Ladies and gentlemen, thank you for standing by and welcome to the Schlumberger Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions. As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to the Vice President of Investor Relations, Simon Farrant. Please go ahead.

Good morning, good afternoon, good evening, and welcome to the Schlumberger Limited Second-Quarter 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 Le Peuch, Chief Executive Officer; and Stephane Biguet, Chief Financial Officer. For today's agenda, Olivier will start 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 will open up to your questions. As always, before we begin, I’d like to remind the 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-K 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 second-quarter 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. Thank you all for joining us on the call. Today, in my prepared remarks, I would like first to review the company’s performance during the second quarter, then offer commentary on the short-term outlook, and finally reflect on where we stand in our performance strategy vision. As we close one of the most difficult quarters in our industry, I want first to thank the women and men of Schlumberger for their resilience, performance, and dedication during these unique circumstances and express my pride not only in what we have achieved but also in what we contributed for the health of the communities where we work and live. Reflecting on the quarter’s performance, I would like to comment on four key attributes that clearly made this quarter unique in its achievements: operational performance, margins, cash and liquidity, and digital. First, our operational performance supported our best-ever safety and service quality performance on record. Indeed, our frequency of safety incidents reduced nearly 50% from a year ago, whilst our service quality improved nearly 40% year-on-year—to reach a new benchmark in integrity performance for our customers. This is an attribute of our performance vision that is becoming a clear differentiator in execution, and is very well acknowledged by our customers. Second is the strength of our operating margins—with 18% decremental margins despite the most severe and abrupt activity drop. These margins resulted primarily from the combination of swift actions on variable costs and the decision to accelerate the restructure of the company. This new organizational structure of four divisions aligned with our customers’ key workflow and five key basins of activity is significantly leaner and more responsive, adapted to the new industry normal, and strategically aligned with our performance vision. Internationally, the impact of these decisive actions also combined with progress on our capital stewardship program and continued industry adoption of new technology, particularly reservoir evaluation and digital solutions. As a consequence, the margins of our international franchise remained remarkably resilient, flat sequentially, despite the material revenue contraction and the adverse margin impact from the major disruption in Ecuador. As outlined in the earnings release, the majority of our GeoMarkets and three out of four business segments either expanded or maintained margins internationally, clearly demonstrating the strength of our franchise and the resilience of our earnings power. In North America, we accelerated the restructuring initiated last year with emphasis on scale-to-fit and the asset-light business model with significant permanent reductions to fixed and infrastructure costs. At this point, we have shut down about 150 of our facilities and continue to make progress on the technology access franchise. In short, we readied the business for a market of smaller scale and lower-growth outlook, but with higher returns. Third, the cash flow performance was extremely solid during the quarter, building on very strong cash flow from operations and leveraging the aggressive reduction of our capital spending. In fact, cash flow was still strong even when excluding working capital and accounting for the significant negative impact of severance payments during the quarter. Similarly, the liquidity position of the company significantly improved during Q2, while debt was visibly lower year-over-year. The attention to liquidity and cash preservation has been a very clear focus for the entire management team and finance function during the last several months, and I’m quite satisfied to have navigated this very difficult quarter with such a positive outcome. Finally, the adoption of digital, both internally and externally, is becoming a major factor of performance and was very impactful during the second quarter operationally and financially. Internally, we made significant improvement in the deployment of digital operations, particularly remote operations and digital inspections, as the COVID-19 pandemic restrictions created a catalyst for further adoption. Our drilling remote operations expanded over 25% during the quarter to exceed two-thirds of our drilling activity. We have drilled 1,250 wells in Q2 using our remote operations capability, supported by more than 250 remote operations engineers. In addition, we are now performing over 1,000 digital inspections per week, applied to maintenance, manufacturing, or integration applications across more than 40 countries, leveraging our digital backbone infrastructure. Therefore during the quarter, digital operations had a magnifying impact lowering the cost of service delivery, the size of operating crews, and increasing efficiency across operations lifecycle, hence contributing to our operating margins. Externally, we saw greater adoption of our open digital platform for both subsurface and operations solutions. The diversity and depth of digital solutions deployed with our customers, as described in several examples in our earnings release, reflects the growing maturity of the digital transformation in our industry and the success of our DELFI platform. We are extremely proud to be associated with ExxonMobil for the deployment of DrillPlan and DrillOps digital solutions to transform drilling planning and operations including automation. We share the same vision for the future of our industry, with ambition to deliver faster and lower-cost wells through digital technology. As digitalization is accelerating, we are also seeing continued progress in technology adoption despite the challenging context, as fit-for-basin and performance-focused technology generate significant efficiency gains for our customers. All in all, this quarter promised to be messy from an activity outlook, and it certainly was. However, the performance and resilience of our team, our decisive actions to preserve cash and margins, and the continued execution of our strategy, including digital, have delivered a very strong outcome, resetting the company’s competitiveness, and enabling us to operate with resilient margins in a structurally smaller market. Now let me turn to the short-term outlook. Given the uncertainties regarding the pace of economic and oil demand recovery, the range of activity outcomes for the second half of the year is still wide. However, with what we know and see today, we expect the global activity decline to recede into a soft landing in the coming months, absent further negative impact from COVID-19 on economic recovery or escalating rig activity disruptions. In the North America market, there is an uptick of DUC completions activity in the U.S., contrasted by the slow, but continued decline on both land and offshore rig activity. The frac rebound is expected to last until the seasonal decline at year-end, provided commodity pricing remains stable. International activity outlook appears mixed due to seasonal effect across the different basins. However, it’s still indicative of slight sequential contraction for drilling activity during Q3, particularly for deepwater and exploration. With this combined North America and international activity outlook and based on our position in the respective markets, we anticipate revenue to remain essentially flat sequentially on a global basis, with a slight positive uptick internationally, offset by flat- to low-single-digit decline in North America. In this context, and in the absence of any new setback due to COVID-19, we expect EBITDA and operating income to grow and the respective margins to expand during Q3, above and beyond the positive impact of impairment charges. These margins will benefit from the combination of incremental restructuring cost savings during the second half of the year, tailwind from the recovery of activity in Ecuador, and continued execution of our capital stewardship strategy. While we continue to navigate the trough of this cycle, we are actually setting an inflection point in our margins’ performance, ahead of the recovery and despite the backdrop of a significantly smaller market size. Cash flow performance in the coming quarter will continue to benefit from the tailwind of our aggressive capital spend adjustment, focus on working capital efficiency, and incremental cash savings from our restructuring program. Our ambition in the second half remains positive free cash flow despite anticipated severance payments. Put another way, in a flattening activity outlook for the next two or three quarters, our ambition is to execute on a path of visible margin recovery and robust free cash flow generation as we transition into 2021. We embarked on a new strategy less than one year ago, but market conditions created a catalyst to accelerate the restructuring of the company to align with our performance vision. The early results of this strategic execution are already visible in our operational performance, our financial results, and in the alignment with the new industry landscape. Our mid to long-term financial targets remain intact and clearly focused on returns. I believe that the steps accomplished during the quarter not only solidify our vision, but also created a clear path to restore margins and returns performance despite a structurally smaller market. And now I will hand the call to Stephane, who will discuss Q2 financials and the impact of our cost-out program in a bit more detail.

Thank you, Olivier. Good morning everyone, and thank you for joining this conference call. In the second quarter, earnings per share, excluding charges and credits, was $0.05, which is a decline of $0.20 sequentially and $0.30 compared to the same quarter last year. We recorded $3.7 billion in pretax charges this quarter, mostly related to workforce reductions, impairment of an APS investment, and excess assets. Details can be found in the FAQs at the end of our earnings press release. Apart from $1 billion in severance, the rest of the charges are primarily non-cash. The severance charge addresses both permanent fixed-cost reductions as part of the Company restructuring and variable headcount reductions to align with reduced activity levels. It’s crucial to note that these impairments were all recorded by the end of June, so our second-quarter results did not reflect any cost benefits from these charges. However, moving forward, these Q2 charges will lead to a reduction in depreciation and amortization expenses of about $80 million quarterly, and lease expenses will decrease by $25 million. Approximately $70 million of this reduction will appear in the Production segment, with the remaining $35 million being allocated among the Characterization, Drilling, and Cameron segments. The after-tax effect of these reductions is about $0.07 in EPS terms. I will now summarize the key factors influencing our second-quarter results. Our total revenue for the quarter was $5.4 billion, down 28% sequentially. Pretax segment operating margins declined by 303 basis points to 7.4%. The quick measures we've implemented to reduce variable costs, along with initial outcomes from our restructuring and structural cost-reduction initiatives, resulted in decremental margins of less than 20% both sequentially and year-over-year. Our restructuring program is aimed at permanently eliminating $1.5 billion in fixed costs, over half of which pertains to our international operations. Importantly, these figures represent actual cash savings and exclude any adjustments related to depreciation and amortization from impairment losses. We have accomplished approximately 40% of this $1.5 billion target within the second quarter and aim to finalize most of the remaining before the end of the year, which will support our margins in the latter half of the year and into 2021. Now, examining our results by segment, the second-quarter Reservoir Characterization revenue of $1.1 billion was down 20% sequentially, while margins rose by 357 basis points to 7.6%. The revenue decline was driven by customers reducing discretionary exploration spending. However, margins improved due to prompt cost reduction measures and the stability of our digital divisions, along with new Wireline technology adoption. Drilling revenue came in at $1.7 billion, decreasing 24%, and margins fell by 289 basis points to 9.6%. These declines were mainly due to a significant drop in the North America land rig count and COVID-related restrictions across Latin America, Africa, and Europe. Production revenue of $1.6 billion decreased by 40% sequentially, with margins declining by 630 basis points to 1.5%. This decrease was primarily due to a sharp decline in pressure pumping activity in North America land and a production interruption in Ecuador, caused by a major landslide, leading to about $100 million less revenue in our APS business this quarter. This interruption had a substantial, though temporary, effect on our decremental margins. As a result of this production halt, partially offset by the Q2 impairment effects, we expect APS amortization expenses to rise by about $40 million next quarter. Lastly, Cameron revenue of $1 billion decreased by 19%, while margins fell by 180 basis points to 7.9%, as international margin growth partly mitigated the severe activity decline in North America land. Moving to our liquidity, I'm pleased with our cash flow generation during the second quarter considering the challenging environment. We generated $803 million in cash flow from operations and $465 million in free cash flow, both of which surpassed last quarter's results despite $370 million in severance payments during this quarter. Consequently, we ended the quarter with total cash and investments of $3.6 billion. Our net debt totaled $13.8 billion at quarter-end, an increase of $479 million from the previous quarter, yet down nearly $1 billion compared to a year ago. In the quarter, we invested $251 million in CapEx and $61 million in APS projects. Our total capital expenditure for 2020, including APS and multi-client projects, is projected to be around $1.5 billion, marking a 45% reduction compared to 2019, primarily from lowered CapEx in North America and reduced APS investments. We have adjusted our total APS investments for 2020 down to about $300 million. Despite the second quarter being especially tough, we have continued to enhance our balance sheet. We issued €1 billion of 1.375% notes due in 2026, $900 million of 2.65% notes due in 2030, and €1 billion of 2% notes due in 2032. This bond issuance at favorable rates enabled us to redeem approximately $1.5 billion of bonds maturing within the next four quarters and also allowed us to pay down existing commercial paper, enhancing our flexibility. We concluded the quarter with $1.8 billion in outstanding commercial paper borrowings. After accounting for the $3.6 billion in cash available, along with $6.2 billion in unused credit facilities, we had about $9.8 billion in liquidity at the end of the quarter, which is a $3 billion increase from last quarter. Given this available liquidity and the actions taken during the quarter, our debt maturity schedule for the next 24 months is quite manageable, with only $500 million in bonds maturing in the fourth quarter of this year and $665 million due in the third quarter of 2021. The next maturity after that is not until August 2022. Before I wrap up, I'd like to briefly address our financial reporting moving forward. The corporate reorganization we are undertaking is extensive and will require time to fully execute. Thus, we will continue reporting our results for the third quarter as per our historical practices. Beginning with the fourth quarter, our results will be reported based on the new division structure. We will still disclose revenue quarterly on a geographic basis as per our historical format, breaking it down into North America, Latin America, ECA, and the Middle East. Annually, in conjunction with our fourth-quarter and full-year earnings announcement, we will disclose pretax operating income differentiated between North America and the rest of the world, including results from Cameron businesses. Shortly after we release our third-quarter earnings, we will share historical pro forma financial information based on the new division structure and the annual geographic margins to aid your modeling. I will now hand the call back to Olivier.

Yes, thank you. Thank you, Stephane. So I think we are ready to take your questions.

And our first question is from James West with Evercore ISI. Please go ahead.

So clearly digital technologies are gaining a lot of traction as the industry accelerates, intensifies its digital journey, and you guys are, of course, leading this charge here. Could you perhaps break out how much of your revenue and earnings comes from digital today and what the - what your plans are for that percentage in the future?

Well, thank you, James. So, I think as we commented before, we are not ready to disclose the detail of our revenue and margin contribution, net contribution from the digital business. Suffice to say that I think it has been accretive to growth. It has been the segment of our business that has been declining the least in the last quarter. It has been the one that has seen the most expansion of margin as well during the quarter. So, I think it is material to our business. Our ambition remains the same. We want to double this business in the midterm, double its size. And I think we will use for that two avenues - three avenues, the avenues of subsurface digital platform, where we are doing this transition to cloud-based DELFI solution with our customers, and I think we are already seeing a lot of traction in that space. And I think this will give us a new revenue stream of IT infrastructure cloud operation in addition to transformation services for every customer that we transition. Secondly, we want to open a new business around data, whether it be on the analytics or on the subsurface or operational data that we start to offer our platform for data exchange or for trading those data. So, we have introduced GAIA as a platform, and I think we are seeing success through national data rooms, as you have seen in Egypt, and other places in the world. So, I think that's a second new revenue stream that we are developing. And finally, digital operations. I think you have seen the recent announcement of the partnership we have developed with Exxon, and you are about to hear more in the future. We'll continue to lead in this drilling operation as well as production operation with Sensia, our joint venture partner. And I think these are the three revenue streams that we are developing compared to one we had before. So, this will give us the opportunity to expand in multiple facets and not only into the license for subsurface application.

Okay, great. That's very helpful. Maybe just a quick follow-up. As we transition to digital, understanding that your costs are lower, but also the customer fees are lower cost, does the ultimate EBITDA dollars, the absolute dollars, are they higher or lower?

I think, no doubt, with this growth and accretive margin, it would be higher. I think using the benefits from digital will also benefit our customer. That's the reason why we are seeing this adoption, because they realize that they extract efficiency, they transform their own operational workflow, and as such, reduce the total cost in the lifecycle of the operation. So, we will benefit, and they will benefit. We believe we have the edge. We are ahead of our competitors. And we own the platform that the industry is adopting. So that will give us sustainable differentiation.

And our next question is from Sean Meakim with JPMorgan. Please go ahead.

Olivier, the cost reduction plan is robust. No one doubts Schlumberger's ability to execute as we saw in the second quarter. As we've discussed in the past, in the medium term, you can't really cut your way to prosperity. It would be great if we could maybe learn more about how you plan to approach the next cycle. Last cycle, the service sector led with discounts to customers, and that was not least the large-cap diversifieds. I'm sure you received the same request this time around. As you're going to execute well on the cost-out program, looking beyond that, how do we defend the top line trajectory of the coming cycle?

Yes, Sean. I think you have to realize that compared to the last cycle, things have changed. And first and foremost, the margins have been reset for the whole industry. The pricing concession has been steep, and we have not recovered from this pricing from the last cycle. So, I think first, there is not much that we can give and share. The approach we are taking with our customers actually engages collaboratively across the full lifecycle of their operation and eliminates waste and focuses on engaging to reduce the cost of service delivery jointly. I think we are seeing success in this approach. We are being awarded an expanded scope when we succeed in eliminating costs and eliminating waste across the value chain. So, you will see more of this approach and less of pricing because the industry doesn't have much to give. Our customers realize this, and I think we are working more collaboratively than we had in the last five years on this. I believe the margin expansion that we are realizing or the resilience of the margin we are realizing today will be something that we'll be able to keep and build upon as the recovery starts to happen.

Thank you for that. I think that makes sense. Then I guess, as we look out what maybe a couple of years away, but at some point, there'll be another large tender that will hit the market. And I think that's probably where the rubber meets the road to some degree. How do you think about the competitive dynamics for those large multi-year tenders that have always been kind of the thorn in the side of the sector?

I think the lesson learned from this is that the industry has learned to be capital disciplined. I think we have all suffered from some of the steps we took as an industry. The capital discipline that I have seen and that we are using today is very prominent in many places. We have been following a very strict capital stewardship program, where we make clear choices on allocating capital where we see returns. As such, we are screening the opportunities that come our way. I believe some of our competitors are applying the same approach as the returns are not acceptable the way they were and the way they have been at the trough. Capital discipline is something that has changed, and I expect that it will be an element of success in the future. Now this being said, very large tenders with very large scopes that have a runway for multi-years will be competitive, but I think we will demonstrate we have the most competitive cost platform to operate those large contracts and will retain margins under those conditions.

And next, we have a question from Angie Sedita with Goldman Sachs. Please go ahead.

So around your Q3 guidance for EBITDA and operating income to be up, can you share any additional thoughts around magnitude as far as margins and the bottom line? And then the levers within those numbers, how does Ecuador factor into these numbers as it comes back as well as the furlough employees coming back? And any additional thoughts around the APS tariffs in Ecuador given oil prices?

Let me offer some very qualitative comments, and I will let Stephane add if he believes that we need to add. First, I don't think we are in a position where we would like to give quantitative guidance on these. I think considering the level of uncertainty in the mix that could, as we have seen in the second quarter, have changed dramatically partly internationally. I don't think I will go further on quantitative guidance going forward. But we are seeing positive and negative. On the positive side, we are seeing the flow-through, the incremental impact of our restructuring costs that will continue to flow into a tailwind for our margins. We'll also see the return of our Ecuador activity, as you have heard, with a $100 million impact on the top line. That will come back for both EBITDA and operating margins in the third quarter. At the same time, I think the execution that we have seen happening on capital stewardship and the success of technology, including digital, will also be an uplift. This would be partially offset; one of them will be the top line measure we took, an exceptional measure we took during the second quarter will not be there again. But as a mix, you understand that this will lift our margin despite a top line flat.

Just to add, Olivier, maybe one additional factor on top of the incremental fixed cost savings is also that the full quarter effect of the large headcount reductions we executed in Q2. The exit rates of those headcount reductions were much larger than the average. So we will have that tailwind as well.

And then, I mean you really had impressive results in Reservoir Characterization as far as margins. Can you talk a little bit about how much of that was driven by cost-cutting versus the impact of digital and maybe even Wireline? And when could we start to see similar transformation across your other businesses?

No, very good question. I think the Reservoir Characterization is certainly the one that is having the least exposure to North America as a benefit. It had a benefit on international. As I did mention, three out of the four business groups had flat or expanding margins internationally, and that was the case for Reservoir Characterization. Now to be specific, I would say that a little bit more than half came from this aggressive action we took on the structure and cost reduction. But I think the other half came from technology adoption. Technology adoption, Reservoir Evaluation from Wireline with Ora as the platform of service continues to be very, very successful in this campaign. Even if we have less exploration activity, we are able to deploy this new technology with much success, and it was the highest quarter in terms of revenue for that new technology Ora. Digital is something I will say that it's a technology success as much and technology adoption success as much as a cost structure. The other segments have technology, and I think we'll continue to succeed as well. So, I'm not worried about our ability to grow margins in every business group. But obviously, we benefited more from the differentiation of our technology in Reservoir Characterization.

And our next question is from Scott Gruber with Citigroup. Please go ahead.

Stephane, can you walk through a few of the major cash items over the next few quarters, specifically regarding working capital? What are your expectations for the size of the traditional second-half release? And then what are your expectations for cash severance in the second half? And how does that split between Q3 and Q4?

Sure, sure, good morning. Look for the second half, we actually expect our cash flow from operations to remain very strong. Even if indeed, you're right, the working capital release will not be as large as it was in Q2, because if we assume activity stabilizes as we said, in the second half. However again, we’ve already shown all fixed-cost cash savings materializing in the rest of the year and the reduced intensity of our capital spend. We think we can still generate positive free cash flow in the second half, despite the additional severance payments that we will incur. And to your question, we think we will incur most of the remaining severance payments in the second half of the year.

And we should think about - is the $1 billion less the $370 million paid in the second quarter in terms of what's remaining for cash severance? Is that the way to think about it?

Yes, you can put a little bit more because we had $200 million of provisions at the end of March as well.

Okay. And then just on the cost-out program. You mentioned realizing about 40% of the $1.5 billion during the second quarter. Is that a full quarter impact, or was that realized by quarter end and then just some color on realizing the majority of the remainder in the second half? Is that fairly linear, or is it more weighted towards Q3 or Q4?

So, it is a full quarter impact, meaning that the Q2 results include the 40%, and we exited the quarter actually at a much higher rate. So this is why we have a nice tailwind starting into Q3 and going into Q4 with the remaining 60%. Most of it is already realized at the end of or triggered at the end of the quarter.

Next, we go to the line of Bill Herbert with Simmons Energy. Please go ahead.

So, in a world of record OPEC spare capacity and inventory which can largely meet the rising call on OPEC output over the next two years, how should we think about the uptake for RCG services given the low hanging fruit with regard to monetizing production?

Yes, I think the RCG the Reservoir Characterization Group has multiple aspects to it. I think one is the digital. I think this one, independently of the trajectory of the recovery of the supply-demand balance will continue to benefit from the digital transformation that is happening in our industry. When it comes to the Wireline, the Testing, the reservoir evaluation aspect, I think you have to look at two aspects; firstly, exploration still is happening and will continue to happen. There were more than 100 wells explored offshore during the second quarter, and there will be more than 100 exploration wells in the first quarter. Hence, our ability to provide differentiation and technology with platforms such as Ora will continue to support and sustain margins in this environment. Secondly, Reservoir Characterization also characterizes producing reservoirs, so that when there is a short-cycle upside of trying to extract more from existing reservoirs without exploring, we are applying technology for intervention and for testing of the reservoir so that we can optimize. I think we've seen more resilience in the Wireline intervention production services during the quarter than on the evaluation services during the last quarter. So, I'm optimistic and reassured that our portfolio is well balanced and includes technology related to production-related activities that will make a difference as our customers go back to extracting more from the reservoirs and the producing fields they have.

And then Stephane, with regard to depreciation, did you say that in Q3, that total depreciation would be down $80 million quarter-on-quarter?

Yes, it will be from the impairment effect. However, you will also see a reversal coming from the Ecuador landslide incident that will partially offset this effect. But from impairment totally yes, go ahead, Scott.

So the net impact, we had $604 million in Q2. Approximately, what do you think the number and the guidance is for Q3?

It is not going to be so far from Q2, if you assume the same revenue levels we have.

And our next question is from Kurt Hallead with RBC. Please go ahead.

So Olivier, I was wondering, if you can, potentially give us a little bit more color around what maybe - what you may see happening in terms of business dynamics in the Middle East. There have been a couple of other earnings reports from some of your competitors this week. It seems like there are mixed messages in terms of overall level of activity and I guess, still some discussion around some pricing concession dynamics? So, you gave us some good color on Latin America and kind of what to expect in Ecuador. So just hoping you can give us some of that same kind of color and context on the Middle East?

Yes, thank you. I think the Middle East activity is seeing indeed a unique mix. The reason for this is that as part of the OPEC plus commitment and compliance, there were decisions made during the second quarter for several of the national companies operating in the Middle East to contain the activity and reduce activity including rig activity or rigless activity during the third quarter. This is impacting several countries, particularly Saudi Arabia. The number of rigs that the study was operating at the beginning of the year compared to where it is operating now, they will be down more than 40 rigs from January to June, and possibly another nine or 12 rigs in the third quarter. So, no doubt that there is a decline due to the transition exit rate from Q2, as well as some further contraction of activity in the third quarter. That's true for that country. Depending on the exposure you have in the Middle East, it can be significant or it can be offset. In our case, we are offsetting this by gain of activity or share in specifically Qatar and Kuwait. As such, the overall outlook for us on the Middle East is relatively flat on a sequential basis where indeed, the underlying rig activity sequentially will go down 6% to 7% across the region. However, depending on the market exposure we have, in our case, we are able to hold our top line relatively flat in that context.

That's great. And then my follow-up is you made a reference that given the cost-out dynamics execution and so on that you would expect your operating income margins and EBITDA to improve, obviously in the third quarter. But it seems like there is going to be some built-in momentum in the system that could carry you over into the fourth quarter, even if there is some seasonal decline in revenue? So just wanted to kind of test my theory on that to see if that's true, and then as part of that, I was also curious as to what business segment do you think has the best - will show the best improvement in EBITDA margins as you get through the second half of the year?

Good question. I think the first we do confirm that our ambition is to indeed on a flat outlook, absent any significant setback that would come from a reversal of the pandemic situation. Considering the forward-looking, there will be some seasonal effect. So, it's very early to give a perspective on the top line evolution from the third to the fourth quarter. However, if the current directional soft landing of activity continues well into the fourth quarter, we will expect indeed this benefit to carry through and this margin expansion to be consistent in the fourth quarter. So that's correct, and I think that we are supporting this. I don't think we are in a position where we can project and want to detail and give guidance on the business segment outlook beyond the next quarter. We expect them to indeed solidify and expand margins next quarter.

And next we have a question from the line of David Anderson with Barclays. Please go ahead.

I have a bigger-picture question for you. But I want to ask you a quick question first on the near-term, particularly on the Middle East. You talked about mix being an issue there, but in terms of the rigs going down, is it mostly oil? I'm just curious if you can just talk about the mix between oil and gas? Is gas still kind of largely maintained there? And secondarily, is there much impact on this on your LSTK contracts at all? You didn't really get into that at all. I'm just wondering if there is any impact there?

So, the first measure during the third quarter - the second quarter have been obviously on oil. However, there have been some side effects on gas because of budget reductions. So, budget constraints have led to a reduction of activity in gas as well. But what, to be specific, I’m sorry The gas LSTK contract indeed have reduced significantly. I'm not talking about the unconventional, but the conventional gas operation frac coil tubing rigless operation. This has reduced to a new floor and this will possibly rebound. However, the drilling LSTK contract performance is differentiated and there is a mix of oil or gas LSTK drilling contracts, and both were actually sustained and have not been impacted at this point. We don't expect it will be the case. So that's just to give you a little bit more growth.

That's great, thank you very much. So, my bigger-picture question is sort of looking back in history. When we talk about the cycles, it seems to be in 1986 is kind of a clear parallel to kind of what we're going through now, not only in terms of magnitude but kind of how we got here in a lot of respects. Now you started Schlumberger in 1987 and just like now, Schlumberger was going through a pretty major management change at the time? But as that cycle slowly regained its footing, Schlumberger really accelerated out of the downturn, set the company up for another decade of success. So my question is, as you look back at those days in the late 80s and early 90s, and I'm sure you've studied your predecessors during those times, I'm just wondering what are some of the big lessons that you learned about how to position the company what to focus on? And really I guess, what were kind of the keys to success back then that you're thinking about now as the cycle resets?

So first, I'm not old enough to comment on 1986 apparently. So no, Dave I think if we step back, the industry has a proportion to go into crisis and rebound. So, no doubt that this industry will engineer or innovate its way up to the current crisis, no doubt. I think the characteristics on the other side of this cycle will be different from what we have known in the last 10 to 15 years. Capital efficiency, capital discipline, and efficient cost of service delivery would be the prime elements of differentiation. We’re now talking about technology that impacts performance across the lifecycle that impacts efficiency hence, the fast adoption of digital will be differentiation. When you look back on cost, the success we had historically was clearly on expanding our international franchise and being the service company that could create value and find hydrocarbon reserves and help develop those reserves everywhere in the world in any condition. The game has changed; this is not about finding new supply. It’s about producing this supply at a lower cost. Sometimes it will be short-cycle extraction of the next drop, and other times, it will be finding the next advantage, offshore, deepwater, and large basins. Hence technology will always make a difference, but it will focus on performance impact efficiency, and this would change the game. The second aspect, I believe, I truly believe that the industry is recognizing. We are having better engagement today than we might have had in the past. The necessity to integrate and partner across the supply chain on the service side and from supply to operator to align in partnership that will create the game change we need. Because we need to transform as an industry, we need to find a way to extract this capital efficiency by standardization, by changing the way we operate, by transforming the way we digitally align with our operators and across the service industry. So partnership across the supply chain to really step change capital efficiency across the lifecycle and the technology that have differentiated per basin, focused on performance and focused on lowering the cost of service delivery. This is what I think will be the winning factor in the future.

I would also imagine that R&D spend is critical as well, right? I mean that's one of the things I've noticed over the decades?

Obviously.

That R&D spend is critical?

Obviously, as I said, I think the industry will innovate its way. Innovation will come from the way we reinvent ourselves, including this partnership, this transformation, operational transformation. But obviously, there will be a very key element of technology. We will have to invent the next and continue to lead on our digital and invent the technology that will transform operationally the performance of the assets of our customers and step change the efficiency of finding oil and automate the drilling operations. So that will come through technology investment. And no doubt that will continue, and we’ll invest in this to make it happen.

And our next question is from Connor Lynagh with Morgan Stanley. Please go ahead.

I was wondering if you could sort of frame something for me here. I think the pace of cost reductions and in many cases, structural cost reductions has surprised a lot of observers of the industry. And I guess what everyone is trying to figure out is how sustainable or how scalable these cost savings are. If you could characterize the $1.5 billion of cost savings, are you thinking of your business as able to reach the same revenue levels as previously? Are you not interested in reaching the same revenue levels that you had in say 2018 or 2019 because some of it was so returns-dilutive? How do you think about the ability of the organization to respond to higher activity levels, if and when we get there?

No. First, Connor, we had to realize - and I think this realization has been across the whole industry, that I think we are transitioning into a new normal. The new normal means that the market for the foreseeable short term will be structurally smaller in size. So, I think we have to make that realization. Whether we call it 25%, 30%, 35% smaller in size, it depends on the region and the business, but I think that's a reality that is leading us. So, I think that was the first and foremost realization. The second one we have realized and hence the decision that we have made to restructure the company to adjust and align with this new reality and to right-size our structure, including our support fixed structure to account for this. This doesn't say that we are not ready for growth; we're absolutely ready for growth. But I think we believe that the transformation we are going through, the capital efficiency, resource efficiency that we have enabled in the last three to four years and the digital transformation we're going through in our operations today will create the leverage we need to add future growth with much limited resources and our capital needs in the future. So, I believe that the asset velocity, the capital efficiency will play out. Now this being said, we will be very strict on our capital stewardship program, and as such indeed made the right choice to not deploy capital and resources when we believe that the returns are not in place. And I think we have started to do this. We are successful in doing this, and we continue to do so. But at the end, we will grow. The recovery is on the horizon. When and as it recovers, we'll be ready with a different shape, a different structure, a new company, whether it be in the North America market, where we are transitioning to an asset-light technology access model and a scale-to-fit approach, or internationally, where we are more focused on performance and getting success out of this, and we'll accelerate our digital transformation. So yes, we will, and we believe this structure will give us more flexibility, as well as we'll have the core digital and transformation capabilities to flex with an upturn at better increments.

I guess I would extend basically the same question to a point you were making, which is a lot of the things you're doing will make the business more capital-light. Is there a way that you can frame for people how the capital intensity or the CapEx needs as a percentage of sales, however you think of it, could look on a go-forward basis relative to what we saw in the previous cycle here?

I think we have been in 5% to 7% as guidance that we have been consistent with. I think we believe that we'll be able, as the market returns, to after completing some of the transformations for asset-light and technology access to continue on this 5% to 7%. We are comfortable on this. That remains the guidance we keep.

And ladies and gentlemen, we have one final question from the line of Marc Bianchi with Cowen. Please go ahead.

Olivier, you mentioned a soft landing for international in the third quarter. I think there's a lot of questions from investors about budget resets and you know what we've seen so far internationally this year and if there's incremental risks to 2021. Are you comfortable saying that absent seasonality that we usually see in the first quarter that international has bottomed in the second quarter of 2020?

It's too early to say, Marc. I think what I'm saying is that for this year, the effect of the budget adjustments and the COVID disruption that were budget was a significant decline of 22% rate decline in the second quarter. These two conditions, especially receding and subdued, as we go forward. We don't anticipate further significant budget cuts at the current pace. However, this is to say that the consequence on the budget setting in 2021 if the market was indicative of a slow but steady recovery scenario, that we’ll according to many of the analysts, IEA, and others fit to indicate an exit rate at $50 or $60 in 2020 for the Brent. In 2021 obviously this will certainly support a steady 2021 compared to the H2 activity internationally. But this is too early to say and I think we have to wait, the budget cycle and also obviously, three to four months of more economic recovery of pandemic containment to judge what the 2021 demand-supply balance could be, and the conditions for the budget in 2021.

Okay, well, maybe following up on that thought about 2021. If I sort of take the run rate level of EBITDA that you have here, it's about $3.3 billion and we've got another $900 million of cost savings that should be realized, you're kind of on a $4.2 billion annualized rate. As you look to 2021, understanding there's a lot of uncertainty, what would you say are the biggest factors that, you know, could be driving that higher or lower?

I think obviously the pace of economic recovery, the anticipated demand and supply balance, and the repercussion it will have on the confidence of the operator to invest or reinvest, I think is the major factor that will shape the turn of 2021. So, again, if it is a run rate of H2 times two, we expect to sustain whatever we produce in the second half, and multiply by two, that is the correct assumption. But again, the risk, I think, comes down to the demand-supply more than anything else. North America is a little bit of a wild card and we don't expect this to be a significant year, but it will be up most likely as a slow but steady recovery, but will not come back to the heyday. So, I think overall, I think you have the gallons, but the factor is predominantly the economic outlook and the demand-supply - the impact on demand-supply prediction. And we cannot comment more than this at this point.

Fair enough, thanks very much. I'll turn it back.

Thank you, Marc. So I believe we are - it's time to close. To close let me leave you with three points. Firstly, our Q2 performance reflects the decisiveness and depth of our cost adjustments and cash preservation actions. I'm very pleased with the operational performance, international margins resilience, cash flow results, and the take in digital during the quarter. Secondly, we are resetting the company structure to support our performance vision and to align with the new market reality and as such, we have initiated a clear path to restore margins and returns performance with the backdrop of a structurally smaller market. We expect this to show visibly during the second half, absent of a setback in economic recovery. Finally, our performance strategy with digital and sustainability has imperatives, and capital stewardship and fit-for-basin technologies as performance factors will create differentiation in this new industry landscape, and will support our returns ambition, particularly as the future recovery pivots towards international market. So with this, and now, before I close the call, I wish everyone, and I wish everyone a safe and happy summer. I would like to thank Simon Farrant for nearly 33 years of service, as he has elected to take early retirement from Schlumberger. Simon has been a very familiar voice and face throughout the last six years, 26 quarters, in his role as Vice President of Investor Relations. I trust that his unique contributions to both Schlumberger and the investor community will be greatly missed. Simon, we wish you and your family all the best. Enjoy the new chapter!

Thank you, Olivier.

ND Maduemezia, who most recently was the Sub-Sahara Africa GeoMarket Manager, will take over from Simon effective at the end of this month. I ask that you all welcome ND and extend to him the same high level of support and professional engagement that you shared with Simon. Welcome, ND.

Thank you, Olivier. I am excited and truly honored to take on this role, and I look forward to working very closely with all of you. I turn the call over to Simon.

Well, thank you very much, Olivier. It's been an honor to serve as the Head of Investor Relations, as you say for the last 26 quarters. I wish my good friend, ND, all the best in taking over this role. Thank you, operator, you may close the call.

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference service. You may now disconnect.