Trojan Global Income Fund

We established a new investment in SLB, the world’s largest oilfield services company. It supplies the technology, equipment and expertise that oil and gas producers rely on to find, drill and produce their wells. The company generates around $36bn of revenue and, while it holds roughly a tenth of the global oilfield services market, it commands close to a third of the higher-value international and offshore segment. These are increasingly important sources of future energy supply and areas where engineering complexity is the greatest, increasing the value of SLB’s expertise.

SLB is particularly entrenched in the most technically demanding parts of the industry. It holds leading positions in proprietary measurement and drilling technologies critical to complex offshore projects, while more than 90% of global oil production is modelled using at least one of its digital solutions. These services represent a small share of overall project costs but can have a disproportionate impact on outcomes, meaning customers tend to prefer capability and reliability rather than price.

The industry is emerging from a prolonged period of underinvestment. Exploration and upstream spending remain well below the levels of the previous cycle, constraining new supply as existing fields deplete and global energy demand continues to grow. Higher oil prices should incentivise renewed investment, while geopolitical uncertainty and a greater focus on energy security reinforce the need for reliable and diversified sources of supply. We believe this should support a sustained recovery in upstream spending, particularly in international and offshore markets where SLB is the clear leader. The company itself has improved from the last cycle: net debt has fallen, capital intensity has reset lower as the business tilts towards recurring production and digital revenue, and returns on capital are recovering. Management has committed to returning more than half of free cash flow to shareholders.

The dividend has been rebuilt from $0.50 in 2021 to $1.18, placing the shares on a yield of around 2%. With the shares trading around the middle of their historical P/E range, we see attractive value in a business whose earnings power should be materially higher over the medium term. SLB remains cyclical, and we have sized the position accordingly. For patient investors, we believe it offers an appealing risk-reward.