Q2 2022 Halliburton Co Earnings Call
Speaker 1: The conference will begin shortly. To raise your hand during Q&A, you can dial Star One.
Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the Halliburton second quarter 2022 earnings conference call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to David Coleman, head of investor relations. Please go ahead, sir.
Speaker 2: Good morning and welcome to the Halberton second quarter 2022 conference call. As a reminder, today's call is being webcast and a recorded version will be available on Halberton's website following the conclusion of this call.
Speaker 2: Joining me today are Jeff Miller, Chairman, President and CEO , and Eric Carey, CFO . Chairman, President and CEO , and Eric Carey, CFO .
Speaker 2: Some of our comments today may include forward-looking statements reflecting Halliburton's views about future events.
Speaker 2: These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements.
Speaker 2: These risks are discussed in Halibut and Swarm 10K for the year into December 31, 2021. Form 10Q for the quarter-ended March 31st, 2022. Recent current reports on Form 8K and other securities in exchange commission filings.
Speaker 2: We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Speaker 2: Our comments today also include non- GAAP financial measures.
Speaker 2: Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our second quarter earnings release and can also be found in the quarterly results and presentation section of our website.
Speaker 2: 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 maybe in the queue. Now, I'll turn the call over to Jeff.
Speaker 2: Thank you, David, and good morning, everyone.
Speaker 2: This was an excellent quarter. Our financial performance shows that our strategy is working and driving value.
Speaker 2: Let's get right to the highlights.
Speaker 2: Total company revenue increased 18% sequentially as both North America and international activity continued to improve in unison.
Speaker 2: Adjusted operating income, grew 35% with strong margin performance in both divisions.
Speaker 2: Our completion and production division revenue increased 24% driven by robust completion activities in North America and international markets.
Speaker 2: C&P delivered operating margin of 17% in the second quarter, the first time it reached this level since 2014. The first time it reached this level since 2014.
Speaker 3: Our drilling and evaluation division revenue grew 12%.
Speaker 3: Operating margin of 13% was down sequentially as expected due to the seasonal drop-off in software sales, but increased 270 basis points year on year.
Speaker 3: This gives us confidence in the strengthening margin profile of our D&E business.
Speaker 3: North America revenue grew 26% as both growing and completion's activity marked higher throughout the second quarter.
Speaker 3: Strong net pricing gains across all product service lines supported sequential margin expansion.
Speaker 3: International revenue grew 12% sequentially, with activity accelerating in all international regions, particularly Latin America and the Middle East.
Speaker 3: Finally, we recorded a historic best operational performance as measured by non-productive time for the first six months of this year.
Speaker 3: I am pleased with the strong performance Haliburton delivered in the first half of this year. And I thank all Haliburton employees for their hard work, contribution to these outstanding results, and dedication to superior service quality. And dedication to superior service quality.
Speaker 3: Before we discuss our execution in the international and North America markets, let me address recent market volatility.
Speaker 3: In the second quarter, central banks took actions and then attempt to control inflation.
Speaker 3: raising concerns about a potential economic slowdown.
Speaker 3: Despite this near-term volatility, I believe the oil and gas market fundamentals still strongly support a multi-year energy upcycle.
Speaker 3: From a demand perspective, oil and gas remains a critical component of long-term economic growth.
Speaker 3: Post-pandemic economic expansion, energy security requirements, and population growth will continue to drive demand.
Speaker 3: Today, oil and gas supply is tight, despite an environment muted by ongoing China lockdowns and jet fuel demand below historical norms.
Speaker 3: Meaningful supply solutions will take time.
Speaker 3: OPEC's spare capacity is at historical lows. The Strategic Petroleum Reserve release is unsustainable, and the risk-de Russia supply remains hot. The risk-de Russia supply remains hot.
Speaker 3: On the industry side, despite high commodity prices, operators remain disciplined because of investor return requirements, public ESG commitments, and regulatory pressure.
Speaker 3: In response, service companies invested for returns and did not overbuild. The service companies invested for returns The service companies invested for returns and did not overbuild. The service companies invested for returns and did not overbuild. The service companies invested for returns and did not overbuild. The service companies invested for returns
Speaker 3: In short, this cycle has been nothing like prior cycles.
Speaker 3: This means any economic slowdown will not solve the structural oil undersupply problem.
Speaker 3: At Halliburton, the steps we took to improve operating leverage, lower capital intensity, and strengthen our balance sheet best equipped with us to outperform under any market conditions. Here's why we believe that.
Speaker 3: First we use the pandemic to redesign the cost profile of our business.
Speaker 3: Restructurally removed over $1 billion of costs.
Speaker 3: the most aggressive cost reductions in our history.
Speaker 3: This gives us strong and sustainable operating leverage that we see today in meaningful year-on-year margin expansion in both divisions.
Speaker 3: Second, we fundamentally lowered the capital intensity of our business and set our capex target at 5-6% of revenue compared to 10-11% in the prior upcycle.
Speaker 3: We advanced our technology so that new generations of equipment would have higher capital velocity.
Speaker 3: This lower capital profile is key to our strong free cash flow generation.
Speaker 3: Finally...
Speaker 3: We prioritize strengthening our balance sheet and retired $1.8 billion of debt since the beginning of 2020.
Speaker 3: This reduced our cash interest expense and put us within striking distance of our leveraged targets.
Speaker 3: Now, let's turn to our second quarter performance and expectations for the rest of 2022.
Speaker 3: with energy security firmly in focus.
Speaker 3: The diversification of supply sources is the central theme in the international markets.
Speaker 3: Never has energy security been a bigger issue to governments and people all over the world.
Speaker 3: However, political agendas and years of underinvestment in many markets make it harder to address this critical requirement.
Speaker 3: As I look across the international markets, our customer spend remains on track to increase by mid-teens this year with the Middle East and Latin America expected to grow the most on a full-year basis.
Speaker 3: New project announcements across the world, including in the Eastern Mediterranean, Australia, and West Africa, give us confidence and continued activity acceleration in 2023 and beyond. And continued activity acceleration in 2023 and beyond.
Speaker 3: Longer term, we believe the international market will experience multiple years of growth.
Speaker 3: Halliburton's international business is better prepared.
Speaker 3: to benefit from the upcycle than ever before.
Speaker 3: We have a strong portfolio of well construction and completion product service lines.
Speaker 3: We greatly increased our drilling competitiveness.
Speaker 3: We are present in all the markets that matter.
Speaker 3: and we have unique growth opportunities in the production space.
Speaker 3: Let me elaborate.
Speaker 3: The activity mixed in this up cycle is different from prior cycles.
Speaker 3: Today, operators focus more on developing known resources and less on long-term exploration programs.
Speaker 3: This means drilling more well boards.
Speaker 3: The products and services customers require for drilling more well-bores benefit Haliburton.
Speaker 3: For example, in one of the largest international offshore markets, over 60% of a typical well's service cost goes to drilling fluids, cementing, and completion hardware.
Speaker 3: This means more operators spend on services where Halliburton has a leading position.
Speaker 3: Pharoaide, our drilling and completion fluids business, entered this cycle as the leading fluids provider globally.
Speaker 3: During the downturn, we brought the chemical supply chain closer to our international customers and localized our workforce.
Speaker 3: This improved our cost competitiveness and margins.
Speaker 3: We introduced new advanced chemistries and now run fluid systems that make better well-bores and create value for our customers and Haliburton. We are now running fluid systems that make better well-bores and create value for our customers and Haliburton. We are now running fluid systems that make better well-bores and Haliburton.
Speaker 3: through higher margins and lower inventory requirements.
Speaker 3: Halliburton was founded as a cementing company over 100 years ago, and since then, we never stopped leading and innovating in cementing.
Speaker 3: Every well in the world, be it a mature producer in the Middle East or a deep-water wellbore in Brazil, must be cemented.
Speaker 3: The secret to our enduring success in cementing is our capacity and drive to innovate and develop new methods to design, deliver, and validate sustainable well barriers.
Speaker 3: Her latest innovation is the Cognitive Automated Mending Platform.
Speaker 3: which allows us to deliver cement jobs autonomously.
Speaker 3: with limited human direction and intervention.
Speaker 3: A standard offshore submitting operation typically requires over 300 commands.
Speaker 3: The Cognitive's platform consolidates and automates this only five mouse clicks by an onshore operator. The Cognitive's platform consolidates and automates this only five mouse clicks by an
Speaker 3: We already completed over 70 submitting jobs using the system in the North Sea, delivering safer operations, improved service quality, and cost efficiency.
Speaker 3: Well completion tools constitute a larger portion of well services spent internationally than in North America, and they are high-tech and high-value-add products and services.
Speaker 3: Caliberton is a global leader in completions technology, especially in advanced completions that include sand control solutions, multilateral wells, and intelligent completions.
Speaker 3: With over 20 years of multilateral installation experience globally, Haliburton is the market leader in multilateral, IT, technical component in many development wells.
Speaker 3: They help operators increase reservoir drainage in mature fields, address limited substance to the infrastructure and reduce environmental impact.
Speaker 3: Over the past few years, we've strengthened our Completion Tools product service line in Singapore, which is closer to our international customer base and supply chain sources.
Speaker 3: with our world-class manufacturing facilities.
Speaker 3: strong local technical support, and continuous innovation, Alibert and Completion tools position us to outperform in the international upcycle.
Speaker 3: Another key well construction service is directional drilling.
Speaker 3: Over the last five years, we made a concerted effort to improve our grilling technology competitiveness.
Speaker 3: Our strong D&E margin performance this year demonstrates that our investment is paying off. And we expect it to continue as international drilling activity ramps up.
Speaker 3: Our I-Cruise Intelligent Drilling System delivers excellent results.
Speaker 3: It now constitutes about half of our rotary steerable fleet and has been a key contributor to year-over-year margin improvements, which reflects its higher asset velocity compared to prior generation tools.
Speaker 3: Last month, for a Middle East customer, Halliburton achieved a new world record.
Speaker 3: The longest well ever drilled. At 50,000 feet measured depth, this extended reach well redefined what's possible with advanced drilling technology. With advanced drilling technology.
Speaker 3: In many regions, as customers face increasing operational challenges and urgency to increase production.
Speaker 3: I expect that the adoption of integrated contracts will continue to grow.
Speaker 3: Today, about 20% of our international revenue comes from integrated projects, and this percentage is considerably higher in some markets like Norway, Mexico, and Iraq. Q-L-e-u-d-e-t-e-t-e-t-e-t-e-t-e-t-e-t-e-t-e-t-e-t-e-t-e-t-e-t-e-t-e-t-e-t. Norway, Mexico, and Iraq.
Speaker 3: Celebratin' strong project management capabilities and they prove in track record.
Speaker 3: Compressed the learning curve and drive cost savings in life as money finds profit making trance and money. And that way. It was perceived to be a very close to institutional work aimed at determined. This is still going to be an fun part of the fundamental work and thismusic implemented in manufacturing costs. That way. And when it meets up with the third Forscher and OOU. weer customers.
Speaker 3: The future is without a doubt more collaborative.
Speaker 3: Customers across the world increasingly call on Halliburton for collaboration, and that perfectly fits with our value proposition to collaborate and engineer solutions to maximize asset value.
Speaker 3: Geographic presence is very important in the international markets, and today we are present everywhere that matters.
Speaker 3: which is different from prior cycles.
Speaker 3: We expect to benefit from our established footprint, geographic presence, and customer and supplier relationships as international markets grow. And customer and supplier relationships as international markets grow.
Speaker 3: Finally, I want to highlight the international growth opportunity Haliburton has an artificial lift and specialty chemicals, which is new for this cycle.
Speaker 3: This month we completed our first year of operations on our Electric's Immersible Pump Contract in Kuwait.
Speaker 3: We have already installed almost 200 ESBs, built an artificial service facility in country, and delivered excellent performance for KOC.
Speaker 3: We also have successful installations in Oman and have ongoing ESP trials in Saudi Arabia.
Speaker 3: Upon completion of trials at the end of the year, we expect pre-qualification to participate in Saudi Aramco's future artificial lift tenders.
Speaker 3: Latin America is another successful market for our artificial lip business, where we operate in all significant land markets and just installed our 500 ESP in Ecuador.
Speaker 3: Our new chemical reaction plant in Saudi Arabia mixed the first batch of chemicals last month and is on track to meet its ramp up goals.
Speaker 3: This year, we expect the plant to manufacture products for our production chemicals contract with a large IOC in Oman and chemicals for our grilling fluids, especially chemicals and hydraulic fracturing product service lines.
Speaker 3: Today, Halliburton is a much stronger international competitor.
Speaker 3: And we expect to benefit more from this multi-year upcycled than ever before.
Speaker 3: This aligns perfectly with our strategy to deliver a profitable international growth. STATE
Speaker 3: turning the North America.
Speaker 3: This marker remains strong, steadily growing, and all but sold out.
Speaker 3: Her strategic priority is to maximize value in North America by focusing on cash flow and returns, not market share.
Speaker 3: The second quarter saw another step up in both US Land Regactivity and Stages completed. With the first quarter's sand supply interruptions resolved, the rack activity steadily increased throughout the quarter.
Speaker 3: As we look at the second half of 2022, Haliburton remains sold out.
Speaker 3: As for the overall market, I believe it will be all but sold out for the second half of the year due to service company discipline, long lead times for new fleets, and supply chain bottlenecks for consumables.
Speaker 3: We expect public companies will steadily execute on their drilling and completion programs.
Speaker 3: Private ENPs capitalized on available rigs and equipment in the first half of the year and will likely maintain a measured level of activity growth for the rest of the year.
Speaker 3: We continue to believe that North America operator spending growth will eclipse 35% this year. The operator spending growth will eclipse 35% this year.
Speaker 3: Our customer conversations have already pivoted to 2023 plans well in advance of the typical timeframe. These conversations make it clear that equipment capacity for 2023 is tight. inches in.
Speaker 3: Today, we see a services market in North America that is almost unrecognizable from prior cycles or even a handful of years ago.
Speaker 3: I believe that the returns focus we now see in the services market is not a temporary phenomenon.
Speaker 3: The largest more publicly traded pressure pumping companies now account for about two-thirds of the market.
Speaker 3: This means that investors force discipline on the majority of the industry today.
Speaker 3: In addition, industry consolidation, structural changes to customer behavior, and the requirement to self-fund capital investments
Speaker 3: All drive capital discipline.
Speaker 3: In short, it's the result of rational economic behavior, and I believe that it is here to stay.
Speaker 3: Halliburton is well prepared to compete in this new paradigm in North America.
Speaker 3: We have the largest technology budget in the North American services industry, and our advanced technologies deliver what matters to operators.
Speaker 3: efficiency, insight, and emissions reduction.
Speaker 3: For example, today our customers can reduce environmental impact with our proven Zeus electric crack offering and optimize completion's performance by capturing the outhaul insight with our smart fleet and television fracturing solution.
Speaker 3: We operate in every major oil and gas basin across the United States using the same design of equipment built by in-house manufacturing to our specifications.
Speaker 3: This one design approach greatly simplifies equipment maintenance and helps minimize the supply chain challenges for spares and equipment.
Speaker 4: Finally.
Speaker 3: We have global capabilities in managing supply chain and labor complexities that we believe give us a distinct competitive advantage over domestic service providers.
Speaker 3: to conclude on North America.
Speaker 3: I expect Halibur to uniquely maximize value in this strong, steadily growing and all the sold out market.
Speaker 3: Globally, supply chain and labor shortages are front and center for many industries as the post pandemic recovery stress both raw material supply and transportation logistics.
Speaker 3: I believe Halliburton manages these shortages better than competitors.
Speaker 3: Our global business development, supply chain, and technology organizations closely monitor market trends and work to mitigate cost impacts through economies of scale in global procurement, technology modifications, and efficient sourcing practices.
Speaker 3: For example, as chemical costs increase, we work with our customers to adjust our pricing for cost inflation.
Speaker 3: Operators appreciate that these price adjustments are required for us to continue delivering our services.
Speaker 3: Most customers expect and accept these adjustments.
Speaker 3: Halliburton's world-class technology organization gives us the ability to change formulations for certain products to avoid the most inflationary inputs.
Speaker 3: We have already implemented these design changes for some of our drilling fluids and completion tool elastomers.
Speaker 3: We have internal chemical manufacturing capabilities in the U.S. and Saudi Arabia.
Speaker 3: which allow us to diversify supply, mitigate risk, and better control input prices.
Speaker 3: In North America, we employ our global HR capabilities for managing commuter labor to hire out of base and avoid labor shortage pressures in local markets.
Speaker 3: This allows us to secure talent from states outside the white hot labor markets in traditional oil and gas basins. The the the the the you
Speaker 3: At the same time, our voluntary attrition numbers remain stable, but globally and the US.
Speaker 3: This demonstrates that once we attract the right talent, we provide them with the right incentives and growth opportunities.
Speaker 3: Turning now to pricing dynamics that we see playing out in North America and internationally.
Speaker 3: As I stated before, this is a margin cycle, not a build cycle.
Speaker 3: In North America, net pricing improvements drove our strong CMP margin expansion in the second quarter and I expect pricing gains to continue.
Speaker 3: Here's what.
Speaker 3: Existing active equipment and experienced crews are in high demand and will continue to be highly sought after to efficiently execute programs in the second half of this year and into 2023.
Speaker 3: The market remains all but sold out.
Speaker 3: Supply chain bottlenecks, even for diesel fleets, make it almost impossible to add incremental capacity this year.
Speaker 3: Halliburton has the additional advantage that our fleet primarily competes at the higher end of the pricing spectrum.
Speaker 3: Our portfolio of low-emissions equipment commands premium prices, and our customers see value in the efficiency and emissions profile we provide.
Speaker 3: Internationally, we see structural tightness in many product lines, particularly drilling and wiring.
Speaker 3: Increasing activity, so-called capacity market-wide, and recently some customer requests for additional equipment had to go unanswered.
Speaker 3: As equipment availability continues to tighten, we expect prices will increase further. The
Speaker 3: Due to the long-term nature of international contracts, only about one-third of our work re-prices every year.
Speaker 3: This means that margin and pricing inflections, internationally, will always materialize at a slower pace than in North America. innerhalb of India.
Speaker 3: We see evidence of customer urgency indicated by customer preference to pursue direct negotiations for contract extensions.
Speaker 3: Efficiency gains over the last several years and have all accrued directly to operators. Efficiency gains over the last several years
Speaker 3: And there is still a great deal of room in customers' economics service providers to earn a fair and durable return.
Speaker 3: So it often goes on set.
Speaker 3: A robust and investible service industry is a key enabler of our customer's ability to grow and maintain production to address the world's energy needs.
Speaker 3: I'm thrilled with Halliburton's performance in the second quarter and our immediate and long-term opportunities.
Speaker 3: Our team is executing well on near-term tactical objectives, and the long-term strategic priorities provide real, tangible value for Halliburton and our shareholders.
Speaker 3: Haliburtan's competitive position is unique among our peers.
Speaker 3: We have the scale and technology to benefit meaningfully and differentially from the international market expansion. The scale and technology to benefit meaningfully and the international market expansion. The scale and technology to benefit meaningfully and the international market expansion.
Speaker 3: We are the leader in the strong, steadily growing, and all that sold out North American market.
Speaker 3: I could not be more excited about the future of Halliburton.
Speaker 3: Now, I will turn the call over to Eric to provide more details on our second quarter financial results.
Speaker 5: Eric?
Speaker 6: Thank you, Jeff, and good morning.
Speaker 6: Let me begin with a summary of our second quarter results compared to the first quarter of 2022.
Speaker 6: Total company revenue for the quota was $5.1 billion and the adjusted operating income was $718 million.
Speaker 6: an increase of 18% and 35% respectively.
Speaker 6: Higher equipment utilization and net pricing gains supported these strong results.
Speaker 6: In the second quarter, we recorded a pre-tax charge of $344 million as a result of our decision to exit Russia due to sanctions.
Speaker 6: Now, let me take a moment to discuss for division results in more detail.
Speaker 6: Starting with our Completion and Production Division, revenue was $2.9 billion, an increase of 24%, while operating income was $499 million, an increase of 69%.
Speaker 6: These results were driven by increased pressure pumping services in the Western atmosphere.
Speaker 6: Higher completion tool sales globally increased artificial lift activity in North America, Thailand and Kuwait, and improved cementing activity in the Eastern Hemisphere.
Speaker 6: These improvements were partially offset by lower stimulation activity in omen and decreased artificial list activity in Latin America.
Speaker 6: In our drilling and evaluation division, the revenue was 2.2 billion dollars, a 12% increase.
Speaker 6: While operating income was $286 million, a decrease of 3%.
Speaker 6: This revenue increase was due to higher fluid services and Y-line activity globally, increased project management activity in Latin America and the Middle East, and increased drilling services in Latin America.
Speaker 6: Operating income decrease was driven by seasonally lower software sales globally and decreased drilling services in Brazil.
Speaker 6: Moving on to our geographic results.
Speaker 6: In North America, revenue grew 26%.
Speaker 6: primarily driven by increased pressure pumping services and artificial lift activity in North America land, increased through its services, YLAN activity, well intervention services, and higher completion tool sales across the region.
Speaker 6: and increased cementing activity in the Gulf of Mexico.
Speaker 6: These increases were partially offset by lower stimulation activity in the Gulf of Mexico.
Speaker 6: Turning to Latin America, revenue increased 16%, due to improved activity across multiple product service lines in Argentina and Colombia, increased stimulation and well-construction services in Mexico, increased drilling-related services in the Caribbean, improved stimulation activity in Brazil, and entire project management activity in Ecuador.
Speaker 6: Partially affecting these increases were decreased drilling-related services in Brazil and lower artificial lift activity in Argentina and Ecuador.
Speaker 6: In Europe-Africa CIS, revenue increased 6%, resulting from higher activity across multiple product service lines in Angola and Eastern Mediterranean.
Speaker 6: Improve cementing activity, pipeline services, wild land activity, and testing services across the region, and increase through its services and completion tool sales in the UK.
Speaker 6: These increases were partially offset by the impact of the wind down of our business in Russia and decreased drilling services in Norway.
Speaker 6: In the Middle East Asia region, revenue increased 14%.
Speaker 6: primarily resulting from higher activity across multiple product service lines in the Middle East, Australia and Brunei.
Speaker 6: These increases were partially offset by reduced demolition activity in Oman.
Speaker 6: All regions experience a seasonal decline in software sales.
Speaker 6: In the second quarter, our corporate and other expense was $67 million, which was higher than expected due to the timing of employee incentives.
Speaker 6: For the third quarter, we expect our corporate expense to be slightly lower.
Speaker 6: Net interest expense for the quarter was $101 million and should remain about flat for the third quarter.
Speaker 6: Other net expense for the quarter was $42 million primarily related to currency losses driven by the strength of the US dollar.
Speaker 6: For the third quarter, we expect this expense to remain about flat.
Speaker 6: Our normalized effective tax rate for the second quarter came in at approximately 22%.
Speaker 6: Based on our anticipated geographic earnings mix, we expect our third quarter effective tax rate to be slightly higher.
Speaker 6: Capital expenditure for the quarter were $221 million and will steadily increase for the remainder of the year. Capital expenditure for the remainder of the year.
Speaker 6: For the full year, we expect our capex to remain at 5-6% of revenue.
Speaker 6: Turning to cash flow, we generated $376 million of cash from operation.
Speaker 6: and $215 million of free cash flow during the second quarter.
Speaker 6: Working capital investments grew to support the 18% sequential revenue growth.
Speaker 6: As a typical for business in an upcycle, we anticipate free cash flow for the year to be back and loaded and expect to generate free cash flow at or above last year's level.
Speaker 6: Now let me turn to our near-term outlook. In the completion and production decision, we expect third quarter revenue to grow in the mid-angle digits and margins to improve 75 to 125 basis points. To improve 75 to 125 basis points.
Speaker 6: In our drilling and evaluation decision, we expect our third quarter revenue to grow in the low to middle single digits. As a result of activity improvements, we expect the any margins to be flat to up 50 basis points. We expect the any margins to be flat to up 50 basis points.
Speaker 6: I will now turn the call back to Jeff.
Speaker 3: Thanks, Eric.
Speaker 3: to summarize our discussion today.
Speaker 3: We are still in the early innings of a multi-year up cycle.
Speaker 3: The oil supply and demand fundamentals remain constructive for both international and North America markets.
Speaker 3: The steps we took to improve operating leverage, lower capital intensity and strength in our balance sheets set Halibur enough to outperform under any market conditions.
Speaker 3: Internationally, Alabama is a much stronger competitor and we expect to benefit more from this multi-year upcycle than ever before.
Speaker 3: This alliance perfectly with our strategy to deliver profitable international growth.
Speaker 3: In North America, I expect Halliburton to uniquely maximize value in this strong, steadily growing and all-but-sold-out market.
Speaker 3: We will continue to execute on our strategic priorities and remain committed to driving profitable growth, margin expansion, strong free cash flow, and returns for our shareholders as this multi-year upcycle unfolds. We will continue to execute on our strategic priorities you
Speaker 3: And now let's open it up for questions.
Speaker 1: Please sign German Black Cross a question at this time. You will need to press star one.
Speaker 1: And as a reminder, to be fair to everyone, please limit yourself to one question and one follow up, we stand by while we come back to the rest of the room. We stand by while we come back to the rest of the room.
Speaker 1: moment for our first question.
Speaker 1: And our first question coming from the line of James West from Evercry. Your line is open.
Speaker 7: Good morning, Jeff. Good morning, Eric.
Speaker 6: Good morning James, morning James.
Speaker 7: So Jeff, as you think about the cycle from here, we're cool, they're setting up for a pretty strong and healthy up cycle where the operating leverage is really in the early days of showing up. But how do you think about the next, you know, several quarters, maybe several years if you want to take it that far, playing now in terms of the cycle? There seems to be a growing, based from what I can tell a growing urgency from.
Speaker 7: the customer base to bring production or accelerate activity levels from here and so we could be in a position where you see growth that moves much higher than the steady growth in the far but could be at a tipping point.
Speaker 3: James, yes, agree, in terms of the outlook.
Speaker 3: In fact, what I see is
Speaker 3: a lot of duration in this cycle. Obviously it's been moving up and I expect it continues to move up, but the reality is if operators can be busy, particularly international, they are. And the... And the... And the...
Speaker 3: tightness around oil supply is not something that's resolved quickly after seven eight years of under investment. While I'm excited about
Speaker 3: The inflection and the improvement and the...
Speaker 3: Upcycle that we see, I have to say, I'm equally excited about the duration. This is multiples of years. I was a decade in the making. It's many years in the undoing in terms of producing. And so I think this is a fantastic time for operators in an even better time for Halber.
Speaker 7: Right, right. Okay, that makes sense. And then from a competitive standpoint, are you seeing the discipline that maybe we hadn't seen in prior years from your competitors, but it seems now like everybody kind of is on the same page as its returns, its margin. And so are you seeing the thing that a pricing discipline that I know you guys are exhibiting in the market?
Speaker 3: But pricing is improving around the world.
Speaker 3: and it's irrational, it's the allocation of assets and it's moving them to the highest returning opportunities and you know, that's not unique to Haliburton in terms of expectation of return. I mean, we clearly want to improve our returns and plan to do so, but that's part of this different cycle, different. Different. Different. Different. Different. Different.
Speaker 3: market dynamics in the sense that returns and return of cash matter to our shareholders. And the best way to do that is to
Speaker 3: not just improve utilization, but improve returns on every asset. And clearly the approach we're taking and our whole strategy internationally is built around. And our whole strategy internationally is built around.
Speaker 3: and improve returns on every asset. And clearly the approach we're taking and our whole strategy internationally is built around.
Speaker 3: profitable growth, which is, I think, precisely what you saw this quarter and what you'll continue to see from Halliburton in the future.
Speaker 7: All right. Okay. Got it. Thanks, guys.
Speaker 8: Thank you.
Speaker 1: Thank you. One moment for our next question.
Speaker 1: Our next question coming from the line-off, David Anderson from Barclays. Your line is open. Do you document your daily work week before webinar?
Speaker 9: Great thanks. Good morning Jeff. So nice increase. Good morning. So nice increase in the North America top line this quarter. Well above the recounts, one of you could put this into context for us in terms of the customer base that was sort of the incremental driver here. Was it the privates to the public? I guess it's sort of the core question. And along those same lines, I was just wondering if you could talk about your customer mix and how you're thinking about it. On the one hand with all the equipment shortages, I would think you could push pricing.
Speaker 9: further with the private, but on the other hand, of course, you get the more visibility to the larger EMP program. So I was just wondering if you could maybe talk about that optimal customer mix today and does a potential for any recession come into consideration in terms of that mix.
Speaker 3: Yeah, let me start with the first part of that question. The activity was really in both camps. We saw a lot of activity. Obviously a lot of the interruptions in the first quarter were out of the way. And so we had a full utilization quarter, which was certainly a positive from an activity perspective. And that applied equally to privates and publics. And that applied equally to privates and publics.
Speaker 3: start with the first part of that question. The activity was really in both camps. We saw a lot of activity. Obviously, a lot of the interruptions in the first quarter were out of the way, and so we had a full utilization quarter, which was certainly a positive from an activity perspective, and that applied equally to privates and publics.
Speaker 3: I really, from a pricing standpoint, important that we're iteratively moving on pricing, and I would argue that's again consistent.
Speaker 3: in both groups. And from a visibility standpoint, I think it's important to note, I mean, A, we love our customer mix today on BeClear.
Speaker 8: Next question.
Speaker 1: question. One moment for our next question.
Speaker 1: Our next question coming from the line-up, Steven Tungaro with Steve Foyulana's open.
Speaker 10: Thanks, and good morning, gentlemen.
Speaker 10: Two things for me, I think the first is when you look at the domestic craft business and you obviously talk about the validation, you guys have stuck to your plans on CAPEX. Are you seeing much out there as far as the new builds in the industry and maybe talk a little bit about lead times for a new equipment at this point?
Speaker 3: Yes, thanks.
Speaker 3: A, the lead times are still quite long. I mean, and so I think probably a year or meaningfully do anything. But the market has changed. And so, A, we haven't had any meaningful additions into this business at all in six years. So that's a long time. And if I think about our business, we're always replacing the aging corridor or fleet. That's not adding capacity. That's just, uh, uh.
Speaker 3: requiring equipment or equipment that's unable to operate or gets damaged in the process of working, which that happens to. And so, at some level, addressing a trition at the bottom end of the fleet is important, and that's one of the reasons we do that, and that's one of the reasons we have the healthiest fleet in the industry.
Speaker 3: The other broad thing that's happening, I would say, is this conversion to lower emission. Is this conversion to lower emission?
Speaker 3: which again is not adding capacity but I just see it as a conversion.
Speaker 3: But the supply chain issues I started with are very real.
Speaker 3: And I think, you know, given the consolidation in the industry, the sort of lack of capital broadly to invest, I think what you'll see, I think, I'm just going to guess others do you fleet the way that I did? And I think that what that means is that we won't see capacity as. capacity as.
Speaker 10: Thank you. And then when we think about you mentioned.
Speaker 10: The pricing dynamics, you've seen obviously things are strong. Have you ever been any pushback from the MP side? I know they're always not trying to take a lot of higher prices, but have you seen any material pushback or just because it's so tight, it's been fairly easy discussions?
Speaker 3: Well, it's always a discussion.
Speaker 3: respectively, but I also think what underpins this is the how important
Speaker 3: service industry is to delivering on what our operators need to do. I think there's clearly a recognition of that.
Speaker 3: Always a discussion, always, you know, some back and forth, but realistically, our operators.
Speaker 3: require quality services, and that means fleets that are well maintained, fleets that are, you know, attrition is dealt with, and better efficiency, in our case better technology. All of that's appreciated and realized that that, you know, has to make solid returns for it to remain vibrant. And I think that's what underpins those conversations.
Speaker 10: Thank you.
Speaker 8: Thank you.
Speaker 8: Next question.
Speaker 1: One more for next questions.
Speaker 11: Our next question coming from the line of Mark Young to Wood, from the line of Mark Young to Wood.
Speaker 2: Thank you. Jeff, you mentioned you'd been speaking to some customers about 2023. What kind of increases are they talking about for North America and international? For North America and international?
Speaker 3: Look, I think it's...
Speaker 12: Yo P show.
Speaker 3: Consistent with making returns but up. So let's start with. So let's start with.
Speaker 3: Sure, you have supply internationally. It's probably more around ability to supply. It's probably more around ability to supply.
Speaker 3: Internationally, it's probably more around ability to supply.
Speaker 3: I think that operators, particularly in the U.S., understand returns and shareholder returns, and so do we. I think we see a steady march.
Speaker 3: up, but a healthy march up in the sense that, as we described, a lot of duration through this cycle, which I think is...
Speaker 3: much welcomed by us and I think by our shareholders are going to benefit from that meaningfully because of the duration. So you look at how we've improved the capital intensity of our business, our clients view it the same way and I think that
Speaker 3: You know, so what we're going to see is more activity. No question, because there's going to be demand for the commodity. No question, because there's going to be demand for the commodity.
Speaker 3: But it's so it's more around.
Speaker 3: Could you add one or do you have an extra one? I think there's probably a lot of that dialogue given lead times.
Speaker 3: commitments around our own capital and I think broadly the industry's commitment around capital as it comes down to you know what's the highest returning opportunity for that equipment is more involved with that discussion goes like.
Speaker 2: Okay, thanks. And on DME, do you think you can get back to first quarter margins this year?
Speaker 3: Yes. I mean the.
Speaker 3: Short answer, yes.
Speaker 3: The longer answer is that I'm really pleased with the progression and the progress we've seen with D&E margins. I've always said take a long view of D&E margins, and I expect them every year to be higher than last year and next year to be higher than this year. There is some seasonality in that D&E business, both where we work in the world and some of the components that comprise D&E. But the target, and clearly the expectation by me and
Speaker 3: is that we are just layering on that seasonality a step up every single year. That's what we've seen.
Speaker 2: Great, thanks so much.
Speaker 8: Thank you. Next question.
Speaker 11: Thank you. I'm trying to conclude our question and answer session for today. I would now like to send a call back over to Mr. Jeff Miller for closing remarks.
Speaker 3: Okay, thank you Olivia. Before we close out the call, let me just reiterate, caliber performance during the strong quarter demonstrates that we're executing on the right strategy in the international and North America markets to drive value for shareholders throughout this multi-year up cycle. I look forward to speaking with you next quarter. Please close out the call.
Speaker 13: Please.
Speaker 11: Ladies and gentlemen, thank you for your participation. You may now disconnect.
Speaker 1: The conference will begin shortly. During Q&A you can dial star one.
Speaker 1: I.
Speaker 1: The.