Prepared remarks
Good morning. My name is Sarah, and I will be your conference operator today. I would like to welcome everyone to the second quarter SLB earnings call. At this time, all participants are in a listen-only mode. As a reminder, this call is being recorded. I will now turn the call over to James McDonald, Senior Vice President of Investor Relations and Industry Affairs. Please go ahead.
Thank you, Sarah. Good morning, and welcome to the SLB Second Quarter 2026 Earnings Conference Call. Today's call is being hosted from London, following our Board meeting held earlier this week. Joining us on the call are Olivier Le Peuch, Chief Executive Officer; and Stephane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause the results to differ materially from those projected in these statements. For more information, please refer to our latest 10-K filing and other SEC filings, which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our second quarter earnings press release, which is on our site. With that, I will turn the call over to Olivier.
Thank you, James. Good morning, ladies and gentlemen. Thank you for joining us. Today, we'll begin with our second quarter performance. Then I will discuss the evolving macro environment and strategic growth areas for SLB. And finally, I will close by sharing our outlook for the third quarter and how we will exit the year. Stephane will then provide additional details on our financial results. And after that, we'll open the line for your questions. Let's begin. This was a solid quarter for SLB marked by broad-based international growth and a rebound in North America. Excluding the Middle East, we increased sequentially across all divisions. This was supported by higher offshore activity in Latin America, including Brazil, Guyana and Mexico, in Europe and Africa, across Scandinavia and in Asia, including China, Indonesia, India and Australia. Additionally, we saw a rebound in U.S. land with higher sales of FUSION chemicals, artificial lift and valves, driven by strong demand for production and recovery solutions. In the Middle East, we continue to navigate the conflict during the second quarter, while maintaining our focus on protecting our people and facilities across the region. Activity resumed in several countries, although operations in Iraq remained constrained by security channels. While uncertainty persists, we continue to work closely with our customers to gradually restore activity. That said, returning to full activity will take time, and the pace of recovery will be different by country, customer and operating environment. Turning to the divisions. I was very pleased with the continued momentum in Production Systems and Digital. In Production Systems, growth was supported by higher demand in artificial lift, valves, surface production systems and production chemicals as well as stronger subsea activity, particularly in North America and Latin America. This reflects clear and durable customer priorities: improving production, enhancing recovery and extending the life of existing assets, which are fully aligned with our increased focus in the core toward production and recovery. Production Systems adjusted EBITDA margins returned to above 20%, supported by strong execution. ChampionX also continued to provide accretive margins to Production Systems despite cost inflation in chemicals. Notably, ChampionX delivered sequential margin expansion for the third consecutive quarter. Digital also delivered very strong results, supported by a favorable business mix. This included higher exploration data licenses and transfer fees in Brazil and Indonesia, which helped digital adjusted EBITDA margins to reach approximately 35% for the quarter. Additionally, annual recurring revenue increased by 15% year-over-year. As we shared during our Digital Investor Day last month, the future of our industry is digital. We are confident that the key growth drivers highlighted at the event, Digital Operations and AI, will continue to build strong momentum across the industry. You can see several examples of recent customer contracts and deployments in the quarterly highlights, including in today's earnings press release. Meanwhile, Well Construction and Reservoir Performance declined slightly as a result of activity disruption in the Middle East. However, the impact was largely offset by stronger activity in North America and across other international markets. Data Center Solutions also continued its strong growth trajectory, revenue increasing 33% sequentially and 80% year-on-year. Growth was supported by the addition of new hyperscaler customers and a broader scope of offerings as we evolve beyond manufacturing into data center design, engineering and system integration, as exemplified by the recent announcement with Meta. All in all, this was a strong quarter against a difficult backdrop with solid financial results and steady progress in our strategy execution. I want to thank the entire SLB team for delivering these results in a very dynamic market. I continue to be impressed by your performance, your innovation and your commitment to our customers. Now let me turn to the macro environment, which continues to evolve following the disruption in the Middle East. There are several structural drivers of upstream investment that have been heightened by the conflict in the Middle East. This includes the replenishment of commercial inventories and strategic reserves that have been depleted during the conflict, an increased focus to diversify supply and the development of domestic resources to strengthen long-term energy security. These priorities support a favorable investment backdrop across both short- and long-cycle markets and they are bringing a renewed focus on exploration to unlock new reserves and an increasing focus on production recovery from existing assets. In this context, we expect a range-bound commodity environment that is constructive for upstream investment. Lower inventory levels and the need to repair capacity provide support to the low end of the range. And at the same time, higher prices will encourage the development of new supply, while unlocking new opportunities for our business. Let me now turn to regional activity dynamics. The market is starting to exhibit the characteristics of an upcycle. International activity and productivity are growing, supported by the fundamentals I've just discussed. Notably, according to third-party reports, final investment decisions for long-cycle projects are expected to increase by approximately 30% year-over-year in 2026. This will support higher exploration spending and upstream CapEx growth across other markets during the second half of 2026, led by Africa. And we expect a more meaningful impact in 2027. The growth extends into Latin America, the Middle East and Asia. Meanwhile, North America land will remain tied to short-cycle market dynamics, including commodity price, inventory level and the pace of restocking. Our position in North America has been strengthened by ChampionX and by the increasing need for technology innovation in production and recovery. In the Middle East, we see the impact as largely transitory. Restoring production to prior levels will require higher service intensity, particularly in well intervention, along with increased equipment demand, infrastructure repairs and airline shipping logistics. Based on this condition, and our exposure to international deepwater and exploration, production and recovery and digital, the outlook for our business into 2027 is compelling. Against this backdrop, SLB's strategy remains closely aligned with our customers' highest investment priorities. In the core, this includes restoring production capacity, developing advantaged resources, including deepwater, and improving capital efficiency. Beyond the core, digital remains both a key enabler of performance and a powerful growth platform for SLB. It touches every part of the upstream life cycle. The advantage is that digital is grounded in deep domain expertise and connected to real field operations. We're embedding intelligence into the workflows that matter most, from subsurface interpretation and well delivery to production optimization and autonomous operations. Finally, we are accelerating a Data Center Solutions strategy around three priorities: diversifying our customer base, expanding internationally, and increasing the scale and scope of our offerings. This quarter, we delivered on our strategic pathways, adding new hyperscale customers to our portfolio, diversifying our end markets across Canada and Asia and expanding our capabilities to include design, engineering and system integration. At the same time, we continue to leverage our off-site fabrication capabilities to scale up in response to accelerating demand and to compress delivery time for our customers. Our differentiated capabilities have resulted in our backlog going ahead of expectations with new contract awards, strong customer engagement and international expansion. This momentum gives us the confidence that we'll finish this year strong as we had previously guided, and we now foresee that Data Center Solutions will exit 2027 at an annualized revenue run rate exceeding $2 billion. But this is just a start. Our ambition is to become an industrial technology partner to the data center industry. And our expanding role in design and integration provides us a platform to add adjacent capabilities, including decarbonized power and cooling solutions. These are a natural expansion of our domain expertise in process engineering and complex energy systems. And given the pace of market development, we can accelerate the strategy through partnerships and acquisitions. Examples of this include our recent alliance with Liberty Energy that will combine SLB Modular Infrastructure Solutions and Global Market reach with Liberty behind-the-meter power generation systems in addition to our pilot programs for next-generation geothermal power development to support future data center demand. These are exciting steps towards becoming a critical infrastructure partner for the AI economy. Together, the strategic investments offer us a broader and more resilient growth profile for the future. Anchored in the core, accelerated by digital and expanded through Data Center Solutions. Let me now turn to our outlook for the third quarter, followed by our preliminary view of the fourth quarter. Turning to our third quarter outlook. Our base case assumes a gradual recovery in Middle East activity consistent with the pace we observed towards the end of the second quarter as we continue to remobilize operations across the countries affected by the conflict. Based on this trajectory, we expect global sequential revenue growth between 3% and 4%, with adjusted EBITDA margin expansion of approximately 75 basis points. At the division level, we anticipate revenues of the core divisions to increase sequentially in the low- to mid-single digits, while digital revenue is expected to grow in the low single digits. The heightened tension recently observed in the Middle East has not had a material impact on our current activity. However, we have developed a downside scenario to help model the potential impact of ongoing geopolitical volatility. In the event of a significant re-escalation that disrupts ongoing remobilization efforts and results in flat sequential Middle East revenue, we estimate third quarter revenue will be approximately $150 million lower than our base case assumption. This would translate into an adjusted EBITDA headwind of approximately $75 million. The impact of this downside scenario will be considered primarily in the Well Construction and Reservoir Performance divisions. Looking ahead to the fourth quarter. Our preliminary outlook assumes that Middle East activity reaches between $2.1 billion and $2.2 billion or approximately 95% of the revenue achieved in the fourth quarter of 2025. Based on this assumption and supported by deepwater momentum and typical year-end digital and product sales, we'd expect fourth quarter revenue to surpass $10 billion, approximately 5% growth year-over-year. We also expect adjusted EBITDA margin to be approximately 24%, in line with the fourth quarter of last year. While this outlook remains dependent on certain conditions, primarily that the conflict remains contained, it is an encouraging indicator of the underlying strength of the business and we believe it will position us well to deliver solid growth in 2027. I will now turn the call over to Stephane to discuss our financial results in more detail.
Thank you, Olivier, and good morning, ladies and gentlemen. Second quarter earnings per share, excluding charges and credits, was $0.55. This represents an increase of $0.03 sequentially and a decrease of $0.19 when compared to the second quarter of last year. During the quarter, we recorded $0.03 of merger and integration charges, primarily related to the ChampionX transaction. Overall, our second quarter revenue of $9.0 billion increased 3% sequentially despite severe disruptions in the Middle East. Strong performance in Latin America, Europe and Africa, U.S. land and Asia more than offset the decline in the Middle East, where revenue fell 13% sequentially to $1.66 billion. Despite the headwinds from the Middle East, our pretax segment operating margin increased 49 basis points sequentially and our adjusted EBITDA margin increased 83 basis points sequentially. As it relates specifically to the Middle East, while the revenue shortfall was close to our expectations, we took some temporary cost actions to alleviate the detrimental effect on our earnings. As a result, the sequential impact on our earnings per share was slightly below the low end of the $0.06 to $0.08 range that we originally indicated for the second quarter. Let me now go through the second quarter results for each division. Second quarter digital revenue of $697 million increased 9% sequentially driven by higher digital exploration revenue and higher sales in platforms and applications. Digital pretax operating margin of 27.8% expanded 683 basis points, while adjusted EBITDA margin of 34.7% increased 860 basis points. These increases were due to higher sales of exploration data licenses and transfer fees as well as improved profitability in digital operations and platforms and applications. Reservoir Performance revenue of $1.6 billion declined 2% sequentially, while pretax operating margin of 14.9% decreased 121 basis points. These decreases were primarily due to operational disruptions related to the Middle East conflict. Well Construction revenue of $2.7 billion decreased 2% sequentially primarily as a result of the disruptions in the Middle East, partially offset by higher drilling activity in Latin America. Pretax operating margin of 15.2% was essentially flat sequentially as lower profitability in the Middle East was offset by improved profitability in North America and Latin America. Finally, Production Systems revenue of $3.8 billion increased 7% sequentially, driven by higher revenue from OneSubsea as well as increased sales of artificial lift, valves, surface production systems and completions. Production Systems pretax operating margin increased 138 basis points to 15.5% primarily due to improved profitability in OneSubsea and artificial lift. Margin also benefited from the accretive contribution of ChampionX's production chemicals and artificial lift businesses. Now turning to our liquidity. We ended the quarter with net debt of $8.7 billion. We generated $1.4 billion of cash flow from operations and free cash flow of $716 million during the quarter. This represents a $739 million increase in free cash flow compared to the last quarter, which is largely due to seasonal improvements in working capital, including the absence of the annual employee incentive payouts in the first quarter. Consistent with our historical trends, we expect our free cash flow in the second half of the year to be materially higher than in the first half on improved earnings, higher customer collections and lower inventories. Capital investments, inclusive of CapEx and investments in APS projects and exploration data were $643 million in the second quarter. For the full year, we still expect capital investments to be approximately $2.5 billion. During the quarter, we repurchased $648 million of our stock and still expect to repurchase a minimum of $2.4 billion for the full year, in line with 2025. Lastly, we are still targeting to return more than $4 billion to our shareholders in 2026 through a combination of dividends and stock buybacks. I will now turn the conference call back to Olivier.
Thank you, Stephane. I believe we are now ready for the questions. Thank you.
Questions and answers
Your first question comes from Scott Gruber with Citigroup.
Olivier and Stephane. We appreciate the guidance on Q3 and Q4 given the moving pieces. You mentioned the Middle East getting back to, I think it was $2.1 billion to $2.2 billion in Q4, 95% of last year. How much of a step up is that from Q3? And how do you see the other geo markets stepping up in Q4, if you can unpack that, then move to $10 billion. And as we start to think about 2027 is that $10 billion a good run rate to think about the potential for your top line in '27 so call it something close to a $40 billion top line run rate next year. Is that reasonable?
I will not comment at this point on '27, but I can comment on Q4 and what it means for the setting and accompanying outlook that we see. First, to comment very broadly on the Q3 sequence and the Q4 sequence, obviously, Q4 step-up from the third quarter will be characterized by a combination of factors, the first being the further Middle East recovery that will indeed step up and the assumption it will reach up to 95% of last year Q4. The second factor will be the usual year-end sales into Digital and Production Systems and finally, Data Center. But underlying all of this, as we would expect the growth sequentially both in North America and international at that stage are the fundamentals of the market that I believe give us a business outlook that is very compelling. That combines near-term rebound in the Middle East that will continue but also the setting up of the offshore deepwater environment that will add to it and the strengths we have developed in production recovery to come into benefits in short cycle. So it will be a long- and short-cycle exposure, long cycle to deepwater, short cycle to production recovery and the kick of the Middle East recovery developing at scale in the fourth quarter and continuing throughout '27. So indeed, it is highly compelling adding to the secular trends of digital and to the significant strength and scale that we are foreseeing in Data Center going forward.
And Scott, to clarify your specific question on the Middle East just to put the numbers back together. So first, Q2 actual revenue in the Middle East was $1.66 billion. And we have assumed in our base case scenario where the global revenue grows between 3% and 4% sequentially, that the Middle East will recover gradually in the third quarter. If it doesn't, if current escalation slows the ongoing mobilization, Middle East revenue would be $150 million lower than in our base case, then it would bring it back to more or less the level of Q2. So that gives you the range where it could end up in the third quarter.
I appreciate that color. And then my follow-up is on exploration. You're witnessing a nice pickup currently in your data library sales. And I would assume kind of across wireline, et cetera. How are you thinking about the durability of the exploration cycle? Is this just a reaction to the higher crude prices? Do you think we'll see a multiyear improvement in exploration activity, given the need for the industry to locate new reserves, shale production growth slows and in order to improve the diversity of supply given the Middle East conflict, just your thoughts on the durability of the exploration cycle would be great.
Yes. I think indeed, the fundamentals are favorable and constructive for global exploration. And it's driven by energy security, by the need to develop national resources and by the need for many customers to replace reserves and to build the long-term portfolio that includes deepwater, highly valuable resources. So we see that exploration and appraisal activity is developing nicely. And I think we see this not being a trend of one quarter, but a long-term trend that will support reserve replacement across different basins, including frontier exploration and deepwater but also in some onshore operations to further secure eventual development in some regions. So we see this as an underlying strength, and we have the portfolio to match it. We have the well performance and wireline portfolio with unique differentiated technology that are being used on the vast majority of high-value exploration wells. We have the digital offering, both in our platforms and applications, but also, obviously, in our exploration data as it was highlighted this quarter. And we are introducing new technology in well construction, including new drilling tools which provide best-in-class performance to place exploration wells in the spot for maximum success. So we believe we are very well placed to benefit from this global trend.
Your next question comes from James West of Melius Research.
So Olivier, I wanted to just hone in on the Middle East situation. Obviously, people want to get back to work. We want to see a recovery post conflict. You've probably been in the region recently, and I'm sure you're in touch with everybody in the region. What's kind of the level of urgency to get things flowing again, get back to work, get drilling activity and production activity going? I know you've talked about 95% of fourth quarter or last year levels. But what do you think we look like kind of after we get back to activity?
So clearly, we see that engagement with our customers in recent weeks and days actually is increasing to secure mobilization of resources, to plan and to tailor solutions to the recovery of the wells that have been shut or to plan for accelerating the deployment of resources to do infill, catch up and expand capacity. And I think it varies from country to country. Some, like Iraq, are more constrained by security but we have seen activity restored and strengthening in the UAE and Qatar, and to a lesser extent in Saudi. And I think these are signs that activity is being built gradually. We have not seen a material impact in the recent re-escalation in the last 12 days and customers are eager to restore production. Hence, they are looking for well intervention solutions. They are looking for production recovery solutions or intervention solutions that can be deployed at scale in the coming weeks and months. So yes, activity engagement is happening. And I think we are getting strong signals that aside from a major re-escalation, we see a gradual recovery unfolding in the third quarter.
Okay. Great. And then maybe to hone in a little bit more on the exact nature of the work you think you'll see initially? I'm assuming it's going to be a lot of production-related work. Is that a fair assumption that it will be a lot of interventions and a lot of the ChampionX business getting active first before we see kind of new well drilling?
I think actually threefold—three vectors of activity. One, the combination of production recovery that includes well intervention and ChampionX capability that includes production chemicals and intervention to restore or to kick wells back into production. I also see digital being considered a catalyst—this crisis being an occasion for accelerating digital deployments to unlock the potential of existing wells and to ensure best performing operations, and we are being engaged in several regional programs to make it happen. And finally, for the countries that can mobilize rigs, we expect drilling expansion beyond intervention—beyond restoring production and accelerating capacity to respond to lost supply in the last few months.
Your next question comes from David Anderson with Barclays.
So an improving offshore business is clearly an underlying theme for you this quarter. FIDs this year have already surpassed full year '25, deepwater rig counts are as well. I would think you'd have better visibility here than just about any other part of your business for '27. So the question I'm wondering is, should we reasonably expect double-digit growth in offshore next year for both the production side with OneSubsea and higher activity in well construction?
I think directionally, it's fair to say that the acceleration of FIDs we see finally setting in place this year and the pipeline has been growing for next year, which will set the tone for indeed a deepwater activity that will certainly trend positively into next year. We have set an ambition, as you know, that our subsea bookings will reach $9 billion over two years, and hence be visibly accretive to our current revenue rate into '26 and '27. So yes, globally and directionally, we expect visible growth, although it's difficult to say exact percentages at this point, depending on the timing of mobilization throughout the second half of this year and next year and the exact timing of FID approvals, which will depend on all parties including host countries. But we see significant activity already starting in West Africa and East Africa in the coming months. We see the Middle East setting up for 2027. We see East Asia following FIDs and contract awards for gas development, and we continue to see Latin America from Brazil to Guyana and Suriname to be an engine of growth. Not forgetting mature basins like the North Sea, the Norwegian sector and the U.S. Gulf that continue to look for capital-efficient solutions, including boosting, and we continue to develop proven reserve-focused, fast-development solutions. Combine all of this, and you have a setting that is highly favorable. The recent crisis has in many ways been a catalyst to secure and accelerate investment as energy security and exploiting gas resources remain priorities.
I appreciate the color there. If I could make my second question more of a macro question here. On the Middle East, you had mentioned production is going to take longer to return. I think that's a little bit controversial. The broader market seems to think that production comes right back very quickly within a couple of months. Can you tell us why you think that's going to take a little bit longer? Is that certain countries that are a little bit different? Is it — I mean, I know we're talking about the intervention work and everything happening. If you could just provide a little bit more detail on what you're seeing on the ground and why you come to that conclusion?
Yes. We believe that it's not prudent to assume that things will fully restore in weeks. Some conditions have not been met yet, particularly around security in some countries—specifically Iraq and parts of Kuwait—and that will not necessarily give short-term capability to unlock full production quickly, not only talking about export capacity but also restoring asset operations. Well intervention capacity in many countries can restore in weeks and months, and as we exit this year certain countries will already be well on their way to start full capacity or to expand capacity beyond. It's a mixed picture. For countries like Oman and UAE, recovery can be quicker; for countries with significant security concerns such as Iraq, it will take longer. Depending on mobilization of resources and the evolution of the conflict, you will have a graded recovery of production. Gradually it will improve over weeks, months or quarters depending on asset condition and the geopolitical situation, but it's very difficult to pinpoint an exact timing to reach prior capacity.
Your next question comes from Neil Mehta with Goldman Sachs.
Olivier and team, I really appreciate all the color you provided around the Data Center opportunity set and the path to a $2 billion exit rate. I guess there are a couple of components around it, but for those of us who have perhaps spent less time on these modular systems, can you simplify what exactly is the product that you're providing here for every part of the data center and the value add to customers? And then, can you talk about how we should think about the economics of this? I would imagine it's a little bit lower EBITDA margin, but higher free cash flow conversion. So just thinking about the economics and then helping us simplify what the product offering is.
Yes. To simplify how we developed this play: over the last few years we realized we could deliver high-quality, high-availability modular infrastructure built off-site to provide packaged solutions for data centers—particularly for cooling and mechanical systems. These modules are manufactured at large-scale off-site facilities and shipped to data center sites for rapid installation. The benefit to hyperscalers is reliable, scalable delivery with shorter lead times and flexibility across different data centers and jurisdictions. For example, from one single manufacturing site we delivered equipment capacity across more than 20 or 30 different data centers, which demonstrates the scalability. The value proposition to hyperscalers is simplicity, quality and speed of delivery. We built this on our engineering, process engineering, logistics, manufacturing and commissioning capabilities, and we are starting to add design capability as well. So we can do modular manufacturing, system integration, commissioning, and increasingly design engineering, which expands our role in the value chain for hyperscalers.
So Neil, on the financial profile of this business to your question: yes, from a pure margin standpoint, this business is currently not accretive to SLB's overall margins, but it is accretive to top-line growth and accretive to earnings growth. It is also a capital-light model relative to other capital-intensive segments and the contractual terms result in very strong free cash flow generation. We are quite happy to see both earnings growth and strong free cash flow from this business.
And maybe you can pass on the new announcement here around the gigawatt data center in Canada with Meta: how many more opportunities like that are there? And can you give us a sense of what the constraints to scaling this business are? I would imagine demand for prefab work is enormous. So what is the constraint—is it facility size and capacity, for example? What's the limitation?
We have been able to scale beyond what we had originally planned by expanding and optimizing our manufacturing footprint and processes. For the Canada setup with Meta we will set up a sister facility leveraging lessons learned from earlier projects. This type of setup is relatively low incremental capital intensity and is ready to scale because we know how to replicate it. We are doing more than simply delivering modules—we are fitting modules in place, commissioning them and moving toward system integration and design work for customers. So constraints can be managed by expanding manufacturing capacity and by building repeatable, standardized products and processes. We continue to receive many requests from hyperscalers and see significant opportunity to scale further.
Your next question comes from Arun Jayaram with JPMorgan.
Yes, Olivier, I was wondering if you could talk a little bit more about your Middle East pipeline. We've seen a number of tender announcements from some of your peers in Saudi Arabia and Iraq. I was wondering if you could just talk a little bit about your pipeline of potential opportunities and maybe just general relative positioning in light of some of these awards.
We feel very good about our position in the Middle East. We have built quite a backlog of contracts in the last 18 months, including awards in Saudi, Iraq, UAE and Kuwait that we're executing as part of our backlog, and we feel very good about those wins. We believe we have maintained or reinforced our market position in most countries. You should expect more awards to come in the coming weeks or months that will solidify market positions. We are proud of what we are delivering to our customers in the Middle East. We have a lot of fit-for-basin capability in place that are recognized. We have a large integration capability set in Saudi Aramco and other national oil companies, which we are leveraging. We are also increasingly successful with our digital capability in the region and the current recovery is calling upon our recovery capability—well intervention, chemistry and production solutions—that we can deploy to the market. So we're very pleased and not concerned about leaving opportunities behind, and we expect nice growth in the second half of this year as we have guided, with expansion into 2027.
Got it. And my follow-up, offshore clearly a theme with this print. Olivier, I was wondering maybe you could give us a little bit of an update on the OneSubsea JV. We did notice quite a number of awards this quarter. You mentioned the $9 billion order ambitions. How is SLB evolving your product and solutions capabilities within the JV? I'd love to hear more about that.
We are very happy with the momentum in the OneSubsea JV. We are benefiting from a broader portfolio that now includes additional equipment such as more standardized trees, manifolds and umbilicals, which complements the existing OneSubsea offering. This gives us a more comprehensive portfolio to address all basins, water depths and reservoir types, making us competitive across geographies. In addition, we continue to advance our subsea processing solutions and have recently announced awards on boosting solutions. We continue to work with customers on production-recovery plans that link subsea processing and boosting to field economics. We are also standardizing and modularizing solutions to improve cost competitiveness and deployment speed. We are successful across multiple basins—Africa, Asia, Latin America—while continuing to build on our Gulf of Mexico and North Sea positions. We have also entered strategic alliances with partners to optimize subsea architecture and to provide end-to-end development or intervention solutions. So we are pleased with progress and believe the JV is well positioned for the deepwater cycle rebound.
Your next question comes from Derek Podhaizer with Piper Sandler.
I wanted to ask about your margin outlook in the core, OneSubsea, ChampionX and some of the synergy pull-through there. Well Construction held up really well. Just thinking about this margin momentum as you head into 2027 off that 24% EBITDA margin that you stated for your expectation for fourth quarter this year. So maybe just talk towards the core as far as the momentum you're seeing into next year.
So on the OneSubsea side, if you remember, we had a few transitory issues and start-up costs in the first quarter and the good news is that margins increased in the second quarter. This is why you see Production Systems increasing margins as well. In the second half, OneSubsea will continue to increase margin as well. So it's a gradual increase through the quarters for OneSubsea. You mentioned ChampionX as well. And as Olivier indicated, we are quite happy to see quarter after quarter ChampionX margins continuing to increase despite some inflationary pressure on chemicals, some of which came from the Middle East conflict. Regardless, synergies are unfolding and we continue to see ChampionX margins increasing. And Well Construction, despite the severe disruption in the Middle East, managed to hold margins flat because we had a good mix of activities in Latin America and North America. Put all this together, and you of course will have year-end sales in Digital as well. Digital typically records its best quarter margins in the fourth quarter. So that's what will get us to approximately the same level in Q4 as we were in Q4 of last year, around 24%.
Got it. Great. That's helpful. And then maybe sticking on digital—a very solid quarter. Growth across all four of your subsegments. I understand exploration can be a little lumpy for the year, but clear adoption and momentum across the other three segments as this dynamic you really laid out for us at the recent digital day. Maybe if you could talk to us about some of your recent wins and really the primary drivers behind that growth and how you see adoption evolving over time?
I think you have seen in the prepared remarks what we highlighted during the Digital event. Digital Operations and AI will be key levers of growth and adoption. Our platform approach—from DELFI to Lumen to Agora and our AI platform—gives us a comprehensive offering that is attracting market interest. We are seeing diversity in announcements across geographies and customer types and expect this to continue because we can help customers create value through digital solutions, whether in planning or operations. We're seeing adoption in drilling operations—automation and autonomy—and in production optimization. We have demonstrated value in many projects, including in some Middle East programs, and we are expanding adoption into other regions. Overall, the combination of platforms, domain expertise and global scale is driving growth.
Your next question comes from Keith Mackey with RBC.
We've been hearing more about conversations happening in Venezuela. You also announced a framework agreement with PDVSA recently. Can you just discuss how that agreement is important to growing your business in Venezuela and just what is happening there more broadly? When do you think it could start to become a more material contributor?
First, a note on Venezuela: unfortunately a few weeks back there was an earthquake that impacted the country and it is still in recovery. For the last two years we have been working in-country, scaling our local capabilities, working on licenses with IOCs and preparing for recovery and re-entry at scale. This year we are securing contracts and work scopes with international companies that are reinforcing their position in the country, and we are accompanying them in planning and mobilizing resources. We are setting up significant operations that will scale in the next few months and give us meaningful exit rates that will enter 2027 with multiple customers and multiple contracts. Historically, we have had large operations in Venezuela—at peak we had more than 3,000 people and generated over $1 billion of revenue. It's difficult to say when we will reach previous peak levels, but the dynamic of reinvestment under the right conditions will support high growth. We have positioned ourselves well and are already securing contracts and additional work scope to scale in H2 2026 and into 2027.
Okay. I appreciate the comments there. And just maybe stepping back a little bit on the FID comment. So 30% increase in long-cycle FIDs bodes well for 2027. Can you just comment generally on the revenue conversion to SLB of FIDs of this nature? Does it generally lead to multi-year growth? And what is the time lag between an FID and when your revenue off that might peak?
It depends on the FID. Typically, between an FID and the first well drilled there can be at least 12 months. These projects typically run for multiple years—two to three years at minimum, often three to five years depending on the number of wells and project phasing. So between award and meaningful revenue, a few quarters to a year, and then multi-year phases of activity follow. Deepwater projects often have multi-phase development plans that can last in excess of five to six years, creating multi-year revenue momentum.
Your next question comes from Saurabh Pant with Bank of America.
Good morning. Olivier, I want to touch on the Middle East a little bit. This is a two-part question on some recent themes we've been discussing. First, on pricing dynamics in the Middle East: there was some noise around some LSTK contracts being awarded—an old mature model in the country—but maybe just talk to the broader pricing dynamics you're seeing in the Middle East. Second, around logistics disruption and cost inflation we saw early in the conflict—it sounds like things might be getting a little better as you learn to operate differently, source differently and rewire supply chains. Can you touch on those two points: pricing dynamics and whether the cost setup is improving as we go forward?
Yes. On the logistics and supply side, we are indeed learning how to operate differently—localizing supply and adjusting logistics to avoid excessive costs and to maintain business continuity. As mobilization improves, these temporary cost pressures should fade. On pricing dynamics, generally the market has been competitive for some time, including for large integrated projects. As the market tightens with increased demand for capacity and longer-term investment, we expect the pricing environment to gradually improve. Capacity tightening and higher activity levels should reduce downward pricing pressure over time, which we expect to be a tailwind into 2027 and beyond.
Great, good color. I want to switch gears a little to Data Center Solutions. On the point you made about widening scope and capturing a bigger portion of the pie—you noted for the Canada data center you would be doing design and thermal management, and decarbonized power might come later. Maybe give context on what portion of the overall data center spend is addressable for SLB right now? And where do you think that can go? And how can you fracture that organically versus inorganically?
I don't want to give an overly granular breakdown at this point, but simply put, we are confident the backlog and pipeline support the exit rate we mentioned—exceeding $2 billion—and that we can continue to grow the business organically by expanding scope from modular manufacturing into design, system integration and adjacent capabilities such as decarbonized power. There is also the potential to accelerate scale through partnerships and acquisitions where they make strategic sense. We see a large addressable market and significant opportunities to expand our offering internationally across hyperscalers and across markets.
Your last question comes from Marc Bianchi with TD Cowen.
Thank you. On the $2 billion run rate: how much of that currently sits in backlog, and how much do you need to go get? Also, can you talk a bit more about the pipeline of opportunities—how many projects are you looking at? Does it include other parts of the equation besides the cooling that you're talking about?
To keep it simple: the backlog is already in place to support this $2 billion or more exit rate, which gives us the runway to hire, scale and expand scope into design and system integration. We will continue to build the pipeline and work with the customers we've secured in the last six to nine months to expand scope beyond modular manufacturing into full system optimization, cooling loops, and behind-the-meter power solutions, including decarbonized power options. So the backlog supports the $2 billion figure and the pipeline includes additional opportunities to expand beyond that as we add capabilities.
I will now turn the call over to SLB for closing comments.
Thank you, ladies and gentlemen. As we conclude today's call, I would like to leave you with the following sections. First, the market is beginning to exhibit the character of an upcycle. The need to replenish inventories, diversify supply, develop measures and spare capacity is supporting increased customer investment across both short- and long-cycle markets. This will drive higher activity with deepwater in particular expected to accelerate into 2027. Combined with the increased activity that will be required to restore production capacity in the Middle East as conditions allow, these dynamics create a compelling outlook for our core business. Second, we continue to capture exciting growth beyond our core. Our Digital and AI solutions are becoming increasingly critical to our customers' operations while Data Center Solutions is expanding our reach into critical infrastructure for the AI economy. Both businesses are gaining momentum, extending capabilities into new markets and creating additional revenues for long-term growth. And third, we're well positioned to capture opportunities ahead: leadership in international and deepwater, commoditized capability and production recovery aligns SLB with where our customers are directly investing. We expect this position to translate into financial growth and performance. With this, I will conclude today's call. Thank you all.
This concludes today's conference call. You may now disconnect.