100 fleet, we believe, going forward. Now we will not recover from that going forward. We see some model arguing that the fleet count will go as low as 50 or 60 for the full market.
We don't believe this would be the case, at least to what we see and the indication we have. And we are aiming to maintain 10 to 15 or 10 to 12 fleet as a minimum operating in that environment and to have them active and deploying them to our fit strategy to the basin we favor and to the customer we believe are cognizant the performance we bring. Okay.
Thank you.
And ladies and gentlemen, we have time for one final question from Conor Lynagh with Morgan Stanley. Please go ahead.
Yes, thanks. Good morning.
Good morning Conor.
I'm wondering if you can help me reconcile. It seems like based on your sequential activity commentary and your full year commentary that you expect the vast majority of the activity reductions to occur in the Q2. Is that correct? And is that correct in both North America and international markets?
Yes. I think at the current assumption with the visibility we have, I think there is a sharp decline. As I said, this quarter is the worst in term of decline rate that the industry, I think, possibly would have ever seen in North America, clearly, and internationally, possibly. There will be further adjustments in the second half of the year in some markets, international market as well as maybe final rounding in North America. But I believe that the most decline is happening this quarter and will stabilize over the summer.
So yes, I think the indication we gave, I think, are certainly helping us to be with lesser decline and more stable environment from the exit rate of Q2 into the second half at this point.
Okay. That's fair. And in that context, it certainly seems like you guys have been proactive on cost management thus far. But relative to historical decrementals, should we think about Q2 being a bit higher relative to usual just given all that's going on and maybe mitigating from there? Or how would you think about the path?
I think commenting on the as I said earlier, giving you a guidance on a second quarter from the top line first is difficult because international market has a level of disruption, 3% to 5% possible on the big disruption due to restriction for the COVID-nineteen, combined with some decision on the of change of tack with some national company that will have to adapt the new OPEC plus voluntary cut, is making the top line very difficult to predict in the Q2. And when it comes to the bottom line, I think the abruptness of the adjustment can be and will be coped with to some extent in North America, but the lag into the ability to reduce the cost internationally is not the same due to many factor. Hence, the de camon pull in the next quarter will certainly be not be as good as we have historically done in a downturn. Now through the cycle, I think our ambition is to fare better for the reason I mentioned before. But in Q2, I think it will be a messy quarter at large from activity prediction and our ability to adjust our cost structure or to react and to leverage the opportunity we have also to uplift and get the most when there is an opportunity to our upside, and there will be upside.
Thank you. So I believe with this, I think we need to close. So let me conclude by reiterating some key takeaway from this call. Firstly, I believe that the company performed well during the Q1 despite a very challenging environment with excellent resilience and performance across operations, particularly in international markets and a very respectable financial result, particularly in a cash flow from operation. I feel very proud of the Schubertjer team who have delivered these under such stressful conditions.
Secondly, as we were presented with growing uncertainty on global economic outlook and a fast deteriorating commodity price, we acted swiftly. Reducing our capital spend program significantly, accelerating our scale to fit strategy approach in North America, and taking exceptional measures to protect our cash and liquidity for the Q2 and beyond. Thirdly, and after in-depth review of forward looking scenario, we decided to adjust the dividend to a new level as a prudent capital management decision, providing us with the liquidity and financial flexibility we need, considering the significant uncertainty in a quarter to come. Finally, we navigate this unprecedented industry downturn, we continue to prioritize key elements of our strategy, namely the capital stewardship initiative to protect the company's financial strength the Feed 4 Basins strategy to increase the performance impact in key basins for our customers and create sustainable differentiation and finally, the acceleration of the industry digital transformation to support higher efficiency gains in operation for our customers and for our own success. May everyone stay safe and healthy.
Thank you for your attention.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.