Ladies and gentlemen, thank you for standing by. Welcome to the Schlumberger Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Simon Farrant. Please go ahead.

Thank you. Hello, and welcome to the Schlumberger Limited First Quarter 2017 Results Conference Call. Today’s call is being hosted from Dhahran, Saudi Arabia, following the Schlumberger Limited board meeting. Joining us on the call today are Paal Kibsgaard, Simon Ayat and Patrick Schorn. We will, as usual, first go through our prepared remarks, after which we’ll open up for questions. However, before we begin with the opening remarks, 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 other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our first quarter press release, which is on our website. With that, I hand the call over to Simon Ayat, who will present the first quarter corporate results and also review the results by group.

Thank you, Simon. Ladies and gentlemen, thank you for participating in this conference call. First quarter earnings per share, excluding charges and credits, was $0.25. This represent a decrease of $0.02 sequentially and $0.15 when compared to the same quarter last year. During the current quarter, we recorded $0.05 of Cameron merger and integration charges. Our first quarter revenue of $6.9 billion decreased 3% sequentially, largely driven by the Cameron Group as a result of project completions and reduced product sales. Pretax operating margin only decreased by 42 basis points to 11%. Highlights by product group were as follows. First quarter Reservoir Characterization revenue of $1.6 billion decreased 3% sequentially, primarily due to project completions in Testing & Process systems and seasonally lower SIS software and multiclient license sales. These decreases were offset in part by progress on early production facility projects in the Middle East and the improved Wireline revenue in North America. Margin decreased 170 basis points to 17%, driven by the lower contribution from SIS software and multiclient sales. Drilling Group revenue of $2 billion decreased 1% sequentially, while margins were sequentially flat at 11.5%. Strong activity in North America was offset by lower activity and pricing pressure internationally across the group. Production Group revenue of $2.2 billion decreased 1% sequentially, and margins fell by 78 basis points to 5%. These results were primarily driven by strong pressure pumping activity and the pricing recovery in North America land, which was offset by seasonally lower completion product sales and lower SPM revenue. The Cameron Group revenue of $1.2 billion decreased 9% sequentially. This decrease was largely driven by OneSubsea as a result of declining project volumes. Reduced product sales in Surface System and the further drop in Drilling System also contributed to the decline. Margins decreased 80 basis…

Thank you, Simon, and good morning, everyone. Starting off with North America. Our first quarter revenue increased 6% sequentially as growth in U.S. land and Western Canada was partially offset by further activity reductions in the U.S. Gulf of Mexico and Eastern Canada. As expected, the North America land market continued to strengthen during the first quarter in terms of both activity and pricing, leading us to start full-scale deployment of idle capacity for most product lines. Revenue growth was led by hydraulic fracturing and drilling services, but also increasingly supported by Artificial Lift, Surface Systems and Valves & Measurements. In spite of our capacity reactivation being heavily back-end loaded as we continue to adhere to our profitable growth strategy, we still generated 16% sequential revenue growth in our hydraulic fracturing and directional drilling services in U.S. land. And even more importantly, we delivered incremental margins of 66% for these services combined in U.S. land, driven by productive customer engagements around pricing recovery and operational efficiency, together with timely resource additions, new technology sales and proactive supply chain management. In the U.S. Gulf of Mexico, the first quarter revenue declined again sequentially as the deepwater rig count dropped 15 at the end of March, which represents a reduction of 74% compared to the peak activity level of 2014. In addition to the low drilling activity, we also saw a further sequential drop in seismic multiclient sales, leaving offshore revenues at unprecedented low levels. In parallel with these record low level activity, product and services pricing, as in several recent cases, fall into levels that make it impossible for us to uphold our operating standards and, at the same time, turn a profit in this extremely challenging operating environment. We are therefore in the process of redeploying both service capacity and…

Thank you, Patrick. Following the review of our first quarter results from Simon and Patrick, I will next provide you with an updated business outlook. But before I do that, I would like to say a few words about the Cameron Group as we just passed the 1-year mark since the closing of the transaction. Over the past 12 months, we have successfully implemented the first phase of our integration plan, which included 3 main themes: first, the colocation of 1,700 employees into joint facilities around the world; second, combining Schlumberger and Cameron businesses to deliver enhanced offerings to our customers, such as our new Testing & Process systems product line; and third, bringing together Cameron and Schlumberger technologies, for instance, in hydraulic fracturing and in OneDrill and by launching as many as 32 integrated R&D projects to further expand our integrated technology offering. At the same time, OneSubsea, which is now in its fifth year of existence, has firmly established a leadership position in the subsea market through the pore-to-pipeline approach, as seen by the higher rate of project awards in recent quarters as well as their industry-leading operating margins. Overall, the entire Cameron integration program has exceeded the ambitious first year of synergy target we set and delivered approximately $400 million in operating income synergies as well as $600 million in new orders. The first quarter results from the Cameron Group were, again, very solid. And I would like to complement the entire Cameron organization and the integration team on a job well done, where they have jointly ensured that the largest transaction Schlumberger has done to date has turned out to be a great success. Turning next to the business outlook. We maintain our constructive view of the oil market, and we made further inventory growth in…

[Operator Instructions] Your first question comes from the line of James West from Evercore ISI. Please go ahead.

Hey good afternoon, Paal

Good afternoon. So given that you guys are holding your call from the Kingdom, the board meeting was held in the Kingdom as well, I’d love to hear kind of what – as you and the board talk about strategic focus over the next several quarters but also several years and talk about the implementation of those strategies, what are the key kind of top 1, 2, 3 items that you or that Schlumberger is most focused on in the near-term and especially given your broad international focus? And I think we understand where you stand in North America.

Well, if you are asking about in particular in Saudi Arabia, let me first say that the board has spent actually a full week in Saudi Arabia, in between Jeddah, Riyadh, Shaybah and Dhahran. We have visited the KAUST University, a range of government institutions focused on science, technology and innovation. And of course, we spent a lot of time with our largest customer, Saudi Aramco, both at their headquarters in Dhahran and then in their field operations in the South in Shaybah. Now the board had a particular interest in broadening its understanding of both the Vision 2030 for the country as well as the In-Kingdom Total Value Add program, which is also very important, and in particular, how Schlumberger continues to actively support these programs and also how we further strengthen our position in the kingdom. Now as part of our visit, we also have the privilege of meeting His Excellency, Khalid Al-Falih, to discuss the state of the oil market, which was also very useful for our board to do. Now everywhere we went, we had been met by exceptional hospitality, and the board was actually very impressed with everything that we saw and everything that is going on in the kingdom. So this has really served as a further extension of our understanding of all the details that was going on in the country, and that is helping both the board and the senior management team, which was also here to further adjust and, I would say, accelerate our plans of investment in the country.

Okay, that’s great. It’s very helpful, Paal. And maybe just a quick follow-up for me. You recently announced the new special venture fund, and you made some very quick moves there with that fund. Could you perhaps elaborate a little bit on the mandate here for the fund and what you see as the opportunity set?

Yes. So just to be clear on what the fund is, so this is a new avenue for project investments alongside our customers. And this is basically to enable closer collaboration and alignment with our customers. It is also there to facilitate and support additional E&P investments and also for us, very importantly, to secure preferred supplier agreements for our products and services for whatever these investments that we facilitate. So this is the overall driver behind it. Now we understand that many of our customers do not see a need for this, but some customers do, and the key principle for us that this fund and these investment opportunities is open to all customers. So the basic thing here is that it’s simply aiming to enable growth and in the base business. Now the scope of the fund, again, is relatively open. We will evaluate each project based on its stand-alone merits. We haven’t, at this stage, set the limits for the size of the fund. But I think importantly as well, they are also open to possibly co-invest with third parties. And obviously, the fund will be subject to the same, I would say, governance and risk management processes that we have for the base business, and ultimately, all the investment decisions will be approved by our CFO. So it’s something that is in place to facilitate further growth for the base business. I think that’s the best summary of it.

Okay, great. Thanks, Paul.

Thank you, James.

Your next question comes from the line of Angie Sedita from UBS. Please go ahead.

Thanks. Good morning. Good afternoon, guys as well.

Good morning.

So Paal, so could we go back to the U.S. a little bit? And obviously, the OneStim is a surprising JV and interesting to see. So can you talk a little bit about your strategy there as far as redeploying the frac fleet into the U.S. market and if you could even have a target horsepower as you exit 2017 and maybe a little bit about the logistics of the JV?

Yes. I think we need to separate the JV from our current hydraulic fracturing business in North America land. The JV will obviously include all that business when it’s closed. But as of now, we continue to manage our business in a stand-alone fashion while we are preparing obviously to close the JV as soon as possible. So I will comment briefly on our plans for activation of capacity for the base business today, and I’ll have Patrick give a few comments around the OneStim JV and the plans post-closure. So if you look at the situation today on our fracking business, we’ve always said that as soon as we have a clear pathway towards profitability, we will start actively reactivating our idle capacity. This point in time – actually past in the first quarter, so towards the back end of the first quarter, we actually started actively reactivating our idle capacity. And this process is going to accelerate in the second quarter and also going into H2. So based on the current plan we have at this stage, we plan to have our entire idle capacity from the Schlumberger side deployed during the fourth quarter of this year. So this is the current plan of reactivation. We are getting, I would say, significant traction on pricing. We are actively hiring people both for the wellsite operations and for the vertical integration part, including the transportation side of things as well. And I think the balance we have between the insourcing of our vertical supply chain, together with still a very close working relationship with our suppliers – and just to be clear, we are not looking to fully vertically integrate. We will have a certain amount of our capacity vertically integrated, and we will continue also to work closely with our suppliers, both on the sand mine side as well as transportation and distribution. So we will continue now in the coming quarters to actively redeploy. And obviously, when we close the OneStim JV, these resources and these businesses will all be combined in OneStim, which will then just continue on the same process. So Patrick, you want to say a few words about where we stand on OneStim and plans?

Sure. Regarding the OneStim joint venture, which is a 70-30 joint venture with Weatherford for North America land for hydraulic fracturing and completion, it really creates a new industry leader in terms of hydraulic horsepower and multistage completions. Through its scale, it will offer a cost-effective and competitive service delivery platform, which is clearly positioned to provide customers with leading operational efficiency and best-in-class hydraulic fracturing and completion technologies. Importantly, reliable equipment availability for our customers, and it will also improve significantly the full-cycle shareholder returns from this particular market. So in this case, Weatherford is contributing its leading multistage completions portfolio, around 1 million horsepower in pumping equipment and the pump down perforating business. And what we will end up with is a very capital-efficient structure, pulling the hydraulic horsepower to gain economies of scale, which clearly is very much from the current market recovery. I’ll leave it with that.

Okay, thank you. That’s very helpful color. So as a unrelated follow-up. Maybe you can give a little bit of color on Cameron and what your outlook is for subsea overall as far as large projects and pricing and even the rig of the future, any update there.

Patrick, do you want to cover that?

Sure. So firstly, we exceeded our first year synergy targets, and we realized approximately $400 million in savings there. And we already secured around $600 million in new synergy orders. So from that perspective, the transaction is working well, and the integration is going extremely well. So what we are focused on in Cameron is really creating a fully integrated drilling and production system, combining our leading well and subsurface offering with Cameron’s leading service technology, further leveraging instrumentation and software control and optimization capabilities. During Q1, overall the revenue was seasonally down, driven mainly by OneSubsea and Surface Systems as Surface and V&M posted double [indiscernible] in U.S. land and a step change in bookings. And that is maybe the most important, as was already mentioned by Simon as well, where we are starting to see that the book to bill is starting to go over 1. The margin decline somewhat, but through strong execution and cost control, we limited the margin decline to approximately 88 basis points.

All right. Next question.

Your next question comes from the line of Ole Slorer from Morgan Stanley. Please go ahead.

Thank you very much. I’m wondering, Paal or Simon, whether you could elaborate a little bit on the increased participation in customer projects under SPM. You highlighted in the prepared remarks that payments from certain Latin American customers have slowed down. And – how do you see the evolution, the impact on return on capital, how big really the committed capital become? I think that’s a line of questioning I think, I guess, in every single investor meeting when the topic of Schlumberger comes up.

Well, I’ll say, going back to what I mentioned about the fund, Ole, the fund itself is there to facilitate growth in the base business. So the way we look at the fund is that if we do make investments alongside our customers, these investments will need to meet the return criteria that we have overall as a company and also the base business that we get associated with the project. Through preferred supplier agreements, we’d also obviously need to meet the same return criteria. So I think the way to look at the fund is that we have a strong balance sheet. We have strong cash flow, and we have a fair bit of cash on hand. And what we are doing on a selective basis is looking for investment opportunities to facilitate more base business for the company. Our revenues are still at around 50% of what they were eight, nine quarters ago. And we are trying very actively to make sure that we can get baseline growth not just in North America land, but also globally. And given the capability set we have as a company, in particular around subsurface understanding and drilling and completions, we see this as a very good way of a thing to drive, I would say, short and medium-term activity. But very importantly, these contracts that we enter into here could have durations of 10 to 15 to 20 years, which will also provide us with a very good baseline of activity and earnings throughout the coming cycles as well. So I don’t think there should be a huge reason for concern around the capital intensity. We have capital available to invest, and we are trying to invest this wisely into projects that have good returns stand-alone but also that facilitates growth opportunities for the base business.

Okay, thank you. And on the revenue synergies with Cameron, $600 million, it’s very difficult for us to see what would that come to with or without the joint venture. So can you elaborate a little bit about what type of business is it that you’ve signed up that you don’t think either Schlumberger or Cameron would have achieved on a stand-alone basis? And maybe the context of that, also comment a little bit on your rationale between – by investing in – it will have in Borr?

Patrick, why don’t you talk about Cameron? I’ll cover Borr when you’re done with that.

All right. So talking about some of the examples of revenue synergies, I think one of the – your previous one is clearly the expanding of Cameron’s geographical reach and using as such the Schlumberger existing footprint to reach a far larger customer base. What it also helps with is accelerating the implementation of the OneSubsea vision and plans as the cooperation between the companies is much closer today. And the – one of the first points we had brought up when we started talking about the opportunities was addressing the significant industry NPT issues related to BOPs. And here, you have to really think about monitoring and how we could optimize the use in that side. And then where we really focus, and this might link into what you – what we have discussed in the past when it comes to issues like rig of the future is creating a integrated drilling system, which would include all the service and service components that we offer, and obviously then optimize the drilling process to such an extent that neither one of the single companies could achieve. That is really the main examples of revenue synergies.

Okay. Thanks, Patrick. So Ole, let me just comment quickly on Borr then. So – and as you’ve seen, we made a $221 million investment to take a 20% stake in this new company. There are several drivers behind the investment, but the main driver is really to create a platform where we can collaborate closely with Borr to offer performance drilling offshore in shallow water. We see this as, I think, a significant opportunity for Schlumberger and also for Borr to offer this new type of contract model, which is now heavily used on land but also now to be used in shallow water. Just for the record, we are also open to work with other and offer drillers on the similar type of performance contracts. Now back to Borr, Borr also represents a significant potential market for Cameron drilling, both in terms of BOP, sand and drilling packages. And I would say lastly, looking at the company and the plans going forward, we also expect this to be a very good financial investment. So this is the main rationale behind investment.

Thank you.

Thank you, Ole.

Your next question comes from the line of Bill Herbert from Simmons. Please go ahead.

Thanks. Good morning. A question with regard to the incrementals that you generated in Lower 48 for frac and directional 66%, I think, for Q1. Patrick and Paal, just given the reactivation slate that you have in front of you, which is – seems to be pretty large, do you expect to generate either that level of profit improvement over the course of this year or something within that neighborhood as you reactivate assets? The rest of the industry seems to have difficulty with regard to revenue growth and converging that with profit improvement that hasn’t happened. But in your case, it looks like the profit improvement was actually fairly considerable. And I’m just curious as to the relationship between reactivation growth and margin improvement in light of that.

That’s a good question. So I would kind of split it into 2. When it comes to the onetime cost of reactivating, yes, we will have some impact of that in the coming quarters. I would say the – but the underlying incrementals that we’re aiming for is going to be around this level. But we will be subject to some additional activation costs, I would say in the – probably in the second and the third quarter, which might, for those 2 quarters, basically deliver slightly lower incrementals overall. But the underlying, I would say, drive we have between getting customer price increases and driving efficiency through scale as we reactivate and also managing our supply chain, underlying, we are aiming for those type of incrementals, which we have talked about for the company for the past couple of years. We will have some headwinds around onetime reactivation costs in the coming quarters. But beyond that, we are looking to manage at this level.

Oka, thank you. And then secondly, with regard to Shushufindi and I guess the challenges that were reported in the media in recent weeks with regard to Ecuador, can you update us with regard to what the forward path on that project looks like?

Yes, I can. And first of all, let me just clarify that we have several SPM projects in Ecuador.

Yes.

And the issues we are discussing are only pertaining to Shushufindi, right?

Okay.

Now just to give you some background on Shushufindi, we are now in the fifth successful year of operations there. And in between the Shushufindi Consortium, which we lead, and Petroamazonas, the state oil company, we have a very solid governance model, and we have annual budgets and annual production targets, which are set and agreed. And if you go back for these 5 years, we have exceeded all these production targets. But what has happened is that with the lower oil price, this has led to cash flow challenges for Petroamazonas. And they are also selling the oil that we produce from the Shushufindi field. So they are basically then falling behind on our payments, and this is really the key issue. So the proposal they have made to address the payment issues is not acceptable, and the situation over the first quarter has been further aggravated by the fact that they have imposed also production constraints on the outputs from the Shushufindi field. So bottom line, we find this treatment of a partner, who has made significant investments in the country, somewhat disappointing. But still, we are very confident that the issues are going to be resolved, either amicably by – or by using the dispute resolution provisions that are in the contract. So that’s kind of where we are. How long it’s going to take to get it resolved, I can’t say at this stage. But we are ready to sit down again and continue discussions, and there have been a number of meetings and discussions over the past couple of months. We are ready to continue these discussions as soon as the imposed production constraints are lifted.

Okay, thank you.

Your next question comes from the line of David Anderson from Barclays. Please go ahead.

Thanks. Paal, I was wondering if you could elaborate a little bit more on the weakness in the Middle East you saw this quarter. It was mentioned a few times in the release, and I guess the pricing pressure wasn’t a huge surprise. But the activity reduction did stand out to me. I was just wondering, is there a specific country that’s experiencing this? And do you think this comes back later in the year? Or is it more of an adjustment to the drilling programs? I just wondered if you could just provide a little bit more color on the GCCs.

Yes. So I wouldn’t use the word weakness, David. I think the – we have a slight decline in overall activity and revenue in the Middle East. Obviously all declines in Asia that weighs in on the overall EMEA numbers. So I don’t think there’s anything that concerns or so worries us that should concern or worry you. But we are not seeing any significant growth in the coming quarters. We are slightly down, like I said, sequentially [indiscernible]. This is more around, I would say, project mix…

Okay.

…priorities and so forth, right? So I would say the underlying business in the Middle East is very resilient. There are strong and clear plans in each of the countries we operate here. And so no major worries. It’s just that there is no, I would say, significant steady sequential growth either in Q1 or in the coming quarters, just a very steady resilient base business.

Okay, thanks. And just a follow-up would be on the offshore side. Seems like IOC just doesn’t seem eager to invest offshore. We haven’t really seen much on the step-out and tieback front. I was just wondering if you could maybe elaborate. We talked in the past about maybe 5 to 8 big projects potentially being announced in the back part of the year. Has your views on kind of offshore kind of shifted a little bit? I was just wondering if you could help us, kind of what is the road map you think to recovery in offshore? Is this kind of, again, pushed out maybe more to an 2018 event when we start seeing some of these projects awarded.

Yes, we see the same as you. And so there hasn’t – so far of significant FIDs, plans being discussed of the things going on offshore. We – if you look at jack-up utilization, I think there is a slight uptick on it. So I think there’s probably some early signs that we’ll get some light work coming our way as an industry in the next couple of quarters. But in terms of bigger projects, I agree with you, we haven’t seen anything yet. So I think the main thing here is, I think for the IOC customers to basically get a better medium-term view on oil prices, and obviously, the positive uptick we’ve seen over the past couple of quarters is a good thing. But I would assume that I’m also looking for what the floor could be and maybe awaiting potentially what OPEC is going to do as we go into the May – the late May meeting around whether they extend the production cuts or not. So I agree with you. I think the increase in offshore activity or shallow water activity is probably more going to be a second half of the year event, leading into 2018. So with that, though, it’s still very important for us as a company to at least secure the work that is coming out of projects that are being FID-ed. And that’s why we are very happy and excited, the fact that we landed the Mad Dog 2 project, for instance.

Great. Thank you, Paul.

Thank you.

Your next question comes from the line of Jim Wicklund from Credit Suisse. Please go ahead.

Good morning, guys.

Good morning, Jim

A lot of questions asked, so if I could drill down a little bit on North America. Patrick, you made comments about the increased vertical participation in sand and additional sand mines. Can you tell us what you guys have done here in the last couple of quarters in terms of assuring capacity, delivery and making a little extra money, I guess, too, in North America in sand?

Yes, I’ll cover that, Jim. So what we have done, we basically started this vertical integration investment program towards the back end of 2014. And we have made a number of investments in sand mines, which are now starting to come on production. And in addition to that, we obviously also invested further into owning railcars, owning transloading facilities. And we also are now – we have established our own trucking fleet, where we are now hiring people into manning the trucks that we have bought and that we are currently buying. So – but just to be clear, we are not looking to fully vertically integrate. We will have a certain amount of our capacity in it. We will do a fair bit of it, but we are still going to rely on the long-term suppliers that we’ve had both in upturn as well as in the – in future downturns. But we see the investments that we make into this, with the rapid cost inflations that you typically see starting at this part of the cycle, as a very good investment and a way to insulate ourselves from the massive supply chain inflation that we saw in the previous cycle, right? So it’s going to be a balancing between vertical integration, 100% owned by us, as well as using the supply chain capabilities that we have in the open market.

Okay. And my follow-up in kind of the same vein, you talk about the completion capacity and what it would brings in OneStim. I know that 80% of the completions that we do in the U.S., 80% plus what – are plug-and-perf. And sliding sleeves, this has been marginalized. I know that Weatherford does both plug-and-perf and sliding sleeves. What is Schlumberger’s view of how those 2 technologies are going to develop? And is everything going to be plugged and parked in a couple of years? Or can you talk about where that technology is going to go? We don’t really know a whole lot of details about the breakdown of Weatherford stations both, frankly, and yours in that regard. So if you could give us some guidance on where the market is headed, that would be appreciated.

Okay. Well, I think first of all, the multistage completion offering that Weatherford brings into the JV and also combined with ours will have a complete range of both open-hole and cased-hole solutions. Now if you look at where the market has been heading, I would say in the last 3, 4, 5 years, it has been gradually moving more and more to plug-and-perf with less, I would say, open-hole completions and sliding sleeves. There’s still more of that type of completions in Canada compared to what you have in U.S. land. So I would say that we are basically set up for – if the market continues the current trend towards more plug-and-perf in cased hole or whether there is a reemergence of the open hole, right? So I think we have a very good balance, and we can go either way. I think it’s going to come down to well performance productivity and completion costs in terms of what’s going to govern this, but we are adjusted well in either way, Jim.

Okay. Thank you guys very much.

Thank you.

Your next question comes from the line of Kurt Hallead with RBC. Please go ahead.

Hey, good afternoon. Where you are?

Thank you very much.

Great. Awesome information flow so far. So I figured I’d kind of get right to the crux of probably what a lot of people are trying to gauge from all this great information, is how do you feel about the progression on The Street numbers as we look out into the second quarter?

Well, there – and there, the question came. That’s good. Well, I would say that in the second quarter, first of all, at the high level, we are expecting to see a continuation of the main trends that we saw in the first quarter. And then if you break our North America and international, for North America, we expect solid top line growth in Q3. And this is going to be driven, again, by what we saw in Q1 as well: further growth in the rig activity; for us, additional pricing and market share gains in directional drilling; and also, as we talked about earlier on the call, an acceleration of the capacity reactivation in fracking. Now underlying incremental margins, as I commented on earlier, should be solid. But in Q2 and probably Q3 as well, they’re going to be partly offset by some of these onetime start-up costs that we are having. And also, in the second quarter, we are as usual also footing the cost of the Canadian breakup. But overall, I would say strong top line growth and decent earnings growth for us in North America in the second quarter, with some small headwinds around the start-up costs. Internationally, as I said earlier, we have reached bottom in all markets. But for the second quarter, we only see, at this stage, flat underlying activity in Q2. So the – really, the only growth that we are going to see in the second quarter is going to be limited to the seasonal recovery in the North Sea, Russia and China. Now on the Cameron side, revenue is also expected to be more or less flat, where we are seeing solid growth in the short-cycle businesses of surface and V&M. But this is going to be offset by the slowing decline now in the long-cycle businesses of OneSubsea and drilling. So if you combine all of these, I believe that a sequential EPS growth of around 15% to 20% between Q1 and Q2 is a reasonable expectation.

Great, that’s fantastic. Now based on your commentary about pricing pressures in the international market, and – it sounded like recovery still at hand in the second half of the year internationally than it would – I guess we can assume that the first quarter is going to be the low point for earnings of the year, and then you get sequential growth throughout the year. Is that kind of how you see it setting up?

Yes. In principle, yes. I would say, like I said, the underlying activity internationally, Q2 isn’t showing any great signs of improving. But we will have at least the seasonal recovery in some of the key markets to help us. In terms of the pricing, we are still seeing continued pricing pressure on new tenders, but at the same time, some of this, we are looking to offset by exiting our unsustainable contracts. We still have some of these contracts that we are looking to resolve either by shutting the contract down or by getting the pricing increases that we need in order to make this a viable business proposition for us. So yes, I would say in principle, the Q1 should be the low end of earnings for the year in international market, with still only limited growth in Q2 but more of an acceleration in the second half of the year.

Okay, great. Thank you. And then maybe quick follow-up here just on your commentary about the investing alongside your customers in the YPF deal and Borr Drilling and so on. So Paal, you guys have indicated in the past that all your SPM investments have effectively been margin and returns accretive in aggregate compared to the corporate average. As you’re making more and more investments in the year, like, what is the criteria, right? How should we think about it? If you’re going to invest, say, $200 million in Borr Drilling, how do we think about that in terms of incremental revenue or incremental profitability? Could you give us just some general gauge on how to assess that?

Well, the investments in the equity of Borr Drilling should bring a return on investment or capital employed, which is accretive to the company. That’s why we made the company – that’s why we made the investments. And for future investments, that’s, again, what we are going to look for when we spend cash on this type of investments. Hand in hand with that is also obviously the revenue opportunity that this brings. And with this, like I said, we’re going to focus in on two things. With that big fleet of jack-ups, this is a very good market potential for Cameron drilling, but even more importantly, what we are really driving at here is to introduce performance drilling in the offshore markets. So this is just one example. But when we make these investments, there will be synergies and business opportunities and revenue opportunities associated with them. The investments will stand on their own 2 feet, and we aim for them to be accretive to our return on capital employed for the company. But they all need to be associated with the business opportunities for the rest of the company.

Okay, that’s great. I appreciate that color. Thank you so much.

Thank you.

And your final question today comes from the line of Waqar Syed from Goldman Sachs. Please go ahead.

Thank you for taking my question. My question relates to Cameron, some of the recent projects that you’ve entered into, Mad Dog and others. How should we look – think about long-term margins for these new projects versus what OneSubsea has been generating before?

Well, obviously, if you look at the commercial environment at this stage versus the commercial environment three years ago when the project that we are currently executing were bid, it’s obviously more challenging. So to think that we can, I would say, achieve the exactly same margins on these latest projects that we are currently delivering on OneSubsea, that might be challenging. But I would say for all the bids that we are making and the contracts that we ultimately secure, we have very clear return expectations on them, somewhat lower than what OneSubsea is currently operating at. But we are still looking for this to be a very good business for us going forward, and continuous improvement – for instance, OneSubsea is showing and the plans they have in place going forward as well to even further improve the way they execute projects. There should also be opportunities for the projects we bid and secure at this phase to have potentially margin upsides as we go forward. So it’s a tough business, but I would say I’m very pleased with how OneSubsea is navigating the commercial environment and also executing and delivering on the projects that we take on.

And then just my follow-up question on integration-related expenses. When do you think you’re going to stop reporting those?

Well, we – as we said earlier, we will continue to be reporting them, announcing them separately for the year. But starting next year, we will drop this. This is normally our style. For the first year after the acquisition, we continue to incur them and announce them. And from there on, they become part of our ongoing run rate of cost.

Thank you very much.

Thank you, Waqar. So just before we close this morning, I’d like to summarize the three most important points that we’ve discussed. First, the only region in the world showing clear signs of increased E&P investments in 2017 is North America land, where activity has been growing for the last few quarters. And in line with our profitable growth strategy, we have begun redeploying our idle capacity in pressure pumping, and we will accelerate this in the second quarter. Through the organic and inorganic investments we had made in our North America land business over the past seven years, we are very well positioned to take a leading customers as they expand their activity in the coming year. Second, the performance of our international areas in the first quarter confirmed our belief that activity has now reached bottom in all regions. And although we see positive signs in many countries, both on land and offshore, we expect only moderate sequential growth over the coming quarters. The slower speed of recovery, together with the lingering pricing pressure, means that we expect another challenging year in the international markets in 2017 before a clearer acceleration of activity in 2018. And third, as we continue to carefully navigate the current industry landscape, we remain confident and optimistic about the future of Schlumberger, knowing very well that beyond the current market challenges lies a wealth of opportunity for the industry players that are ready to think new and to act new. Thank you very much for listening in.

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