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 and instructions will be given at that time. [Operator Instructions]. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Simon Farrant. Please go ahead.

Good morning. Good afternoon. And welcome to the Schlumberger Limited second quarter 2018 earnings call. Today's call is being hosted from Paris, France following the Schlumberger Limited board meeting. Joining us on the call are Paal Kibsgaard, Chairman and Chief Executive Officer; Simon Ayat, Chief Financial Officer; and Patrick Schorn, Executive Vice President, Wells. We will, as usual, first go through our prepared remarks, after which we'll open up for questions. For today's agenda, Simon will present comments on our second quarter financial performance before Patrick reviews our results by geography. Paal will close our remarks with a discussion of our technology portfolio and an updated view of the industry macro. However, before we begin, I'd like to remind our 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 at our latest 10-K filing and other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our second quarter press release, which is on our website. Finally, after our prepared remarks, we ask that you please limit yourself to one question and one related follow-up during the Q&A period in order to allow more time for others who may be in the queue. Now, I'll hand the call over to Simon Ayat.

Thank you, Simon. Ladies and gentlemen, thank you for participating in this conference call. Second quarter earnings per share, excluding charges and credits, was $0.43. This represents an increase of $0.05 sequentially and up $0.08 when compared to the same quarter last year. During the second quarter, we recorded $0.12 of severance charges. Our second quarter revenue of $8.3 billion increased 6% sequentially, largely driven by the growth in OneStim in North America and higher reservoir characterization and drilling activity internationally. Pretax operating margins increased by 75 basis points to 13%. Highlights by product group were as follows. Second quarter reservoir characterization revenue of $1.6 billion increased 5% sequentially, primarily due to higher wireline activity in offshore North America, further progress on OneSurface integrated production system projects and increased SIS sales internationally. Margins increased 166 basis points to 21.4%, primarily driven by the recovery of higher margin wireline activity and stronger SIS software sales. Drilling revenue of $2.2 billion increased 5% sequentially, while margins decreased 83 basis points to 12.9%. The revenue increase was primarily driven by strong international drilling activity as a result of the start of integrated drilling projects. Margin was negatively impacted by startup costs associated with new projects as well as operational delays. Production revenue of $3.3 billion increased 10% sequentially and margins increased by 239 basis points to 9.7%. These results were primarily driven by OneStim growth in North America combined with higher activity in the Middle East and Asia area. Cameron Group revenue of $1.3 billion decreased 1% sequentially. This decrease was largely driven by declining project volumes in OneSubsea, which were partially offset by higher sales for surface systems and valve and measurements in North America. Margins were essentially flat at 12.8%. The book-to-bill ratio for the Cameron long-cycle business was at 1. Now, turning to Schlumberger as a whole, the effective tax rate excluding charges and credits was 17.2% in the second quarter compared to 17.6% in the previous quarter. Looking forward, the ETR will be sensitive to the geographic mix of earnings. As a result of the continued recovery in North America, we anticipate that the ETR will increase next quarter and over the remainder of the year. We generated $1 billion of cash flow from operations during the quarter. Our net debt increased $600 million during the quarter to $14.6 billion. We ended the quarter with total cash and investment of $3 billion. During the quarter, we spent $103 million to repurchase 1.5 million shares at an average price of $68.45. Other significant liquidity events during the quarter included CapEx of approximately $520 million and capitalized cost relating to SPM projects of $194 million. During the quarter, we also made $693 million of dividend payments. Full-year 2018 CapEx excluding SBM and multiclient investments is still expected to be approximately $2 billion. And now, I will turn the conference call over to Patrick.

Thank you, Simon. And good morning, everyone. In my comments today, I will first discuss revenue growth by geography without Cameron and then conclude with some Cameron-specific remarks on second quarter performance. Looking at our results in North America, revenue increased 12% sequentially. Or more precisely, revenue grew by 9% on land and by 22% offshore. The land revenue increase outperformed both the 7% increase in the US land rig count and the 8% improvement in the US land frac market stage count. In Canada, activity dropped as expected as the spring breakup took effect. Offshore revenue grew due to market share gains in the well construction arena. Multiclient seismic license sales were also higher as we continued to focus on the new asset-light model at WesternGeco. OneStim pressure pumping revenue grew by 17%, driven by the deployment of additional frac fleets. Net pricing remained stable as increasing capacity across the market matched increasing customer activity. We were also able to leverage the improved efficiency of our operations to grow revenue and gain market share. in particular, the investments in vertical integration supporting our pressure pumping operations has allowed us to respond rapidly to the increasing customer trend of separating pumping services from sand supply. This means that we're able to bid competitively on both integrated or standalone sand supply contracts to participate in the full revenue potential of each, particularly as we add more capability in sand supply on a regional basis. In the US land drilling market, activity was also strong with a growing customer interest in integrated well construction services, while demand also remained robust for rotary steerable systems. Based on industry figures, the average length of laterals have increased by 30% over the past four years and new well designs that balance lateral length with optimized…

Thank you, Patrick. And good morning, everyone. The broad-based recovery in the international markets has now finally started, which led us to recover sequential revenue growth in almost all geo markets and nearly product lines in the second quarter. One of our many growth drivers in the emerging international upcycle is our integrated drilling business where we, through our systematic R&D investments and domain leadership in drilling hardware, fluids, software, have created a highly-differentiated well construction platform which today enables us to win most of the tendered work, while at the same time delivers solid financial returns. Our tender win rates and backlog increase for integrated drilling projects over the past year is the highest we have ever seen. And based on these project wins, we will, in 2018, mobilize a total of 90 land rigs, mostly third-party, which by itself is equivalent to a midsize line drilling contractor. In the integrated drilling business, the reduction of interfaces and improved definition of responsibilities between our customers and us create significant improvements in both quality and efficiency that benefit both parties. At the same time, the performance-based contracting model and the increased freedom we get to optimize drilling plans, select the appropriate technologies and continuously innovate in the way we run our operations create additional value which is shared with our customers. One example of the operational innovations we are currently deploying on all our new drilling projects is multi-skilling and remote operations, which allow us to reduce the overall headcount on the rig site by up to 35%. Another example of operational innovation is how we are rapidly increasing the utilization of our operating assets through our global traceability system, our centralized planning centers, a more scientific methodology for equipment maintenance and our unique data-driven drilling optimization software. As a…

Thank you. [Operator Instructions]. Our first question is from the line of James West with Evercore ISI. Please go ahead.

Hey, good afternoon, Paal.

Hey, good morning, James.

So, it looks like, from my standpoint, 2018, you talked about 90 land rigs being mobilized, with the 28 last quarter. Offshore, starting to kick in. You're talking back about your 65% incrementals at some point here when we get pricing. Could you maybe give us an idea of what regions of the world – I mean, obviously, good growth in Asia and Australia this quarter and continued growth in the Middle East. What regions of the world – or is it just everywhere – that's starting to inflect? This is a big inflection for international.

I agree with you. It is a big inflection for international. And I would say that we are basically seeing it everywhere. We're not going to see the same sequential growth rates from every region in every quarter.

Sure.

And while Russia and the Middle East was a little bit slower and sequential growth, this quarter, we're seeing them right back with strong performance anticipated for Q3. Asia continues to be strong again for the second quarter in a row. And Latin America, which we only had about 3% sequential growth in Q2, is going to be a lot stronger again in Q3. So, we are basically seeing new activity, new products being discussed, more activity on the existing products we have in pretty much every corner of the world. It's not going to be a straight line for each of the regions, but we are very encouraged with what we see. We have, with the management team being a lot in the field during the second quarter, seen a lot of our customers. And, overall, the mood is actually quite upbeat, which is quite a while since we have seen this on our field visits.

Sure. Absolutely. And then, with respect to pricing, it sounds like you've got a little bit in 2Q or maybe some smaller contracts, but the discussion about the absorption of all your equipment by year-end, is that already a done deal based on contract awards that have already come through?

Yeah. That's pretty much a done deal. That's basically mobilizing and honoring the commitments that we have already taken on. So, yeah, I would say, during the course of the fourth quarter of this year, we will be, I would say, fully utilized in the international markets. And beyond that, we will look at adding capacity partly through CapEx, but also a fair bit through driving the efficiency of our asset base that we have in place, now further helped by the upgrade we've done to our field organization. But during the fourth quarter, we will be fully mobilized. And we have already started these pricing discussions with our customers. Part of it is going to be price book uplift. Part of it will be potentially better terms and conditions. And, in particular, also payment terms. We are still, I would say, not really satisfied with the evolution of our working capital and this is mainly down to slow payments from our customers, which we are actively looking to address.

Got it. Good luck. Thanks a lot.

Thanks, James. Thank you.

Next question is from the line of Angie Sedita with UBS Securities. Please go ahead.

Thanks. Good morning, guys.

Good morning.

So, nice to hear the enthusiasm on the international side. It certainly feels more tangible than it has in sometime. So, maybe you could talk a little bit about some of your integrated project awards. I think that was a key factor in where you see it as absorption and capacity and how that plays into pricing. And then, I know it's early, but maybe you had some early thoughts on international E&P spend for 2019. Is low double-digits a stretch or is that a possibility?

Yeah, okay. On the first part of your question in terms of the areas of international, as we discussed with James, we see it generally everywhere at this stage at varying rates. But in terms of the drilling projects, we also see them in most regions, right? Obviously, on land for lump-sum turnkey, we see that in Latin America, very much so in the Middle East and also some in Asia. And we also have integrated projects more from a project coordination standpoint happening on land, but also now occurring in the shallow water where – offshore where we also are starting to see an uptick in activity. So, overall, it's quite exciting. It's been a while since we were able to kind of talk as optimistically about the international market as we can now. So, it's all positive. Now, to your question on 2019, it's obviously early for us to make predictions about what our customers are going to do. I don't think they have really started their planning exercises yet. But, obviously, we have a pretty good handle on our revenue backlog from all the project wins we have and the outlook generally we have on our business. And I can at least say from our standpoint that our growth in international for next year will be double-digit. Don't ask me where in double-digits, but it's going to be double-digits.

Okay, thanks. That's very helpful. And then, going to North America and the Permian, you made a little comment here on your deployments. So, maybe talk a little bit further about OneStim and the deployment for the rest of 2018 and going into 2019. And also, very interesting on the sand strategy with the vertical integration, your commentary by your customers and should we expect further integration into sand. So, maybe a little bit on OneStim and then on sand.

Yeah. On OneStim, we had continued to deploy our spare equipment. And we basically said that, by the end of this year, we will be in a position to have deployed it all. We will do whatever rebuild is necessary and that's currently ongoing. It's progressing well. And we continue to deploy now into the third quarter. We are aware of the emerging Permian takeaway constraints, but we have yet to see any real impact on the activity growth or any activity on pricing. So, we are continuing to deploy and things are progressing well with OneStim. Now, as for the vertical integration, we have been investing into this now for about three years and we now own several sand mines. And our investment into sand mines will be concluded basically this month. We will then have sufficient sand mine capacity to take care of 100% of our current and also projected frac work. We see this as a significant competitive advantage going forward because there is a quickly growing trend from our customers now to separate the tendering for frac services and frac sand. And through the investments we've done and vertical integration, all the way from the sand mine to the rail, to transload and also trucking for the last mile where we have vertically integrated all aspects of this, not for 100% of our capacity, but for a fairly significant part, that allows us now to bit very competitively for the standalone sand tenders, which means that we can obviously compete in the entire revenue stream continuously, which would have been a lot more difficult in the event we were not vertically integrated. So, we are basically done this month with our vertical integration investment program and we're now in a prime position to really take advantage of that and continue the deployment of the remaining spare frac capacity we have by the end of the year.

Thanks. Very helpful. I'll turn it over.

Thank you. Thanks, Angie.

Next, we go to the line of Scott Gruber with Citigroup. Please go ahead.

Thank you. Paal, can you discuss the outlook for the drilling segment, both revenues and margins in the second half? You mentioned double-digit growth internationally next year. Will the double-digit growth start to manifest within drilling in the second half just given all the rig deployments? And then, as the startup costs fade, how should we think about the margin trajectory within drilling?

Yeah. So, I would say the double-digit growth was an overall Schlumberger international projection for next year. For the second half of this year, I gave some indications around how we see Q3. And, obviously, given the significance of these integrated drilling contracts, we expect significant growth within the context of the overall growth from the drilling group. There's been a heavy mobilization burden on them in the first half of the year. It will continue into, for sure, Q3, and that has impacted margins. We're not, obviously, happy with that level of margin, but we also understand that there are challenges with these type of deployments, right? So, you can expect, going forward into the second half, that both margins will improve and we also would expect that the drilling group will be in the high-end of our sequential growth as we go into the third quarter.

Got it. And while we're on the forward outlook, consensus currently stands at $0.51 according to FactSet for 3Q, are you comfortable with that figure, given the trends you see today?

Well as I said in my prepared remarks, our view in the third quarter is that we will again grow roughly on the top line at the percentage rate as we did sequentially in Q2, which is roughly 6%, which I think is more or less in line with the revenue consensus. On the EPS side, we're still again looking at probably 10% to 15%, which, if you do the math, will probably be in between 47 and 50. And again, that's going to come down to how effective we are in getting the mobilizations done. And the quicker you get the mobilizations done, the lower your cost will be and the quicker you will also get the wells into a position where you can recognize the revenue and the profit. So, there's a bit of a range and it is down to the fact that we still will have a very heavy burden to lift on the mobilizations. So, that's the kind of range I would give you at this stage. But I would say, overall, what is really driving our business going forward is going to be our ability to drive the topline and I'm very pleased with where we sit in terms of contracts, tender wins and the fact that we can execute these contracts going forward.

Got it. Thanks for the [indiscernible] color.

Thank you.

Next, we go to the line of Kurt Hallead with RBC Capital. Please go ahead.

Hey, good morning, Paal. Appreciate that summary on the operational outlook. Maybe I can ask a question here relating to cash use, cash flow expectations, especially as you get these projects up and running internationally and maybe even kind of give us a rough glimpse on how you expect free cash flow maybe through the back half and maybe give a rough sense as to what cash flow could look like as we go into next year.

Yeah. I'll make a couple of quick comments and I'll hand it to Simon to elaborate a bit. But I would say, first of all, we are not satisfied with the free cash flow in the second quarter and even the first half overall. The main issue around the cash flow is the consumption of working capital. And while we have a pretty good handle on inventory and payables, the main issue here is still high DSO and customers paying slowly. I'm not worried about being paid ultimately, but the rate of payment is too slow. And this is something we're already addressing in our commercial discussions with our customers. We had a very good handle on the internal part of the DSO, but we know need to get a bit more traction on the customer side. So, typically, our cash flow – free cash flow improves considerably in the second half of the year, which we do expect it to do this year as well. So, we're overall going to be on track for the year as we plan, but the start in the first half has been slow versus our expectations. Simon, you want to elaborate?

Not much to add here. But as Paal mentioned, we're not happy with the first half. It is similar to what we did last year, but we should have done better. The working capital consumption was a bit higher than what we expected. But the second half of the year we always improve and we expect the improvement to come and meet our target for the year. You ask on next year, well, we haven't done any detailed work yet, but given the fact that it is going to be a better year with our growth and we are – we will maintain our investment at a level which is – that meets this growth. So, we expect to do better. The other element of the cash consumption is, obviously, buyback. As you see, we will continue for this year at the modest level. So, in order to preserve the cash to meet the business needs.

Okay. Appreciate that. Maybe I can follow-up as well. Paal, you reference you're still – or have a target of over 60% incremental margins. Obviously, as the cycle kind of kicks in, you get pricing. Sounds like you talk about a broad-based recovery, you talk about accelerating activity levels, you talk about improving pricing on the international front and then double-digit kind of revenue growth internationally next year. I don't know. Is it safe enough for us to assume that, with all that as the backdrop, that you could potentially 60% incremental margins in 2019? I'm not trying to hold you to that or pin you down. I'm just trying to kind of gauge based on your commentary and what you've said your targets were in the past.

Well, we're ready to ultimately be held to the 65% incremental. That's for sure. Whether we will see the full effect of it next year, I think it's going to come down to how much pricing we will get. What I'm very confident about is our ability is to drive the internal efficiency from all aspect of our operations, right? And what we have done this quarter with the full implementation of our, I would say, fully modernized operating organization is going to be a key driver to make that happen. So, there is a lot of excitement in our field operations around now having his organization in place, with cutting-edge tools and the ability – they know how to drive overall efficiency from the vast international operating base that we have. So, this is going to be a key component of ensuring that we deliver on the 65%. So, whether we get all the way there next year, I think it's going to come down, I think, more of how much pricing we get because I'm very confident about our own ability to execute efficiently.

Okay, great. Thanks, Paal.

Thank you very much.

Next, we to go to the line of Jim Wicklund with Credit Suisse. Please go ahead.

Good morning, guys.

Good morning, Jim.

And I'm glad we get to talk about international and we can now talk about international pricing. So, that's all indicative of things definitely improving. Paal, I realize that we haven't planned for 2019, 2020 and beyond. But I look back at your margins and reservoir characterization and in drilling, which are your most international segments. And in 2015, you had margins of 26% in reservoir characterization and 18% in drilling and we're well below that now. I'm not asking when those margins recover, but is there anything fundamentally different in the market going forward that would stop you from getting back to those historical margins at some point in the next couple of years?

Jim, no. I don't think there is. Obviously, we have conceded on price a fair bit over the past four years.

Yeah. That's near term, though.

Absolutely.

It takes a long time to recover.

Yeah. So, no – and I'm confident that we can recover at least a fair bit of that. And I think that alone, I think, should be enough for us to get back to those kind of margins. This quarter, reservoir characterization made a pretty big step forward already. And the main issue around the drilling margin is not, I would say, the overall execution capabilities and the technology portfolio, which is highly differentiated. It is the fact that we are carrying a lot of mobilization and startup costs and, with that, inefficiencies. So, I would expect you to see fairly noticeable margin progression over the coming quarters in drilling. So, for us to within next few years get back to those margins that you were indicating for characterization and drilling, I see as absolutely achievable.

Excellent. Excellent. That's very helpful. My follow-up, if I could, we talked a little bit about Cameron. I know the book-to-bill is at 1. The backlog declined a little bit. There's been a lot of talk about FIDs picking up this year, but from an exceptionally small base. A lot of the FIDs that have been issued are getting slow-rolled by their clients. Can you talk a little bit – you have so much exposure and margin exposure to deepwater – and deepwater, the offshore drillers have, obviously, ran and their stock price is up this year. Is there any increased visibility on when deepwater may start to pick up and when Cameron may move that book-to-bill from 1, which is just fine, to a higher number? Do we have any visibility on deepwater at this point?

Patrick, do you want to comment?

Sure. So, Jim, I think that, at this moment, and what we have continuously said is that once the recovery starts, we obviously start seeing it on land and we clearly are now having very clear evidence of what is happening in the shallow offshore. Equally, we are preparing ourselves further for deepwater to start again as well. Whatever size of a bonanza this is going to be, I think, at this moment, it's somewhat unclear. But from the work that we have been doing in completing our technology portfolio, making sure that we have a leading technology on the boosting side and, clearly, the work that we already signaled that we're doing with Subsea 7 to get a JV that prepares us even more to be ready to play significantly in this market, we do see that we are going to go back in the years to come into deepwater activity because looking at the longer-term supply/demand, there is a certain amount of assets that will have to be developed. So, we're still positive on this market. I think, at this moment, it is a little bit tough to call a deepwater revival short term, but we are preparing ourselves further and, certainly, expect over the longer-term the book-to-bill to go in more favorable numbers.

Okay, gentlemen. Thank you very much. Appreciate it.

Thanks, Jim.

Next, we go to the line of Dave Anderson with Barclays Capital. Please go ahead.

Hi, good morning. So, as you're ramping on the LSTK contracts and you talked about the 90 rigs you're mobilizing this year, I was just wondering kind of what this looks like going forward. You, obviously, have quite a bit of appetite for this stuff to work. Could you see another 90 rigs, let's say, mobilized next year. I'm just trying to get a sense as to, ultimately, kind of the breadth of this opportunity that you're seeing coming in front of you here.

Well, at this stage, we don't have visibility into 2019 for that, but I think it's fair to say that we're not expecting to see a similar type of ramp up of that number of rigs in 2019. We expect to be very competitive in every bid that is out there for lump-sum turkey anywhere in the world at this stage. And we feel very confident in our ability to compete and win these tenders and also turn the tenders at competitive rates into good profits for Schlumberger. But I don't anticipate the same level of ramp up in 2019 as in 2018.

Is this still largely concentrated in Saudi and I think we see a little bit of Oman. Can you just talk about maybe some other – I don't know if you want to get too specific here, but are you starting to see it's more broad-based in the Middle East or it's still sort of concentrated in Saudi?

No, it is not concentrated in Saudi. Saudi is a very important market for us. And we have a big ramp up of rigs in Saudi over the year. But we have, in addition to that, countries like Mexico, Iraq, India, just to name a few and there are other countries in the Middle East and Gulf area as well where we are starting to take on these double contracts. So, this is much more broader based than one particular country.

Thank you. On a similar subject, Patrick, you had talked about the Palliser block and where you are with the four rigs. I was wondering if you could give us a little toast, kind of where you are in terms of the progression on the wells and the success of that project. We haven't heard too much about that. And during the quarter, there was some talk about monetization. I was just wondering what that means. Does that mean you could potentially be kind of maybe selling out some of your working interest to taking on partners? Just if you could give a little bit more color on that, that will be great. Thank you.

Okay, Dave. So, at this moment, we have about 15 active SBM projects. Palliser, the one in Canada, we did talk about that. We are at the moment active again with four rigs. We'll do well over 100 wells on that asset during this year. As you noticed, it is one way we are shifting from a gas-producing asset to an oil production. The wells are performing very well. We're pleased with the reservoir performance that we see, with the well locations that we have. So, this is going as per plan. Quite keen on that. Ecuador remains active for us with the three assets that we operate there. In Argentina, we're picking up further on the Bandurria Sur asset. And, again, there, we're having very good success with the technology that we deploy in the reservoir. And then, maybe the last one to highlight would be Nigeria where we have a project with First E&P and NNPC. And that is on track to FID here very, very soon. So, just to give you a bit of a broader view on it, the opportunities for new projects really remain plentiful, but we are only considering those at the moment that really fit with what we call the SBM-light business model, where capital intensity and cash flow are much more key criteria in defining which project ultimately fits with us and which doesn't, which is much in line with the communications that we have had previously. So, in the SBM-light context, we've also spoken about monetization of the SBM investments. And there are several assets in our portfolio that are reaching a level of maturity where we have generated the value that we are going to be able to sell. And maybe we'd have to think really about farming up or selling certain portions of our equity in these fields. And this is what we want to do in the next 12 to 18 months once we really start reaching peak valuation on them. On the last point, maybe around SBM, what was highlighted during this quarter was that we exited the OneLNG venture which might've come a bit as a surprise. It's still a business that we believe very much in, which is a business around stranded gas and FLNG technology. But, for us, it has been a decision that we exited purely based on the intensity of capital required for this project. And when we entered, we were very clear on – we are very keen on investing in the upstream, not so much in investing in the vessels itself as that's really not where our money is best employed. And maybe with that, I've given you a bit of an idea where we are with the main activities around SBM.

Great. Thanks, Patrick. A - Patrick Schorn Thank you, Dave.

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

Thanks. Good morning. Paal and Simon, so assuming a double-digit increase in international revenues for 2019, how should we think about capital spending consolidated as a percentage of revenues in 2019? Should it look much like it has in 2018 or should the capital intensity go lower given the mobilization unfolding for this year?

So, obviously, we haven't gone through the detailed planning for next year. So, it's early to kind of make firm statements about this. But I think, directionally, I think you can expect that the CapEx as a percentage of our revenue going into this upcycle versus previous upcycles is going to be considerably lower. What the absolute number for 2019 CapEx would be? Like I said, it's too early. But I think the planning number I would have on my piece of paper today would still be around the $2 billion mark. And I think, with that, coupled with the big upside we are now starting to see from the complete modernization we have done of our operating platform is going to drive significant asset utilization efficiency. I mentioned in my prepared remarks that drilling and measurement, for instance, in 2018 alone will double their asset utilization of our sold-out PowerDrive technology. So, you can expect us to be, for the base business as well, a lot more capital efficient in this upturn compared to what we have been in previous upturns. And we haven't been too bad in the previous upturns either.

Okay, great. Thanks. And you mentioned that pricing was stable in the second quarter for Lower 48 and I presume that meant frac and OneStim. I'm just curious, given the occlusions that are unfolding in the Permian and the slowdown in drilling activity that we've seen in the past eight weeks and what likely will be a slowdown in completions activity, can you comment on the cadence of OneStim deployment going forward? And then, moreover, just your expectations in general for pricing. It seems like it's softening on the margin for the industry.

Well, in terms of the cadence of the OneStim capacity deployments, I don't want to go into the details of it. Other than that, we basically said that over the course of this year, we would rebuild the equipment and be in a position to reintroduce it into the market. We are continuing to progress well with that plan. There will be always some variations in the deployment rate by month or by quarter. But, at this stage, we are not altering the plan based on some of these takeaway constraint discussions that are on the Permian. We have yet to see that in the projected activity growth. But, again, this is something we will monitor very closely. And in the event, there is a need to adjust, we will adjust. But as of now, we are continuing to deploy. And this is why we are outgrowing both the rig count and the stage count in the market with these deployments. And as to pricing, flat pricing for the OneStim business roughly in the second quarter and we have not seen any kind of major movements beyond that so far into the third quarter either. So, looks pretty stable as per now and we continue with our plan. And as with anything in the North America land market, you've got to be on your toes because it can change quickly.

Okay, thank you. Next, we go to the line of Jud Bailey with Wells Fargo. Please go ahead.

Thanks. Good morning. A question, Paal, if I could. You referenced the expectation of double-digit international revenue growth next year. I'd be curious – number one, how do you think about visibility for choosing that kind of growth next year? And then, number two, how do you think about the drivers of that growth? I guess, for me, their regional standpoint and also how you'd see the potential split between offshore and onshore growth playing out next year as well?

Again, I gave the double-digit international growth numbers basically because we are confident on the backlog we have of contract wins. And we know where these wins are and how it's going to shape up. Now, we have not done the detailed planning. So, I can't give you any kind of granular review of where it's going to come. But, in general, we see growth in all geographies next year. I would say, land is still likely to be the driving force of it. Obviously, a lot of our lump-sum turnkey sits on land. And this is where the shorter cycle barrels are. But I think we will start to see movement in particular on shallow water as well. I believe there are some movements in shallow water rig rates, which I think is a very good precursor to what is likely to happen. And going back to deepwater, deepwater drilling activity in 2018 is roughly going to be 10% up versus 2017. And I think the growth in deepwater would probably continue and potentially accelerate as well into 2019. So, I know I'm not giving you the details you're looking for mainly because we haven't done the detailed planning as of yet, but I see no region of the world which we see as a region that is not going to grow in 2019. And we find that to be very good news.

Okay. I appreciate the comments. And I'd say, my follow-up would be, most of the commentary so far industrywide has been on the expectation that development work will kind of dominate the next leg of deepwater activity. Are you seeing any hints of improvement in terms of exploration on the deepwater side? Or is it still dominated from [indiscernible] side?

It's a good question. Obviously, in terms of the absolute volume. it is dominated by development. But we are starting to see that exploration spend appears to be turning a corner as well. I mean, the current level of exploration investment over the past, whatever, three, four years is, obviously, clearly, not sustainable. And we are starting to see some uptick there. Q2, in terms of exploration rig count, was actually up 22% sequentially and about 7% year-over-year. And we expect that, in 2018, exploration, drilling and well services spend is probably going to be around 12% higher than 2017. So, both deepwater and exploration is starting to show kind of double-digit growth already in 2018. And I can only see that accelerating going into 2019. And associated with exploration, we are actually also starting to see more interest and more discussion with our customers again on formation evaluation. This being either wireline or LWD and actually customers going back into – talking more reservoir with us. And, obviously, this is very good news for some of our high-end measurement related businesses as well. So, exploration is coming. And it's also associated with increased focus on reservoir information evaluation.

Great, thank you. I'll turn it back.

Thank you.

And our last question is from the line of Waqar Syed with Goldman Sachs. Please go ahead.

Thank you very much. Appreciate that. Paal, the pricing improvement that you expect later in the year, would that start to have a benefit in first half of 2019 or do you see that, by the time it turns into contracts and revenues, it could be late 2019 or even 2020?

No. I think the pricing discussions we are starting to have now – and we had some pricing improvements already happening in the second quarter, they're not big enough to be material, so you can see them in our results. But we tracked it very carefully and we have specific plans by customer and by contracts and by market on how we're going to engage into recover some of the big concessions that we have made. So, the pricing improvements we are now discussing and seeking should have a gradual impact on our results going forward, right? So, I would say the discussions we are having in the second half of this year should have an impact on our results in the first half of 2019. To what effect? It's still early to say. But with activity continuing to go up, with ourselves at least being fully deployed capacity-wise by the end of the year, I think it's only natural that pricing comes up and starts to have a – be a bit of a tailwind on our results and it's been a pretty significant headwind for, what, four years in a row now. So, I'm encouraged in terms of what I'm seeing around the pricing discussions and also optimistic that this will become more of a noticeable tailwind as we go into 2019.

And then, just finally on that – as you go into 2019 and you're expecting a revenue growth internationally in double digits, could you do that with the same kind of capital budgets, around $2 billion, or do you think the CapEx will need to grow as we go into next year?

No, we can do that with that same CapEx budget of $2 billion. That's on the back of the modernized field operating platform.

Okay, great. Thank you very much. Appreciate it.

Thank you, Waqar.

So, before we close today's call, let me summarize the main messages. Oilfield activity strengthened in the second quarter, both in land in North America and also throughout the international markets. And as a result, we delivered strong sequential revenue growth. With a total of 90 rigs being mobilized over the course of 2018, the integrated drilling services model is one of our many growth drivers in the global upcycle we are now entering. The second quarter saw us complete an important milestone in our transformation program as we rolled out our modernized field and support organization. And linked to this, we also completed the second and last step to simplify our management structure, which altogether puts us in a great position to outperform in the emerging global upturn, both in terms of topline revenue and bottom-line earnings growth. With that, we conclude today's call. Thank you for participating.

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.