Q3 2021 Halliburton Co Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Halliburton third quarter 2021 earnings call. Please be advised that today's conference is being.
Got it.
I would now like to hand, the conference over to David Colman head of Investor Relations. Please go ahead Sir.
Good morning, and welcome to the Halliburton third quarter 2021 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 in halliburton's Form 10-K for the year ended December 31, 2020 Form 10-Q for the quarter ended June 32021, 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 special items.
Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our third quarter earnings release and can be found in 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 I'll turn.
Turn the call over to Jeff.
Thank you David and good morning, everyone.
Last quarter, we discussed a longer view of a recovering market and our confidence in a multiyear up cycle I am pleased with the steady March of activity and Halliburton's performance in the third quarter internationally and in North America all reinforce.
Susie Azzam today and for what we expect in 2022 and beyond.
Our results demonstrate the effectiveness of both our strategy and our execution as the market recovery accelerates.
Here's some highlights total company revenue increased 4% sequentially with top line improvements across.
Orange regions, while adjusted operating income grew 6% with solid margin performance in both divisions.
Our completion and production Division revenue grew 4% driven by increased global activity operating margin was essentially flat in the third quarter as we made operational choices to prepare for higher demand for our services.
All in 2022.
Our drilling and evaluation division revenue grew 4% with increased activity across multiple regions.
Operating margin of 11% was about flat sequentially.
North America revenue increased 3% as growth in U S land was partially offset by a decline in our Gulf of Mexico.
So business due to hurricane Idaho.
International revenue grew 5% sequentially in line with the international rig count growth our year to date free cash flow generation of almost $900 million puts us solidly on track to deliver our full year free cash flow objectives.
Finally, we retired five.
$500 million of our long term debt and ended the quarter with $2 6 billion of cash on hand.
Is this upcycle unfolds in both the international and North America markets Halliburton is executing on our strategy to deliver profitable growth and generate industry leading returns.
In the international.
Mexico's third quarter activity momentum continued and I believe it will accelerate into year end and support mid teens second half revenue growth compared to the second half of last year. This expected outcome was better than we anticipated a quarter ago.
In the third quarter, we started long term projects across.
All regions in spite of COVID-19, interruptions, while mobility restrictions and daily precautions remain in place business activity around the world has adjusted and continues to improve.
In the middle East countries relaxed border restrictions and OPEC members prepared for activity increases.
We started work on several rigs offshore U E mobilized to work over project in Bahrain and completed multiple ESB installations on our artificial lift contract in Kuwait.
We expect the middle east to exit the year with solid activity momentum.
And Asia Pacific, We launched operations on an integrated project offshore Malaysia with full implementation of Halliburton's digital world construction capabilities. We also ramped up for an increase in our Indonesia drilling operations, where the local N O C plans to boost production from its assets.
And Europe Africa C. I S region, the start of operations on a twenty-three well offshore integrated development campaign for what side in Senegal marked a new country entry for Halliburton.
And Russia were mobilizing for a multiyear IOC operated project on Sakhalin Island.
And the UK sector of the North Sea work continues on several new development drilling and Workover projects for local independent operators.
Finally, Latin America delivered it's best quarterly performance since 2015, we spotted the first well on a three year integrated project in Brazil deployed our new drilling technologies on multiple wells in Argentina, and prepared to mobilize for new work in Ecuador and Colombia.
In addition to contract startups, our pipeline of new tenders continues to grow.
While large middle East tenders, and Latin America projects received most of the headlines customers in Africa, Russia, and South East Asia. Among others are also issuing tenders for new work.
All of this points to increasing international customer urgency and demand for our services. Let me describe what I am saying that gives me this conviction global supply and demand balance continues to tighten resulting in a strong commodity price environment.
In response asset owners are eager to reverse baseline production declines caused by multiple years of Underinvestment.
We expect that Nfc's and other operators was short cycle production opportunities will commit additional capital and gainshare to meet future all demand. Additionally.
Additionally, new fields are smaller and more complex where customers work harder to produce more barrels.
Finally, as mature assets change hands, new owners move quickly to revitalize the assets they acquire and unlock remaining reserves. They require service partners, who can deliver proven technology in decades of experience.
All of these things have one thing in common they require higher service intensity more dollars spent on the wellbore rather than on infrastructure.
As the international recovery accelerates, we remain committed to a clear strategic priority deliver profitable growth and we have unique competitive advantages to deliver on this priority.
We have established footprint geographic presence and customer and supplier relationships to capitalize on growth. We have a strong presence in all major international markets. The substantial majority of our workforce is local and within the regions, where we operate our supply chain spend is primarily with local suppliers.
We have proven capabilities to ramp up our services as customers enter new markets. We demonstrated this in Guyana, Suriname and most recently in Senegal.
The Halliburton team mobilized personnel and built a multi functional operational base to support Woodside as we embark together on a development campaign offshore Senegal.
We also engineer innovative solutions, both digital and hardware to meet the complex reservoir challenges faced by our international customers for example, and well construction. This quarter, we introduced the I Star comprehensive measurement platform. This next generation intelligent platform provides multiple logging.
And drilling measurements that enabled reservoir evaluation faster drilling and consistent well delivery for.
For multiple customers in the middle East and North Sea. The I Star platform provides insight into the impact of drilling parameters on wellbore conditions and optimises the drilling process in real time.
And completions, where the global leader in downhole completion solutions.
As our customers increase their activity R E completions ecosystem integrates manufacturing digital twins and technology development processes to increase our speed the market for these long lead complex systems.
In many regions as customers drive for better performance in the face of increasing operational challenges I expect adoption of integrated and bundle contracts will continue to grow Halliburton has strong project management capabilities and a proven track record that deliver efficiencies and reduce total customer cost of ownership are digit.
It'll innovations reframe customer project economics through greater efficiencies and improve decision making.
For example in the third quarter, we deployed are well construction 4.0 digital solution to deliver further operational efficiencies for a customer in the middle East.
Finally, our customers, calling us for collaboration from an IOC looking to reduce emissions on its operations in Mexico to a European independent working to remotely monitor and control all of its global drilling operations <unk>.
[noise] Burton's value proposition to collaborate and engineer solutions to maximize asset value for our customers is working for both our customers and Halliburton.
Now turning to North America.
The bifurcation between public and private company activity continued in the third quarter public Emp's remained committed to their spending plans for 2021, while private operators continue to take advantage of a strong commodity price environment.
As expected completions growth moderated in the third quarter as operators shifted their focus from completions to drilling activity.
Just like in the international markets customer urgency and demand for our services keep growing in North America.
Thrilled, but uncompleted well counts reached the lowest level since 2013 as operators depleted the surplus of ducks accumulated in 2020 weeks.
We expect customers to drill incomplete more new wells to offset steep based decline rates and deliver production into an anticipated attractive market next year.
Completions equipment availability is tightening customers have responded by starting the 20 twenty-two tender process earlier in an attempt to lock in access to quality services for next year's programs.
Private companies now operate about 60% of the U S land rig count and current commodity prices provide a strong incentive for their activity to expand.
Our market leading position in North America is rooted in the groundbreaking technologies, we put to work in this market where are the only fully integrated service provider in North America and this gives us a unique competitive advantage, we combine the full breath of our technology disciplines, Geosciences physics chemistry <unk>.
<unk> science, and mechanical electrical and software engineering to deliver innovative solutions at scale around the world and uniquely in North America to maximize production and minimize costs.
Are smart fleet intelligent fracturing services transition from pilot to campaign mode.
Several large operators today have smart fleet working on multi pad completion programs Smart fleet for the first time allows operators to measure treatment placement in real time, which among other things has demonstrated up to 30% improvement and cluster uniformity.
And the third quarter, we introduced the ice Oman submit system and pumped it for multiple customers and the DJ basin and in the Marcellus shale bye.
By removing liquid additives. This drive blended cement provide significant operational efficiencies and lowers capital requirements for land operations, taking advantage of the increasing demand for our services require strategic execution on many fronts, particularly in the current environment of stretch supply chains.
Tight labor and inflationary pressures against that reality I believe that Halliburton is best prepared to provide reliable execution for our customers.
Our sophisticated supply chain organization translates halliburton size and scale into real savings for us and our customers, we're seeing that in action as our supply chain delivers what our customers require for their projects. The labor market is tight today, we've seen the situation before in our human resources team no.
How to navigate it over the last few years with compressed are onboarding time strengthened our national recruiting network and use digital solutions to significantly reduce our field personnel requirements. Despite real challenges, we have the scale speed and systems to recruit talent nationally.
And quickly deploy it for our customers and.
And logistics, we have ready access to a fleet of drivers to make deliveries to the job site, we expanded our collaboration with water and artificial intelligence supply chain platform or early adoption of work does platform that connects drivers asset owners and maintenance yards allows us to effectively manage trucking and.
Relation and availability constraints.
Now, let me spend a few minutes on our activity and pricing outlook for 2022 first in the international markets and then in North America.
Next year, we expect international activity momentum to accelerate and international leading edge pricing to move upward and pockets as a result of higher activity. This is what we're seeing today.
Large tenders remain competitive, but we're already seeing modest price increases on discrete work and underserved markets.
We see increasing customer demand for Halliburton's high end technology, and a recognition of its value.
Finally, as a result of lower spending by service companies for more than half a decade international market space tightening equipment supply to meet these demands we're strategically reallocating assets do drive improve utilization and returns.
Let me be clear.
Halliburton prioritizes profitable growth internationally, and this will drive our capital allocation decisions to the best returning product lines geographies and contracts.
In North America, we expect customer spending to increase in and around 20% next year, including solid net pricing games, many factors drive that spending in pricing, including customer urgency equipment tightness and a desire to align with a reliable and differentiated service provider like Halliburton.
Last quarter, we highlighted the pricing traction that exists for low emission equipment today as we tender for 2022 work, we're seeing price increases for the rest of our fracturing fleet as well.
Net pricing has also increased across different non frack product service lines drilling so many drill bits and artificial lift.
To generate the highest returns is this market grows we're taking steps to maximize the value of our North America business specifically.
Specifically, we're repositioning our fracturing fleets to customers in areas, where we can maximize returns in 2022, securing longer term premium pricing contracts for our existing and planned electric fleets and accelerating fleet maintenance and deployment of the next generation fluid in technology, which extends.
The life of our equipment.
Halliburton is committed to North America, and I expect we will benefit more than others as activity and pricing momentum accelerates across the board.
Next let me turn to how we're executing on our strategic priority to advance a sustainable energy future.
As we are witnessing now and so on the third quarter. The world requires a greater supply of oil and gas is an oilfield services company, we have a core competency to help our customers deliver the supply in the most efficient and technologically advanced ways possible.
With our customers, we are bringing our technical expertise and over a century of industry experience to actively participate in the transition to a cleaner economy.
One of the most meaningful contributions we can make today that this transition is to help our customers reduce emissions from their existing production base.
Emissions reduction is a critical part of our technology development process and are innovative low carbon solutions are helping oil and gas operators reduce their carbon footprint.
Halliburton's electric fracturing solution delivers results now for our customers and.
In the third quarter Halliburton completed an all electric pad operation on a multi year contract with Chesapeake energy and the Marcellus shale weed.
We deployed our electric fracturing spread with electric blending wireline and ancillary equipment and then advanced power generation system from both the grit. This high performing solution reduced Chesapeake submission using over 25 megawatts of lower carbon power generation from Chesapeake local field gas.
We are collaborating with an IOC in Mexico on their total carbon footprint reduction because we provide both well construction services and logistics services on this contract we changed supply boat fueling mechanisms and optimized usage to achieve emissions reductions in the first year of operations.
We are now using a similar contract structure to collaborate with this IOC on its other projects in Latin America.
We're also advancing renewable energy solutions through Halliburton labs are clean energy accelerator.
In the third quarter, we doubled our size by increasing the number of Halliburton labs companies from four to eight welcoming alumina energy from California, I Annatto from Ontario in Paris aren't they in search power materials from Texas. We help these companies scale, they're exciting technologies from innovative energy storage. So.
Motions to modular carbon capture systems.
In September Halliburton Labs hosted its third finalist pitch day, featuring nine early stage companies and an audience of several hundred entrepreneurs investors academics and other professionals looking to engage with companies that advanced cleaner affordable energy.
The Halliburton labs participants are achieving results.
And XOR bioenergy completed a 10 million dollar series, a round of financing and X source patented modular system uses locally sourced organic or plastic waste to generate clean onside energy even in the most remote and inaccessible location.
Other accelerator participants achieved important scaling milestones in the third quarter.
With both current and expected demand increases Halliburton remains committed to the priorities we set in 2020.
We prioritize profitable growth and returns remained focused on capital efficiency at our keeping our overall capital investment in the range of 5% to 6% of revenue.
I'm excited about the multiyear upcycle, we see in front of us.
I believe our value proposition technology differentiation digital adoption and capital efficiency will allow us to deliver profitable growth internationally and maximize value in North America.
Halliburton will continue to execute our key strategic priorities to deliver industry, leading returns and strong free cash flow for our shareholders.
Now I'll turn the call over to Lance to provide more details on our third quarter financial results <unk>.
Lance.
Thank you, Jeff and good morning, everyone.
Let me begin with a summary of our third quarter results compared to the second quarter of 2021.
Total company revenue for the quarter was $3.9 billion and adjusted operating income was $458 million, an increase of 4% and 6% respectively. During the third quarter Halliburton close the structured transaction for our North America real estate assets that I described earlier this year.
Which resulted in a 74 million dollar gay.
We also discontinued the proposed sale of our pipeline and process services business, leading to a depreciation catch up related to these assets previously classified as assets held for sale.
As a result, among these and other items, we recognize a $12 million pretax charge.
Now, let me take a moment to discuss our division results in more detail.
Starting with our completion production division revenue was $2.1 billion, an increase of 4% while operating income was $322 million or an increase of 2%. These results were driven by increased activity across multiple product service lines in the western hemisphere higher <unk>.
Any activity in the Middle East Asia region, as well as increased well intervention services in the Europe Africa C. I S region.
These improvements were partially offset by reduced completion tool sales in the eastern hemisphere, lower stimulation activity in the Middle East Asia region, and accelerated maintenance expenses for our stimulation business in North America, which related to upgrading our fluid and technology in preparation for the anticipated market access.
Ration that Jeff described earlier.
And our drilling and evaluation division revenue was $1.7 billion or an increase of 4% while operating income was $186 million or an increase of 6%. These results were due to improved drilling related services internationally and in North America land Adieu.
Visional testing services and wireline activity across Latin America, along with increased project management activity in Mexico, and Ecuador, partially offsetting these increases were reduced drilling related services in Norway, and the Gulf of Mexico movie.
Moving onto our geographic results.
In North America revenue increased 3%.
This increase was driven primarily by higher well construction artificial lift and wireline activity in North America land increased completion tool sales in the Gulf of Mexico, and additional stimulation and drilling activity in Canada.
Partially offsetting these increases were reduced drilling related wireline and stimulation activity in the Gulf of Mexico as a result of the impact from Hurricane Ida.
Turning to Latin America revenue increased 17% sequentially.
This improvement was driven by increased activity in multiple product service lines in Argentina, Mexico, and Brazil, as well as higher well construction services in Colombia, and improve project management activity in Ecuador. These increases were partially offset by reduced fluid services and the.
Caribbean.
In Europe Africa C. I S revenue was essentially flat sequentially. These results were driven by higher well intervention services across the region increased well construction services and completion tool sales in Nigeria, additional pipeline and fluid services in Russia and increased activity across multiple product service.
Lines in Senegal. These improvements were offset by decreased activity across multiple product service lines in the north Sea, and Algeria, and lower completion tool sales and Angola.
In the Middle East Asia region revenue increased 2%, resulting from improved well construction activity in the middle East and Australia. These improvements were partially offset by lower completion tool sales across the region, along with reduced wireline and stimulation activity in Saudi Arabia Lower project man.
<unk> activity in India, and lower stimulation activity in Malaysia.
In the third quarter or corporate and other expense totaled $50 million.
For the fourth quarter, we expect our corporate expense to moderately increase.
Net interest expense for the quarter was $116 million.
In the third quarter, we retired $500 million of 2021 senior notes using cash on hand, as a result, our net interest expense in the fourth quarter should declined modestly.
Our effective tax rate for the third quarter came in at approximately 24% based on our anticipated geographic earnings mix, we expect our fourth quarter effective tax rate to be approximately 22%.
Capital expenditures for the quarter, where approximately $190 million in response to higher demand for our services in both international and North American markets. We're pulling forward spending on long lead time items for our premium equipment and now expect our full year capital expenditures to be closer to 800 million.
For the full year.
Turning to cash flow, we generated approximately $620 million of cash from operations and almost $470 million a free cash flow during the third quarter.
I am very pleased with our working capital performance this quarter as we delivered net cash proceeds from working capital despite our revenue growth.
Now, let me describe our near term outlook in North America, we expect moderate pricing and activity improvements in drilling and completions to drive sequential growth in the international markets. We expect continued improvement in rig counts the pace of which will vary across regions.
As a result for our completion in production Division, we anticipate mid single digit revenue growth sequentially with operating margins expected to expand by approximately 50 basis points. The higher your incompletion tool sales will be partially offset by seasonal North America land activity impacted by the holidays and lower efficiency.
Levels typically experienced in the winter months, and our drilling and evaluation Division, we anticipate sequential revenue growth of 5% to 7% and a margin increase of 150 to 200 basis points due to seasonal software sales and higher overall global activity.
I'll now turn the call back over to Jeff Jeff. Thanks.
Thanks Lance.
To summarize our discussion today Halliburton is on track to deliver strong results and our financial commitments for this year, we see customer urgency and demand for our services, increasing internationally and in North America, we expect to benefit from the accelerating recovery and deliver profitable growth in the international market.
And maximize value in North America, we prioritize our investments to the highest returns opportunities and are committed to capital efficiency.
As our forward outlook unfold, we expect to deliver strong free cash flow and industry, leading returns for our shareholders.
And now let's open it up for questions.
Thank you as a reminder to ask a question you need depresses star than the one key on your Touchtone telephone to withdraw your question press the pound Ah.
My first question comes from James West with Evercore ISI. Your line is open.
Hey, good morning, guys.
Orange and foreign James.
Jeff clearly very bullish global while will go up North America and international It seems though the international really stepped up even further than you thought maybe initially in the last three months since since the last conference call could you, perhaps describe where the you know these pleasant surprises.
<unk> are coming from.
Well, Thanks, James look I think broadly if I look at it.
They.
Improvements, it's it's really a function of the tightening macro and and what we see and so.
Think supply.
Clearly short I mean with understanding that's been happening for really.
Really seven years.
Starting to have an effect on the supply side and and that drives clearly urgency, but it's harder to do and then along with that we've got.
Short supply.
Service assets and that is also.
Driving.
Great environment for Us and you know an halliburton's in the right places and so when I think about.
Profitable growth internationally and also.
Maximizing value North America, that's right in the fairway of of where we want to be and so this beginning of and upcycle I think what we will see our operators worked very hard.
To improve production, but it's short cycle style barrels are just they're gonna take a lot more work around the wellbore and.
All very good and it's really gives us at the beginning of what I see as a very strong.
Cycle for our services.
<unk> no doubt about that and we certainly agree <unk> follow up for me on North America. The 20 per cent number that you.
Put out there, which is actually the same number <unk>, we're using but how much of that increase uhm is activity versus kind of pricing and and the inflationary environment. The pronouncing in North America, meaning you know is that the that activity in that scenario, you know 10, 12% the 15th.
<unk>, how are you thinking about activity levels versus the overall spin level.
Look I think clearly it's a combination of both.
Think that will see certainly inflation I I'm not gonna give you a number today, but I think that we're saying strengthening pricing into 2022, so I think that'll be a part of it.
You know back to our strategy of maximizing value in North America, I think that we're going to be really sharp around where we work and how we generate those returns.
Yeah, So I is it.
But I think that pricing will move up more.
And I think that'll be a lot of effort put into activity, but the combination of equipment shortages that drive prices.
Are going to probably be a headwind to a degree on activity.
Right.
Get into the air biased more to price that activity probably.
Okay got it.
Thank you. Our next question comes from Neil Mehta with Bowman section line is open.
Kenmore Good morning team I I want to go back to the <unk> quarter at a 400 basis points Martin improvement by 2023.
Women were in a firmer oil macro environment and that can be pick up that you anticipate D. C. A potential for that actually get pulled forward.
And how are we track and relative to the 400 basis points, they're uptight or downside as as he tested out real time.
So thanks nail look I'm I'm really excited about the outlook and.
The possibility to pull that for certainly that's a possibility.
I think that.
We're on track I mean, everything that I see indicates that that's well on our viewfinder in terms of getting to the sort of twenty-three outlook that I had.
Yeah, the pace at which oil for oil demand comes back, which I would say, it's surprising a little bit to the upside in spite of what's out there with respect to Covid certainly encouraging certainly highlights what we've been saying for some time, which is.
For an oil is and more importantly, sort of the impact that not spending it sort of normal rates for quite a long time has on the supply.
Of oil and of course operators are going to work really hard to accelerate that which is fantastic for halliburton.
So I'm I'm very encouraged about the outlook and and the pacing.
Alright, Katherine and the follow up it just return of capital not that $500 million of debt. This quarter next your set up to be a good free cashflow year, how do you think about getting the dividend or capital returns profile to be more competitive.
Relative to the rest of energy.
Yeah. Neil. This this is lance look at we certainly no doubt we see an environment that provides us with a lot more flexibility as we look towards 2022 and I would just say this year 2021, we've had a strategy and we're continuing to execute that it starts with EBITDA.
Grove, Capex control and a focus on deleveraging throughout the course of the year.
The dividend Reyes is certainly in the viewfinder as our outlook plays out.
We're still going to continue to be focusing on deleveraging our business and to a certain extent accelerating it when it makes economic sense.
So there is still work to do there, but I think the the messages is that we've got a great opportunity to address all of these things as we move into next year.
Thanks Lance.
Thank you. Our next question comes from Dave Anderson with Barclays. Your line is open.
Hi, good morning, Jeff.
So the question on everyone's mind right now is net pricing in the U S and whether or not you're getting that now I was wondering if you just confirm you have in fact recently put through a price increase in U S. Pumping business. In addition, if you could address the topic of labor inflation and how much of that offsetting price and what could that mean, if the industry looks to as a 20th some fleets in the coming quarters R. E. M. P C.
To think pricing.
Stay flat outside of inflation. So I'm just kind of curious what you think that disconnect could be.
I think the disconnect will be around supply of equipment and also the type of equipment. There is a lot of demand out there I'll talk about.
Pricing maybe first.
Yeah, we're seeing it now it looks a little different than maybe in prior cycles in the sense that it's more of a process than it is.
Point in time, but yes, making a lot of progress around that.
We always talked about premium equipment and clearly that's a lot of demand for that and it is in short supply and likely stays that way.
And so that's certainly.
You know.
Positive.
Yeah.
And our outlook is that.
That.
We are going to certainly get net pricing getting some that pricing now and we expect to continue that particularly as equipment tightened. It starts with the premium equipment, but my view is that we will see that across the entire fleet as we go into 2022.
And so with respect to inflation, yes, saying that I think that's been passed along fairly straightforward manner.
But that's that's not the pricing that actually we're looking forward to and seeing some of now.
You know from a Labour perspective, and give you described 20 more fleet and the 2022.
Four at 85% utilization today that takes us what like close to 100.
That drives a lot of pricing activity around equipment.
The labor I think will exacerbate that and we were very fortunate halliburton that we're able to manage the labor and other elements of transportation I think more effectively than the market.
Describe some of that in my comments.
But I I think that will continue to get tight I liked the way, we're differentially positioned around those things also.
Clearly labor issue everywhere and I'd have to think of the oilfields, especially cutely.
A separate question you touched on this a little bit, but I'm really wondering what the inventory of kind of both directional drilling and completion tools globally, you're spending only about 5% of revenue on capex, it's less than half the rate of just a few years ago. Your competitors of ultimate very capital disciplined for obviously have done just the <unk> capital discipline, but you guys have been as well, but now we're on this customer.
This global recovering activity as you said multiyear upcycle unfolding.
And we're also seeing the supply chain issues across the industry I guess my question is.
If there is going to be the shortage of type of specialized equipment next year, and where do you see it most acute you talked about reallocating them equipment, but I feel like we've done this already a couple of times and I know you've been moving it around but.
It feels like we're kind of come into this inflection on a lot of this equipment out there and and I'm just kind of curious of your views on that.
Well, we will likely are and we are getting tight it's tighter.
And we're going to reallocate equipment to the to the highest return opportunities and.
I think we're just going to see some tightness, which is a healthy thing, which is going to drive better asset allocation to projects.
Where we see capital of lost the is.
A strategic plank for us that we are very focused on and we think that's sort of the key to driving profitable growth and I say it that way because there will be many opportunities are focuses on the profitable slice of that and on things that we're seeing set up as it gets more active internationally short <unk>.
A whole barrels clearly will use equipment, but as we see some element of offshore activity creep into that that's soaks up more capacity.
And so I expect we'll say quite a bit of tightness, which is very very positive for halliburton and our outlook I mean, I don't I think that.
The returns haven't been there and we expect to see.
Solid returns and growth and returns and free cash flow and.
MS market is what makes that happen.
Looking forward to thanks, Joe.
Thank you.
Our next question comes from Chase Mulvihill with Bank of America. Your line is open.
I think I want everyone I just wanted a J.
I just wanted to follow up on kind of the commentary around North America, Capex will being a 20%.
Obviously, you also ensure it'll be up a little bit more but I just wanted to kind of connect the dots there and just try to understand kind of how you are getting to the 20%.
Cause if you just kind of look at operating cash flow of E&ps I mean, those those could be up 30% to 40% year over year, so that would that would imply that.
They would spend less of operating cash flow, where today, they're spending about 50% of operating cash flow and.
If you just look at consensus for public <unk>, we're talking high teams already for growth so that implies kind of a more modest pace of growth for.
For the private E&P. So I just wanted to come to understand kind of the 20%.
Bogey that you kind of put out there for North America.
Thanks Chase got 20% a good starting point.
You know obviously.
Could have the more it could be certainly and I think the more activity. There is the more price there will be and so kind of take those in tandem when we look at 2022, clearly there's a call on U S production at the.
Kind of commodity prices that we see today at particularly given the supply shortage. So I've always expected that we would see North America move first and strongest.
As we got into you know sort of the the real heavy lift around short supply that said, though I do believe that it is moderated to a degree because there are formulas in place around how.
Reinvestment around reinvestment rates around dividend requirements around compensation schemes. So all of that is in place which serves to certainly moderate.
Activity for the Publix and I suspect will those budgets aren't out, but I certainly expect that will see those.
I think the privates clearly are very active.
And evidence to me that we see sort of that strengthening is we're finding more work I mean, the reality is was we readjust.
Pricing and look at the market that requires moving around to different operators at different times and we're doing some of that now but the old adage you don't quit a job till you have a job and we're finding jobs and so I mean all of that is positive.
But I think that there'll be tightness around equipment in that environment I don't.
We're in and around 20 is just sort of a current outlook on 22, I don't mean that to be prescriptive.
Could have the more clearly give anymore.
But I also think it will be very tight.
Okay, Alright, and can I get a follow up on on the fries maintenance expense I mean, you noted in the press release, you talked about it they're the earnings call.
I don't know if you would if you would all throughout how material was is it is it recur again and four Q. So maybe that's impacting margins on the CMP side a little bit.
And then also maybe.
Should we think about this as a as an indication that you think you're going to be able to get the pricing you need in 2022 to really kind of drive more activity on the track side.
Yeah look at the the the.
The minus was maybe maybe maybe a penny.
But clarity around where that equipment will go Mendes an indicator that we have certainty around where that equipment will go to work and you know the kind of things we're doing are like the the.
Q10 X fluid and.
Are things that drive better margins for us and a longer life over the life of that so just wise to do I think more important is that we've got real clarity around where that equipment goes and 22, and we want to make certain that we're ready and it goes to work at prices. They clearly eclipse any cost of maintenance on the equipment is.
Just the sort of thing that we want to do.
Q for we're giving you our guidance and all of that and that guidance. So.
Look I think it is a real positive that we've got the clarity that we have.
And just sort of the concrete evidence so far this equipment will go and we just want to make certain that we're taking care of everything in real time.
Alright, perfect I'll turn it back over thanks, Joe.
Thank you.
Thank you. Our next question comes from Scott Grouper with Citigroup. Your line is open.
Yeah, it's good morning.
Thanks, Scott and Scott.
I just wanted to come back to the domestic inflation question again are there any numbers you can put on the delta and your inflation your versus the market installation, just giving your advantages and and now that you're securing what.
What I assume is market based price increases kind of with that combination to be you'll just kind of taken through and what the framework is you know it's the let's just say market prices up 15%, but peers are seem like 10% inflation, they're only getting kind of net five but there's a meaningful gap for halliburton, maybe your gear.
Inflation or your no pricing games or or 10% because you only experiencing half the inflation. So.
Any color I kind of went down inflation got to be in but obviously I just need the figures out so any.
Miller on potential net price engaged for Halliburton these of either the competition would be great.
Yeah look at that very competitive and information I'd say, we outperformed the numbers you laid out.
But the.
You know maybe I'll just walk through the components of how we manage these things it's very.
But we have very sophisticated.
Supply chain organization, and they are working overtime, but absolutely getting it done.
Price fairly passed on to customers.
The labor is I talked about you know the ability to recruit nationally.
The U S and the ability to have a strong local workforce internationally.
Both are key elements of managing inflation for for Halliburton.
From our raw materials perspective, again supply chain bias from the entire world, we manage logistics and we actually see that improving in terms of tightness as we go into 2022.
Particularly were saying sort of space on airplanes as the world opens up and we see more carriers sort of get back to work, we actually believe.
International logistics around raw material, it's better and then in North America.
Yeah, our relationship Novato is is he.
Having quite an impact I mean, we are able to add drivers we were able to retain drivers has been.
Quite disruptive, but very effective and so I'm confident that we outperform in terms of managing inflation for halliburton, but that's sort of a separate topic from where we see pricing going in 2022 and in many cases now.
Got it and then just a quick one on international Jesse you mentioned and acceleration in international activity next year any early read on.
Aware that secret to go.
Thinking potentially mid teens hygiene, the machine, we seen 20% growth.
In past years don't strung up cycles, just any early read on kind of where international activity growth to the sent to next year.
Yeah look at the.
The entire international market is a huge market and so to move all of that at a high rate is.
Probably more difficult to do particularly given where the supply chain actually in project backlog is for for clients.
But nevertheless.
Could it be.
The low teens to mid teens, yes, certainly could be super excited about Latin America, and the pace of growth and the outlook there.
Middle age should be very strong.
And and I think we're going to see the kind of broad based improvement that allows you know sort of pricing and pockets of places too.
To continue to get to get better.
Yeah, So it's gonna be it's gonna be good.
It should be.
Really really really good market internationally I think we built into it throughout 22 as well.
Got it I appreciate color. Thank you.
Thank you.
Thank you. Our next question comes from [noise].
Rune Terror with J P. Morgan your line is open.
Yeah. Good morning, I I wanted to get a bit more color on some of the implications of house decision to reposition some of your Frack fleets.
To to get better pricing, you mentioned and exposure to longterm contracts. So I wanted to maybe get a sense of Ah are you mobilizing that equipment. Today. So is that gonna be a little bit of a drag on for Q and as you get that equipment and to those newer markets does that give you. Some some tailwinds as we think about 2022 I think it.
Does give his tail lenses will go into 2022.
You know drag our headwind near his term.
Not much with any of that would be in our guidance.
But look this is.
You know.
Aching maximizing the value in North America, which is clearly what strategically we want to do and plan to do and are doing involves making decisions around what we do with the assets that we have.
And I think you're seeing that.
And we will continue to see that from Halliburton and so.
Yeah, I'm Super encouraged and a lot of the discussions we're having today with customers are around 2022 like most of that dialogue is 2022 and beyond actually.
Even into some sort of twenty-three type discussion so I'm Super encouraged what we wanted to make sure that our assets are deployed where they are the most valuable for us and our clients.
And yes that does include.
Moving them around.
We're moving them around we tend to do more of a maintenance on them and whatnot. That's the opportunity that we take typically to do high grades of fluid ends and that kind of thing and so you know it should be interpreted in a very positive way, what we're doing and particularly a demonstration of really two strategic planks. One is maximizing value in North America.
Erica and the second is capital velocity.
Little efficiency.
Got it got it any color, Jeff on which you know basins that that your senses, a better opportunity to get better.
Better pricing and these long term commitments.
Or Fortunately, we're in all of the basins and so I don't really take a view of bias and by base in as much as we do sort of customer opportunity by customer opportunity and that can be sort of wherever it might fall, so I'm not going to necessarily.
Italy carve out a particular location clearly there's more activity nearly and all of the basins.
Today, and so that's very encouraging okay. My follow up is just on the international.
You know, there's three and a half 4 million barrels offline by OPEC plus.
I wanted to get your views on you know are you seeing any shifts.
Internationally from customers, perhaps shifting from a focus on maintenance capex sustaining capex projects to growing productive capacity and if so which markets are you seeing perhaps some shift towards that into a bit more growth.
Look I think we're going to find internationally, there's been a lot of underspin for quite a long time and a lot of countries.
Are declining today.
Declining as hard to overcome they'll work hard to do that but that doesn't necessarily move the needle in terms of production and might get it back to flat and steady even with extra work. It takes extra work to just stem the decline.
All of that is positive for us I mean, clearly we see more activity.
As we go into 2022 in the Middle East Man.
And Latin America.
But again.
Think that.
Those that can spend and are in a position to do so well.
But there's.
The sort of the capital austerity by a number of clients is still well in place and so I think that.
And I say that in the sense that I think that you know production is going to all be near Wellbore, which is very good for us.
And I think that.
You know a lot of work will get done, but I still see supply is tied for really quite some time I mean, it doesn't turn back on maybe a point worth remembering in 2014, the number of big multibillion dollar projects with 30 year payouts that were.
Being completed or in the process of finishing we don't see those today.
And the reality is that means there's less spent on infrastructure and a lot more spent all what we do and I think that's all cause it's very very positive.
Thanks, a lot.
Thank you.
Thank you. Our next question comes from Ian Macpherson with Piper Sandler Your line is open.
Thanks, Good morning.
Good morning.
Jeff It seems like an unsung hero of your year. So far has been Latin America, it's where that's where you've had really outsize growth in the market. There. The total activity has grown but it looks like you've punched above your weight in Latin America can you speak to those strengths and you said.
Not to put words in your mouth, but synchronised global international growth going into next year for Latin America. In particular do you expect to see continue momentum on par with the rest of eastern hemisphere growth into next year as well.
Yes, I do.
Look I'm very encouraged about Latin America.
And that team has pushed above its weight and Latin America got.
Excellent theme, great position, where in every country.
And the technology introduction has been effective there I talked about sort of our drilling tools and what we've been able to accomplish.
Our project management capabilities are very strong in Latin America and has allowed us to outperform in my view.
And so and I think that continues into 2022 as more work comes on and again that's a.
A part of the World, where oil production and is very important.
[noise] economies and operators and I think that will continue to see a strong Latin American business.
Great. Thanks, Jeff and then I was going to ask a follow up to Lance. After you had a really good corner here with free cash with the disposals and some working capital as well any indicators for queue for Lance with regard to extra is outside of the basics of free cash with respect to now disposals in working capital movements to close the year.
Yeah, I think look I think we certainly expect continued strength in the operational profit piece of the equation.
That's pretty obvious based on our guidance for the quarter.
Some of that will be offset by some of that acceleration in capex spin that we talked about in my prepared remarks.
So it will be looking to to round out the year round capex.
And look I think we'll have to see how working capital continues to play out we have clearly been very focused on working capital and the required investment it would take to put back that investment as we continue to grow sort of a great outcome. This quarter, where we actually still generated cash from working capital.
The fact that our revenue was growing globally. So all good.
Good facts historically, whether we can keep whether it's realistic that we can keep that momentum from a working capital perspective going forward.
Might be a little bit harder so that those are all the things that we think about I mean look overall.
Cited about the way that free cash flow has behaved so far this year.
And I continue to be encouraged about what that means for next year as well.
Great. Thank you both.
Thank you.
Our next question comes from Mark be Yankee with Cowan Your line is open.
Thank you I guess.
With regard to CMP in North America here, you've got these little bit of maintenance overhang I guess, it's about 50 basis points based on your comment Jeff.
And then there's these pricing initiatives is there any way you could give us a sense of the margin leverage that you could see in 2022 from all of this I don't know if it would be perhaps unreasonable to get to 19 or 20% margins towards the end of the year and CMP, if you're you're willing to comment on that.
Or any other color about how you would see the margin leverage shaping up.
Yeah look up feel good about our business in 2022, most certainly for the reasons I've described.
Not gonna try to give an outlook today on 2022, but what I can say from an operating from a from an earnings power standpoint.
And very effective at maintaining the earnings power reset that really happened a year ago.
But that's well in place and you know all of the things that they were a lot of things that we did when we were reducing costs a year ago that really.
They were going to be savings as we saw activity pick up but they were sort of the things that improved.
Margins with activity, we didn't have much activity. So we didn't see the benefit of that but a lot of the digital work that we've done in North America, and the reduction of roofline and changing of the maintenance and all of those things become more valuable as we get into an environment, where we're seeing more activity.
So really encouraged about the outlook and.
You know and I think not.
Not only activity, but our technology offering, particularly around Frack in North America is very unique and I think we'll see the power of that also.
Yep, Okay, Great and then Lance going back to the free cash flow it looks like you're gonna be.
Broaching, maybe 50% conversion of EBITDA here in 21, maybe walk us through the puts and takes as you look at 22, capex, probably in that 5% to 6% range, but just any other any other color you could talk to around the conversion narrow would be great.
Yeah. So I look I think as we look to 22, it's it's certainly healthier right generally speaking I describe it that way because.
It means that our operational profit contribution is clearly moving higher end of the year and the next year.
But like I said earlier, even as I was relating to the fourth quarter revenue increase is going to require incremental working capital.
But look 21 is proof that we're focused on it and managing it as tight as we can and as efficiently as we can and then you are right.
Mark from a Capex perspective, I think we've been pretty clear what the guardrails are on our our business even in the next year, 5% to 6% of revenue, but look at the end of the day maximizing value in North America growing international profitably in that keeping real.
A tremendous amount of focus on capital efficiency I think all leads to free cash flow growth next year.
Great. Thanks, so much.
Thank you that's all the time, we have for questions stay I'd like to send the call back to Jeff Miller for closing comments.
Thank you Catherine look I'm pleased with the quarter and look forward to speaking with you again at the end of the next quarter as we see this multi year upcycle continued to unfold Kathryn you can close out the call.
This concludes today's conference call. Thank you for participating you may now disconnect.
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