Operator:

Good day and thank you for standing by. Welcome to the Second Quarter 2024 Halliburton Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to David Coleman, Senior Director, Investor Relations. Please go ahead.

Jeff Miller:

Thank you, David, and good morning, everyone. Halliburton delivered solid second quarter results that demonstrated the strength of our international business and the differentiation of our North America service offerings. Here are the quarter highlights. We delivered total company revenue of $5.8 billion and operating margin of 18%. International revenue was $3.4 billion and grew 8% year-over-year, led by Latin America, which delivered a 10% increase. North America revenue was $2.5 billion, an 8% decrease year-over-year compared to a 12% decline in rig count over the same period. Our Drilling and Evaluation division and our Completion and Production division both demonstrated margin improvement year-over-year. Finally, during the second quarter we generated $1.1 billion of cash flow from operations and about $800 million of free cash flow and repurchased $250 million of our common stock. I'll begin our discussion with the international markets, where Halliburton's strategy of profitable growth delivered another solid quarter. International revenue grew 8% year-over-year, with growth demonstrated by each region. This marks the 12th consecutive quarter of year-on-year growth in our international business. As I look ahead for the remainder of this year, my outlook today is consistent with our expectations at the start of the year. I expect steady growth for Halliburton throughout the remainder of 2024. In our international markets, we see strong demand for Halliburton services, high activity levels, and equipment tightness across all major basins. We expect our international business to deliver about 10% revenue growth for the full year. I am pleased with the profitable growth we're seeing across our product lines. And today, I would like to highlight three specific ones in more detail. The first is our Landmark Software business. I recently attended our Landmark Forum, LIFE2024, in Athens, Greece. It is an annual event where we share our latest software innovations and our customers share their successes and future opportunities. While in Athens, I had the opportunity to meet with dozens of customers and they told me how excited they were about our latest offerings like unified ensemble modeling, scalable earth model, and our latest developments in AI and machine learning. These tools change the way customers work by driving efficiencies from asset level planning through production. The conference included customer presentations that showcased their business transformation and their use of Halliburton Landmark’s tools. Our customers tell us we create unique value with our iEnergy cloud platform, which seamlessly integrates into their workflows. I am confident that Landmark's DecisionSpace 365 will expand and add to our customers' productivity and innovation journey. Next, Halliburton's artificial lift product line is growing in the international markets at double the rate of our overall international business. It embodies our successful M&A strategy of bolt-on acquisitions that bring leading technology into our portfolio. We organically grow new technologies through our global footprint and through collaboration with our customers to engineer solutions that maximize their assets value. As one example, this quarter we launched our GeoESP line, which is engineered for the harsh geothermal environment. The GeoESP line solves for extreme thermal cycling, scale development, abrasion, and corrosion. While geothermal ESP technology has applications across the globe, Halliburton sees substantial growth opportunities in Europe where customers require advanced technology to bring geothermal to scale. Finally, Halliburton's drilling services are key to our success in the international markets. We had another strong quarter in unconventional drilling with our iCruise X rotary steerable system and our LOGIX autonomous drilling platform. We deployed advancements that improved drilling speed and reliability and set several [general] (ph) records during the quarter. We invest in differentiated drilling technology and we expect our strong performance and reliable execution to drive above-market growth. For example, in the Middle East, our drilling services revenue grew about 30% year-over-year. I am pleased with our international business and look forward to deepening our strategy and delivering additional profitable growth. Turning to North America, our second quarter revenue declined 3% compared to the first quarter. Halliburton's first half 2024 results were largely as we expected. However, as we have seen, rig counts and overall service activity declined through the quarter. As I look to the second half of 2024, I now expect full year North America revenues to decline 6% to 8% versus last year, driven by lower activity. I expect that the second half of 2024 will be near the low point of activity levels this cycle, and while it's too early to give specific guidance for 2025 in North America, I expect activity to be directionally higher than the second half of 2024. Here's how I think about this. First, I expect an increase in activity after E&P companies complete their acquisitions and establish new development plans. Second, some of the merged assets will be divested to smaller operators who will put them to work. Finally, I expect some recovery in natural gas activity. Six years ago, when we set our strategy to maximize value in North America, I understood it may take a market like we see today where North America activity declined by over 200 rigs in the last 18 months to demonstrate the margin resilience and earnings power of our strategy. I am pleased that Halliburton delivered strong C&P margins through this period and I am confident that our strategy will deliver strong results in the future. We're committed to our strategy to maximize value in North America because it delivers shareholder value and it is the right strategy for this market. For Halliburton, we focused on returns. We allocate capital to the markets and products that drive superior returns and margins. We prioritize returns over market share, and to that end, we retired a few fleets this quarter. We developed differentiated technologies to solve for the unique requirements of the North America market. And lastly, we improve efficiencies for our customers through those technologies, service quality, and execution. I expect this strategy will deliver leading performance for our customers and a structurally more resilient North America business for Halliburton. A key part of how we do this is our strategic investment in technology. One technology I'm excited about is the latest addition to Octiv, a key component of the ZEUS platform. Today, Octiv is a cornerstone of how we deliver large multi-well pads with unmatched precision and consistency. As our customers execute completions with ever-increasing size and intensity, automation, as delivered by Octiv, provides better control and more effective delivery for simul-frac and trimulfrac operations. During the second quarter, we completed field trials of the latest level of Octiv automation called AutoFrac. With the single click of a button, AutoFrac executes the entire frac job from ramp up at the start to ramp down at the end, making autonomous fracturing a reality. This new level of automation gives customers control to execute the frac design exactly how they want it without human intervention. Following our commercial trials, AutoFrac is ready to scale and I'm excited about what this technology means for our customers and for Halliburton. Lastly, we see rapid adoption in North America of our iCruise rotary steerable system. We consistently reduce drilling times for our customers and create significant value. In the Permian Basin, the number of rigs running the system has increased by almost 45% since the start of this year. We are on pace to triple our footage drilled in North America this year and I'm excited about the market adoption of iCruise. North America is the largest oilfield services market in the world. We are crystal clear on how we maximize value in North America. We have demonstrated that this strategy works. And that's why I am confident that we will continue to deliver strong returns through this cycle. To step back, Halliburton's returns and cash flows are strong and I am pleased with our performance this quarter. I'm just back from a few weeks in Europe/Africa. What I saw is a microcosm of Halliburton around the world. The quality of our people, the clarity of our strategy, our leading technologies, the depth of our pipeline of opportunities, and the competitiveness of our business segments all give me incredible confidence in Halliburton's future. Now, I'll turn the call over to Eric to provide a few more details on our financial results. Eric?

Jeff Miller:

Thanks, Eric. Here are a few key points I would like you to take away from our discussion today. I am pleased with our 18% margins and about $800 million of free cash flow in the second quarter. We are well on track to deliver over 10% free cash flow growth this year. I'm excited about our international business where our technology portfolio has never been stronger. I am confident that our strategy to maximize value in North America is working, and I expect it continues to deliver strong returns. Finally, I am convinced that our collaborative approach and value proposition differentiate us from our competitors and are directly aligned with how our customers expect to drive improved performance. And now, let's open it up for questions.

Dave Anderson:

Hi, good morning, Jeff.

Dave Anderson:

So, North America is softening a little bit, not a surprise. A lot of your fleet, though, is under contract with e-fleet. I think it's around 40% or so. And you're continuing to roll out equipment. So I'm just wondering about the re-contracting of those. I think you typically have like two to three year contracts. I would assume, like, maybe a third of that gets repriced each year or something like that. So what does that look like right now in terms of contracting? I think -- I'm assuming demand still outstrips supply here. So, is pricing able to still move higher in there? Are you doing to blend in, extend deals with some customers who want more? Just a little color around the repricing of that, on the e-fleets.

Dave Anderson:

Totally understand. But would you expect that most of those fleets stay with existing customers?

Dave Anderson:

Yeah, that makes a lot of sense. And if I shift over to your international story here, and within the 10% revenue growth, you highlighted Middle East up 5% this quarter sequentially. Can you just talk about that part of the international story for you and kind of how you see that growth? Should growth start to accelerate here? There's big unconventional play over there that I know you're involved in. I don't know if you can talk about any other contracting opportunities with that, but I would -- am I wrong to think that that growth should start to accelerate in the Middle East, even, I mean, within the 10%, I know, but really into next year as well?

Dave Anderson:

All right, it's good to hear. Thanks, Jeff.

Operator:

Our next question will come from the line of Arun Jayaram with JPMorgan.

Jeff Miller:

Look, it's -- primarily this is activity based. The fact that we -- and then we retired a few fleets during the quarter as well, but this is activity and that's, as we look at activity for the year, gas market actually took a leg down. I didn't think it would come up, but I didn't really expect it to take a leg down either, so it's not flat. And I think M&A takes some time to digest, and so that has an impact on activity broadly and clearly efficiencies. I mean, we've got terrific technology. We talk about efficiencies all the time, but we also catch up to rigs. Glad we're at the leading edge of that technology and that performance makes Halliburton more value, but it really doesn't change the activity outlook.

Jeff Miller:

Look, they look strong for next year internationally. I mean, we see a lot of projects that are either just now being hindered or activity going into next year and in some cases, it takes a while to get the international up and going. And so, probably the activity that picks up [indiscernible] will be where it's sort of NOC driven, which would look in some cases like obviously the Middle East. Others where IOCs are engaged, it takes a lot of negotiation, contract extensions for them. And so, I'm seeing meaningful work. I just talked about my trip to Europe, Africa, and I see meaningful step-up there. Still excited about Latin America and what's possible there. And so, no, I feel really confident both in Halliburton's outlook for ‘25 and the industries.

Jeff Miller:

Yeah, thank you.

Neil Mehta:

Yeah, good morning, team. Jeff, I guess the first question just building on North America, what do you think is going to be the driver that forms the bottom in activity? I think you alluded to some of those points around M&A and natural gas, but maybe you can unpack that more. And are you seeing any green shoots in customer conversations that would suggest that $2.8 trillion is the bottom?

Neil Mehta:

Thanks, Jeff. And then just to follow up, it was a very good quarter for free cash flow and the company has been very consistent around $250 million of return of capital. So there's probably two parts to that question. One is, how should we think about working capital in the balance of the year and how should we think about your commitment to returning capital to shareholders?

Neil Mehta:

Thanks, Jeff.

James West:

Hey, good morning, Jeff.

James West:

So, Jeff, as you think about -- and I don't want to beat a dead horse too much, but if you think about North America going into next year, I'm increasingly bullish on the outlook for ‘25 and certainly for ‘26, both with oil prices where they are and gas prices which should rebound nicely. And we have this huge power demand pull coming from the tech industry. And I think the tech industry is more fully aligned with the oil and gas industry than it's probably ever been. So I'm curious about your customer conversations, how they're thinking about, how do we get this gas to market, how do we size up crews or size up equipment and get ready for what's going to be a surge in demand and kind of pair that with constructing more natural gas-fired power generation and things of that nature to meet data centers and AI demand? How are your conversations kind of evolving there?

James West:

Got it. Okay. That makes a lot of sense. And then iCruise, you mentioned adoption. Now, I mean, we had great adoption internationally, but it sounds like you're getting better adoption in the US as well. Could you maybe highlight, kind of, what you're seeing with the iCruise and technology and how that's unfolding?

James West:

Got it. North America is a nice cash flow machine for you guys. Thanks, Jeff.

Operator:

Our next question will come from the line of Luke Lemoine with Piper Sandler.

Jeff Miller:

Good morning, Luke.

Jeff Miller:

Well, look, we're sort of halfway through the year and we've got really good visibility into the balance of the year. And so I didn't think we'd hit the high end of the range. So wanted to tighten that up for you guys as we look out. Q4 will be the highest international quarter we have, typically with software sales and tool sales. But day in and day out, we're continuing to grow, and we're very focused on profitable growth. And as I think I alluded to earlier, my expectation is that we see a continuing march internationally of growth. And oil price says that, our clients are saying that, my own project inventory is saying that. So if you describe it as a push, that's one way to think about it. But just from where we sit today, I know what we can get done and I thought it would be worthwhile to narrow that a bit.

Jeff Miller:

Certainly. Look, Saudi Arabia and Argentina today are meaningful markets that are -- really have heft and are executing. The -- and I think what has changed and so the rest of the middle east I'm excited about and Middle East is a pretty big place if you think about it in terms of sort of from the Mediterranean all the way to back into Saudi, that's a long way. But there's a lot of activity being talked about. And I think we're right in the middle of those, I think. I know we're in the middle of those discussions. We've got a lot of experience in this. And I think what's different today is the sort of ability to accept sort of what the testing is. The early days activity of this, I think there's a lot of sort of we've seen starts and stops internationally, but now we have a proven model in two international markets where you get through the initial phase and then it becomes a meaningful contributor to production and I think that's being sort of seen by other places where they have good reservoirs, good rock and working through, I think, very thoughtfully and pragmatically what does it take to get from A to B. And so from my perspective, that's a much better discussion than sort of a scramble or wildcat sort of move all over the world. These are very serious operators that are taking a long view.

Jeff Miller:

Thank you.

Saurabh Pant:

Hi. Good morning, Jeff and Eric.

Eric Carre:

Hey, Saurabh. How are you?

Eric Carre:

Yeah, I think the way to look at D&E margins is really the progression on year-on-year basis. There tends to be quite a bit of difference between different quarters as we recognize revenue around software impacts mostly Q1, Q4, et cetera. So it's really the year-on-year progression by quarter that you need to pay attention to from that perspective. We continue to improve the margins in D&E. We firmly believe that it continues as we get into next year. Jeff talked about the progression of the directional drilling business in North America. We continue to see progression and adoption of the new drilling technologies in the international markets as well. So directionally, we continue to be very confident in the growth of our D&E margins as we go into 2025.

Saurabh Pant:

Okay, fantastic. Now that's helpful. And just one on the production side of things. I know you talked about artificial lifting in your prepared remarks. Good to see international growing at a much faster pace than the overall international market for lift. But if we focus on the production chemicals side of things, I know you acquired Athlon, you've been investing time and money to expand that business, right? Maybe just update us on that, Jeff, where does the production chemicals fit and what's the opportunity just on that side for Halliburton?

Saurabh Pant:

Okay, fantastic. Okay, Jeff, Eric, thank you. I’ll turn it back.

Eric Carre:

Thank you.

Scott Gruber:

Yes, good morning.

Eric Carre:

Good morning.

Jeff Miller:

It's a couple things. It's a lot higher than that to start with. I mean if we just use sort of Btu 6 times, 6 times 4, at $4, you're still a long way from diesel prices. The other thing is the efficiency of the mousetrap. I mean, it's just -- our e-fleets are creating value well beyond the economic trade-off with gas. That's not to say there isn't a lot of runway around economic trade-off with gas, but that platform in and of itself is just a better operating machine and it provides technology for clients that really they can't get -- that's not available in another form. And whether that's AutoFrac, Octiv, what we're doing with sensory in terms of understanding recovery, a lot of this. And so we're able to help solve for delivering what was planned with precision and in measuring performance of what was placed in the reservoir. That's a whole different kettle of fish, but it's all attached to the ZEUS platform. And so all of that runs together. So when I think about e-fleets broadly, yes, there is the gas arbitrage which is happening all the time and like I said, long way to go on gas arbitrage before that ever comes up. But I think more importantly is what we're able to achieve with that technology for our customers.

Jeff Miller:

Well, look, I think we talked about this. We'll eclipse 40% this year. I expect we're at 50% next year. And we continue to invest both in the -- we're at scale today. And that allows us then to both improve or continue to extend the technology around the pump itself and the power systems, and then also the software that we're talking about that really addresses in my view what operators are focused on which is recovery and placement and a whole lot of things that affect productivity over time. And so we're extending that moat around that technology every day. And so I'm confident that as we continue into the future, we've got quite a glide path of ideas and things that will make that, yet again, even more effective for customers over time. So, pleased with where we are there.

Jeff Miller:

Thank you.

Doug Becker:

Hello?

Doug Becker:

Yes, can you hear me?

Doug Becker:

So, Halliburton's North America revenue is regularly outperforming the North America rig count. Just wondering if you could just highlight some of the key drivers of that outperformance that you expect going forward and really asking to try and calibrate how Halliburton's North American revenue might outperform the rig count next year.

Doug Becker:

I mean, is it too aggressive to think about in a flat North America rig count environment? Halliburton’s revenue is still growing 5% next year in that type of environment.

Doug Becker:

Right. That completely makes sense. And then just a quick one on the e-fleets. We've been hearing more talk about white space even on dedicated or contracted fleets. Just wanted to get a little bit better sense for your e-fleets. Is there any risk of white space? I fully appreciate that they're long-term contracts and they justify the returns, but just thinking about any potential white space risk on those contracts.

Doug Becker:

That's what I wanted to hear. Thank you.

Operator:

Our last question today will come from Marc Bianchi with TD Cowen.

Jeff Miller:

No, I think the uncertainty around activity is really the driver here. And when we look at the second half of the year, we've had some customers that did -- we caught up with them and they're still customers and they plan to go to work again next year and maybe even later this year. So no, that's not my concern. It is, again, I'll pivot back to our strategy in terms of maximizing value. We've got a lot of tools that allow us to do that technically. And, I think it's just a question of pacing of things happening in -- whether it's setting plans or other things. But, the ‘25 will be, in my view, clearly higher than the second half of 2024.

Eric Carre:

Yes, I mean, there's the -- the margin guidance is actually a combination of what we talked about for North America, but really Q3 margins in the international business are going to be lower than Q2 as well. So there's just not too much to read into this except there's a lot of moving parts in the business. It's not just North America. It's multiple product lines as well. So it is not all related to North America.

Operator:

That concludes today's question…

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

David Coleman:

Hello, and thank you for joining the Halliburton First Quarter 2024 Conference Call. We will make the recording of today's webcast available for seven days on Halliburton's website after this call. Joining me today are Jeff Miller, Chairman, President and CEO; and Eric Carre, Executive Vice President, and CFO. Some of today's comments may include forward-looking statements, reflecting Halliburton's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2023, recent current reports on Form 8-K, and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our first quarter earnings release and in the Quarterly Results & Presentation section of our website. Now, I'll turn the call over to Jeff.

Eric Carre:

Thank you, Jeff, and good morning. Our Q1 reported net income per diluted share was $0.68. Adjusted net income per diluted share was $0.76. Total company revenue for the first quarter of 2024 was $5.8 billion. Operating income was $987 million. And operating margin was 17%; flat compared to Q1 2023. Beginning with our Completion and Production division; revenue in Q1 was $3.4 billion, down slightly from Q1 2023. Operating income was $688 million, up 3% when compared to Q1 2023. And operating income margin was 20%. Compared to Q1 of last year, these results were primarily driven by reduced pressure pumping services in U.S. land. Partially offset by higher activity in international markets. In our Drilling and Evaluation division, revenue in Q1 was $2.4 billion, an increase of 7% compared to Q1 2023. Operating income was $398 million, up 8%, and operating margin was 16%, an increase of 10 basis points over Q1 last year. These results were primarily driven by higher drilling-related services in the Middle East and North America as well as improvements across multiple product lines in Latin America. Now let's move on to geographic results. Our Q1 international revenue increased 12% year over year. Europe/Africa revenue in the first quarter of 2024 was $729 million, an increase of 10% year over year. This increase was primarily driven by higher completion tool sales in the region and fluid services in Norway and the Caspian area. Middle East/Asia revenue in the first quarter of 2024 was $1.4 million, an increase of 6% year over year. This increase was primarily related to improved activity in multiple product service lines in Kuwait, Saudi Arabia, and Oman. Latin America revenue in the first quarter of 2024 was $1.1 billion, an increase of 21% year over year. This improvement was primarily related to higher drilling-related services and increased software sales in Mexico, improved pressure pumping service and fluid services in Argentina, and increased activity in multi-product service lines in Brazil and Ecuador. In North America, revenue was $2.5 billion, representing an 8% decrease year over year, but a 5% increase from the last quarter. This year-over-year decline was primarily driven by lower pressure pumping services in U.S. land as well as lower wireline activity. Moving on to other items, in Q1, our corporate and other expense was $65 million. For the second quarter of 2024, we expect our corporate expenses to be approximately flat. Our SAP deployment remains on budget and is on schedule to conclude in 2025. In Q1, we spent $34 million, or about $0.04 per diluted share, on SAP S4 migration, which is included in our results. For the second quarter, we expect SAP expenses to be approximately flat. Net interest expense for the quarter was $92 million. For the second quarter 2024, we expect net interest expense to be roughly flat. Other net expense for Q1 was $108 million, higher than expected, primarily due to impairment of an investment in Argentina and currency devaluation in Egypt. For the second quarter 2024, we expect this expense to be approximately $35 million. Our adjusted effective tax rate for Q1 was 21.5%. Based on our anticipated geographic earnings mix, we expect our second quarter 2024 effective tax rate to increase approximately 75 basis points. Capital expenditures for Q1 were $330 million. For the full year of 2024, we expect capital expenditures to remain approximately 6% of revenue. Our Q1 cash flow from operations was $487 million, and free cash flow was $206 million. During the quarter, we repurchased $250 million of our common stock. For the full year 2024, we expect free cash flow to be at least 10% higher than 2023. Now let me provide you with some comments on our expectations for the second quarter. In our Completion and Production division, we anticipate sequential revenue to be up 2% to 4% and margins to increase by 25 to 75 basis points. In our drilling and evaluation division, we expect sequential revenue to increase 1% to 3% and margins to increase by 25 to 75 basis points. I will now turn the call back to Jeff.

Operator:

Thank you. [Operator Instructions] One moment for our first question, and it comes from the line of David Anderson with Barclays. Please proceed.

Jeffrey Miller:

Yes. Thank you, Dave. Look, the most important point is this is a comprehensive platform. ZEUS is a platform. Clearly, it's electric. Yes, it drives efficiency, but the embedded automation actually really changes the dynamics of how it performs. And then, also the subsurface measurements with Sensory that are embedded in this system, and uniquely embedded. And so, that widens the moat. And I think equally important is being at scale. So, it's one thing to do a research project around a thing, but when we're working at scale, these are solutions that can be pushed to the platform at any point in time. So, it's really the ability to grow the moat on existing equipment as well as any new turns on the science as it goes forward. So, I'm super excited about it. Yes, obviously lowest TCO, but it's the technology differentiation as well that widens the moat.

Jeffrey Miller:

Thank you, David. And I'm really excited about it. And there's a lot of opportunity for Halliburton around unconventionals, as you know. How we address it, we've got a lot of ways to address it, including some of the technology we've talked about today. We've got a good position in there, but I think with even more opportunity to grow, particularly with drilling technology that continues to advance. You mentioned mud, but also other aspects of that where we'll be very competitive. So, I think that's a big move forward. And I think more broadly, so good for Halliburton, but I think that more broadly, just the discussion around unconventionals internationally, what can you see today are two markets, at least outside the U.S., that are truly at scale. And I think that serves as a bit of a template for how that can be done, because it was really unclear a decade ago, as you recall. But I think we're in a different place with unconventionals today. And so, we do hear more discussion around, hey, this is possible, and how Halliburton would play a more meaningful role in that in additional markets, so super encouraged.

Jeffrey Miller:

Thank you.

Neil Mehta:

Good morning, Jeff, and team. Jeff, you've talked about wanting to drive your free cash flow per share higher. And so, it's great to see the share repurchases for a couple quarters run rating at this $250 million mark. Can you talk about why you think that's the right number to use going forward? And how does share repurchase fit in the seriatim of capital allocation?

Neil Mehta:

Okay. That's really helpful. And then, the follow-up is, we are seeing signs of industry consolidation, certainly more in E&P and services, but we start to see some in services as well. Halliburton always struck us as more of a organically driven business, but be curious on how you're thinking about M&A as you plan to go forward for the business?

Neil Mehta:

All right. Thanks, team.

Operator:

Thank you. One moment for our next question, please. And it comes from the line of Arun Jayaram with JP Morgan Securities. Please proceed.

Jeffrey Miller:

Yes. Well, I want to answer the second part of that first in terms of organically. Yes. So, we don't see a change to our strategy or approach to markets. So, yes, we do see quite a bit of organic growth for us in the OpEx part of the market. We're in that business today. We've got strong, I mean, strong lift business today. We're in the chemicals business today. And we're in the intervention business today in a pretty big way. And we continue to develop technology similar to as we've done in the past. And so, it's my outlook for OpEx cycle. We've got plenty of exposure to that and have had. Now, I want to be careful and say the D&C cycle is very strong and continues to grow. And I suspect that it continues to grow also. So, I think we're well balanced across really all elements of this, whether it's exploration, development, drilling, and OpEx today. Some of the things we've done in the past, again, we bought smaller businesses that we've grown into bigger businesses. And so, again, a strategy that works for us and it delivers the organic growth that we believe is really good for our shareholders.

Jeffrey Miller:

Well, I think the first part of that in terms of Saudi growth, '24 is still growing, by the way. We expect growth in Saudi in '24. And the rebalancing, the gas and unconventionals is very good for Halliburton. We've got a very strong onshore business in Saudi Arabia. We participate in all aspects of that market. And that market remains tight for equipment. So, I feel good about that market. And I'm very confident in the long-term growth of that market. The rebalancing again to gas is, we're meaningful players in that part of the market and expect that will only be good for Halliburton. Pivot to growth, look, a couple of things. Number one, international business grew 12% overall. So, I want to start there. Clearly, I'd expect more growth in the region, but here's what we're doing. I want to be really clear that profitable growth has been our primary focus. We see a good pipeline of opportunities. We expect to continue to see growth in MENA. But at the same time, we want to make certain we're building a foundation shipment for growth. That means that we are delivering the technology, we're making the investment while expanding margins and growing, and that's been sort of our mantra, our strategy is profitable international growth. And that's what we saw this quarter.

Jeffrey Miller:

Thank you.

Roger Read:

Yes, thanks. Good morning. Jeff, I'd like to get back in on the international growth. So, double digits, what you've delivered, double digits, where you're guiding or where you're headed. How much of this would you describe as due to new products or products and services or new markets and how much of it to just underlying expansion? Why don't you get kind of an -- you've talked about a lot of the new stuff you're putting in, just how effective that is in driving some of this growth?

Roger Read:

Thanks for that. And then, just to pivot back real quick to North America, you mentioned not really anticipating or certainly not built into the expectations for recovery in gas this year. Presuming that that's kind of a well completions way you're thinking about it, at what point of the year would you have to see an increase maybe in activity spending rig count in gas to think that there was a chance that you could outperform I say you, but the market could outperform your expectation. Like if we get to the third quarter and we haven't seen an improvement, we should close the books on '24 having any improvements to dig about '25?

Roger Read:

Great.

Operator:

Thank you. One moment for our next question, please. And it's from the line of James West with Evercore ISI. Please proceed.

Jeffrey Miller:

Good morning, James.

James West:

So, Jeff, one of the areas that we haven't discussed in detail yet in the Q&A is really deepwater where you guys have an advantage position this cycle, I think relative to prior cycles even though you've been strong there for a while. But the technology enhancements that have happened at Halliburton puts you in a unique position to have more share, better profitability. And I'm curious kind of where you're seeing right now the biggest growth? And I think we know kind of Brazil and some other places, but where do you think we're going to be surprised as we go into kind of probably '25 and '26?

James West:

Okay. Okay. That makes sense. And then, maybe just back to North America to pivot back there. Again, I don't want to beat a dead horse, but you guys are dramatically outperforming some of the peers in North America. And where do you hold the line, I guess on kind of pricing? And where do you sacrifice utilization in a market that may be down a little bit? Is it -- we just we'll give up the utilization to keep our pricing, or do you -- are you willing to give some discount to keep utilization high?

James West:

Right, right. Totally get it. Thanks, Jeff.

Operator:

Thank you. One moment for our next question, please. And it comes from the line of Scott Gruber with Citigroup. Please proceed.

Jeffrey Miller:

Good morning, Scott.

Scott Gruber:

Well, it's getting later in the call, so I'll give you a chance to mention AI a few times. Not that it's needed. But are global customers starting to discuss additional demands from power for data centers? And do you think this has the potential to pull forward additional gas developments over the next few years around the world? Or is this still off the horizon?

Scott Gruber:

Yes, it'll be interesting to watch. Just turning back to the near-term, Latin America was a big outperformer versus our expectation. Can you just provide some more color on the details of what drove the outperformance in Latin America? And overall, what type of growth would you anticipate from the market this year?

Scott Gruber:

Got it. Appreciate it, Jeff. Thank you.

Operator:

Thank you. One moment for our next question, please. And it comes from the line of Luke Lemoine with Piper Sandler. Please proceed.

Jeffrey Miller:

Yes. Look, I like the trajectory that we're seeing in D&E. And I say that because we're growing the business, but we're growing the business at a pace that's profitable and building the kind of foundation that we can use the technology in markets where we know we've got solid growth and profitability and then be able to reach out from there. But clearly, it is a balance of growing margins while opening for example, new businesses. So, we've opened a few new markets while growing profitably. And I think that's sort of the foundational part of our D&E trajectory. So, I expect to continue to see it aspirationally, continue to expect it to go up and expand quarter-over-quarter, year-on-year. And in the first quarter, we actually saw flooding in some markets. We saw weather in some others, maybe more than we would have expected. Though I expect that we continue on the trajectory in spite of all of the things that sort of come along and businesses that are open. So, should expect to continue to see that moving up.

Jeffrey Miller:

Thank you.

Stephen Gengaro:

Thanks. Good morning, everybody.

Stephen Gengaro:

Two from me, the first, you mentioned the strength in iCruise in North America. I think you said more than double a year ago footage drilled. Is that displacing competitors? Is that organic growth? Is that replacing all technology that you're offering? Can you give some color around that?

Stephen Gengaro:

Great. Thank you. And I know this may be a little harder for you to answer directly, but when we think about the CHX, SLV deal and what's going on in production chemicals, I would imagine it's an area that would have interest to you. But my question is really, you had a great amount of success with Summit and what you bought and built over the last, I guess five, six years plus and the strength of that business. Is that something that you can replicate in production chemicals if you went down that road?

Stephen Gengaro:

Okay, great. Now, thank you for the call.

Operator:

Thank you. One moment for our next question, and it comes from the line of Marc Bianchi with TD Cowen. Please proceed.

Jeffrey Miller:

Look, I don't comment on competitors, but from a strategic perspective we haven't changed. What we're doing and I like where we are. A big part of our fleet is contracted today. We focus on delivering top-notch efficiency, sort of record-setting efficiency, and also lowest ECO. And so, that's where our primary focus is, and we plan to stay with that.

Jeffrey Miller:

In terms of -- I don't --

Jeffrey Miller:

Look, in terms of growth, I think the margin growth I expect will continue. I mean, I think that we talked about expanding margins and D&E and also C&P is continuing to grow. And I think we're solid. We're in a number of very good businesses around C&P.

Jeffrey Miller:

Oh, yes, sorry, I --

Jeffrey Miller:

Yes. So, that's pretty broad-based. I mean, and so for C&P that's completion tools around the world. It's production enhancement around the world. So, in a very strong position, and we see a number of things growing, not the least of which would be lift, for example, and some things like that. So, I had heavy lift, I don't see it as a -- I see it as a very middle of the fairway, very doable from where we sit today. And again, equipment's tight. I think that we'll continue to see strengthening there as well, expanding margins in price.

Jeffrey Miller:

Thank you.

Kurt Hallead:

Hey, good morning. Good morning, everybody. Thanks for slotting me in here. So, Jeff you've been at this a long time. You referenced on more than one occasion, not just today, but in other calls about increasing level of visibility, especially on the international front and talking about opportunities that could extend out to the end of the decade. I think a lot of investors are wanting to kind of get inside the room with you, if you will, and try to get the same sort of conviction you have with respect to that duration. So, I'm just kind of curious if you could give us some perspectives and insights on how those conversations are taking place, how much lead time your customers are asking for, and effectively, what two or three things are you seeing that continue to underpin this confidence and conviction that this cycle is going to extend through the end of the decade?

Kurt Hallead:

That's great. I appreciate that. So, the other dynamic you referenced was approving margins, right? So, you've booked contracts that tend to last, I don't know, two to three years on average in the international market, so those will roll through this year and next year and so on. Just curious in the context of that margin improvement from here, right, if you were to try to rank and order it. Is how much of the pricing how much is it? Is it volume? How much is the technology value proposition? Can you give us some additional sense on how you see that? What's driving that margin improvement?

Kurt Hallead:

I appreciate that. Thanks, Jeff.

Operator:

Thank you. One moment for our next question, and it comes from the line of Doug Becker with Capital One. Please proceed.

Jeffrey Miller:

Look, I think that's, again, I'm back to the foundation building that I described. So, we've got a better foundation, broader-based work, and so I expect to continue to see expansion, certainly year-over-year. And then, also as that foundation gets stronger, that gives us more ability to grow the business profitably, but from a sound base.

Douglas Becker:

That all makes sense. Maybe switching to North America, U.S. more specifically, last quarter you were talking about ZEUS e-fleets would represent about 40% by the end of the year, going to maybe 50% in 2025. Is there a reasonable or realistic or probable scenario where you would accelerate this deployment? The results certainly suggest the outperformance and there might be a case for that.

Douglas Becker:

That makes sense. Thank you.

Eric Carre:

Thank you.

Jeffrey Miller:

Okay. Thank you, Carmen. Let me close out the call with this, I am excited about the outlook for Halliburton and expect Halliburton to deliver strong free cash flow and shareholder returns. Look forward to speaking with you next quarter. Let's close out the call.

Operator:

Good day and thank you for standing by. Welcome to the Halliburton Company Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, David Coleman, Senior Director of Investor Relations.

Jeffrey Miller:

Thank you, David, and good morning, everyone. 2023 was a great year for Halliburton. Both of our divisions achieved their highest operating margins in over a decade, and we returned $1.4 billion to shareholders. Here are the highlights. We delivered full year total company revenue of $23 billion, an increase of 13% year-over-year; and operating income of $4.1 billion, an increase of 33% compared to 2022 adjusted operating income. Our international business demonstrated strong growth with our revenue up 17% year-over-year despite our exit from Russia in August of 2022, completing 2 consecutive years of high teens growth. Our North America business showed strength with revenue up 9% year-over-year despite rig count declines. Completion and Production revenue grew 18% year-over-year and margins expanded 312 basis points. Drilling and Evaluation grew 7% year-over-year and margins expanded 171 basis points. Turning now to Q4, where Halliburton delivered exceptional margin performance supported by better-than-anticipated completion tool sales globally, strong performance across multiple high-margin product lines and favorable weather in North America. Completion and Production margins finished the year almost 100 basis points higher than Q4 of 2022. International revenue grew 12% year-over-year, led by the Europe-Africa region, which grew revenue 17%. Finally, during the fourth quarter, we generated $1.4 billion of cash from operations, $1.1 billion of free cash flow and repurchased approximately $250 million of common stock and $150 million of debt. Before we continue, I want to take a moment and thank the Halliburton employees around the world who made these results possible. Our success last quarter and throughout 2023 was a direct result of your hard work and dedication. Thank you for your relentless focus on safety, operational execution, customer collaboration and service quality performance. Let me begin with my views on the strength of the oilfield services market. As we look past the new cycle and near-term commodity price volatility, the fundamentals for oilfield services remain strong. Here are 2 reasons why. First, we see an increase in service intensity everywhere we operate. Whether it's longer laterals in North America, smaller and more complex reservoirs in mature fields or offshore deepwater, customers require more services to develop their resources, not fewer. Second, long-term expansion of the global economy will continue to create enormous demands on all forms of energy. I expect oil and gas remains a critical component of the global energy mix with demand growth well into the future. With this positive macro outlook, I believe Halliburton's strong execution, leading technology and collaborative approach will drive demand for Halliburton's products and services around the world. Now let's turn to international markets, where Halliburton's performance delivered another year of profitable growth. Halliburton's full year international revenue grew 17% year-on-year, and our quarterly revenue grew 12% compared to the same quarter of last year. Each region delivered year-on-year revenue growth throughout 2023, and both divisions delivered improved international margins year-on-year. Our results in 2023 demonstrate the effectiveness of Halliburton's profitable international growth strategy, the strength of our global competitiveness across product lines and the power of our value proposition with customers. In 2024, we expect international E&P spending to grow at a low double-digit pace and foresee multiple years of sustained activity growth. Although we anticipate regional differences in growth rates for 2024, we believe the Middle East/Asia region will likely experience the greatest increases in activity with other regions closely behind. As we look out to 2025, we expect Africa and Europe, among others, to demonstrate above-average growth. Beyond 2025, we see an active tender pipeline with work scopes extending through the end of the decade, which gives me confidence in the duration of this multiyear upcycle. While we expect overall activity growth, we also see above-market growth within our well construction product lines, where customers choose Halliburton to improve the reliability, consistency and efficiency of their drilling operations. One such technology is LOGIX' autonomous drilling platform, which is now used on 90% of our iCruise runs worldwide. Customers also rely on Halliburton's subsurface expertise to develop today's most complex reservoirs. This requires technologies to reduce uncertainties, such as our DecisionSpace 365, unified ensemble modeling and advanced formation evaluation systems like our iStar logging well drilling platform, and reservoir Xaminer formation testing service. These technologies enable customers to target small reservoirs, identify bypassed reserves and gather reservoir properties in real time. We see reservoir complexity increasing worldwide, and I expect the capabilities of these systems will continue to deliver customer value and lead in overall growth within our formation evaluation portfolio. For Completion and Production, we also expect increased adoption of our technologies like intelligent completions, multilateral solutions and artificial lift. Our intelligent and multilateral completions enable customers to produce, inject and control multiple zones in a wellbore, which is critical for offshore developments, a segment we expect to outpace the overall market. In artificial lift, our strategy targets markets like the Middle East and Latin America, where our differentiated performance and existing footprint create a solid foundation for profitable growth. We also expect strong demand for our services in carbon capture and storage, where Halliburton's leading capabilities to design, deliver and validate reliable barriers play a crucial role. As our customers invest in carbon storage, our tailored cement designs and casing equipment technology enable them to address the unique challenges of long-term carbon sequestration. With this activity growth, the availability of equipment and experienced personnel remains tight. We expect asset-intensive offshore activity to increase, which will further tighten the market. As offshore represents over half of our business outside North America land, we expect this activity to drive improved pricing and higher margins for our business. I am confident in Halliburton's strategy for profitable international growth, and I am excited about our performance in 2024 and well into the future. Turning to North America. Halliburton's strategy yielded strong results in 2023. Our full year North America revenue of $10.5 billion was a 9% increase when compared to 2022 despite sequentially lower rig count. Fourth quarter margins in North America land were relatively flat quarter-over-quarter despite lower revenue. Our full year and fourth quarter results demonstrated the strength of our differentiated business and the successful execution of our strategy to maximize value. The dynamic North America market continues to evolve with larger customers and stable programs, elevated quality expectations and greater demand for technology to improve recovery and well productivity. This evolution fits perfectly with Halliburton's value proposition. Our Zeus electric fracturing solution is highly sought after in this market, where its seamless combination of electric frac, automation and real-time subsurface measurements uniquely address customer requirements. We believe customers demand Zeus because it provides the lowest total cost of ownership and it's shown to be the most proven and reliable solution in the market. The market pull for this technology has been strong. The combination of Zeus fleets working in the field today and Zeus fleets contracted for 2024 delivery represent over 40% of our fracturing fleet. I expect well over half of our fleets will be electric in 2025 with all of these e-fleets on multiyear contracts generating full return of and return on capital during their initial contract terms. Consistent with our strategy from the beginning, we plan for our Zeus deliveries in 2024 to replace existing fleets rather than add incremental fleet capacity. This is how we maximize value in North America. The growth of Zeus and our commercial approach has transformed the North America completion services market. Technology is only transformative when adopted and is only adopted at the rate of Zeus when it works and creates meaningful value for our customers. Zeus' rapid adoption, both by new and repeat customers, tells us our solution is the right one for North America. Turning to our 2024 North America outlook. We expect a continued strong business with the combination of stable levels of activity in the market and the contracted nature of Halliburton's portfolio. We expect this results in a flattish revenue and margin environment for Halliburton. To close out, I am confident in our strategies to maximize value in North America and for profitable growth internationally. In 2023, Halliburton demonstrated the power of these strategies, the consistency of our execution and the value of our differentiated technology. We generated about $2.3 billion of free cash flow during the year, retired approximately $300 million of debt and returned $1.4 billion of cash to shareholders through stock repurchases and dividends, which represents over 60% of our free cash flow. Today, I am pleased to announce that our Board of Directors approved an increase of our quarterly dividend to $0.17 per share. Our outlook for oilfield services remains strong, and I expect we will deepen and strengthen our value proposition and generate significant free cash flow. Now I'll turn the call over to Eric to provide more details on our financial results. Eric?

Jeffrey Miller:

Thanks, Eric. Let me summarize our discussion today. 2023 was a great year for Halliburton. We generated about $2.3 billion of free cash flow and returned over 60% of free cash flow to shareholders through dividends and stock repurchases. We're committed to return over 50% of our free cash flow to shareholders in 2024. For our international business, we expect low double-digit growth driven by the power of our value proposition, global competitiveness across all product lines and our profitable growth strategy. In North America, we expect a continued strong business driven by stable activity, our differentiated technical position with our Zeus electric frac solution and the increasingly contracted nature of our business. And now let's open it up for questions.

David Anderson:

So a question on the C&P margins that held flat during the quarter, and you said U.S. land was holding flat. I was hoping you could talk a little bit about the influence of your growing e-frac fleet on the bottom line. We know the operational advantages, but I was wondering if you could talk about how it impacts financially. How does e-frac, say -- compared to, say, your Tier 4 dual fuel, the diesel fleets just in terms of pricing and operating costs, trying to get a sense of how accretive the new equipment is. And sort of secondarily on that, with E&P consolidation well underway and we look out, say, 12 to 24 months, would you expect the majority of your e-frac fleets to be with these larger operators under multiyear contracts?

David Anderson:

It does. A clear differentiation there. So a separate question here. I noticed in your release, you announced 2 new collaborations with other service companies

Operator:

Our next question comes from Neil Mehta with Goldman Sachs.

Jeffrey Miller:

Yes. Look, if I'm thinking about production growth in '24, production is a function of service intensity. So simply put, more sand, more barrels. And we saw peak levels of service intensity throughout last -- really in the first half of last year, and a lot of that comes on in the latter half. And I think some of this is efficiency in the sense that we are delivering more sand to the reservoir. And that comes in a lot of forms. E-fleets are part of that and some of the technology that we brought to market. But I also think that the market that we see for next year, it's hard for me to forecast at this point exactly what operators will do because every operator plays their own game. But at the same time, I would probably be over on rigs because I think that we'll run out of DUCs at some point. I think I would take the under only production only because whatever you think it is, I'll take the under only because what we see are stable customers delivering to their plans. But what we don't see as a lot of the smaller companies coming into the market in an effort to really ramp up production. So I think from our perspective at Halliburton, very stable market. But from a production standpoint, as we watch it unfold, it will be a matter of how much incremental sand gets pumped to overcome what is clearly going to be a decline rate that comes with when we add barrels rapidly, obviously, they fall off rapidly.

Jeffrey Miller:

Well, look, I mean we are working on tenders today for work all of next year and the following year. I mean when we talk with customers, I think about what's going to happen. Really, I don't think the North Sea and West Africa even really wake up until 2025. We've seen strong in those markets. However, the real growth we're working on planning today doesn't even start until '25. And all of these things are 3- and 4-year-type efforts. I mean these aren't individual wells in places like that. These are programs. And so we spent -- we're actually on contract with a client working on just the planning of logistics for '25-'26 and beyond. And so I've just got a lot of confidence in terms of what we see in hand, the tender pipeline and then the pipeline of work that we are planning with customers that may or may not even be tendered. It's just more a matter of it will be done. And we've got clarity on that in '25 and beyond.

Arun Jayaram:

Jeff, you mentioned that 40% of your contracted fleets this year will be Zeus going to 50% or more in '25. I was wondering if you could give us a sense of how your commercial model for Zeus has evolved. And one of the things we get questions on is just the significant amount of completion efficiency gains that the industry is generated. And what is the sharing of that between E&P and service company?

Arun Jayaram:

Great. Jeff, my follow-up, natural gas is on people's minds in North America. Just given the contango in the market, 2024 is just above 2 50. I was wondering if you could give us a sense of how much of your activity is levered just to dry gas. And what are some of the risks to the earnings picture from a soft market for gas this year?

Operator:

Our next question comes from Roger Read with Wells Fargo.

Jeffrey Miller:

Look, from our standpoint, our -- Roger, thank you. We won't create value for our customers. I think you have to create meaningful value for customers in order to be a long-term supplier and partner to a customer. So we start from that position. And as you said, solid contract for us over the very long term. We went into this focused on maximize value, which in our view, means maximize returns, which we're able to do under these types of environments. And so rather than play sort of the spot -- we don't intend to play the spot game. That spot game is kind of a -- it's a win-lose on either side of the market. Really, when the market is getting tight, probably operators are losing. When it's going the other direction, service companies lose a lot. And our strategy is to stay out of that. And so right contracts with customers that, in our view, are fair and deliver a lot of value both in terms of pumping value and also recovery value. And I think that we're uniquely positioned to do that. And so improving recovery per foot or production per foot is a long-term game, and we want to play that long-term game with customers that are working on that long-term game. And we're ecstatic about the customers we have and who we get to work with, try to solve what we think are the real pressing issues of the future in North America frac. And so we don't get to play that game. That game doesn't get played successfully if it's the frac is sure. We need to be part of that process, and our clients allow us to do that.

Eric Carre:

Yes. Thanks, Roger. It's Eric. So think about it in a fairly similar way as what we did in 2023, except higher. So we increased the dividend 6%. We're now back to about 95% of where we were pre-COVID. In terms of buyback, we intend to continue buying back share. Our intention today is to buy back more share in dollar terms in 2024 than we did in 2023. At the same time, as we did also in 2023, we intend to continue to retire debt and continue to strengthen the balance sheet. So overall, fairly similar structure in '24 as what we did in '23 but kind of bump up everything a bit higher.

James West:

So Jeff, it -- you talked about West Africa, North Sea not awakening until '25. A lot of tendering or just conversations about '25-'26. I know some of the -- your partners like FTI are bidding for deliveries that wouldn't happen until '29 and '30. The offshore rig companies, they're getting locked up into '26-'27. I mean the visibility this cycle seems to me to be somewhat unprecedented. And I'm curious if that's consistent with your view of how things are playing on how customers are behaving and how your conversations are going. Because it seems like the industry is on board with -- is it going to be a long cycle? What we recognize, of course, macroeconomic events could derail things. But at least for now, with this oil price range that we're in, it's kind of all systems go for a long time.

James West:

Okay. That's -- we certainly agree with that. And then maybe a follow-up for me and potentially, I don't know if Eric is going to take this one. But the D&E margins, which I know are more levered towards international, where a lot of the volume growth is certainly going to come from, and you're going to have natural operating leverage from that and inflation. It seems to be cooling somewhat so you should -- incremental should improve here. Where are you anticipating? I know you gave this quarter guidance, but that's seasonal. Where do you anticipate margins? Or maybe if you want to talk about incrementals, however you want to discuss it for D&E going forward as we go through '24 and into '25?

Operator:

Our next question comes from Scott Gruber with Citigroup.

Jeffrey Miller:

Yes. Thanks. And that is precisely what we set out to do, and that's what's playing out now. And so in terms of a consistent business that generates strong free cash flow through the cycle, and that's been our intent all along. With the way we bring Zeus fleets to market, the way we invest in North America broadly, we are very deliberate about how we maximize value over the long term in North America. And I think you saw that play out in the last 2 quarters as we've seen the market moving around. But nevertheless, steady drumbeat of execution and cash flow delivery by Halliburton. And I expect to continue that because that is precisely our strategy. And so when it comes to cash flow, our capital allocation of our capital budget, we're going to allocate it to those things where we see that opportunity, which we certainly see that with Zeus fleets. But remember, that's a demand pull, not a push strategy. So we don't build fleets until we have contracts for fleets. And so that's a different -- completely different environment than maybe we would have seen in prior cycles from Halliburton, anything else we do in North America. Like we've developed some very good, in my view, fit-for-purpose drilling technology for North America. But we're not going to overbuild it. We're selling it into the market as the market will take it. It's a lot of excitement about it, but our approach is still going to be consistent delivery of margins and free cash flow in North America. And so I think you'll see us continue to do that. And that means we put e-fleets in the market, we retire sort of the fleets that are at the bottom of the stack and continue that march forward.

Eric Carre:

Yes, yes. I mean just starting with free cash flow, I think that you can expect 2024 free cash flow to be at least 10% over '23. So that is going to basically help us return -- increase returns on a dollar basis. Now in terms of the percentage, we're still guided by our overall 50% return to shareholder. But directionally, it would make sense to believe that we'll do at least what we did in 2023 in terms of the percentage return.

Luke Lemoine:

Jeff, your North America rev significantly outperformed the U.S. land rig count in '24. And I would guess some of the factors were Zeus fleet, service quality, more stable customer base and a pickup in the Gulf of Mexico. But could you talk about any other factors that drove this? And then with the U.S. land rig count most likely down in '24, do you think North America revs could be up in '24 for you?

Luke Lemoine:

Okay. And I guess a follow-up with this more stable North American business, you talk about your North American land margins you're ascribing flat in 4Q. Could you talk about how you see this progressing in '24 kind of with that stable business?

Operator:

Our next question comes from Stephen Gengaro with Stifel.

Jeffrey Miller:

Look, these are long-term deals that we go into knowing the cost of the asset and knowing what the return needs to be. So now it just becomes a bit of a math problem around duration. And so there are variable costs in the market that we don't control and we don't try to own. We just pass through to customers, whether it's sand cost and many other things. But for -- where we create competitive advantage for our equipment is we go into these long-term vehicles. We don't need price opener and all of that sort of jazz. There's no reason for it. We literally sit down and work through what is the return for client, return for Halliburton, and then we fix that and move forward. That doesn't change over time. And so -- well, the rest of the market, the spot-type market, all of that is going to do what it's going to do. But I think that's when we take a long view of the market in value creation, that's math that both clients and how can do. And I think that's what makes it so very different, our approach in North America. It's not particularly differentiated, if at all, in the spot market. And as a result, it's just kind of does what it does. It's on a free for all. But I would say, in the market where we want to play, which is technology-driven, lowest total cost of ownership and working on, I think, most important, which is productivity per foot. That's a different game. That's a long-term game.

Eric Carre:

No. I think what's important around free cash flow is, as I mentioned earlier, is we're expecting the free cash flow to be at least 10% over '23. That's going to be on the back of improved income. It's going to be on the back also of improved efficiencies around working capital. So we spend a lot of time working on improving DSOs, working on improving DIOs. And when I speak like this, I don't mean just pushing the organization, I mean implementing different initiatives. For example, I'll give you a couple of examples on DSO. We spend a lot of time on automating the invoicing process on integrated services. For example, invoicing on integrated service is extremely complicated. We have multiple product lines, multiple parts of our organization, customer organization, so it takes a lot of time. And to the extent that you can automate that and then remove -- reduce cycle time, then you improve DSO. We just rolled out 18 months ago a company-wide demand planning software, which when combined with the rollout of S/4 in the future is going to give us totally different capabilities to plan our business and reduce inventory while not increasing the risk from an operation perspective. So these are the things where we're spending a lot of our time to basically structurally improve the efficiency of working capital. So that's going to be the other component of why we're expecting our free cash flow to improve next year.

Marc Bianchi:

I just wanted to first clarify on the North America outlook that you provided for it to be flat. That's a comment for the full year. Is that correct? Or was that a comment from where run rates are today?

Marc Bianchi:

Okay. The other question I had was on D&E in the first quarter here. I think historically, there have been some onetime sales that continue for D&E in the first quarter. And then margin could be down in the second quarter. Is that sort of the base case outlook here? Or is there something unusual going on this year versus the prior years?

Operator:

[Operator Instructions]. Our next question comes from Kurt Hallead with Benchmark.

Jeffrey Miller:

Yes. Thanks, Kurt. Look, I think software and automation, and I say it that way because software business is strong and focused on enterprise solutions, which will adopt all sort of AI and generative AI as we continue to move forward. And that will create efficiency and [indiscernible] in a lot of ways for our customers. Internally, as we adopt automation and AI into our tools and service delivery, I expect that it will have a meaningful impact. Probably over the next 2, 3 to 5 years, just as those things are adopted, it's going to reduce service costs, it's going to drive demanding. And it's also going to improve service quality, and I think will actually improve the capability of tools, which I think is so fundamental to how we generate long-term returns.

Jeffrey Miller:

Well, look, that's one of our labs companies. We're excited to have them here. We make a very, very small investment in companies that join our labs, but it's very small. It's around $100,000. So it's -- we're a tiny piece of their Series B, which we're excited for them. But Hal Labs continues to attract, in my view, more quality investable companies over time. We're watching them enter Series As, and in some cases, Series B. And it's a journey. We're doing a lot different industries, but we're careful. This is clearly not corporate venture capital. We are not investing in the companies that join Hal Labs other than small 3% to 5% stake that we get from them generally for the services that we provide to them as a member of Halliburton Labs. So super excited about where that's going. But we just need to let that continue to progress on its own.

Jeffrey Miller:

Yes. Thank you, Josh. Let me close the call with this

Operator:

Good day and thank you for standing by. Welcome to the Halliburton Company, Third Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Coleman, Senior Director of Investor Relations.

Jeff Miller:

Thank you, David, and good morning, everyone. Halliburton delivered an impressive third quarter. Our margin strength demonstrated the power of our strategy. I am pleased with the stability of our North America business and the profitability of our international growth. Let's jump right into the highlights. Total company revenue increased 8% year-over-year, while operating income grew 23%. International revenue grew 17% year-over-year with strong activity in all geographic markets. North America revenue was roughly flat year-over-year and down 3% sequentially. Our completion and production division grew revenue 11% year-over-year, while margins expanded 280 basis points, margins expanded 105 basis points sequentially driven by international operations, while North American C&P margins remained approximately flat the last quarter. Our drilling and evaluation division grew revenue 4% year-over-year, while margins expanded 168 basis points. Finally, we generated $874 million of cash from operations, $511 million of free cash flow and repurchased approximately $200 million of common stock and $150 million of debt during the quarter. To our over 45,000 employees globally. Thank you for another outstanding quarter, you executed our strategy and delivered excellent financial results. I'll begin with what I see in the macro environment. Reliable and affordable energy remains at the very center of global economic growth and security. The most recent world oil outlook from OPEC expects 10 million barrels of oil demand growth before the end of the decade and further demand growth through 2045. Maintaining production while adding incremental supply requires meaningful long-term investment in both short and long cycle barrels to meet demand. This challenge is reflected in our customers' activity levels and future development plans. Consistent with this outlook, we expect continued demand growth for oilfield services in 2024 and beyond. Everything I see today strengthens my conviction in the long duration of this upcycle. Against this backdrop, I believe the execution of our strategy will deliver strong free cash flow, growing margins and more cash return to shareholders. Starting with North America, Halliburton performed exactly as I expected, delivering our strategy to maximize value in North America. Our North America business has changed. Despite the U.S. rig count decreasing around 20% since Q4 of 2022, Halliburton delivered strong revenue and margin performance during this period. That's quite a different result from what Halliburton would have delivered in prior cycles. Since 2015, we changed our strategy. We changed our operating model, and the market structure changed. Our strategy in North America is to maximize value. Executing this strategy made many of our decisions over the last few years crystal clear, including our decision to invest in differentiated and value-added technologies, such as our Zeus electric fleets, automation, and our fiber optic downhole fracturing diagnostics. We know that in a competitive market to capture value, you must first create value. Our decision to derisk returns and maximize free cash flow by only building fracturing equipment under long-term contracts. And finally, our decision to retire old equipment when returns are not sufficient rather than to pursue market share. Maximizing value means just that, do the things that improve returns and stop doing the things that lower them. Next, we fundamentally changed our operating model. We removed $1 billion of fixed costs from our business in 2020. Those cost reductions were structural and remain in place today. As a result, today, our cost structure is more variable and less fixed. And it's one of the reasons we have the flexibility to pursue returns rather than market share. Our commitment to continuous improvement drove significant changes in the way we work, which delivered efficiency improvements in our operations. This resulted in a 68% improvement in hours pumped per crew in just the last four years. Finally, the E&P and services markets fundamentally changed. Today the market is more consolidated, more focused on returns, and more focused on free cash flow generation. We see the benefits of this change. Customers assign value to technology and efficiency, and the service industry is rewarded for returns rather than growth. Never before as the success of our North America business been better aligned with the success of our customers who make significant long-term investments in the region. I expect the combination of our value proposition and strategy will deliver a more profitable business that generates more free cash flow for years to come. Now let's turn to international markets, where Halliburton's revenue grew 17% compared to the same quarter of last year. In the third quarter, we saw activity increase in both divisions, though particularly in our completions and production division. Our results clearly demonstrate Halliburton strong global competitiveness in both divisions and the successful execution of our strategy for profitable international growth. We execute our profitable growth strategy through our differentiated technology offerings, selective contract wins, and our unique collaborative approach with customers, all of which build on our foundation as a leader in service quality and execution. I expect the market for oilfield services will further tighten as asset intensive offshore activity increases. More importantly, I expect that pricing returns will serve as the mechanism to allocate scarce equipment. This is a great market for Halliburton to execute its strategy for profitable international growth. I'm excited about our international business and we're on track to deliver high teens year-on-year growth in 2023. Looking ahead, 2024 is coming into view and I expect to see international activity again directionally higher, with market growth in the double-digit range. I'd like to take a few minutes and talk more about our global offshore business. Let me start with some color. Offshore represents more than 50% of our business outside of North America land. About 25% of our C&P revenue is generated offshore. More than 40% of our D&E revenue is generated offshore. All of our regions contribute materially to our offshore revenue. All of our product lines operate offshore and Halliburton leads in many well construction product lines key to offshore development. Customers choose Halliburton because we collaborate and deliver impactful results. The combination of our leading product lines, and our collaboration from design through well delivery is what drives superior results for our customers. One example is in Norway, where according to IHS Rushmore data, the Aker BP Alliance where Halliburton provides well construction services consistently represents the top quartile of drilling performance. This performance matters even more in a market where offshore rig rates and spread costs are rising. With our customers, we deliver some of the most technically complex wells in our industry. We provide leading solutions in many areas including high pressure, deepwater completions, complex multilateral junctions, ultra deep reading LWD tools, narrow margin drilling fluids and tailored lightweight cement. These solutions enable our customers to efficiently and reliably develop their offshore reserves and maximize the value of their assets. Execution of our value proposition has created a strong offshore business underpinned by efficiency and differentiated technology. Our ability to compete in all parts of the offshore business including exploration, development and intervention has never been better. Let me close with this. I'm both excited and confident in the outlook for our business, the duration of this upcycle the clarity and depth of our strategy and the strength of our execution. Now I'll turn the call over to Eric to provide more details on our financial results. Eric?

Jeff Miller:

Thanks, Eric. Let me summarize our discussion today. Halliburton delivered an impressive third quarter. Our margin strength demonstrated the power of our strategy. I'm pleased with the stability of our North America business and the profitability of our international growth. Our North America business performed exactly as I expected, delivering our strategy to maximize value in North America. Our international results clearly demonstrate Halliburton's strong global competitiveness in both divisions and the successful execution of our strategy for profitable international growth. Execution of our value proposition has created a strong offshore business, and our ability to compete in all parts of the business has never been better. And now let's open it up for questions.

Dave Anderson:

So Jeff, the duration story internationally is very compelling with the capacity expansion in Middle East, offshore FIDs and offshore work that you were talking about. So I wonder if you could talk a little bit about how that translates into the cadence of international growth over the next 12 to 24 months. International sale looks a little sluggish this quarter, MENA was flat. I know Kuwait's been a bit slow, but I'm just wondering, should we start to see the region accelerate in 2024?

Dave Anderson:

And if I could just shift over to kind of one of the big topics out there is M&A, Chevron, Exxon, [indiscernible] EPs in North America. Can you talk a bit about what this means to Halliburton. On the one hand, I'm thinking this should provide you really significant visibility on your development programs. On the other hand, perhaps your pricing levers might be a bit compromised if you only have a handful of large customers. Could you just kind of big picture, talk about what's leading to your business, please?

Dave Anderson:

And what this accelerated adoption of e-frac, you think, with both of those two customers?

Operator:

It comes from the line of Neil Mehta with Goldman Sachs. Please proceed.

Eric Carre:

Yes. Good morning, Neil. So look, dividends and it's clearly part of our return strategy. But directionally nothing has changed in our overall policy of returning about 50% or over 50% of our free cash flow to shareholders. I mean right now, we like the flexibility that buybacks give us, and we're thinking similarly as we get into next year. If we look at what we've done this year, we've returned $1 billion already to shareholders so far this year. As our business continues to grow and our margins continue to improve as well. I would expect that these overall returns would be higher as we get into 2024.

Eric Carre:

Yes. I think, Neil, we're typically giving guidance on a division basis, which is the way we report numbers, and I think we will leave it at that.

Operator:

And it comes from the line of James West with Evercore ISI.

Jeff Miller:

Well, James, it's highly competitive in the marketplace. And we are absolutely focused on our strategy at Halliburton and I've been really clear about that. And so independent of what anyone does in the marketplace from a Halliburton standpoint, we are maximizing value in North America. We are growing profitably internationally and driving capital efficiency. And I think some of the cash flows that you see and improving cash flow that you see is driven out of our fundamental strategy to develop R&D that is more capital efficient. And so this has been a strategy underway for probably 5 or 6 years, maybe longer. And today, we're seeing the fruits of that. But from a competitive perspective, highly competitive marketplace and we're always continuing to lower total cost of ownership for our customers and also drive the three things. And the outcome of that is clearly better free cash flow, more cash flow return to customers, but it starts with that basic strategy.

Jeff Miller:

Well, look, I think that North America, as we look forward into '24, the consolidation activity that we've seen is clearly a demonstration of how important North America is. In the kind of environment that we're in today, it's hard for me to imagine operators who want to be smaller rather than bigger given the $85, $90 commodity price. So I think that will drive certain amount of activity up from here. From our perspective, we see largely a steady market from as you described it, just partly because we are focused on retiring diesel fleets and transitioning to electric. We've got a very clear strategy around North America. And we believe that our service quality performance and technology, those get better every day, and they drive margins. So this is an important component. They drive margins. And I think our customers understand the level of investment required in order to deliver service quality, performance and technology. So we've seen what this market looks like when we burn up equipment at very low returns that don't allow for that reinvestment, probably we've seen that, that's not a good outcome certainly not for service companies, but it's also not a good outcome for operators. So I think that's what gives me confidence in sort of the stability of this. And to that point, we're mostly I'd say, mostly contracted for 2024.

Roger Read:

Yes. Good morning. Probably just to follow up on a couple of the questions already been asked, maybe slightly differently. As you think about the outlook here for the fourth quarter and maybe in the first half of '24, I was just curious where you feel like you're being properly cautious, maybe slightly overly cautious and where you think things actually need to come through to sort of hit the numbers, right? I'm just sort of looking for some guidelines maybe of what to pay attention to as the quarter unfolds.

Roger Read:

Yes, it is. My follow-up question is a little bit different tack. But it gets back to some of your opening comments about adjusting your cost structure and less fixed, more variable, we've typically thought of the way to measure performance with service companies in Halliburton, off the incremental margins. But if the fixed costs are becoming more variable, then maybe we don't see quite the same change in the incremental margin, but we'd still pay attention to the absolute margin. So maybe just as a way to ask about where you think the absolute margin can go relative to what we've seen over the last several quarters, any expectations there. I mean, is it -- these margins with revenue growth or margin expansion from here?

Operator:

And it comes from the line of Scott Gruber with Citigroup. Please proceed.

Jeff Miller:

Yes. Thanks. So I mean, look, we've got a really good position in North America. And I think as we look at '24, a couple of things, even beyond activity is, I view we have asymmetric sort of opportunity in North America. So I've said, I expect activity to be up, not down as we go into '24, just given where we are and as you described it. But the opportunity is around demand we see for [indiscernible]. So that's an opportunity that is largely unique to us in terms of the way we're approaching that. And certainly, our drilling business is equally an asymmetric opportunity for Halliburton just given the fundamental change in technology and the ability to put that to work in North America. And I think that will benefit on its own just from the technology, but equally so, maybe from any growth in rig count will only accelerate the uptake on that technology.

Jeff Miller:

Yes, thanks. The lift business continues to grow. I mean, this is a fantastic technology. And the reason it's leading in North America is because of its execution and its technology. And those are the same reasons that we're seeing the growth internationally. And so also an initial really solid contract in Kuwait that has continued to expand in the Middle East with trials and opportunities and actually getting meaningful traction. Similarly, in Latin America, where we had quite a bit of success in a variety of countries, including Ecuador and others. And look, lift is becoming -- our ESPs are becoming more resilient, the technology continues to improve. The summit team is at the leading edge of that. And so look, very high expectations for where they go and expect that, that is, again, another unique international growth opportunity for Halliburton, very resilient in the North America sort of independence of activity rig count activity. And then, the chemical business is it continues to get traction. We're on pace, we're on plan, I would say, with the plant in the Middle East. So it's doing what we had expected it to do. And so pleased with where we are.

Luke Lemoine:

Jeff, you talked last quarter about a record number of these fleets that you signed in 2Q. I wanted to see if you could give us a qualitative update on incremental these fleets maybe interest from customers and how you see your, this program shaping up for 24? And then, if you could provide any commentary on conventional equipment displacements, that would be helpful, too.

Operator:

And it comes from the line of Stephen Gengaro with Stifel. Please proceed.

Jeff Miller:

Look, I think that's going to be unique to different and certainly the different operators and levels of efficiency and many other things. Look, I think that we'll know a lot more as we go into next year and start to see where production levels are. Clearly, this year saw a lot of broad activity by a lot of operators early in the year, and I suspect North America is getting the benefit of that right now. The private market was super busy the first part of the year 2023. You saw that group not really drill wells as we got into the late summer, which is the time they normally would. And so I think that will weigh on probably production as we go into '24. That said, we've got a commodity market that is probably quite supportive. And so it'd be hard to imagine less, not more. But in terms of production going into 2024, it would seem that a big chunk of what was added in '23 is not repeating right now with good weigh on production. That said, as I've said before, I think we'll see activity up, not down from here for those reasons.

Jeff Miller:

Look, it drives service intensity up without question. And that's good for Halliburton. It also drives technology in terms of things like our downhole diagnostics, which we call SmartFleet. But I mean I think addressing productivity per foot which comes in the form of efficiency, and placement, reconciling all of those things between well design and production, having the tools to do that, and that's precisely what we introduced to the marketplace in the form of SmartFleet, which is a critical building block in my view, solving for that. And I think that's why we're seeing uptake on that technology. So I think that never bet against this industry ever. I mean our customers in North America are very smart, very good, very competitive. And the history of this industry broadly is improving recovery factors, whether it's through process and methodology or automation or in many cases, just physics and science. And I think that what that does do is it drives more reps for Halliburton. It will drive more sand in wells that will do a lot of things. But I also expect, as we've done for so many years, that we'll see the actual breakeven cost or the cost of producing oil and gas in North America continue to come down on the back of technology.

Marc Bianchi:

Thank you. I wanted to ask about the C&P performance here in the third quarter and the outlook for fourth quarter. If I look at sort of the original guidance for third quarter, it was for margins to be flat, but they ended up growing by 100 basis points. And then as we look to fourth quarter, the decline is kind of guided to 100 basis points. Was there a pull forward of some completion tool sales that would usually occur in the fourth quarter? Is that explaining it? Or are there some other elements that we should be thinking about as we bridge from where we were in the second quarter?

Marc Bianchi:

Okay. Thanks for that Jeff. The other one I had was on kind of the international growth. So if I look at your Middle East and Africa, it was flat this quarter. I'm curious how you're thinking about that region and maybe the other regions if we're going to get to sort of a low double digits for the year. are any regions leading that or would you expect them all to grow at a similar type rate?

Operator:

It comes from the line of Jim Rollyson with Raymond James. Please proceed.

Jeff Miller:

Look, I think that continue to strengthen. [Technical Difficulty]. We expect margins to continue to strengthen. The asset feedback, let's see. We expect margins to continue to strengthen internationally because they tend to move 1/3, 1/3, 1/3. However, what's important is, we're also seeing growth in offshore at the same time. And so we've got a tightening of capacity that sort of comes at a higher rate from offshore work just because it requires more capital offshore than it does onshore. And so the type of activity that we're seeing is continuing to tighten the market. At the same time, so that's driving pricing to a large degree. And I think the type of activity that we see planned that is either underway or being tendered or just being planned that clearly extends well into the decade is going to serve to drive our pricing.

Kurt Hallead:

I'm kind of curious here, Jeff, right, you given mentioned a number of different positive factors, right, that are driving your business, both internationally and domestically. And on the domestic front, right, your fleet mix, technology, service quality, et cetera. So with that dynamic and with that kind of mix, right, are you confident or comfortable enough to suggest that you think your North America revenue could grow in 2024, even if overall activity is flat or down?

Kurt Hallead:

Okay. Good. Great. Now I have a follow-up. I think in your prior conversations, I understood this correctly that when you're being approached by customers to talk about e-fleet opportunities. You guys are kind of looking at contractual commitments that maybe could be as long as 3 years. Is that still the case?

Operator:

Thank you. And this concludes the Q&A answer period. I will now turn the call back over to Jeff Miller.

Operator:

Thank you. And with that, we thank you for participating in today's conference. You may now disconnect.

Operator:

Good day, and thank you for standing by. Welcome to the Halliburton Company, Second Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today David Coleman, Senior Director of Investor Relations.

Jeff Miller :

Thank you, David, and good morning everyone. In the second quarter Halliburton once again delivered strong results driven by service quality, outstanding execution and strong global demand for high quality and high performance oilfield services. Let's get right to the highlights. Total company revenue increased 14% year-over-year. Operating income grew 41% compared to second quarter of 2022 adjusted operating income. International revenue grew 17% year-over-year with strong activity in all markets. North America revenue grew 11% year-over-year. Our Completion and Production division revenue grew 19% year-over-year, while margins expanded by 320 basis points. Our Drilling and Evaluation division revenue grew 7% year-over-year, while margins expanded nearly 300 basis points. Finally, we generated $1.1 billion of cash from operations, $798 million of free cash flow, and repurchased approximately $250 million worth of shares during the quarter. Halliburton delivered an impressive first half of 2023. I'd like to thank our employees for these outstanding results. Thank you for executing on our mainstays and strategy delivery. Now, let's turn to what I see in the markets and what I believe is driving this multi-year upcycles duration. Demand for oil and gas is strong as demonstrated by demand growth of 2 million barrels per day in the first half of the year compared to the same period last year. Oil and gas continues to demonstrate its critical role in the global economy and meeting long term demand requires sustained capital investment. Commodity prices remain attractive. When I talk to customers they expect to work more, not less, and many of their activity plans extend into the next decade. Customers are settling in for a long duration upcycle. Overall, I expect upstream spending to grow in 2023 and beyond. For this year, I expect International and North America customer spending growth in the high teens and around 10% respectively compared to last year, despite reduced rig count and completion activity in the U.S. Now let's start with our performance in the international markets. Revenue in the second quarter grew 17% compared to the same period of last year with strong activity across both divisions. Today more than 20% of our tender pipeline represents incremental activity, which is as high as I can recall. Equally important, in addition to strong growth in the Middle East and Latin America, we see steady growth in activity across the globe. In this environment, I expect quality services and equipment to remain tight and pricing to continue to improve. Halliburton's strategy is to deliver a profitable international growth. We are clear in how we do this, through differentiated technology offerings, selective contract wins, and a unique collaborative approach to working with our customers. Our differentiated technology and digital portfolio deliver high quality and high performance to our customers in all markets. Here are some examples. Our drilling and LWD technology platforms deliver better reliability, data capture, and efficiency for our customers, while structurally expanding our margins. We build and deploy leading-edge drilling equipment that requires less capital to build and operate, compared to the prior generation of equipment. One example, for a customer in the Middle East, Halliburton achieved a world record for the longest well ever drilled, with a measured depth of over 51,000 feet, using Halliburton's iCruise, iStar and LOGIX Technologies. Our leading position in Completions Technology is unlocking production for customers. We recently set another world record with the successful installation of the first 12 ZONE intelligent completion for a Middle East offshore customer using Halliburton's SmartWell technology on our eCompletions Platform. In our digital business, Equinor joins several other customers in selecting Landmark’s DecisionSpace 365 as their standard subsurface data interpretation tool. During the second quarter, our Landmark software business closed on the acquisition of Resoptima, a leader in advanced ensemble modeling at the reservoir level. I'm excited about Resoptima's technology, both standalone and how it accelerates Landmark's roadmap for next-generation reservoir modeling technology. Now, turning to collaboration. Our value proposition to collaborate and engineer solutions to maximize asset value for our customers and our mainstay processes define how we consistently differentiate our services. This is the source of our competitive advantage. Our value proposition creates an environment where our customers and Halliburton collectively perform better. A recent example of this is Halliburton and Vår Energi's announcement of a long-term strategic relationship for drilling services. I expect we will demonstrate with Vår, as we have with other customers, that our collaborative approach creates significantly better operational and financial performance for both the customer and Halliburton. Our international strategy works. Our differentiated, cost-effective technologies and collaborative approach with customers empower us to strategically target work where we see a competitive advantage and a clear path to outperform financially. Turning to North America, we delivered a solid quarter. North America revenue grew 11% versus the same period last year, and margins were sequentially flat versus the last quarter. Looking ahead into the second half, I expect overall market activity in North America will be slightly lower than in the first half. More importantly, I expect Halliburton's North America margins to remain strong for the balance of the year. Our results in North America clearly demonstrate the success of our strategy to maximize value. We do this through capital efficiency, differentiated technology, and alignment with high-quality customers. During our last call, I outlined the steps we took in North America land to maintain pricing and deploy service capacity to attractive return opportunities or retire old equipment to further accelerate Halliburton's transition to our electric fleets. Executing on our strategy during the second quarter, we deployed additional Zeus fleets on multi-year contracts, while retiring additional diesel equipment. Demand for our Zeus e-fleets is strong. In fact, during the second quarter we signed more multi-year Zeus contracts than in any prior quarter. The multi-year duration of these contracts provides both stability and secure economic returns, which furthers my confidence in the strength of our margins. I continue to be impressed by the performance of our Zeus e-fleets and the optimization and efficiencies that come with scale. Our current system is the result of multiple iterations over several years and our continuous improvement processes. Every element of the value chain, from design and manufacturing to operations and maintenance, is continuously improved. Our advances in pump technology and system design result in higher horsepower density and pump efficiency. With Octave, we are automating equipment operation for consistency and reliability. We work to be the best at getting better. Today, Zeus is a fully integrated system. We deliver new equipment on time that works right out of the box and on average this year our e-fleets pumped over 10% more hours than our high-performance diesel fleets. For our customers, these improvements mean better performance and even lower total cost of ownership. For Halliburton, these improvements mean we further widen the moat around our growing e-fleet business. In all markets, international and North America, I believe our strategies yield improved financial results. Let's look at the steady growth and margin expansion in D&E. This is the result of a structural change and technology overhaul that began several years ago. Our leading drilling platforms are lower cost and higher performance than the prior generation, which drives higher asset velocity and higher returns. In our testing business, our FloConnect Surface well testing service provides a safe, efficient, and automated platform to our customers, while lowering our overall operating costs. In our Wireline business, our Xaminer platform provides high quality reservoir data, reduces subsurface uncertainty, and allows us to win high-value exploration work. Finally, across all product lines, automation and remote operations are beginning to transform service delivery, driving higher quality and reliability, while lowering total cost of service delivery. Looking through any quarterly fluctuations and seasonality, I fully expect D&E margins will continue to expand over time. Our strategy also generates strong free cash flow, and our capital return framework returns cash to our shareholders. I expect over 50% of free cash flow will be returned to shareholders this year. I am pleased with where we are today. In the last 18 months we retired $1.2 billion of debt, strengthening our balance sheet; twice increased our quarterly dividend, which forms the stable foundation of our capital return framework; and finally, repurchased approximately $600 million worth of shares, including approximately $250 million this quarter. I fully expect that the execution of our strategy in this long duration upcycle will deliver better returns, more free cash flow, and more cash back to shareholders. Now, I'll turn the call over to Eric to provide more details on our financial results. Eric.

Jeff Miller :

Thanks, Eric. Let me summarize our discussion today. Our international business is growing at a strong pace across all regions. I expect our differentiated technology offerings, selective contract wins, and our unique collaborative approach to working with our customers to deliver higher international margins and growth for Halliburton. Our strategy to maximize value in North America is driven by capital efficiency, differentiated technology and alignment with high-quality customers. I expect this will allow us to generate solid financial performance. I expect that the execution of our strategy in this long-duration upcycle will deliver better returns, more free cash flow, and more cash back to shareholders. And now, let's open it up for questions.

David Anderson :

Hi! Good morning, Jeff.

David Anderson :

So, North America's slowing down a bit. International's starting to accelerate, to be expected. But I was wondering if you could perhaps take a bit of a step back and talk about how you see the primary markets trending in the next kind of 12 to 24 months in terms of NAM [ph], Middle East, and offshore. Maybe set LATAM aside, which has been a steady growth market. I guess my question is, in terms of the cadence, how do you see the trajectory of each of these markets playing out? You lowered NAM spend. I think you were saying 10% up from down from 15%. So is that kind of flattish in the second half of the year? And then how do you see the ramp up in the Middle East and then the timing of offshore? I know it's a lot, but maybe kind of this bigger picture, how you see those markets trending [inaudible]?

David Anderson :

And then, Jeff, maybe we can just kind of get into the heart of kind of where a lot of the chatter has been during the quarter. Obviously, rig count has been falling. We've been hearing about pricing and pumping getting softer. Of course, a lot of this is coming from your competitors who would love to pay less for these services. Can you give us some insight in kind of what you're seeing in the pricing trend? Is the softness kind of really stuck on the Tier 2 side? In your comments you talked about your Zeus fleets holding up. Is the Tier 4 holding up? What do you see on the competitive pricing side? If you can just kind of give us some more context here, because we just kind of hear these kind of generalized comments and I have a feeling there's more to it. I was wondering if you could provide some more context please.

Operator:

Our next question comes from a line of Arun Jayaram with JP Morgan.

Jeff Miller:

Well look, I think that – you know again, we've got a little exposure to the spot as I described. I would say broadly, as we look ahead, high-performance, high-quality services really matter and we see a lot of bifurcation there and we're going to continue with our e-fleet rollout, which is sort of a whole different category of service. It's actually lower cost or better performance for our clients, but also lowers our total cost of ownership. And so I would say we're planning to deliver high-quality service and we really don't see any point in burning up equipment with no margins, that's not a good direction. It actually has longer-lasting impacts if surface equipment isn't taken care of.

A - Jeff Miller:

Well look, we're heavily levered towards the offshore business. In fact, all of our service lines participate in our offshore business and we've got leading positions in cementing and HCT. You know our drilling business, we've talked a lot about where we're going with drilling and Wireline and so that's an important business for us. It is higher service intensity, which means that it takes more equipment to do and so we really like that. I expect the Gulf of Mexico continues to strengthen. And again, we talked about last quarter, sort of the percentage of our offshore international business anyway as a percentage continues to grow. And so I think that the offshore business is going to be very important for Halliburton, and the Gulf of Mexico and all around the world.

James West:

Hey! Good morning, Jeff. Good morning, Eric.

Eric Carre:

Good morning, James.

James West:

Okay, okay, that makes sense. And then on the international and particularly offshore side, as these rigs are mobilizing and getting set up, governments, signing contracts, etc., and the companies your customers are sourcing, the Service Equipment and Service Products, what's the conversation like with them around pricing and kind of – or is there even really much of a concern about pricing, because they just need to get the equipment?

Operator:

Our next question comes from the line of Neil Mehta with Goldman Sachs.

Jeff Miller:

Look, I think that we've committed to return at least 50% free cash flow back to shareholders. The reality is it's going to be more than that. I think what we do is we build a base case around what we return to shareholders and then we're able to flex up from that and I think that's you know some of what you're seeing. Eric, do you want to add to that?

Neil Mehta :

Thanks Eric and the follow up is for you. It's just, I hear you made some comments around this in the script, but any Q3 considerations you want us as a market to keep in mind as we think about and building this sequential model into next quarter.

Operator:

Our next question comes from the line of Scott Gruber with Citigroup.

Jeff Miller:

Look, I think that – I'm not going to try to call tops and bottoms, I'll let others do that. But I think that, the outlook I described for 2024 is consistent with what you just described and so when we see that, I don't have precision around the date. But there's no question that gas is firming up and that there'll be LNG takeaway and that the gas market will be busy. It's a question of the date, but I expect that build in ‘24, could it come sooner? Obviously, it could and I would say oil price is quite constructive today as well, which may bring some smaller players back into the market. But all of these things structurally from a cycle standpoint are very, very positive and as I look at ‘24, sometime between now and there, we see improving activity.

Jeff Miller:

No, I mean let me frame that differently. I think that this is my point around service intensity, meaning it takes more work to produce the same over time unless there are step changes in terms of either efficiency or insight. And so, we talk about our smart fleet offering quite often, but the reality is that's part of our technology portfolio to help customers better understand productivity of rock and where the frac is going and how to design fracs that can be more productive over time, so I think that's an important step. But there is no question when we think about North America and we even saw that during the COVID when the pace at which North America declined following sort of the near slowdown or near stoppage in North America and so I think those are well understood by the market and our clients. And so when I think about the way forward in North America, that features in it and is clearly part of our view as to why (a) there'll be more activity over time, even to stand still, and further why e-fleets in our case are so valuable, because they really do help clients achieve better productivity and lower costs. So I think that that's one of the reasons we're so focused on that and I think that's how it plays out.

Luke Lemoine :

Hey! Good morning, Jeff and Eric.

Luke Lemoine :

Jeff – Morning! Jeff, nice job on that North America margins in 2Q, I mean those flat, and you talked about those remaining strong for the balance of the year. It kind of sounded like you're not expecting these to be materially different from the first half. Is that correct?

Luke Lemoine :

Okay. And then Eric, 2Q D&E margins for better inter guide. Can you maybe walk us through what changed relative to your expectations?

Luke Lemoine :

Okay, got it. Thanks a bunch.

Stephen Gengaro :

Hi! Can you hear me?

Eric Carre:

Yes.

Jeff Miller:

Look, I think there is quite different, and I think it's different along a couple of dimensions. Number one, quite different in the sense of the type of equipment that we are putting into the market with e-fleet. So that's a very different dynamic than we've seen in the past. And I think that the, pull for those from customers is meaningful and so that's one key difference. And I think from the other perspective, the bifurcation and performance is an important point. And I think that we've seen quite a difference in our performance and that still matters. In fact, that matters a lot. And I think that, sort of the overall – we've always replaced our equipment, invested in our equipment and technology. But I think that, the idea that equipment runs in perpetuity or that it can be run to the ground and then somehow rebuild does not realistic. And so I think there's some understanding around that today that there probably wasn't before.

Jeff Miller:

Yes look, I mean, what that drives is more technology and more service intensity, both. I mean, that's the upshot of what you just described for our customers and we see that. And so we're – you know like you said, I'm quite confident about – I'm confident in North America's contribution to the overall oil and gas supply for the world. It's important and sustaining mass going to require investment and a lot of technology and a lot of just repetitions. So I think it's not very well for Halliburton.

Marc Bianchi :

Hi! I just want to ask one more on sort of the North America outlook for the back half. I know it's been asked several times, but just because so many people seem to be focused on that. I think people are surprised by fourth quarter being flat quarter-over-quarter and margins seemingly holding in. Would you anticipate that overall the profit for Halliburton or the EPS should be flat to up in the fourth quarter versus the third quarter?

Marc Bianchi :

Yes. Okay, great. Thanks for that Jeff. The other one I had is just a bit of a modeling question on the corporate line for you, Eric, because we've got this new software element that we need to include. So if I take those two together, the corporate plus the software, it looks like we should be something in the mid-80’s of a negative number and then that should be sort of on a $20 million to $25 million run rate beyond third quarters. Is that the right way to think about that software impact.

Operator:

Our next question comes from the line of Kurt Hallead with Benchmark.

Jeff Miller:

OPEC cuts absolutely do not have an impact on activity. I’m being crystal clear around that. These are customers with plans that are meeting global demand and it is unrelated to cuts and OPEC. I would say that the growth, I wouldn't describe it as an acceleration, I would describe it as continued growth, and that's very positive. That's a good thing, because that's consistent with the long duration nature of this cycle. So it's not a spike to come at some point in time in the future to then level out. I think what we're going to continue to see is steady growth in activity, kind of like we've seen. Although does the pace pick up? It might some in fits and starts as big projects get started. But I think overall, this is a great setup for Halliburton in terms of timing and pacing and absolutely consistent with how we see the length of the cycle. Meaning, it's going to take quite a period of time as barrels are invested in and reinvestment is made.

Jeff Miller:

Well, I think I've described what we're going to do and I think that sort of the – we’re focused on what we're doing in terms of – you mentioned e-fleet, but that's an important thing, and that's an important opportunity for Halliburton, it's somewhat unique for Halliburton. I also believe that it's – as I look out into the future, as I said I see, we talked to extensively about service intensity and technology and I think both of those are going to be very high demand as we get into ’24, and I would say for what we do, it's an high demand now. And so you know, I think the long term for North America clearly points towards what we do uniquely at Halliburton and so I feel pretty confident about that.

Jeff Miller :

Yes, thank you and thank you all for participating in today's call. Let me close out the call with this. Halliburton delivered an impressive first half of 2023 and I fully expect that the execution of our strategy in this long duration up cycle will deliver better returns, more free cash flow and more cash to shareholders. I look forward to speaking with you next quarter. Please close out the call.

Operator:

Good day, and thank you for standing by. Welcome to the First Quarter 2023 Halliburton Company Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Coleman, Senior Director of Investor Relations. Please go ahead.

Jeff Miller :

Thank you, David, and good morning, everyone. Halliburton's performance in the first quarter again demonstrated the earnings power of our strategy, strong competitive position and execution for our customers. Here are some highlights from the first quarter. Total company revenue increased 33% compared to the first quarter of 2022 with strong activity in both North America and international markets. Operating income grew 91% year-over-year. Operating margin was 17%, a strong start to the year and 530 basis points over the first quarter of last year. International revenue grew 23% year-over-year with strong activity in all markets. North America revenue grew 44% year-over-year with growth across every basin. The Completion and Production division posted 20% margins, an increase of nearly 700 basis points year-over-year. The Drilling and Evaluation division grew revenue 17% year-on-year while margins expanded more than 100 basis points. Before we continue, I'd like to recognize the employees of Halliburton for their outstanding execution on every dimension of our business. safety, service quality and financial results. The work you do each day matters to our customers and shareholders. Thank you. I'll start with a few comments on the macro. Everything I see today validates the strength and duration of this multiyear upcycle. The world requires more energy from all sources, including oil and gas, driven by population growth and economic development. Multiple years of structural underinvestment in oil and gas supply can only be addressed by strong activity over the next several years. The commodity price volatility experienced in the first quarter does not change our view of customer demand and a tight services market. Our customers around the world recognize this, and we expect their spending to grow in 2023 and beyond. Further, we expect much of this investment will be directed towards development activity, which is great for Halliburton as it drives outsized demand for our products and services. My view of this up cycle is confirmed by what I hear from our customers and see in the world's oil and gas markets. The Halliburton outlook for both the current year and the long term is strong. Now let's start with our performance in the international markets. Our revenue in the first quarter grew 23% compared to the same period of last year, reflecting strong activity in all regions. Halliburton executed its strategy to deliver profitable international growth through leading technology offerings, improved pricing and disciplined capital allocation. I expect international spending to grow high teens for the year 2023, with most new activity coming from the Middle East, Asia and Latin America. I am confident in this outlook because we have a strong pipeline of awards that will commence later this year and beyond. Our completion tool order book grew 40% year-on-year in the first quarter, which generally represents work delivered within the current year. And finally, pricing continues to trend up for all product lines in all regions. I'm excited about all segments of our international business. Today, I'd like to provide more color on our offshore business. We generated nearly 45% of our international revenue in the first quarter from our offshore business. Here are a few examples of differentiated technologies that drive a higher level of performance, service quality and reliability for our customers. Halliburton's intelligent drilling and logging while drilling platforms, iCruise and iStar in combination with LOGIX, our automation platform, delivered the longest reservoir section in a single run for a customer offshore Norway. Our latest wireline imaging technology, STRATA Examiner, delivered high resolution, borehole imaging data, allowing a customer to increase reserve estimates during a recent exploration campaign in the Mediterranean Sea. Halliburton's digital solutions allow our customers to reduce cost per barrel and increase efficiencies. Hess, Repsol and Petrobras, all recently selected Halliburton Landmark's DecisionSpace 365 applications powered by iEnergy Cloud. Our trusted science and machine learning algorithms enable customers to optimize subsurface, well construction and production-related decisions. Cognitive Halliburton's offshore automated cementing system delivers cement jobs remotely with minimal human direction and intervention. More than 30 cement jobs were completed this quarter in the North Sea alone. Finally, I'm excited about the progress of our TechnipFMC alliance on all electric completions. I believe this technology will over time, substantially change the cost and performance of deepwater completions and subsea infrastructure. As I look at 2023 and beyond, I am excited about our international business. Our customers are clearly motivated to produce more oil and gas. Service capacity is tight and pricing is increasing. Our differentiated technologies and our execution drive margin improvements and growth across our international business. Turning to North America. As I expected, Halliburton achieved strong results despite volatile commodity prices. We delivered on our strategic priority to maximize value in North America through capital efficiency, differentiated technology and alignment with high-quality customers. I know it's on your minds. So let me briefly discuss the natural gas markets. First, I firmly believe that the gas market softness will be solved the 6 billion cubic feet per day of additional LNG export capacity comes online in the next 24 months. Second, in response to market conditions, we are moving 3 fleets from gas basins to oil basins to satisfy specific customer demands. Finally, we retired 1 Tier 2 diesel fleet which will reduce our near-term maintenance costs and accelerate Halliburton's transition to e-fleets. These actions reduced our gas market exposure by about 30% and maintain financial returns. I reiterate my expectation that North America customer spending will grow at least 15% in 2023. At today's oil prices, I believe that our customers will execute their activity plans and the market for highly efficient equipment and quality services will remain tight. Our strategy is to maximize value in North America. Let me be crystal clear about what that looks like. First, we improved the performance and utilization of our existing fleet and we align with high-quality customers who value our operational efficiency and consistent execution. Here's what the customers are telling me. Halliburton's performance is different, not only better than your competitors, but even better than your own past performance. Our step change in performance, safety and operational efficiency comes from our investments in new technologies, crew training and process improvements. As a result, today, we see a 60% improvement in pumping utilization across our entire North America land fleet since 2019. Second, we only deploy service capacity to attractive return opportunities. We are always finding ways to improve average fleet returns. Finally, we invest in differentiated products and services that improve margins and asset velocity. Our patented Zeus e-fleet and SmartFleet are examples they maximize asset values for our customers and structurally improve returns for Halliburton. Our Zeus e-fleets continue to outperform for our customers and smart fleet adoption is accelerating. We delivered about 6x more smart fleet stages in the first quarter than a year ago. Halliburton's position and outlook in North America is strengthened by the uptake and contract duration of our e-fleets. The contracting structure for e-fleets, which we only deploy on multiyear contracts and our technology road map for the future, create structural strength in Halliburton's North America business. Halliburton's e-fleet technology is proven to deliver better performance, lower total cost of ownership and increased operating efficiency. For customers with the mandate to produce barrels over the long term, and maximize the value of their investment dollars, the attraction to e-fleets is self-evident. To summarize, I believe Halliburton is uniquely positioned to deliver financial outperformance, our strong execution culture, differentiated technology portfolio and collaborative approach with customers give us a strong competitive advantage. I am confident that we will execute our strategic priorities and deliver shareholder returns by maximizing value in North America, delivering profitable international growth and driving capital efficiency. Before I turn it over to Eric, I'd like to leave you with 2 financial points. First, given my outlook, I expect the execution of our strategy will deliver significant and growing free cash flow. Second, while our previously announced capital return framework provides a minimum of 50% free cash flow back to shareholders, it also gives us the flexibility to return more cash to shareholders in the form of share buybacks. Everything I see today points towards more cash to shareholders. Now I'll turn the call over to Eric to provide more details on our financial results. Eric?

Jeff Miller:

Thanks, Eric. Let me summarize our discussion today. Halliburton's performance in the first quarter demonstrated the earnings power of our strategy. My outlook for Halliburton is strong. I expect international year-on-year growth in the high teens North America growth in excess of 15%. And finally, everything I see today points towards more cash to shareholders. And now let's open it up for questions.

Dave Anderson :

So let's just get right into it. Despite the strong numbers you put up in North America this quarter and the guide for second quarter, we kind of firmed up everything. The bear case has been heating up during the quarter with the rig count softening a bit. A&P suggesting pricing is poised to come down. On the other hand, we're hearing from you, other service companies that you don't see this slowdown. In fact, prices continue to rise. I wonder if you help kind of help us start up the disconnect here. Does the difference line to customer mix? I know you highlighted the gas market and particularly weak. Is the differentiation of equipment just a lot of rhetoric keep during the quarter. I'm just wondering how we should be thinking about your U.S. land activity and the pricing trends in the second half.

Dave Anderson :

But pricing in your mind, continues to move higher. And I would assume that pricing from last year still continue to roll through your fleets?

Dave Anderson :

And if I could just shift gears over on the international side, your Middle East business doesn't get a ton of credit on the street, despite actually being just as big as kind of 1 of your bigger peers on a relative sense, I was wondering if you could talk about how you see the pace of activity progressing this year in the Middle East. Are you still ramping up on contracts? I think you had kind of alluded to that in your prepared remarks, but what is -- also what is your outlook on tenders in the Middle East this year? And I guess, finally, should we expect to see a lift in D&E margins next year based upon what you're seeing in pricing activity levels this year in the Middle East?

Operator:

We have a question from Arun Jayaram with JP Morgan.

Jeff Miller:

Yes. Look, I think wells drilled in North America really a function of DUC count. So as the DUCs get drawn down, more wells have to be drilled. And so I think fluctuation in drilling. And it's interesting that you see fluctuation in drilling, but a very steady march in terms of frac. And I think some of that is managing cost at the margin. but the fact is they don't produce more without fracking wells. And so I'm not surprised to see that. I think our D&E business in North America remains strong. confident on what we're seeing there. We continue to sort of make gains in the drilling part of the business. And I would say the other service lines are very strong.

Jeff Miller:

Yes. Look, this is an opportunity to mine what the 2 companies really do well. And they're particularly areas where we overlap, and we're taking advantage of that. We've been working on a series of things and 1 of which is all electric completions for about 5 years is -- and we just signed up for another 5 years with TSMC. So great partner in this area. What we've delivered ultimately will be, I think, a revolutionary all-electric solution. They really only -- it takes the 2 of us to solve for, it's not the bulk of either 1 of our businesses. But the fact is in this narrow space, we bring some really unique synergies and opportunity to develop technology. And so very pleased with the relationship and the progress that we're making up to and including we're jointly marketing and selling some solutions today.

James West:

So Jeff, I know you spend, guys, probably 60-plus percent of your time on the road seeing customers and a lot of that -- the majority of that internationally could you maybe describe the customer conversations at this point where they are with their sense of urgency, where the pushback is, if any, with pricing? Or is there more concern about availability is kind of how we're thinking about the cycle as it takes off from here. And just curious to hear what you're hearing on the ground.

James West:

Okay. That's great. That's good to hear. And then on North America, the 15% plus growth that you're anticipating in forecasting for this year -- is there -- how much -- I guess, could you describe how much of that you think is just kind of the pure inflation in the market, whether it's rig rates or fractured costs, that kind of stuff versus rig count or activity led growth?

Operator:

Our next question comes from Roger Read with Wells Fargo.

Jeff Miller:

Yes. Thanks. Look, I'm pleased with the growth on a percentage basis of our position in offshore or the amount of offshore work that we're doing. Look, I think it continues to grow and I expect our position as we continue to bring out the types of technologies I talked about continue to help drive our growth in offshore work. And so we are levered heavily to offshore, and this is all service lines or levered to offshore. And I think that as we see that business grow, I expect, yes, it does translate into top line growth and margin growth. And I think that what's clear though, also is it higher service intensity, but it also requires more equipment to do offshore work. So it has a bit of a double effect in terms of growing revenues and margins, but it also tightens up the rest of the business by virtue of consuming backup tools and additional shifts of people. And so as offshore grows, that has a tightening effect really on everything, which again, helps to drive better margins and better growth.

Jeff Miller:

Yes. Look, I think that, that growth continues at sort of that pace. This is 1 of those solutions that is very affordable and scalable and provides important data to operators particularly as the focus becomes productivity per foot. And so this is really the best way, maybe the only way to meaningfully measure where the sand goes. And as a result of that, that's the building block of what produces more of what's better complexity, where is the sand, what's the most efficient solution. And so I expect that continues to grow at a very fast pace and we've continued to introduce more technology around that solution so that it's easier to deploy and ultimately -- this is 1 of those things that our target is to be the most efficient solution in the marketplace. And as it scales, it becomes more valuable to us and in my view, it's a very sticky solution because it's 1 of those things that once you have that data, and it becomes part of a working process, then it becomes very sticky over time.

Neil Mehta :

First question is about the comments about moving 3 frac fleets from gas to oil basins. Can you talk about whether you see more potential for this to happen? What are some of the switching costs associated with that? And is this the beginning of a greater trend?

Neil Mehta :

And then can you talk about the return of capital comments. You had mentioned you could see a scenario where you go in excess of the 50% of free cash flow back to shareholders. So Talk about how you're thinking about using the buyback as a tool to create value.

Operator:

We have a question from Scott Gruber from Citi.

Eric Carre:

Yes, Scott, it's Eric. So generally speaking, how we think about cash returns today is -- I mean, obviously, we just raised the dividend. We intend to continue to do small bolt-on acquisition, technology-driven type acquisition, continue to chip at the debt as well as we go along. But clearly, today, the bias is towards increasing buyback as we go through the year. So yes, directionally, that's correct.

Jeff Miller:

Well, pricing certainly has improved year-on-year. But I think more importantly is the the depth of the technology that we're introducing is sort of the duration. And I don't want to get away from that. It's not a point in time. I think we've got pricing improving, but at the same time, we've got substantial capital efficiency happening also in terms of the technology. So the -- we've been pretty clear about the technology that we are investing in is driving capital efficiency, which means that we capture more of the value and cash flow over time. And so I would expect to see the margin improvement that you saw this quarter year-on-year to continue in terms of incrementals. And I say it that way. I've always said that our expectation is that we stack improvement each quarter in terms of margins in D&E. And expect that to continue to happen. Obviously, there's some intra-year cyclicality. But I think the key is if we look at each year by quarter, then we ought to be stacking improvements quarter-on-quarter. And I think we've got a long runway ahead of us in D&E.

Jeff Miller:

Yes, I think that is reasonable to say.

Chase Mulvehill :

Jeff. I guess maybe if we can kind of hit on free cash flow. If we think about your outlook, your North America outlook was maintained. And it looks like you kind of bumped up your international outlook so I'm guessing that it would probably imply a bump to your free cash flow outlook. I think last quarter, you said free cash flow should grow at least 20%, which seemed conservative when you gave it so with a better international outlook and still maintain North America. Any updates on how we should be thinking about 2023 free cash flow?

Chase Mulvehill :

Okay. Awesome. And then unrelated follow-up, you highlighted a lot of digital wins in your press release and also in your prepared remarks today. So question around this, and are you starting to see more digital adoption by your customers? And if so, what's been the catalyst for accelerated adoption I'm going to give this 1 to try and in any chance that you could speak to how material digital revenues are today for Halliburton?

Operator:

Our next question comes from Luke Lemoine with Piper Sandler.

Jeff Miller:

Yes. I think I have more confidence in number -- well, really 3 things. One, the indicators that we're looking at things like completion tool order book, which has grown meaningfully and that all focuses on this year. I would say, pricing sort of improvement that we're seeing, pricing and tightness around equipment around the world internationally is another meaningful one. And then finally, just we're winning awards and we're growing. We're selective about the awards we're winning. Again, our strategy is profitable international growth. emphasizing the profit part of that statement. But at the same time, we are seeing success and we're seeing success in a lot of different markets. And so because of that, we see a path to sort of high teens.

Jeff Miller:

Yes. I'm seeing Asia, again, pick up, particularly in terms of development type work, which is obviously right there in our wheelhouse. And then also in Latin America, clearly, we see activity growth in Brazil. But really throughout the region, we see the imperative to produce more oil and gas. And clearly, oil and gas is an important part of the economies of Latin America. And so there's a lot of motivation to be more effective and to deliver more oil and gas, partly for economic reasons and for tax revenues. But I think I'm really encouraged by what we see.

Stephen Gengaro:

So curious, when we look at U.S. pressure pumping world, a lot of the competitors have expanded services at the well site. I mean going through all things from vertical integration to well site integration. How are you seeing it from your eyes as far as how it impacts how, how it impacts pricing and your profitability in the business at the wellsite.

Stephen Gengaro:

And then just as a quick follow-up, are you seeing tightness in sand? And is that a profit center for you and any material movements in that over the last couple of quarters?

Operator:

And that's all the time we have for questions. I'd like to turn the call back to Mr. Jeff Miller for any closing remarks.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2022 Halliburton Company Earnings Conference Call [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Coleman, Senior Director of Investor Relations. Please go ahead.

Jeff Miller:

Thank you, David, and good morning, everyone. Halliburton finished the year strong with solid financial and operational performance in both divisions and both hemispheres. Halliburton's execution in 2022 demonstrates the earnings power of our strategy, and I expect this earnings power to strengthen in 2023 and beyond. Let's jump right into the 2022 highlights. We delivered full year total company revenue of $20.3 billion and operating income of $2.7 billion. Adjusted operating income grew 70% compared to 2021 with improved margin performance in both divisions. Our full year international revenue grew 20% over 2021, and our revenue and operating income increased each quarter in 2022. I am pleased with the international growth and margin progression Halliburton demonstrated this year despite a second quarter exit from our Russian business. Our full year North America revenue increased 51% over 2021 with improved margins driven by activity and pricing gains. Both our drilling and evaluation and completion and production divisions grew revenue and margins this year. The Drilling and Evaluation division generated full year operating margins of 15%, an increase of 320 basis points over 2021. The steady expansion of D&E margins demonstrates the global competitiveness of our D&E business. Our Completion and Production division posted 18% full year operating margins, a year-over-year increase of 290 basis points, driven by activity and pricing improvements. We generated strong free cash flow of $1.4 billion, retired $1.2 billion of debt, maintained capital spending within 5% to 6% of revenues and ended the year with $2.3 billion of cash on hand. Finally, our service quality performance excelled in 2022. Nonproductive time improved by 7% over 2021, which drove the highest ever uptime across our business. Execution is at the heart of who we are and our results are a testament to our employees' continued commitment to superior service quality. I'm pleased with the fourth quarter results. Revenue grew 4% and operating income grew 15% sequentially. Margins increased in both C&P and D&E divisions and in both hemispheres. Cash flow from operations in the quarter was $1.2 billion and free cash flow was $856 million. Building on the strong foundation of execution, today, I am pleased to announce the following shareholder return actions

A - Jeff Miller:

Thanks, Eric. Let me summarize our discussion today. Oil and gas is tight and only multiple years of increased investment will solve short supply, which translates into years of increasing demand for Halliburton Services. The announced dividend increase, share buybacks and Halliburton's new capital return framework provides shareholders with clarity and consistency on how we expect to return cash to shareholders. This exceptional financial performance is a clear result of our execution of Halliburton's strategic priorities. I expect Halliburton to continue to deliver financial outperformance, strong free cash flow and shareholder returns. And now let's open it up for questions.

David Anderson:

So Halliburton's international business is now half of overall revenue. Middle East has been a big part of that growth over the years, it was up 10% this quarter. Just wondering if you could just give us a little bit more insight into kind of your views on that market over the next kind of couple of years. So based on activity is how it's trending and the ramp up is going on, I guess, in the near term, is it reasonable to think the growth should sort of stay at these levels the next several quarters? And also, if you could highlight some of the countries where you see most of the growth coming from over the next several years, including kind of where you think you're best positioned in terms of footprints or product lines in the Middle East?

David Anderson:

And if I could shift over on the US side, there's been a lot of recent talk about activity levels slowing down in the US. The rig count has drifted down a bit in recent weeks, been some weather, as you highlighted, and there's also some concerns out there in the natural gas market. I also know how any E&Ps have announced any spending budgets this year. So I was wondering if you can just help us out with a little bit of visibility on the market. Kind of what are your customers saying about kind of how activity is going to play out into the spring? And then based on that, kind of how do you see sort of the dynamics of that pressure pumping market in terms of capacity and the tightness for 2023?

Operator:

[Operator Instructions] Our next question comes from Arun Jayaram from JPMorgan.

Jeff Miller:

Look, we're better positioned than we've ever been as Halliburton, both from a technology perspective that I described examples of that. But clearly, that's not all of the technology we've got in the market today and from a footprint standpoint. So a lot of that build out was done prior cycles, it's still there and ready to go. So I feel very good about our geographic footprint, our technology advancement that we've made and our team. I mean we've just got an exceptionally strong team today internationally. So I feel very confident certainly from that perspective. And when we look at where our business is, offshore is good for us. I think that about 40% of our international business is offshore today. And so that's a good market for us. And I think another nuance as we look out into next year, certainly and likely beyond, is the sort of emphasis on development activity as opposed to exploration that maybe we've seen in prior cycles. And I think that's very consistent with where operators are from a capital discipline standpoint and just producing more barrels sooner, which leads us to development. And that is a place where we have leading positions in a number of the service lines that allow that to happen, so meaning drilling fluids, completion tools. And so I think this is going to be a great even better market for Halliburton.

Eric Carre:

So I mean, broadly speaking, we're looking at the cash generation profile in 2023 as being fairly similar to 2022. So quite a bit weighted toward the back half of the year. Looking at things overall, I mean, the big buckets, obviously, we'll see significantly increased net income driven by growth in our revenue, improvements in our margins. On the CapEx side of things, we finished 2022 on the low end of our range of 5% to 6%. We were at 5%. When I look at '23, we will be at the higher end of that range, primarily driven by supply chain constraints and extended lead time in our supply chain that we talked about on prior calls. And the third element in terms of working capital, again, our business will continue to grow, so we will continue to see some headwinds in terms of working capital essentially and also the impact of growing internationally, which tends to be more bigger consumers of working capital than when we grow our business in North America. So the way all of that is going to land is a little north of 20% growth in terms of free cash flow over our 2022 performance.

James West:

So Jeff, in North America, I want to start there. In North America, your customer base and the majority of the customers really have three options, you can grow, you can shrink, you can go international. Where do you see, in your conversations with the bigger shale operators -- and you mentioned earlier, you think there could be a surprise to the upside in North America. How do you think they're thinking about the North American market, especially given what's going to be inventory constraints at some point here, whether it's three years, five years, seven years, we don't really know but at some point on wells and what they plan to do over the next couple of years?

James West:

Okay, that's great perspective there. And then if I could just switch to the international side of the business. At this point, are we in a market that is still price driven or have we switched now to a market where it's about availability and service quality?

Operator:

Our next question comes from Neil Mehta with Goldman Sachs.

Jeff Miller:

Go ahead, Eric.

Neil Mehta:

And that was my follow-up around capital returns. So as you think about the buyback, how do you think about approaching it? Do you want to take a more ratable approach or do you want to be countercyclical in the way that you prosecute it? And when you talk about M&A, are we talking about bolt-on type of transactions that are -- or do you see a scenario where we could be looking at larger scale things?

Jeff Miller:

Let me just add to that as well. I mean I think the -- no surprises from us, our outlook on M&A hasn't changed, and it will stay that way. As we look at the capital allocation, we also want to continue, as Eric mentioned, opportunistically take out debt. We don't want to be sloppy about it, but kind of in the current market that we see, we have the opportunities to do things that are -- that make returns for the company, but we want to be crystal clear around what our minimum return was. It's clearly -- we'll work through that. But I would expect that by setting that minimum, I think it gives clarity to the marketplace that we will only do things that we believe add meaningful returns to the company.

Luke Lemoine:

Jeff, your 4Q EBITDA margins firmly hopped in that kind of low 20% range here, basically at 14 levels, which was the target for '23, totally get there are some year-end sales there that skewed us higher in 4Q, but you're on the cusp of hitting 14 margins on an annual basis in '23. You and Lance kind of gave us a two year outlook almost two years ago. And I just wanted to see if maybe you could refresh this or expand upon it and how you see margins evolving over the next couple of years?

Operator:

Next question comes from Chase Mulvehill with Bank of America.

Jeff Miller:

Well, I would just start with the underinvestment that we've seen for the last roughly eight years and really haven't caught up with that. And so if I just look broadly at kind of reserve replacement and availability, that portends a lot of years of recovery and we're in the early stages of that in a lot of ways. It takes time to get international projects up underway, a lot has to be renegotiated with different partners. And so I think that what we see building is the tender backlog and these are tender backlogs that go beyond a year, well beyond a year and that's consistent with sort of the slower recovery in spend that we typically see internationally. But I'm confident that that's basically what's required to recover and produce enough oil to meet demand. Beyond that, specifically dialog with customers, target set by countries, outlooks that nearly all international countries that produce oil have targets that are certainly above where they are today, less clarity about how they get there, which actually really does indicate more service intensity in terms of how they get there, which is more activity certainly for us.

Jeff Miller:

Look, I don't see that in our business today at any level of equipment. In fact, all equipment is called for. Clearly, we have a strong environmentally -- a low emissions fleet as well that's probably at the higher end of price deck. But even at the bottom end of the price deck, our equipment -- we've systematically replaced equipment over time. And so we're really pleased with the fleet that we have and even a Tier 2 dual fuel equipment is in demand, most certainly. But what I'm most impressed with actually is sort of the strong market pull that we see around our e-fleets. We've got strong customer demand and especially I'm seeing repeat customers, which is terrific, where it's not one but two to the same customer are all fully contracted. And I think that's just an indication of the strength of our technology, it's proven, proven technology. I believe it's a better mousetrap. And quite frankly, we have a very strong IP portfolio and I think that is going to continue to be important.

Roger Read:

Congratulations and well done on the quarter. I'd like to come back to some of your guidance and expectations for the international market. As we look at '23, you said kind of 15% but bias to the upside of that. I was just curious what what finished the year strong in '22, maybe better than expectations and sort of feeds into that expectation of, let's say, at least mid-teens to higher as we think about international in '23.

Roger Read:

And then on the supply chain side, not just yours, but the one you see for the industry. Any areas you think continue to have, let's just call it, headwinds broadly as we look at '23, something that would slow project development or acceleration in '23?

Operator:

Our next question comes from Scott Gruber from Citi.

Jeff Miller:

Look, no, we've got everything as spoken for in '23, whether replacement or not, I think over time, e-fleets, replace fleets, but they don't do it initially. And so there'll be some period of time where fleets take the place of legacy fleets, but that's not what we see in ‘23, we see everything busy in '23.

Jeff Miller:

Look, I think that I've always said, we've invested in technology and D&E in a meaningful way. We expect those margins to continue to move up. As you just mentioned, they have consistently moved up and that's on the back of technology and footprint and where we are, and I expect that trajectory to continue beyond where we are today or where we were last cycle. And so the outlook would be to continue to stack year-on-year quarters that are better than the last year. And so I have a lot of confidence in our outlook for D&E where they could go '23 and beyond.

Stephen Gengaro:

So I think two things for me, if you don't mind. Can you talk a little bit on the domestic pressure pumping side. Obviously, I know you guys are pretty much sold out for the year. What are you seeing in the market as far as new build supply demand fundamentals as we look three, four, five quarters out, because I know you guys are -- you got your finger on the pulse there, I'm just curious what your take is on the overall market growth or lack thereof in supply?

Stephen Gengaro:

And just as a follow-up, we've seen consolidation in the US pressure pumping space. And some of the larger competitors are doing things to kind of make themselves have a higher revenue content at the well site, right, different types of vertical integration or well site integration. Have you seen any change in the competitive landscape at the well site? I mean, obviously, now everybody is busy. But just in general, has there been any change in the way your competitors are competing with Halliburton?

Operator:

Thank you. I would now like to turn the conference back to management for closing remarks.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

Good day and thank you for standing by. Welcome to Halliburton’s Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, David Coleman, Senior Director of Investor Relations. Please go ahead.

Jeff Miller:

Thank you, David, and good morning, everyone. Our outlook today is strong, oil and gas supply remains tight for the foreseeable future, International market activity is accelerating and North America service capacity continues to further tighten. As a result, pricing is moving up in both markets. Halliburton’s strong third quarter results demonstrate the power of our strategy. Here are some highlights. Total company revenue increased 6% sequentially as both North America and International activity continue to expand. Operating income grew 18% compared to adjusted operating income from the second quarter with improved margin performance in both divisions. Our overall operating income margin was 16% representing 45% incremental margins over last quarter’s adjusted operating income. Our Completion and Production division revenue increased 8% over last quarter, driven by completions activity and pricing in North America and International markets. C&P delivered operating margin of 19% in the third quarter. The Drilling and Evaluation division revenue grew 3%. Operating margin of 15% increased 140 basis points sequentially and 380 basis points above the same period last year, demonstrating the earnings power and global competitiveness of our D&E business. North America revenue grew almost 9% sequentially as both drilling and completions activity improved throughout the third quarter. Pricing gains and activity increases across both divisions drove these results. International revenue grew 3% sequentially with improved activity in the Middle East and Latin America that more than offset the revenue decline related to exiting our Russia business. Importantly, during the third quarter, we generated similar incremental margins in both international and North America markets. Finally, we generated free cash flow of $543 million and retired $600 million of debt during the quarter. I am pleased with the third quarter results. I want to express my appreciation to the men and women of Halliburton whose hard work and dedication made these results possible. Your commitment to collaboration, safety and service quality everyday make Halliburton successful. Turning to our macro outlook. Oil and gas supply remains fundamentally tight due to multiple years of underinvestment. This tightness is apparent in historically low inventory levels, production levels well below expectations and temporary actions such as the largest ever SPR release. Against tight supply, demand for oil and gas is strong and we believe it will remain so. While broader market volatility is clear, what we see in our business is strong and growing demand for equipment and services. There is no immediate solution to balance the world’s demand for secure and reliable oil and gas against its limited supply. I believe that only multiple years of increased investment in existing and new sources of production will solve the short supply. The effective solution to short supply is conventional and unconventional, deepwater and shallow water, new and existing developments, and short and long cycle barrels, all of it. I expect progress towards increased supply will be measured in years, not months as behavior of both operators and service companies have changed. Operators remain disciplined. Their commitments to investor returns require a measured approach to growth and investment. Service companies follow the same discipline, delivering on their commitments to investor returns and taking a measured approach to growth and investment. What I think is underappreciated is how this results in more sustainable growth and returns over a longer period of time. Let’s turn now to Halliburton’s performance, starting with the International markets. Our third quarter performance demonstrates the strength of our strategy to deliver profitable International growth through improved pricing, selective contract wins and the competitiveness of our technology offerings. International revenue in the third quarter for the C&P and D&E divisions grew year-over-year from a percentage standpoint in the high teens and mid-20s, respectively, which outpaced International rig count growth and reflects our competitiveness in all markets. Our year-over-year growth and the margin expansion demonstrated by both divisions give me confidence in the earnings power of our International business. Looking forward, I see activity increasing around the world, from the smallest to the largest countries and producers. I expect the areas of strongest growth will be the Middle East, led by Saudi Arabia, but with meaningful activity increases in the UAE, Qatar, Iraq and Kuwait. Elsewhere, Brazil, Guyana and many others have also signaled a commitment to increased activity. Throughout these markets, I am pleased with the broad adoption of our new directional drilling platform such as iCruise and EarthStar. Importantly, these broad-based activity increases serve to tighten equipment availability and drive price increases in our International business. Shifting to North America, we had a fantastic quarter. Our solid performance demonstrates our strategy to maximize value in North America. We achieved this through improved pricing, partnering with high quality customers and differentiated technology. Our revenue grew 9% sequentially and is up 63% over the third quarter last year. Pricing continues to improve across all product lines and completions equipment remains extremely tight across the market. Interest in eFleets is strong and customers are pleased with the superior efficiencies, operational uptime and reduced carbon footprint of our market-leading solution. Looking into 2023, I see continued growth. The inbounds for calendar slots are stronger than I have ever seen at this point in the year. More importantly, I see increased demand for a limited set of equipment and an environment where technology and performance are increasingly valued, all perfectly set up for Halliburton to maximize value in North America. Market consolidation, competitors that answer to public investors, disciplined customers and supply chain constraints, all drive the services market that I expect to remain tight for the foreseeable future. Halliburton will continue to outperform in this market. Our best-in-class Zeus eFleets have pumped over 20,000 hours for customers. Our eFleet customers know that they have a field-proven technology, which carries the full weight of Halliburton’s expertise to build, run and optimize this next-generation equipment. Additionally, our SmartFleet intelligent fracturing system continues to gain traction and we expect an almost eight-fold increase in stages completed this year. SmartFleet gives customers unparalleled access to data about where and how their fractures permeate, the potential for frac hits on adjacent wells and the real-time data necessary to improve completion designs. In all markets, Halliburton’s strong financial performance demonstrates its strategy and action, profitable international growth, maximizing value in North America and improved asset velocity to deliver value for our shareholders today. These strategies equip us to outperform under any market conditions, but especially to maximize returns through this up cycle. Execution is at the heart of Halliburton’s identity. We collaborate and engineer solutions to maximize asset value for our customers. You have seen that in action in today’s results. You can hear how excited I am about Halliburton’s future all around the world. The structural demand for more oil and gas supply provides strong tailwinds for our business and Halliburton is ideally positioned to deliver improved profitability and increased returns for shareholders. Now I will turn the call over to Eric to provide more details on our third quarter financial results. Eric?

Jeff Miller:

Thanks, Eric. Let me summarize our discussion today. Halliburton’s third quarter financial performance shows our strategy in action, delivering value for our shareholders. Oil and gas supply remains tight, requiring multiple years of investment. Demand for Halliburton services is strong. We will continue to execute on our strategic priorities that drive free cash flow and returns for our shareholders. And now, let’s open it up for questions.

Dave Anderson:

Hi. Good morning, Jeff.

Dave Anderson:

So first question on U.S. land, so we often hear about budget exhaustion this time of year, but you actually are saying -- you are saying you are seeing stronger inbound than ever going to year end. I am curious as to how those inbounds have changed, are the inbounds more from public E&Ps versus privates? And I am also wondering, are these customers looking for term now, with such limited equipment available and does that get a premium?

Dave Anderson:

That makes sense. I locked in term right here. Shifting over to the Middle East, you talked about increased project management in the Middle East. I don’t know if it’s a little tricky to do, I was just curious if you could just think about all those projects collectively. Where are we on the overall kind of ramp-up, are you kind of halfway there, are you kind of -- do you -- are you in closer to fully ramped up? And I guess, secondarily, once you do get ramped up on this project management, is there another leg of growth out there in terms of more tenders or is it more likely to be follow-on potentially some upselling of these contracts. It’s been a while since we have seen an upmarket in project management in Middle East?

Dave Anderson:

Thanks, Jeff.

Operator:

Thank you. Our next question comes from the line of James West with Evercore ISI. Your line is now open.

Jeff Miller:

Good morning, James.

James West:

So, Jeff, I wanted to dig in a little more on the International business, obviously, this quarter had some mixed results just given Russia coming out. But Halliburton as a company as at least I understand it and certainly you can elaborate on this, but you have spent the last the better part of the last three decades really building out a superior International franchise and one that should be competitive with your major peers or your major competitor here. Is there any reason that we should think that you would underperform or that you would outperform over the next several years in the International arena, given the outlook is as strong as kind of you are alluding to and certainly what we see in the market. We start with the Middle East, if you want, but there’s also many other regions that are going to be showing really substantial growth. I am just curious kind of how Halliburton is set up for that?

James West:

Right.

James West:

Okay. Well, that’s a very strong statement. And perhaps to follow up on that, on the D&E side, which is an International bias, you are kind of hitting margin targets that we were anticipating for next year. So you are kind of already there. And do you think and as you see the outlook and I know you may not want to get bogged down in specific numbers, but how do you see that progression as we go through the end of this year and 2023?

James West:

Right.

James West:

Right. Got it. Okay. Thanks, Jeff.

Operator:

Thank you. Our next question comes from the line of Arun Jayaram with JPMorgan. Your line is open.

Jeff Miller:

Hi, Arun.

Jeff Miller:

Look, I feel good about that. I mean it’s all marching along as planned and we continue to grow. We are still in the very early innings of that International expansion, so call it, the second inning. So, but it’s doing exactly what we had hoped. We continue to grow the footprint in the Middle East with lift and with chemicals. Chemicals is -- we put our first full scale production lot through the plant this month. That’s an important first step and a lot of work to do. But again, the infrastructure is in place and we are getting access to market and making sales. The lift bottomline just a fantastic business in North America and it’s the same technology that we apply internationally and so those guys are just dead focused on profitable market entries and growth and we are seeing that Latin America and in the Middle East.

Eric Carre:

Right. So, thanks, Arun. So what we have said for the last couple of years is that, our priority number one was really to get our balance sheet in order. So with the $600 million that we have retired in Q3 that puts us at about $2.4 billion retired since 2020, $1.2 billion retired this year alone. So if you combine that with our improved business performance for all practical purposes, we are at our target and considering as well our positive outlook we see no reason for that to change. So really big picture we are starting to turn our attention now to returning more cash to shareholders. So we are working through scenarios. We are engaging our Board. So, more details to come.

Operator:

Thank you. Our next question comes from the line of Chase Mulvehill with Bank of America. Your line is now open.

Jeff Miller:

Look, I think, the key thing about this cycle is its duration and it’s the right kind of cycle from a duration standpoint that I think we grow into better margins as we continue forward. So I am not going to try to put a date or a time. But my expectation is the duration of the market, sort of the behavior that I described to both operators and service companies, which is absolutely rational in terms of returning cash to shareholders, which is what Eric just talked about. This is the kind of cycle where we are able to do that and I think setting up for margin improvement, the EBITDA strengthening, all of those are the things that create the free cash flow. And I think that historically, actually, I really haven’t seen the cycle set up where we have got short supply the way that we do and the sort of runway that I see in front of us and all of the right sort of motivation by the industry. I think energy is a fantastic industry and I think what you are going to see is the demonstration from the entire industry of what returning cash to shareholders and generating meaningful returns look like over a good cycle, long cycle.

Jeff Miller:

Well, from a CapEx standpoint, we have already described that we are in the 5% to 6% range of revenues on CapEx. So what we do is deploy capital to the best opportunities, which opportunity -- which international markets demonstrate important opportunity, so we would direct capital that way as opposed to others. But I think what’s important about the market as we are just seeing customer urgency return in the sense that quality matters equipment matters. Is it tight, yes, it’s tight. I don’t think there’s a lot of spare capacity anywhere in the world. If I go back to our strategic tenants, it’s profitable growth internationally and asset velocity. And I think what you see is that asset velocity being baked into just the way that we work is creating the ability to do a lot more with less than we ever have in the past. And that’s one of the key reasons we are confident in our capital spend levels is because of the type of equipment we are putting in the market, its ability to be moved around, work longer, repair faster, and when we do all of those things, it just makes us a much better effective business internationally.

Jeff Miller:

Yeah. Thanks.

Neil Mehta:

Yeah. Good morning, team. The first question was around North America. You mentioned that you continue to see revenue growth in North America and that there is increased demand for a limited set of equipment. Can you talk about what the moving pieces are there? What kind of equipment type -- types of equipment are we talking about and how do you think about adding frac capacity, is there a demand for it as you look out in the market into 2023?

Neil Mehta:

Yeah.

Neil Mehta:

Yeah. That’s great perspective. And then just some early thoughts on 2023 in terms of what you are hearing from customers in terms of activity and any early thoughts around what you expect spending increases to be both in the U.S. and internationally as a percentage, and how much do you think inflation will be as a component of that increase?

Neil Mehta:

Thank you, Jeff.

Operator:

Thank you. Our next question comes from the line of Scott Gruber with Citi. Your line is now open.

Jeff Miller:

Good morning, Scott.

Scott Gruber:

The smaller pumpers here domestically have discussed replacing about 10% of their fleet annually, generally with e-frac additions. As we think about Halliburton, is that a rough guide for you all, assuming returns stay positive or do you have a different framework? How do you think about that kind of multiyear replacement cycle?

Scott Gruber:

Got it. Okay. No. Very well guys. I appreciate the color. And then turning to -- back to the International markets, you had impressive growth internationally even without Russia this quarter, as you highlighted. We had a few inbounds though this morning trying to ascertain exactly what the International growth was year-on-year excluding Russia. I apologize if you mentioned that number earlier, I may have missed it, but are you able to share with us what that…

Scott Gruber:

… growth was?

Scott Gruber:

Was that inclusive of the -- of Russia or excluding Russia?

Eric Carre:

With Russia in H1 and without Russia in Q3.

Jeff Miller:

That I don’t know.

Jeff Miller:

But it would have been substantially -- it would have been more.

Jeff Miller:

All right. Thanks, Scott.

Stephen Gengaro:

Thanks. Good morning, gentlemen.

Stephen Gengaro:

Two things for me. One just from a North American perspective, how are the conversations with customers about price? I mean, obviously, pricing has been improving for a while now, is there a pushback yet? How do the conversations go as far as 2023 pricing for frac and how do you think that plays out as you go forward?

Stephen Gengaro:

Is it…

Stephen Gengaro:

And just as a follow-up, do you see -- is there a gap and how much in conversations the sort of cost of diesel relative to the lower cost of running eFleets play into either the gap in price or the conversations about pricing?

Stephen Gengaro:

Great. Okay. Thank you.

Operator:

Thank you. Our next question comes from the line of Roger Read with Wells Fargo. Your line is now open.

Jeff Miller:

It would be returning more not less in terms of, that’s part of how we improve margins on the overall portfolio and returns. But we have been really consistent about our strategy and maximizing value in North America growing profitably internationally and that is one of the key levers that we have to do both of those things. And so, yes, we have done both of those.

Jeff Miller:

Look, I think, that it’s -- clearly it’s -- I don’t know how to describe that is that at the margin. It’s probably at the margin, but it is going to grow as the market continues to get tighter. We are building, I have already described, our CapEx and so we will be adding. We have been able to grow with the CapEx levels that we have had. I’d say, meaningfully, over the last year and expect that we will continue to grow because of the way that we are building equipment. So it’s not we are turning everything down by any means. But I think it’s an important point that we are much more, I mean, the contracts that we pursue and win are accretive to what we are doing and if they are not, then they probably fall out of the list, just because we want to -- even the new capital that we would have, whether it’s drilling equipment or anything else that’s going to go towards things that are of higher value.

Jeff Miller:

Look, it will get fixed over time, but in most of these cases, there’s not a lot that can be done to accelerate their supply chain when it’s far reaching. Clearly, we plan ahead and we have been planning ahead for over a year. We have got great visibility. But that market will just be tight for spare parts and equipment.

Jeff Miller:

All right. Thank you.

Jeff Miller:

All right.

Jeff Miller:

Yeah. Thank you, Shannon, and thank you all for participating in today’s call. Just let me summarize with a few key points. Halliburton’s strong third quarter performance shows our strategy is delivering value for our shareholders. Oil and gas supply, shortness constraints and shortages I see today create strong and growing demand for Halliburton’s equipment and services in support of this multiyear upcycle. At Halliburton, we will continue to execute on our strategic priorities to drive free cash flow and we will support of this multiyear. Looking forward to speaking with you again next quarter. Please close out the call.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to Halliburton’s Second Quarter 2022 Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to David Coleman, Head of Investor Relations. Please go ahead, sir.

Jeff Miller:

Thank you, David, and good morning, everyone. This was an excellent quarter. Our financial performance shows that our strategy is working and driving value. Let's get right to the highlights. Total company revenue increased 18% sequentially as both North America and international activity continued to improve in unison. Adjusted operating income grew 35% with strong margin performance in both divisions. Our Completion and Production division revenue increased 24% driven by robust completions activity in North America and international markets. C&P delivered operating margin of 17% in the second quarter, the first time it reached this level since 2014. Our Drilling and Evaluation division revenue grew 12%. Operating margin of 13% was down sequentially as expected due to the seasonal drop-off in software sales but increased 270 basis points year-on-year. This gives us confidence in the strengthening margin profile of our D&E business. North America revenue grew 26% as both drilling and completions activity marched higher throughout the second quarter. Strong net pricing gains across all product service lines supported sequential margin expansion. International revenue grew 12% sequentially with activity accelerating in all international regions, particularly Latin America and the Middle East. Finally, we recorded a historic best operational performance as measured by nonproductive time for the first six months of this year. I am pleased with the strong performance Halliburton delivered in the first half of this year, and I thank all Halliburton employees for their hard work, contribution to these outstanding results and dedication to superior service quality. Before we discuss our execution in the international and North America markets, let me address recent market volatility. In the second quarter, central banks took actions and an attempt to control inflation, raising concerns about a potential economic slowdown. Despite this near-term volatility, I believe the oil and gas market fundamentals still strongly support a multiyear energy upcycle. From a demand perspective, oil and gas remains a critical component of long-term economic growth. Post pandemic economic expansion, energy security requirements and population growth will continue to drive demand. Today, oil and gas supply is tight, despite an environment muted by ongoing China lockdowns and jet fuel demand below historical norms. Meaningful supply solutions will take time, OPEC spare capacity is at historical lows, the strategic petroleum reserve release is unsustainable, and the risk to Russia supply remains high. On the industry side, despite high commodity prices, operators remain disciplined because of investor return requirements, public ESG commitments and regulatory pressure. In response, service companies invested for returns and did not overbuild. In short, this cycle has been nothing like prior cycles. This means, any economic slowdown will not solve the structural oil undersupply problem. At Halliburton, the steps we took to improve operating leverage, lower capital intensity and strengthen our balance sheet best equip us to outperform under any market conditions. Here's why we believe that. First, we used the pandemic to redesign the cost profile of our business. We structurally removed over $1 billion of costs, the most aggressive cost reductions in our history. This gives us strong and sustainable operating leverage that we see today in meaningful year-on-year margin expansion in both divisions. Second, we fundamentally lowered the capital intensity of our business and set our CapEx target at 5% to 6% of revenue compared to 10% to 11% in the prior upcycle. We advanced our technology so that new generations of equipment would have higher capital velocity. This lower capital profile is key to our strong free cash flow generation. Finally, we prioritize strengthening our balance sheet and retired $1.8 billion of debt since the beginning of 2020. This reduced our cash interest expense and put us within striking distance of our leverage targets. Now, let's turn to our second quarter performance and expectations for the rest of 2022. With energy security firmly in focus, the diversification of supply sources is the central theme in the international markets. Never has energy security been a bigger issue to governments and people all over the world. However, political agendas and years of underinvestment in many markets make it harder to address this critical requirement. As I look across the international markets, our customer spend remains on track to increase by mid-teens this year, with the Middle East and Latin America expected to grow the most on a full year basis. New project announcements across the world, including in the Eastern Mediterranean, Australia and West Africa, give us confidence in continued activity acceleration in 2023 and beyond. Longer term, we believe the international markets will experience multiple years of growth. Halliburton's international business is better prepared to benefit from the upcycle than ever before. We have a strong portfolio of well construction and completion product service lines. We greatly increased our drilling competitiveness. We are present in all the markets that matter and we have unique growth opportunities in the production space. Let me elaborate. The activity mix in this upcycle is different from prior cycles. Today, operators focus more on developing known resources and less on long-term exploration programs. This means drilling more wellbores. The products and services customers require for drilling more wellbores benefit Halliburton. For example, in one of the largest international offshore markets, over 60% of a typical well service cost goes to drilling fluids, cementing and completion hardware. This means more operators spend on services where Halliburton has a leading position. Baroid, our drilling and completion fluids business entered this cycle as the leading fluids provider globally. During the downturn, we brought the chemical supply chain closer to our international customers and localized our workforce. This improved our cost competitiveness and the margins. We introduced new advanced chemistries and now run fluid systems that make better wellbores and create value for our customers and Halliburton through higher margins and lower inventory requirements. Halliburton was founded as a cementing company over 100 years ago. And since then, we never stopped leading and innovating in cementing. Every well in the world, be it a mature producer in the Middle East or a deepwater wellbore in Brazil, must be cemented. The secret to our enduring success in cementing is our capacity and drive to innovate and develop new methods to design, deliver and validate sustainable well barriers. Our latest innovation is the Cognitive Automated Cementing Platform, which allows us to deliver cement jobs autonomously. With limited human direction and intervention, a standard offshore cementing operation typically requires over 300 commands. The Cognitive platform consolidates and automates this to only five mouse clicks by an onshore operator. We already completed over 70 cementing jobs using the system in the North Sea, delivering safer operations, improved service quality and cost efficiency. Well completion tools constitute a larger portion of well services spend internationally than in North America, and they are high tech and high value-add products and services. Halliburton is a global leader in completions technology, especially in advanced completions that include sand control solutions, multilateral wells and intelligent completions. With over 20 years of multilateral installation experience globally, Halliburton is the market leader in multilaterals, a key technical component in many development wells. They help operators increase reservoir drainage in mature fields, address limited subsea infrastructure and reduce environmental impact. Over the past few years, we've strengthened our completion tools product service line in Singapore, which is closer to our international customer base and supply chain sources. With our world-class manufacturing facilities, strong local technical support and continuous innovation, Halliburton completion tools position us to outperform in the international upcycle. Another key well construction service is directional drilling. Over the last five years, we made a concerted effort to improve our drilling technology competitiveness. Our strong D&E margin performance this year demonstrates that our investment is paying off and we expect it to continue as international drilling activity ramps up. Our iCruise intelligent drilling system delivers excellent results. It now constitutes about half of our rotary steerable fleet and has been a key contributor to year-over-year margin improvements, which reflects its higher asset velocity compared to prior generation tools. Last month, for a Middle East customer, Halliburton achieved a new world record, the longest well ever drilled at 50,000 feet measured depth. This extended reach well redefine what's possible with advanced drilling technology. In many regions, as customers face increasing operational challenges and urgency to increase production, I expect that the adoption of integrated contracts will continue to grow. Today, about 20% of our international revenue comes from integrated projects, and this percentage is considerably higher in some markets like Norway, Mexico and Iraq. Halliburton's strong project management capabilities and a proven track record, compress the learning curve and drive cost savings and efficiencies for both us and our customers. The future is without a doubt, more collaborative. Customers across the world increasingly call on Halliburton for collaboration and that perfectly fits with our value proposition to collaborate and engineer solutions to maximize asset value. Geographic presence is very important in the international markets, and today, we are present everywhere that matters, which is different from prior cycles. We expect to benefit from our established footprint, geographic presence and customer and supplier relationships as international markets grow. Finally, I want to highlight the international growth opportunity Halliburton has in artificial lift and specialty chemicals, which is new for this upcycle. This month, we completed our first year of operations on our electric submersible pump contract in Kuwait. We have already installed almost 200 ESPs, built an artificial lift service facility in country and delivered excellent performance for KOC. We also have successful installations in Oman and have ongoing ESP trials in Saudi Arabia. Upon completion of trials at the end of the year, we expect prequalification to participate in Saudi Aramco's future artificial lift tenders. Latin America is another successful market for our artificial lift business, where we operate in all significant land markets and just installed our 500th ESP in Ecuador. Our new chemical reaction plant in Saudi Arabia mixed the first batch of chemicals last month and is on track to meet its ramp-up goals. This year, we expect the plant to manufacture products for our production chemicals contract with a large IOC in Oman and chemicals for our drilling fluids, specialty chemicals and hydraulic fracturing product service lines. Today, Halliburton is a much stronger international competitor and we expect to benefit more from this multiyear upcycle than ever before. This aligns perfectly with our strategy to deliver profitable international growth. Turning to North America. This market remains strong, steadily growing and all of it sold out. Our strategic priority is to maximize value in North America by focusing on cash flow and returns, not market share. The second quarter saw another step-up in both US land rig activity and stages completed. With the first quarter sand supply interruptions resolved, frac activity steadily increased throughout the quarter. As we look at the second half of 2022, Halliburton remains sold out. As for the overall market, I believe it will be all but sold out for the second half of the year due to service company discipline, long lead times for new fleets and supply chain bottlenecks for consumables. We expect public companies will steadily execute on their drilling and completion programs. Private E&Ps capitalized on available rigs and equipment in the first half of the year and will likely maintain a measured level of activity growth for the rest of the year. We continue to believe that North America operator spending growth will eclipse 35% this year. Our customer conversations have already pivoted to 2023 plans well in advance of the typical time frame. These conversations make it clear that equipment capacity for 2023 is tight. Today, we see a services market in North America that is almost unrecognizable from prior cycles or even a handful of years ago. I believe that the returns focus we now see in the services market is not a temporary phenomenon. The largest more publicly traded pressure pumping companies now account for about two-thirds of the market. This means that investors force discipline on the majority of the industry today. In addition, industry consolidation, structural changes to customer behavior and the requirement to self-fund capital investments all drive capital discipline. In short, it's the result of rational economic behavior and I believe that it is here to stay. Halliburton is well prepared to compete in this new paradigm in North America. We have the largest technology budget in the North American services industry and our advanced technologies deliver what matters to operators

Jeff Miller:

Thanks, Eric. To summarize our discussion today, we are still in the early innings of a multiyear upcycle. The oil supply and demand fundamentals remain constructive for both international and North America markets. The steps we took to improve operating leverage, lower capital intensity and strengthen our balance sheet set Halliburton up to outperform under any market conditions. Internationally, Halliburton is a much stronger competitor, and we expect to benefit more from this multiyear upcycle than ever before. This aligns perfectly with our strategy to deliver profitable international growth. In North America, I expect Halliburton to uniquely maximize value in the strong, steadily growing and all but sold out market. We will continue to execute on our strategic priorities and remain committed to driving profitable growth, margin expansion, strong free cash flow and returns for our shareholders as this multiyear upcycle unfolds. And now let's open it up for questions.

James West:

Hey, good morning, Jeff. Good morning, Eric.

Eric Carre:

Good morning, James.

Jeff Miller:

James, yes, agree in terms of the outlook. In fact, what I see is a lot of duration in this cycle. I mean, obviously, it's been moving up, and I expect it continues to move up. But the reality is if operators can be busy, particularly international, they are. And the tightness around oil supply is not something that's resolved quickly after seven, eight years of underinvestment. And so while I'm excited about the inflection and the improvement in the upcycle that we see, I have to say I'm equally excited about the duration. This is multiples of years, I was a decade in the making. It's many years in the undoing in terms of producing. And so I think this is a fantastic time for operators and an even better time for Halliburton.

Jeff Miller:

Look, pricing is improving around the world. And it's a rational -- it's the allocation of assets and it's moving them to the highest returning opportunities. And that's not unique to Halliburton in terms of expectation of return. I mean, we clearly want to improve our returns and plan to do so. But that's part of this different cycle, different market dynamics in the sense that returns and return of cash matter to our shareholders. And the best way to do that is to not just improve utilization, but improved returns on every asset. And clearly, the approach we're taking and our whole strategy internationally is built around profitable growth, which is, I think, precisely what you saw this quarter and what you'll continue to see from Halliburton in the future.

Jeff Miller:

Thank you.

David Anderson:

Great. Thanks. Good morning, Jeff.

David Anderson:

Good morning. So nice increase in the North America top line this quarter, well above the rig count, wondering if you could put this into context for us in terms of the customer base that was sort of the incremental driver here? Was it the privates or the public, I guess, is sort of the core question. Along those same lines, I was just wondering, if you could talk about your customer mix and how you're thinking about it. On the one hand, with all the equipment shortages, I would think you could push pricing further with the private. But on the other hand, of course, you get the – the more visibility, the larger E&P program. So I was just wondering if you could maybe talk about that optimal customer mix today? And does a potential for any recession come into consideration in terms of that mix.

David Anderson:

Absolutely, I agree. And also I think also noteworthy how your margins are now back to 2014 levels. That's really impressive, I would say. A separate question, Jeff, on the Middle East, you highlighted a 14% increase in revenue this quarter a bunch of contracts are starting up. You mentioned project management that Kuwait ESP project is moving well. It sounds like there's more tenders to come. Question, are we already starting to see the ramp-up in the Middle East? Maybe you could just, kind of, give us your sense of what's going on in the ground in terms of mobilization and the pace of activity. I think you highlighted kind of service discipline over there in terms of pricing. So hopefully, that's looking pretty good. But maybe just tell us what's happening on the ground today? I know we've been waiting for this for a while.

David Anderson:

Good to hear. Thanks Jeff.

David Coleman:

Next question please.

Arun Jayaram:

Good morning Jeff.

Arun Jayaram:

Jeff, I was wondering if you could talk a little bit about how is contracting philosophy in North America this cycle. Is it consistent with typical cycles, but I want to get your thoughts on that. You've been essentially sold out for some time now, and we're just trying to gauge the velocity of pricing gains, which could manifest in the second half of this year versus 2023 when a lot of your customers are armed with new budgets?

Arun Jayaram:

Fair enough, Jeff. I wanted to talk a little bit about specialty chemicals and artificial lift. You've highlighted how this provides some unique growth opportunities for how the cycle -- I was wondering if you could maybe help us think about just at a high level, what are some revenue or growth opportunities for how -- from these two segments. Again, we're just trying to estimate what this could mean for your full cycle earnings power?