Q4 2020 Halliburton Co Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to Halliburton fourth quarter 2020 earnings call. Please.

Please be advised for today's conference is being recorded.

I would now like to hand, the conference on where to Abu Zeya head of Investor Relations. Please go ahead Sir.

Good morning, and welcome to the Halliburton and fourth quarter of 'twenty and 'twenty Conference call.

As a reminder, today's call is being webcast and a replay will be available on halliburton's website for seven days.

Joining me today are Jeff Miller, Chairman, President and CEO and Lance Loeffler CFO.

Some of our comments today 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 and halliburton's form 10-K for the year ended December 31, 2019 form 10-Q for the quarter ended September 32020, 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 that exclude the impact of impairments and other charges.

Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our fourth quarter earnings release and can also be found and the quarterly results and presentation section of our website.

After our prepared remarks, we ask that you. Please limit yourself to one question and one related follow up during the Q&A period in order to allow time for others, who may be in the queue now.

Now I'll turn the call over to Jeff.

Thank you Abu and good morning, everyone.

Let me start by looking back at the year that just ended.

<unk> 'twenty and 'twenty was a year like no. Other we faced a global pandemic record oil demand destruction, and and unprecedented downturn and the energy industry.

Despite these turbulent times Halliburton demonstrated resilience and performed consistently with our execution culture.

Before we get to our results I want to address our outstanding employees I. Thank you for your hard work and execution throughout the entire year.

You answered the call for safety collaboration and service quality and delivered for halliburton's customers and our shareholders.

Now I want to highlight a few of our 'twenty and 'twenty accomplishments we'd.

We delivered historic best and all of our key safety and service quality metrics for <unk>.

Carnival injury rate lost time injury rate.

Nickel incident rate environmental recordable rate and nonproductive time.

Each of these key metrics improved by over 20% and most did so for the second year in a row.

This was a result of our employees' continued commitment to safety and process execution. Despite the year's distractions.

Total company revenue of $14.4 billion outperformed the global rig count decline of 38% demonstrating the strength and diversity of our business.

Our swift and decisive cost actions and service delivery improvements and reset our earnings power and allowing us to deliver resilient margin performance.

Our completion and production Division finished the year with close to 16% operating margins exiting the year higher than where they started.

These results highlight the success of our structural cost reductions and process improvements.

Our drilling and evaluation Division had a strong full year margin performance. Despite the rig count declines experienced in all regions.

We delivered over $1.1 billion of free cash flow for the year, demonstrating our ability to generate strong free cash flow throughout different business environments.

We increased the breadth and depth of our digital offerings and delivered best in class performance across the spectrum of digital technologies.

And we successfully launched Halliburton labs, a collaborative environment, where entrepreneurs academics investors and industrial labs come together to advance cleaner affordable energy.

Now, let me share a few points about our fourth quarter performance.

We finished the quarter with total company revenue of $3.2 billion, and 9% sequential increase and adjusted operating income of 300, and and $50 million and increase of 27% sequentially.

This marks the first quarterly revenue increase since the activity declines began last March.

Our completion and production division revenue increased 15% sequentially, while operating income improved 33%.

Resulting in an operating margin improvement of 2% over the prior quarter.

Our drilling and evaluation division revenue and operating income grew two and 11% respectively.

Higher rig activity and the western hemisphere was offset by rig count declines and the eastern hemisphere.

International revenue remained flat sequentially active.

Activity in Latin America improved for the second quarter and a row.

Activity declines continued and other regions, but at a slower pace compared to the prior quarters.

And lastly, our North America revenue increased 26% sequentially, driven primarily by increases in both drilling and completions activity in U S land.

Our overall strong performance was a direct result of our focus on the key strategic priorities that define halliburton's path now and into the future.

We are focused on profitable growth and our strong international franchise.

And we are driving strategic changes and North America, and building, a leaner and more profitable business.

We're accelerating the deployment and integration of digital technologies, both internally and with our customers.

We're driving capital efficiency by advancing our technologies and making strategic choices debt lower our capex profile.

And we earn active participant and advancing a sustainable energy future.

As we start the new year, we believe that the worst is behind us and look to the future with optimism.

Oil prices are back to pre pandemic levels, driven by global vaccine distribution and on bolting demand recovery, OPEC, plus discipline and the declining production base.

However, some caution is appropriate and due to the surge in COVID-19 infections globally and the expected gradual return of spare production capacity.

Our five strategic priorities, we will continue to drive Halliburton and success as markets around the world stabilize and start to grow.

We believe that aligning our actions with these priorities will boost our returns and free cash flow generation, both today and as the recovery unfolds.

We set these priorities according to our long term view of the market.

As oil demand recovers, we expect to see favorable market dynamics and the beginning of a multi year energy up cycle.

However, we believe this recovery will look different than prior cycles.

International short cycle producers will have an opportunity to gain share.

North American E&ps will increase spending from current levels, but we'll take a more disciplined approach to growing production and the future.

We believe that the overall cost and environmental impact of producing oil and gas will continue to decline due to innovation and technology adoption as a result oil and gas will remain a critical and significant component of the energy mix.

I expect that our gains achieved in 'twenty and 'twenty, including service delivery improvements structural cost reductions and capital efficiency are firmly in place and sustainable health.

Halliburton is uniquely positioned in all markets and is prepared to deliver on both our customer expectations and our shareholder objectives.

Our strong international business outperformed the market.

Our full year international revenue declined 17%, while rig counts and customer spending were down more than 20% on.

All regions, except Latin America declined and the fourth quarter, but at a slower pace.

And the first quarter, we expect international activity to be impacted by typical weather related seasonality and the absence of year and product sales Act.

Activity should bottom during the first quarter and improve as the year unfolds.

For the full year, we expect activity recovered to vary widely across regions.

Latin America will continue its upward momentum off of a very low bottom both onshore and offshore.

Asia Pacific is also showing signs of activity improvement.

We believe parts of Europe, and West Africa will remain slow, especially in the deepwater areas.

As for the Middle East and Russia, We believe they will manage activity based on expectations of the economic and demand recovery.

While the pace of recovery depends on the trajectory of demand improvement.

We believe the second half of this year could see a low double digit increase and international activity year on year.

Halliburton is well positioned to benefit from this increase.

Let me be clear our target is profitable growth and.

Against a tough activity backdrop and 'twenty 'twenty.

We remained focused on increasing profitability and our actions resulted in overall international margin improvement.

In 'twenty and 'twenty, one we expect that several factors will continue to drive halliburton's profitable international growth.

Halliburton will benefit from our improved position and the international markets as cycle.

We're stronger technically geographically and organizationally.

We have exposure to mature fields completions and interventions work a deck of resilient integrated contracts around the world leveraged unconventional developments and Latin America, and the middle East and a leading position and key active offshore areas.

While the international sales cycle tends to be longer.

And we now have line of sight to activity increases and the coming quarters.

Tender activity has picked up recently led by the N O sees and the Middle East and Latin America, and new opportunities are emerging with operators and other regions.

Our customers and also pulled forward mobilization plans for various contracts awarded to Halliburton that were put on hold due to the pandemic.

Our new drilling technologies are penetrating the market and gaining customer confidence for.

For example, we exited the year with a threefold increase and our earthstar deep Reds. This devotee sensor revenue as.

As activity recovers, our technology provides us with a tremendous opportunity to profitably grow revenue.

We see significant growth potential and the continued international expansion of our production businesses, especially.

Especially in mature fields around the world.

For example, the international artificial lift market tends to be more resilient and is longer cycle.

Once and operator puts its field on a specific form of lift it typically stays on it for many years.

We're currently mobilizing for our first multi year electric submersible pump contract and the middle East and are excited about the opportunities artificial lift opens for us and the region.

The construction of our specialty chemicals plant in Saudi Arabia continues to progress towards final completion.

When it is complete Halliburton will have a differentiated value chain in the region that maximizes local content.

Livers customized solutions more quickly and shortens customer lead times.

And I'm excited about these two new additions to our international portfolio that provide us with unique growth opportunities.

Finally.

Adoption of Halliburton digital solutions helps our customers to reduce cost per barrel improved project economics and increase efficiencies.

Our Halliburton and 4.0 digital offerings, and subsurface well construction and reservoir and production create differentiation and margin growth opportunities for Halliburton.

We were pleased that in 'twenty and 'twenty one several international oil companies are deploying decisions based 365 cloud applications to streamline and automate their well construction activities.

I believe that digital and other technology advances geographic expansion of our products and services.

Along with continued discipline and cost management and capital efficiency should allow halliburton to continue delivering profitable returns driven growth in the international markets.

Turning to North America.

The strategic actions, we took last year reset halliburton's earnings power and this critical but structurally smaller market.

We are the leader in North America, and the only integrated oilfield services companies still active and the hydraulic fracturing market.

And the fourth quarter, our North America business took advantage of the recovery and completions and drilling activity and delivered continued margin improvement even without improved pricing.

Completion stage counts increased and the oil basins, but declined modestly and the gas plays.

While the U S land rig count recovered from its August 'twenty and 'twenty low of 230 rigs. It is still 60% below the pre pandemic levels per.

Private and small operators added the most rigs while large e&ps and majors moved more slowly.

We expect completions activity in North America to continue improving and the first half of 'twenty 'twenty one and.

As commodity prices remain supportive and customers complete their backlog of docs.

Customer consolidation will likely continue and we expect most operators will remain committed to a disciplined capital program.

For the full year provided that the impact of the pandemic moderates economic activity continues to increase and.

And the oil price remains solid.

And I am optimistic that our customers will sustain activity and order to hold their production flat to 'twenty and 'twenty exit levels with completion spanned outpacing drilling.

I'm excited about Halliburton, future and North America, and here's why.

We completed the most aggressive set of structural cost reductions and our history, giving us meaningful operating leverage and a recovering market. We also made significant changes to our processes that drive higher contribution margin. For example, how we perform equipment maintenance and provide engineering support.

We believe the benefits of these changes will have a meaningful impact on our margins as activity picks up.

The hydraulic fracturing market structure continues to improve.

Utilization of our active equipment is higher than it was at the beginning of last year.

The market has continued to rationalize and consolidate.

We are seeing competitors, either cannibalize idle equipment for parts or use it to beef up working fleets.

Thus increasing average horsepower per fleet.

This will make equipment reactivation to meet growing demand a lot harder for capital constrained companies and should only accelerate supply and demand balancing.

As activity starts to increase.

Halliburton has a unique competitive advantage and sufficient capacity to respond without adding incremental capital.

Our in house engineering capabilities to refurbish maintain and continuously improve our fracturing and perforating equipment minimize the cost and time to deliver the necessary equipment to our customers and take advantage of the market recovery.

We are also well positioned to profitably grow and our competitive non hydraulic fracturing businesses in North America.

For example, in 'twenty and 'twenty, our artificial lift business developed and implemented new digital capabilities increased remote operations jobs, and solidified and strong market position in North America.

We also expect our well construction and technology investments to best position Halliburton to outperform as drilling rigs return.

Using the Halliburton and 4.0 digital framework, we continue to collaborate and engineer solutions that maximize our customers asset value.

Last quarter, we launched our smart fleet intelligent fracturing system and successfully completed a customer engagement and west Texas.

Smart fleet is an industry first for intelligent automation and manages and execute life treatment decisions to optimize subsurface fracture outcomes.

By using smart fleet, the operator was able to consistently visualize and measure fracture propagation.

And control fracture placement through automation.

Importantly, the system provided a level of subsurface control that was previously not possible and enabled the customer to actively drive their completion outcomes and real time.

We are building on this success with multiple customer commitments across different basins.

I believe this is the biggest step board and fracturing technology and a long time.

Let me give you a few more examples of how we are accelerating halliburton and 4.0 digital adoption.

And the North Sea, we successfully delivered the first fully automated cement job for the offshore cementing unit executed the work without human intervention.

This is an important milestone and reaching the vision of fully autonomous offshore well construction that has significant implications for efficiency safety and operating costs.

In 'twenty and 'twenty, we more than tripled the number of decisions based 365 users on the eye energy cloud platform.

Our customers also increased adoption of the decision space 365 asset simulator.

Operators and Europe, Latin America, and Asia ran over 3000 reservoir simulation scenarios on the eye energy cloud with speeds of up to seven times faster than with conventional on premise simulators.

Finally, we are teaming up with Accenture to drive the digital transformation of our supply chain.

This will result, and process efficiencies across large volumes of transactional activities lower our overall cost and free up resources to drive strategic decision, making and support of our operational requirements.

Next I want to discuss capital efficiency are.

A key enabler of our other strategic priorities.

Leveraging new materials and design approaches as well as digital innovation.

Been able to significantly reduce capex requirements and extend the life of our equipment.

We're continuing our I cruise drilling system deployment and are reaping the benefits of a reduced capex profile and higher asset velocity.

Technology advancements and multiple product service lines and both divisions are allowing us to improve design and service configuration to save time and money both for our customers and Halliburton.

Finally I.

I would like to highlight several important actions, we took and alignment with our strategic priority to participate and advancing a sustainable energy future.

We are working to reduce the carbon footprint and environmental impact of our own operations and are committed to setting targets through the science based targets initiative to reduce our greenhouse gas emissions.

With this commitment Halliburton joins over a thousand global companies, taking science based climate action.

And this is important and our journey to align with the latest climate science and contribute to sustainable energy advancement.

We are also collaborating with our customers to produce oil and gas more efficiently while reducing their emissions.

We are currently performing the first electric grid powered fracturing operation for Cimarex energy and the Permian Basin.

With over 300 stages on multiple wells already completed Halliburton electric powered equipment has allowed the customer to achieve pump rates that were 30% to 40% higher than conventional pumps by utilizing the maximum grid power potential.

Grid powered electric spreads require substantially less capital, a smaller footprint and our more efficient compared to turbine power.

When demand for emission reduction solutions translates to better pricing I expect we will replace within our planned capital budget some of our conventional fracturing capacity with electric over the course of our normal equipment replacement cycle.

Halliburton is starting the new year with a clear sense of purpose.

We believe that our strategic priorities are the right ones and our margins and the fourth quarter demonstrated that.

We're confident that the actions we have taken are sustainable and we are well positioned both internationally and in North America for the unfolding market recovery.

I'll now turn the call over to Lance to provide more details on our financial results Lance. Thank you Jeff.

Let's begin this morning, with an overview of our fourth quarter results compared to the third quarter of 'twenty and 'twenty.

Total company revenue for the quarter was $3.2 billion and increase of 9% and adjusted.

Operating income was $350 million and increase of 27%.

During the fourth quarter, we recognized approximately $450 million of pretax impairments and other charges primarily related to the fair value adjustment of our real estate assets in North America.

As part of our 2020 structural cost reduction initiative, we reduced the amount of real estate required to run our business.

And the second quarter, we decreased our real estate use and North America by roughly 50% by closing selling consolidating and reducing the size of many facilities.

Subsequently, we conducted a detailed analysis on how we own lease and operate our remaining real estate footprint.

As a result, we concluded that a structured transaction is likely to be advantageous and managing the majority of our north American real estate, which led to the fair value adjustment I just discussed.

This initiative is consistent with our strategic priority to achieve capital efficiency, and our business, while allowing us to retain flexibility and drive future operating benefits.

Let me take a moment to discuss our divisional results and more detail.

And our completion and production division revenue increased $236 million or 15%, while operating income increased $70 million and increase of 33%.

These increases were driven by higher activity and multiple product service lines in North America.

Increased stimulation activity in Argentina, and Kuwait higher.

Higher completion tool sales and Africa, Southeast Asia, and Norway, and increased well intervention services internationally.

These increases were partially offset by lower pressure pumping activity, and Saudi Arabia, and lower completion tool sales and Eurasia and Australia.

Our drilling and evaluation revenue increased $26 million or 2%, while operating income grew by $12 million for an 11% increase.

These increases were primarily due to higher drilling related services, and North America and Brazil.

Increased wireline activity in North America, and Latin America, as well as higher fluid sales in Asia Pacific and Guiana, and increased software sales across all regions.

Partially offsetting these increases were lower drilling related services and project management activity in Europe Africa C. I S. The middle East and Mexico, as well as reduced wireline activity and Asia Pacific and Saudi Arabia.

Moving on to our geographical results and North America revenue increased $254 million or 26% increase.

These results were driven by higher activity and stimulation and artificial lift and U S land as well as higher well construction and wireline services activity and year and completion tools and software sales.

Latin America revenue grew $46 million or 12%, resulting primarily from increased pressure pumping and wireline activity in Argentina and.

And activity increases and multiple product service lines, and Colombia, and Ecuador, as well as higher fluid sales and Guyana and drilling services and Brazil.

These increases were partially offset by reduced activity across multiple product service lines and Mexico.

Turning to Europe Africa C. I S revenue was modestly down by $7 million or a decrease of 1%, resulting primarily from reduced drilling related services and completion tool sales and Eurasia.

Coupled with lower drilling related activity and Norway.

These results were partially offset by higher completion tool sales and Africa, Norway, and Continental Europe, as well as increased stimulation and well intervention services and Algeria and Continental Europe.

Middle East Asia revenue declined $31 million or 3% largely attributed to lower activity and multiple product service lines, and Saudi Arabia reduced drilling activity and the United Arab Emirates, and decrease project management activity and India.

These decreases were partially offset by higher drilling related services, and China, Australia, and Malaysia, Inc.

Increased stimulation activity in Kuwait and higher software sales across the region.

In the fourth quarter, our corporate and other expense totaled $49 million and we expect it to be approximately the same and the first quarter of 2021.

Net interest expense for the quarter was $125 million and should remain essentially flat in the first quarter.

Our effective tax rate for the fourth quarter was approximately 19%.

Based on the market environment, and our expected geographic earnings mix, we expect our 2021 first quarter effective tax rate to be approximately 25%.

We generated approximately $638 million of cash from operations during the fourth quarter and delivered over $1.1 billion of free cash flow for the full year.

As a result, we ended the year with approximately $2.6 billion and cash.

We will continue to prioritize reducing leverage and the near term and intend to pay down $685 million of debt coming due this year with cash on hand.

Capital expenditures during the quarter were $218 million with our 2020 full year capex totaling approximately $730 million.

And 2021, we intend to keep our capital expenditures relatively flat at $750 million.

We believe that with this level of spend we will be well equipped to take advantage of the unfolding recovery.

Finally, let me provide you with some comments on how we see the first quarter playing out.

As is typical our results for the first quarter of 2021 will be subject to weather related seasonality and the roll off of year and product sales.

Which primarily impact our international and Gulf of Mexico businesses.

While we anticipate a slower than normal start to the year and some international regions.

We also expect activity momentum in North America to continue.

And with completions activity outpacing drilling activity.

As such and our completion and production Division, we expect revenue to increase 3% to 5% sequentially and operating margins to decline 150 to 200 basis points largely due to a different business mix.

And our drilling and evaluation division, we anticipate a low single digit revenue increase sequentially with operating margins expected to increase by 50 to 75 basis points.

I'll now turn the call back over to Jeff Jeff.

Lance.

Summer Halliburton is focused on executing our key strategic priorities to deliver industry, leading returns and solid free cash flow for our shareholders.

Our strong international business is expected to continue its profitable growth and market outperformance as the international activity ramps up throughout the year.

And the critical North American market, our business is recovering and demonstrating margin improvement.

Digital is gaining traction growing our revenue and helping us and our customers increase operational efficiency and reduce costs.

Our capital efficiency enabled by technology and service delivery improvements is expected to contribute to solid free cash flow generation.

And our commitment to a sustainable energy future, we will ensure we play a role and advancing cleaner and more affordable energy solutions.

I am optimistic about the future.

While the 'twenty and 'twenty downturn was deeper and more widespread than anything we've seen before I'm encouraged by the changes we implemented to solidify halliburton's role and the unfolding economic recovery.

For oil and gas remains vital.

Strong execution on our strategic priorities will allow halliburton to continue to power into and when this recovery.

And now let's open it up for questions.

Ladies and gentlemen, and if you'd like to ask a question at this time. Please press the star and the number one key on your Touchtone telephone.

And withdraw your question press the pound key.

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

Hey, good morning, Jeff Lance a booth.

Good morning.

And well done and North America, and reinventing yourself, there and created a much more valuable asset and while it's a structured lower market for smaller and more goods.

You've created on.

A nice cash flow machine there.

The question on my mind, and you gave some color around this Jeff, but I wanted to dig in a little further is the outlook for full year 'twenty one.

With North America, I know you've mentioned you flow.

But the momentum is still so good but I guess first is there some peak that we're going to see here some stabilization of activity as the Companys remained low capital disciplined and get back to kind of a maintenance level and then on the international side It sounds like.

And you don't call it a bottom and wanted to get some pickup and two for you but the.

And the magnitude of the pick up and the second half.

What's your confidence level on that day.

Yeah. Thanks, James Let me start with North America, and and and start with I am more optimistic.

Today, then I certainly was 90 days ago and I.

Alright.

In 'twenty and 'twenty, one will feel better than the second half of 'twenty and 'twenty annualize that.

And what's important is we see momentum coming into the year.

And and it looks steady for the remainder and.

And that's.

Predicated on customers I think will be.

Certainly certainly rational and <unk>.

Capital discipline, and I think Theres also pressured on hold production flat in 2021, which creates available for as we look at the full year.

Okay.

From an international perspective.

Yes.

I feel confident around the international recovery and I think in terms of magnitude and the second half of 'twenty 'twenty one.

We believe for I believe will be up.

The low double digits. So that's.

Fairly solid and that's based on the tender pipeline that we're saying.

And the types of barrels that are produced shorter cycle I think we will lend themselves to that type of uptick.

And maybe one last word on the international outlook I mean, I think the.

Yes.

'twenty one is a bit of a transition year on May 2020 was worst in our history and we view 2022 is when we see.

Global rebalancing of supply and demand, which creates the sort of.

Underpinning of a multiyear up cycle and so that we see Q1 and.

As a bottom and then steadily building from there.

That's the kind of momentum that we really like to see going into that.

Supply and demand sort of coming into balance.

Okay, Okay, and then the tendering process internationally that's occurring.

These chunky projects are big ones or is it more smaller or is it ramping of projects and.

And that had maybe ramped down and there is ramping back up what's what's the kind of the nature of that those tenders for.

We're seeing some tender some big ones also think some extensions of existing work. So it's a bit of a mixed bag at this point.

And with visibility, we have or not.

Not all chunky again I think the extensions are important also.

And to create sort of that steady momentum that we're talking about.

Alright, okay. Thanks, Jeff.

And James.

Our next question comes from Angie Sedita with Goldman Sachs. Your line is now open.

Thanks, Good morning, guys.

Good morning, and good morning, Eddie.

Morning, So Lance maybe we can start with you and flush out a little bit more commentary around the margin outlook for 'twenty, one for policy and <unk>, maybe you could start with the 150 to 200 basis point decline on mix for Q1 and flush that out for us on the thoughts about the full year and then Dave.

Eight 2% and Q4, you said up slightly in Q1 and can you talk about the margin outlook for the full year and the potential for return for double digit margin.

Sure sure Angie look I think it's simply.

As it relates to the guide that we gave it's simply a business mix for CMP. So we've got completion tool sales that are falling off and.

And are being replaced that revenue is being replaced by and improving North America market activity, but not at the same level of profitability.

But look we're encouraged about some of the backlog that we see building and our completion tool business and I think that also gives us the confidence.

And that Jeff just outlined in terms of the back half for the year, particularly on the international markets.

As you think about CMP margin progression and <unk> and 'twenty 'twenty, one and I'd.

I would remind you and others on the call that we're starting from a much higher point in 2021, and then we did even in 'twenty and 'twenty before the impact of the pandemic.

And that's on a much lower activity level.

On a full year basis, I would say Angie that our expectations.

Is it we still drive mid teens margins for our CMP Division.

And look if we are able to get some pricing momentum it.

It could go higher than that.

But we're happy with what we've done, particularly creating the operating leverage and the business.

And Jeff has mentioned several times and it's sustainable and I think it fundamentally.

Drives higher Incrementals at least that's what the management team here is focused on for this next up cycle.

On D and E margins.

Again, I think we are starting 2021 higher sequentially, which is typically not the case for our business.

As we go through some of the seasonality issues that we've mentioned and.

And software sales falling off so I'm encouraged to see the momentum and margin progression across the end of the year and into the into the beginning of 2021.

And that's coming off again, our largest rig drop and history.

For our business and our industry.

Our expectations is to get to double digit margins by the end of the year.

And of the year of 2021, and I think that we're ready to do that through capitalizing on obviously, a recovering market that Jeff talked about and the back half for the year, but also on the technology and digital investments that we've made into the business throughout the course of 2020 and reaping the benefits in 2021.

And I think the overall point, particularly for our D and E business as you think about the international markets is a real focus on profitable growth.

Yep Fair, Collin and that's great color and Lance very much I appreciate it so maybe one more separate follow up on.

Equally maybe Jeff you could talk about the technology and what you have and how it differs from the pier as the contract and you have what Cimarex and then thoughts around additional construction and credit electric fleets become a larger part of the operations over time.

Yeah. Thanks, Angie look I think that was it's and elegant and differentiated.

Illusion, but clearly a premium solution.

We've been working on the electric technology for a number of years.

And I have always described some of the challenges around electric also being the cost and the upfront capital associated with it.

The grid solution and actually eliminate the requirement for turbines, which have come with a range of.

Either operating problems or emissions and so and it's important and give a shout out.

To the semi advantage of a team here because.

A lot of innovation.

And collaboration together in order to bring together a very efficient solution.

And also one with the absolute lowest emissions I mean, because that's tapped into the grid and.

And consider them being sort of a variety of different energy sources.

So the customer commitment was very important.

I think customer interest will be high.

But it's also over and over time, but it's also going to require.

On pricing and and different types of contract terms and.

I view this though as part of our normal reinvestment cycle clearly there is interest but.

We have a planned reinvestment cycle, that's inside of our capital budget.

And our outlook on capital efficiency, and certainly see electric having a place on that.

But thats, where it will set.

Right, great. Thanks, I'll turn it over.

Thank you.

Our next question comes from Scott Gruber with Citigroup. Your line is now open.

And yes, good morning.

And Scott.

So Jeff just staying on the debt same line of questioning you know the demand for emission reduction solutions and Frac appears pretty robust. These days with crude climbing above 50 do you think customers are we're going to be willing to pay up this year to begin a more material expansion is for these solutions.

Well, we'll have to see like I said, we've seen and I haven't seen it necessarily at this point.

But I think that it's part of and evolution by that I mean.

Emissions are part of the cost of operating today and in my prepared remarks, I indicated that I thought technology was lowered.

Operating cost and also emissions and I think doing it that way is going to be important and.

Beyond that for Halliburton perspective, we think about nutrition labels and effect, which helped us work with our customers to lower the emissions and not just for us but in the services that we provide.

We can make choice and drive R&D towards what we think for being a lower emissions and sort of footprint on location.

Got you and then Lance just coming back to see impede margins.

Big question on on Halliburton. These days is just how.

On CMP margins trend here, given the recovery domestically, but that's coming in at a lower margin profile than international or.

And you go to provide just a bit more color on.

On the Incrementals that you are seeing on the domestic side as the CMP and youre not asking for the.

The absolute level, but just in terms of the rate of change as activity comes back here are you are you seeing incremental say and <unk> that.

Approached the segment average and.

Types of incremental sustainable.

And the first half for 'twenty, one I think look incrementals will start off naturally slower when you're just working on and activity ramp.

Clearly theres a lot more punched incrementals when you start to get pricing as well.

Not there yet as you've heard us say on the pricing side, but I think our incrementals have been very healthy as it relates to just the activity improvement in North America and again it goes back to the things that we were doing around the structural cost initiatives to get the cost structure right and this market and to watch that business improve.

On activity alone has been has been good to see.

Got you I appreciate it thank you.

Yes.

Our next question comes from Sean Meacham with Jpmorgan. Your line is now open.

Thanks, Hey, good morning.

Alright and Sean.

So you hit your $1 billion of free cash flow bogie for 2020 and I'm. Just curious how you think 'twenty 'twenty one current full so you've got the moving parts of <unk>.

Improving cash from operations as you go through the year, but also working capital needs shift as revenue is going to improve sequentially capex, you're expecting flat year on year.

How do we think about that.

Sending that mark for 'twenty, one in terms of what you all can achieve from a free cash flow perspective.

Michelle and let me, let me take the first part of that because.

Maximizing free cash flow is a priority of mine and the strategic priorities that ive laid out.

And are designed to deliver and maximize free cash flow, but as you say I think the profile may look different this year Lance <unk>.

Sure sure.

Youre right Youre right Sean.

The free cash flow profile for 2021 versus 2020 and will be much more from an operating profit perspective right. So the full year of cost cut benefits will be rolling through 2021 will also have the increased activity that you've heard us reference so far on the call.

Yes, Youre right capital discipline, and our philosophy around that remains in place.

But as the business begins to grow working capital will require investment right as activity picks up and so think about it outside of some of the noise. That's created from working capital movements. So excluding working capital for a second I would expect free cash flow to more than double.

In 2021.

That's helpful.

Very helpful. Thank you for that.

And then.

On international markets.

Talked about shorter cycle may be taking back some share and that makes sense.

And he noticed that tendering activity is picking up.

Could you just talk about expectations for bidding behavior between you and your competitors.

How that May compare contrast, what we saw on the most recent cycle.

What should give investors confidence that.

Tendering rounds may look different and what they did and the most recent.

Most recent round, we saw let's say prior to the pandemic.

Yes, Sean.

And I'm going to comment on.

The strategic and the competitive issues that you brought on about what I can speak from our perspective is our focus is on profitable growth.

And.

Profitable growth that maximizes free cash flow and drives returns and I would say that that's been.

Something that is important and we were making progress on that and the first quarter of 2020.

In terms of improving margins and cash flow and returns and then we took a COVID-19 pause internationally now I don't think.

Net dynamics have not changed in terms of available equipment for the international markets during the Covid period of time so.

With activity and our focus on profitable growth I am encouraged by what I see clear.

Clearly.

It's always competitive certainly it's always competitive but that focus on them.

Profitable growth is front and center with me.

Understood. Thanks, very much for that.

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

Hey, good morning, everyone.

So I wanted to come back to the conversation around kind of E&P spending and then kind of your outlook for 'twenty and 'twenty one.

Don't know if you could maybe just take a minute and talk to what your expectations are for North America E&P spending this year and then also on the international side I know, you said kind of activity up low low double digits and the back half of this year.

And for international but I don't know if that means that we can actually kind of get more flattish spending this year by e&ps or is that still going to be down.

Well look from an international standpoint, and I think that's a fairly tight range around around flat.

But I also think what's more important is the improvement that we're seeing and to what we believe is.

Supply and demand balancing and 2022.

And that's the right kind of trajectory to have going into that and so if we've got.

Double digit growth and the <unk>.

Second half of the year, we've called the bottom and the first quarter of the year.

And just to kind of work through that and like I said I believe that the tighter range.

Around flat.

But I think that's going to be.

It's going to be the path to solid improvement and I'm pretty optimistic about how all of that plays out.

And in North America.

And again I think Q1 last year creates a lot of noise and that comparison.

But Dave but.

And important thing is I do believe customers will be.

And capital discipline.

But we've got a lot of growth to go just to get back to where we were.

And pre pandemic when the first quarter of 'twenty, and so I think that and.

And we saw production come off pretty hard in 2020.

So just to keep things flat and 2021 from a production perspective.

Wires.

On a.

A reasonable amount of activity and actually more activity than we even seen a day.

Just on kind of are.

[noise] calculation and outlook, which gives me good confidence that while we've got good momentum when the first quarter and.

And we've got pretty good visibility for the year, So I think debt.

Our outlook debt.

That momentum and it builds in the first quarter, but it doesn't fall off at the pace that it has and the past certainly and I think that's just because the drivers will be different and I think capital discipline and flat production co exist.

And the market and that's what gives me confidence.

Okay.

One quick follow up.

If we think about international pricing.

We've heard some anecdotes from some people about so competitive pricing on some larger projects out there.

But we don't we don't see all the data points. So I don't know if you could maybe just take a second and just kind of talk about what youre seeing out there on the international price inside.

Well, what I'd say as I said, its always competitive on big projects will see different behavior in different times.

On the under the most important thing is I think we're going into a multi year cycle internationally.

And and building profitable growth is what will be most important and certainly most important to halliburton and I say it that way because.

And the equipment availability hasn't changed certainly we and capital efficiency is one of our strategic priorities, which also means we want to put it to work and the places where it's good and make the best returns and that's not going to be everywhere, and that's going to be and the best returning opportunities.

Think there's enough growth there and again, it's this multi year cycle, it's the balancing and 'twenty two and the progression through 'twenty one.

Gives me confidence and certainly taking that approach.

Okay, perfect I'll turn it back over thanks, Jeff.

Thank you.

Our next question comes from the line of Kurt <unk> with RBC capital markets. Your line is now open.

Hey, good morning, everybody good morning, Kurt Kurt.

For that thanks for that great Kcl, and really appreciate it and always good to start the year on a positive tone and positive note.

Especially after what we've been through right over the last few years. So it's good good to hear.

Okay.

And to follow up with you and the context right on the <unk>.

National front, and that's been a point of focus.

On your messaging.

And you kind of gave the dynamics for the second half of the year, but when you talk about short cycle.

And opportunity set and short cycle projects.

And what regions and areas would that be.

Here too.

Yes, Kurt I mean, I think that and you.

You look around the world that where are there either intervention and opportunities are.

Onshore type opportunities and offshore tie backs.

Which that starts to lead us to.

I would think.

Through the middle East debt could certainly have application and Asia.

The north sea as well as another sort of important market that demonstrates those characteristics.

So I.

I think it's going to be fairly widespread in terms of.

Where I think it's the type of work and again, the short cycle type barrels of what.

Require less capital upfront they yield production more quickly.

And they demonstrate better returns for operators and so and I think that that's.

Or we will see more activity.

That's helpful. I appreciate that and then I wanted to follow up on your experience you didn't highlight power to run Frac in the Permian.

And you outlined some benefits of that highlight power realm.

Relative to turbine driven.

E Frac.

And so well how do you see this evolving right, Jeff and what are some of the.

And what are some of the near term opportunities for high line driven E frac to accelerate and.

And then what do you what do you see as some of the roadblocks.

Potentially to the adoption.

Well, the highline and certainly.

And our grid power and Frac certainly has the lowest emission solution.

Yeah look we learned a lot through the first project and so early days and still learning.

But we have always said about electric that the capital.

Fraud around power was going to be sticky wicket.

And.

One that we were not willing to dive off and invest and because.

From one day to day next it's not clear what the most efficient and we actually knew all along that.

Ultimately there would be a better both market for availability for power and also.

And ultimately grid power.

So I think debt.

There's a lot of cap.

Collaboration this required there's a fair amount of technology involved and solving for how to get power where it needs to be.

But but I can't.

As I said and Mark My remarks, it's a.

That's it.

Very good solution.

To both a capital efficiency problem and and emissions problem and I'll look forward to.

Seeing a catch on though I don't think it will be immediate because it takes.

Quite a bit and work upfront to get that all put in place and.

Very much a commitment and by the operator to stay the course.

Got it that's great I appreciate that color I'll leave it there. Thanks for example, and thank.

Thank you.

Our next question comes from George O'leary with Tudor Pickering Holt. Your line is now open.

Good morning, Jeff Good morning Lance.

On a George.

And just get insight into North America in completion services space and.

Just curious clearly this for.

Increasing profitability has mostly been driven by Keystone actions on your part and then utilization increases and wondered if you could speak to the supply and demand maybe it makes sense you see in the market today and.

If there's any line of sight to price.

And increasingly this year were any.

On <unk>.

And that you guys are looking and would you think and market may actually start to tighten up in price and get in Greece.

Yes, Thanks, George look I think attrition has taken its toll.

And we certainly saw a lot of it visibly in 'twenty and 'twenty.

And I think our view is there my view is that the supply and demand gap continues to tighten.

And I also think the market structure is improving and so.

And as we look forward from here.

And just normal attrition or normal replacement, probably runs 10% to 12%. So we've got that at a minimum and front of US I also think that capital constraints or the other day.

The current market for capital and capital investment makes us a lot tougher for for companies and so.

Harvesting and cannibalization of equipment that we saw in 'twenty.

20, and we also saw entire transactions predicated to a degree on.

Harvesting equipment as part of that cycle, but all of those things that are taking equipment out of the market and <unk>.

So could we see some tightening towards the end of 'twenty 'twenty, one I think so.

And particularly with kind of our outlook on activity.

For the balance of the year.

And I think this is a it will continue to continue to tighten as our outlook.

Okay great.

And then just thinking through the gameplay and for growing and the specialty chemicals business and you highlighted the plant and Saudi continues to keep part of the strategy, but just thinking bigger picture and longer term.

And you guys need to execute on to <unk>.

One of the larger two players and that speeds.

What to do.

For me and for you guys strategically to really grow that business.

Good luck.

Our view of that as we stay the course and you know we've got the infrastructure in place and the U S wiped out.

Progressing to completion and the plant and the middle East.

But yes, we are.

Certainly encouraged about what we've done and our outlook you know I'm not going to try to predict market share and those sorts of things like on like what we're doing and.

And I am confident that what were doing continues to improve and grow that business over time take a very long view of the chemicals business.

And as long sort of cycle times around tenders and awards and those sorts of things so.

But certainly all of the plumbing is getting in place now and I'm very encouraged about the outlook for that business, particularly as it applies to.

Mature fields, and the kind of sustainable throughout the cycle type activity that it brings.

George.

Great. Thanks, guys moving my.

A question and he will be alright. Thank you.

Thank you that concludes our question and answer session for today I'd like to turn the conference back over to Jeff Miller for closing remarks. Thank you Liz before we on the call I'd like to make a few closing comments halliburton.

Halliburton's five strategic priorities are designed to deliver industry, leading returns and maximize free cash flow our strong international business is well positioned with the right geographies technologies and people to deliver profitable growth, while our north American business is recovering and demonstrating margin improvement.

Halliburton's market outlook, and strategic priorities and execution culture make me optimistic about our future.

And I look forward to speaking with you again next quarter list. Please close out the call.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining and have a wonderful day.

And then.

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