Q4 2022 Halliburton Co Earnings Call
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[music].
Yeah.
Good day, and thank you for standing by and welcome to the fourth quarter 2022, Halliburton Company earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on you.
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, David Coleman Senior director.
Of Investor Relations. Please go ahead.
Hello, and thank you for joining the Halliburton fourth quarter 2022 conference call.
We will make the recording of today's webcast available on Halliburton's website. After this call.
Joining me today are Jeff Miller, Chairman, President and CEO and Eric Kirsch.
Executive Vice President and CFO .
Some of today's comments may include forward looking statements, reflecting halliburton's views about future events.
These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward looking statements.
These risks are discussed in halliburton's Form 10-K for the year ended December 31, 2021 Form 10-Q for the quarter ended September 32022, recent current reports on form 8-K, and other Securities and Exchange Commission filings.
We undertake no obligation to revise or publicly update any forward looking statement for any reason.
Our comments today also include non-GAAP financial measures additional details and reconciliation to the most directly comparable GAAP financial measures are included in our fourth quarter earnings release and in our quarterly results and presentation section of our website.
Now I'll turn the call over to Jeff.
Thank you David and good morning, everyone.
Halliburton finished the year strong with solid financial and operational performance in both divisions and both hemispheres Palo.
Halliburton's execution in 2022 demonstrates the earnings power of our strategy and I expect this earnings power to strengthen in 2023 and beyond.
Let's jump right into the 2022 highlights.
We delivered full year total company revenue of $23 billion and operating income of $2 $7 billion.
<unk> operating income grew 70% compared to 2021 with improved margin performance in both divisions.
Our full year International revenue grew 20% over 2021 and our revenue and operating income increased each quarter in 2022, I am pleased with the international growth and margin progression Halliburton demonstrated this year, despite a second quarter exit from our Russian business.
Our full year North America revenue increased 51% over 2021 with improved margins driven by activity and pricing gains.
Both our drilling and evaluation and completion and production Division grew revenue and margins this year.
The drilling and evaluation division generated full year operating margins of 15% an increase of 320 basis points over 2021.
The steady expansion of D N a margins demonstrates the global competitiveness of our D&A business.
Our completion and production division posted 18% full year operating margins a year over year increase of 290 basis points, driven by activity and pricing improvements.
We generated strong free cash flow of $1 $4 billion retired $1.2 billion of debt maintain capital spending within 5% to 6% of revenues and ended the year with $2.3 billion of cash on hand.
Finally, our service quality performance excelled in 2022, nonproductive time improved by 7% over 2021 which drove the highest ever uptime across our business execution is at the heart of who we are and our results are a testament to our employees' continued commitment to superior service quality.
Yeah.
I'm pleased with the fourth quarter results revenue grew 4% and operating income grew 15% sequentially.
Margins increased in both C N P and D&A divisions.
And in both hemispheres.
Cash flow from operations in the quarter was $1.2 billion in free cash flow was $856 million.
Building on this strong foundation of execution today I am pleased to announce the following shareholder return actions.
<unk>.
Our board approved an increase in our quarterly dividend to <unk> 16 cents per share in the first quarter of 2023, representing a 33% increase from last year.
Second we have resumed share buybacks under our existing board authorization of approximately $5 billion and then the fourth quarter of 2022 bought back shares totaling $250 million.
Finally, our board approved a capital return framework that we expect going forward to return at least 50% of our annual free cash flow to shareholders through dividends and buybacks.
These actions demonstrate halliburton's confidence in our business customers employees and industry outlook.
Before we continue I want to take a moment and thank the halliburton employees around the world who made these results possible.
Our success this quarter and throughout 2022 was a direct result of your hard work and dedication.
Thank you for your relentless focus on safety operational execution customer collaboration and service quality performance.
Now, let's turn to the macro outlook, where everything I see today points towards continued oil and gas tightness on the supply side in the U S and increased spend of almost 50% and activity growth of nearly 30% yielded a production increase of about 5%.
Given the increased spend required to grow and replace production.
I expect activity to remain strong and service intensity to increase through 2023.
I see the same supply side challenges in the international markets.
One indicator being that despite opec's 2022 production quotas several members did not meet their goals.
On the demand side, we saw the resilience of oil and gas demand throughout 2022, even as central banks raised interest rates to combat inflation.
Expect oil and gas demand to remain strong.
As we start 2023, I also expect China's reopening to further increase demand.
It's clear to me that oil and gas is in short supply and only multiple years of increased investment in both stemming declines and reserve additions will solve short supply.
I believe these investments will drive demand for oilfield services for the next several years.
A unique feature of this up cycle as I see it is.
Is the investor driven return discipline by both operators and service companies, which I expect drives a longer duration cycle and translates into years of increasing demand for Halliburton services.
Now, let's turn to Halliburton, starting with our performance in the international markets.
We successfully executed our strategy to deliver profitable international growth through competitive technology offerings improved pricing and selective contract wins.
International revenue grew 20% year on year with strong growth and margin expansion from both divisions.
This gives me confidence and the earnings power of our international strategy.
And 2023 we expect international activity to grow at least mid teens with most new activity coming from the Middle East and Latin America.
As this up cycle continues I believe that we will see substantial growth in all international markets, both onshore and offshore led by development activity and increased spend at the Wellbore.
This is excellent news for Halliburton about half our revenue comes from international markets, we have leading positions in key well construction product lines and a strong geographic footprint.
I'm excited about the growth and profit opportunities that will come with the adoption of our new drilling technology platforms.
Our I cruise drilling technology, I start logging, while drilling platform and logics automation capabilities.
Each of these technologies are in different stages of implementation and we are already seeing benefits.
Our I cruise directional drilling system represents about half of our rotary <unk> fleet, while drilling about 70% of our global footage.
It is a key contributor to increasing international profitability.
Our I start logging while drilling platform now delivers high definition measurements closer to the bid and deeper into the formation.
While early in its rollout with only 600000 feet logged the ice star platform directly complements the eye cruise directional drilling system.
Finally, logics automates drilling with I cruise and I star with more than 7 million feet drilled in 20, plus countries. The logics platform reduces operational risk and delivers wells reliably.
Turning to North America, we had a terrific year, our performance demonstrated our strategy to maximize value in North America through capital efficiency improved pricing differentiated technology and alignment with high quality customers.
And 2022 our North America revenue grew 51% year over year, while revenue in the fourth quarter was flat sequentially due to weather related downtime late in the year.
Looking ahead, we expect strong activity and anticipate customer spending to grow by at least 15% in 2020 three.
The market for equipment is tight.
Lead times for new and replacement equipment remain long and service companies remained disciplined.
Our completions calendar is fully booked and pricing continues to improve across all product service lines.
Against this constructive market backdrop, Halliburton will outperform whether unique strategy to maximize value.
We see strong demand for our Z fleece, but several repeat customers contracting additional fleets.
Zeus is a proven design with a strong operational track record.
Our new automated fracturing platform octave fully automates equipment operation reduces maintenance and extends component life. We are in the early innings of this rollout having proven at over 15000 stages and I expect it to drive higher capital efficiency.
Finally, our smart fleet intelligent fracturing system is gaining significant traction with customers.
Smart fleet data helps customers answer key questions such as the existence of flow barriers well interference parent child performance in depletion all to improve completion performance.
These are a few examples of how technology maximizes value in North America.
Each example, delivers better margins, either by reducing capital cost or increasing capital velocity and in many cases both.
Halliburton is unique and is the only integrated services company to have a strong presence in both North America and international markets, a strong execution culture.
And differentiated technology.
We will continue to sharpen our value proposition to collaborate and engineer solutions to maximize asset value for our customers.
I am confident in halliburton's strong long term outlook.
This is the best setup and market outlook for oilfield services and Halliburton that I have seen in a very long time.
Our exceptional financial performance. This year is a clear result of the execution of our strategic priorities to maximize value in North America deliver profitable international growth and drive capital efficiency.
I expect halliburton to continue to deliver financial outperformance.
Now I will turn the call over to Eric to provide more details on our financial results.
Eric.
Thank you, Jeff and good morning.
Let me begin with a summary of our fourth quarter results total company revenue for the quarter was $5.6 billion, a 4% increase over the third quarter, while operating income was $976 million, an increase of 15% over third quarter operating income.
Yeah.
Operating margin for the company was 17.5% into fourth quarter, a 460 basis point increase over operating margins in the fourth quarter of 2021.
These results were primarily driven by increased global activity pricing and year end product and software sales.
Our fourth quarter reported net income per diluted share was <unk> 72 cents, an increase of 12 cents or 20% from the third quarter.
Our 2022 full year adjusted net income per diluted share nearly doubled from 'twenty to 'twenty one.
Beginning with our completion and production division revenue in the fourth quarter was $3 $2 billion, a 1% increase when compared to the third quarter.
While operating income was $659 million, an increase of 13% when compared to the third quarter.
Despite weather related downtime late in the year C. N P delivered an operating income margin of 27% the highest operating income margins. Since 2012. This was due to improved pricing service efficiency and activity mix in North America land as well.
This increased activity in international markets.
In our drilling and evaluation division revenue into fourth quarter was $2.4 billion, an increase of 8% when compared to the third quarter.
While operating income was $387 million, an increase of 19% when compared to the third quarter. These results were driven by higher year end software sales and an uptick in international activity.
Operating margin increased 210 basis points above Q4, 2021 which demonstrates the global competitiveness of our <unk> business.
Moving on to geographic results.
Our international revenue increased 9% sequentially due to solid yearend sales pricing gains and activity increases in.
In North America revenue into fourth quarter was $2.6 billion, a 1% decrease when compared to the third quarter. This decrease was primarily driven by weather related downtime in North America land.
Latin America revenue into fourth quarter was $945 million, a 12% increase sequentially due to higher activity in Mexico and across the region.
Europe Africa revenue into fourth quarter was $657 million, a 3% increase sequentially driven by higher completion tool sales drilling activity and well intervention services across the region.
These increases were partially offset by lower activity in Norway.
Middle East Asia revenue in the fourth quarter was $1.4 billion, a 10% increase sequentially, primarily resulting from higher software sales and drilling and evaluation services across the region.
Now I'd like to cover some additional financial items.
In the fourth quarter, our corporate and other expenses was $70 million for the first quarter, we expect our corporate expenses to be slightly lower.
Net interest expense for the quarter was $74 million, a slight decrease due to higher yields on cash balances and debt retirement in September for.
For the first quarter, we expect this expense to remain approximately flat.
Other net expense for the quarter was $60 million, primarily related to unfavorable foreign exchange movements for the first quarter. We expect this expense to be slightly lower.
Our normalized effective tax rate for the fourth quarter came in at approximately 21% based on our anticipated geographic earnings mix, we expect our first quarter effective tax rate to increase roughly 150 basis points.
Capital expenditures for the fourth quarter were $350 million with our 2022 full year capex totaling approximately $1 billion.
Turning to cash flow.
For the full year, we generated $2.2 billion of cash from operations and delivered approximately $1.4 billion of free cash flow.
As a result, we ended the year with approximately $2 $3 billion in cash.
I'd like to provide a few more details about our capital return framework.
First an important pillar of our capital framework is to maintain capex between five and 6% of revenue.
I believe this spending level is appropriate and supports our earnings growth and free cash flow generation over the next several years.
Second we expect to return a minimum of 50% of free cash flow to our shareholders in the form of dividends and share buybacks. Our board of directors increased our quarterly dividend by 33% to 16 cents per share effective with the dividend payment in March 2023.
Finally in the fourth quarter, we repurchased $250 million of shares and we have remaining authorization of approximately $5 billion. We were clear about our goals to reduce debt and increase cash returns to shareholders and I am pleased that we've announced these actions today.
I believe halliburton's capital return framework provides visibility for investors and affords us the flexibility to pursue acquisitions and strengthen the balance sheet.
Now let me provide you with some comments on how we see the first quarter.
As is typical our results will be subject to weather related seasonality and the roll off of year end product sales, which will mostly impact our international business.
As a result in our completion and production division, we anticipate sequential revenue to be essentially flat with the fourth quarter, while margins will drop between 75 and 125 basis points.
In our drilling and evaluation Division, we expect revenue to decrease in the low to mid single digits sequentially. While margins are expected to be down 25 to 75 basis points I will now turn the call back to Jeff.
Thanks, Eric.
Let me summarize our discussion today.
Oil and gas is tight and only multiple years of increased investment will solve short supply, which translates into years of increasing demand for Halliburton services.
The announced dividend increase share buybacks and halliburton's, new capital return framework provide shareholders with clarity and consistency on how we expect to return cash to shareholders.
This exceptional financial performance is a clear result of our execution of Halliburton strategic priorities I expect Halliburton to continue to deliver financial outperformance strong free cash flow and shareholder returns and now let's open it up for questions.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one once again, please stand by while we compile the Q&A roster.
Okay.
Our first question comes from David Anderson with Barclays. Your line is open.
Hi, Good morning, Jeff Good morning, Dave.
So.
Halliburton's International business is now half of overall revenue Middle East has been a big part of the growth over the years. It was up 10%. This quarter. Just wondering if you could just give us a little bit more insight into kind of your views on that market over the next kind of couple of years. So based on activity is how it's trending in the ramp ups going on I guess in the near term.
Is it reasonable to think that growth should sort of.
Stay at these levels. The next several quarters and also if you could highlight from the countries where you see most of this growth coming from over the next several years, including kind of what you think your best position in terms of footprint or product lines in the middle East. Thank you. Yes. Thanks, Dave look I'm really excited about international growth I think I said.
I call North of 15% was clearly I expect it will be north of that.
And it should continue actually to expand I think over the next few years, just because we will.
It takes longer to get traction internationally and get things contracted.
So really excited about what we see.
Yeah.
Yes.
With our international business being about half of our business today that indicate our demonstrates that we have strong footprint sort of everywhere, where we think it's important and our technology as I described rolling out. So clearly it's got strong application in the Middle East and Latin America, which kind of saw this year, but it's the same.
Technology Thats applicable in all corners of the world and so.
I think we're early in the rollout a lot of this technology and Thats only going to help strengthen our international business as we see activity grow I expect our.
Our share of that to grow and improve margins as we focus on profitable international growth.
And if I could shift over on the U S side, there's been a lot of recent talk about activity levels slowing down the U S rig count has drifted down a bit in recent weeks been some weather as you highlighted and there's all sorts of concerns out there on the natural gas market also knows hardly any e&ps have announced any spending budgets for this year. So I was wondering if you could.
Help us out with a little bit of visibility on the market kind of what are your customers, saying about kind of how activity is going to play out into the spring.
And then based on that kind of how do you see sort of the dynamics of that pressure pumping market in terms of capacity and the tightness for 2023.
Yeah. Thanks, Dave look North America is going to in my view will surprise to the upside.
Our outlook is north.
North of 15% growth clearly, we outpaced that last year and Thats, what I said last year.
Yes, I don't have a.
Clients that are not.
Plan to get smaller they all plan to grow.
And I think that North America has the dynamic.
The more you grow the more and more of the market has to work in order to maintain even the growth given declining curves and so.
We see increased service intensity throughout 'twenty three.
And likely beyond the market is.
Extremely tight for Frac equipment.
And the supply chain still backed up.
So I don't see a.
Discipline in the marketplace and more importantly, I'll say sort of required disciplined based on equipment.
Hang on available so.
So the more activity, we see then ultimately the more price we will see.
So I am very positive on 23, North America side I think the.
The concerns are misplaced.
Rig count likely moves up actually as does get blown down.
Thanks, Jeff I appreciate it.
Thank you.
Thank you just as a reminder, please limit yourself to one question and one follow up.
Our next question comes from Arun.
CRM from J P. Morgan your line is open.
Yeah, Good morning, Jeff.
Clearly one of the themes. This earnings season has been the inflection in middle East spending it offshore.
Was wondering Jeff if you could talk about how.
Halliburton's portfolio.
And competitive position in both the middle East and as well as offshore.
And how do you think you're positioned this cycle versus last.
Yeah. Thanks Arun.
Look we're better positioned than we've ever been as Halliburton, both from a technology perspective that I described examples of that but clearly that's not all of the technology. We've got in the market today Andrew.
And from a footprint standpoint, so a lot of that build out was done prior cycles. It is still there and ready to go so feel very good about our geographic footprint our technology.
Advancement that we've made and our team we've just got an exceptionally strong team.
Today internationally, so I feel very confident.
Certainly from that perspective.
When we look at where our business is offshore is good for us I think that.
About 40% of our international business is offshore today.
And so that's a good market for us.
And I think another nuance as we look out into next year, certainly and likely beyond is the.
Sort of emphasis on development activity as opposed to exploration that maybe we've seen in prior cycles and I think that's very consistent with.
Where operators are from a capital discipline standpoint, and just producing more barrels sooner, which leads us to development and that is.
Place, where we have leading positions in a number of the service lines that allow that to happen cementing drilling fluids.
Completion tools and so I think this is going to be a great even better market for halliburton.
Great and maybe a follow up for Eric Eric I wanted to get your thoughts on cash conversion in 2023.
Just wanted to think about just working capital needs to support the growth this year and just any broad thoughts on collections, particularly for for international some of your international and NOC customers.
Yeah. Thanks, Arun so.
Broadly speaking we're looking at.
Our cash generation profile in 2023 years being fairly similar to 2022, so quite a bit weighted toward the.
Back half of the year.
Looking at things overall, I mean, the big buckets, obviously, we will see significantly increased net income driven by growth in our revenue improvement in our margins.
On the Capex side of things. We finished 2022 on the low end of our range of 5% to 6% we were at 5% when I look at 'twenty three we will be at the higher end of that range, primarily driven by supply chain constraints and.
Extended lead time in our.
Supply chain that we talked about on prior calls and the.
The third element in terms of working capital again, our business will continue to grow. So we will continue to see some headwind in terms of working capital.
Essentially.
Also the impact of growing internationally with tends to be.
More.
Bigger consumers of working capital than when we grow our business in North America. So the way all of that is going to land is a little north of 20% growth in terms of free cash flow over our 2022 performance.
That's super helpful. Thanks.
One moment.
Next question comes from James West with Evercore ISI. Your line is open.
Hey, good morning, Jeff.
Morning, Jay and good morning, James.
So Jeff.
North America I want to start there in North America, your customer base and the majority of the customers.
We have three options you didn't grow.
<unk> you.
Go International.
Where do you see in your conversations with the bigger shale operators.
And you mentioned earlier, you think there could be a surprise to the upside in North America. How do you how do you think they're thinking about.
North American market, especially given whats going to be inventory constraints.
At some point here, whether it's three years five years seven years that we don't really know but.
At some point on wells and what are they what are they plan to do over the next couple of years.
Well and I expect that.
Within within sort of expectation expectations within sort of capital.
Capital discipline levels I expect growth is really the only path.
For most of these companies and so and then.
Any price very supportive.
International growth very very difficult and in shrink not really an option. So.
But I think that we will see increased initially increased service intensity. That's the first step of that clearly we benefit from increased service intensity.
And if we want to go out 10 years.
That's a bet against technology, and that's not a bad I'm willing to make and I mean in fact, I am very confident in.
Technology will do there is a lot of oil in North America sure.
And we're already seeing the impact of work harder producing more barrels.
And then also that's one of the reasons is halliburton.
Smart fleet as an example, I talked about it a lot, but that's one of the tools.
That operators can take I expect over time and start to solve how to make more barrels and more productivity and so.
We invest a lot of R&D dollars into North America, we're kind of unique in that fashion and we try to put those dollars into what we think are most impactful. So it's not a bigger ask or a smaller why but more a function of what is the technology that I think in the company thinks will really unlock productivity.
Over time, and I think those kind of tools in the hands of our operators I mean, they're incredibly competitive smart.
Technically deep and I think it's more a matter of getting tools in their hands to allow them to unlock what 10 years down the road looks like.
Okay. That's great perspective, there and then if I could just flip to switch to the international side of the business.
At this point are we in a market that is.
Still price driven or have we switch now to a market, where it's about availability and service quality.
Well I don't think you have one without the other James but I would expect service my view of service quality and having equipment quality equipment is more and more important every day that ultimately drives price as well.
We spent a lot of time focused on how we execute and deliver service quality and our service quality, Brian feel very good and so we are a beneficiary of that.
As the market gets tighter.
Start to get to the.
The market starts to.
Pull equipment out of that I expect that sort of where we are we've got a very good equipment portfolio and technology that we're bringing to the market and all of that certainly benefits us.
Got you okay, great. Thanks, Jeff.
Okay.
Thank you.
Our next question comes from Neil Mehta with Goldman Sachs. Your line is open.
Hey, good morning team and thanks, Jeff for that the framework around capital returns and Thats kind of where I want to focus my questions here today.
Can you talk about why you thought at least 50% of free cash flow, what's the right number and then talk about how you the definition of <unk>.
That calculation I think it will be cash flow from working cash flow from operations inclusive of working capital minus Capex before M&A, but just to make sure. We're on the same page.
Go ahead, no no I think Thats. That's your view is correct yes.
And the 50% I mean, theres nothing magic in the 50% per se, we think that it's a number that.
Give some level of certainty in terms of what we're going to return to shareholders, while giving us a lot of optionality to continue to invest in our business to continue to make bolt on acquisition or to make acquisition that are complementary to our product line business.
And also give us optionality over the next few years to continue to work on strengthening our balance sheet.
Yes. Thank you and that was that was my follow up around capital returns. So as you think about the buyback how do you think about approaching it or do you do you want to take a more ratable approach or do you want to be counter cyclical in the way that you prosecute it and when you talk about M&A are we talking about.
Bolt on type of transactions that are or do you see a scenario, where we could be looking at larger scale things.
Yes, So let me start.
With M&A, maybe you saw our philosophy there is extremely focused on.
Adding technology, so it was a bit of.
The build versus buy approach to complementing our technology budget.
It is a bit opportunistic at times, depending on on what's available in the opportunities that we have.
Over the years, we've also invested in comp.
Complements like smaller businesses that we can easily add to existing product lines. So that's kind of a general view that we have on technology from an overall strategy standpoint, and I'll, let Jeff jump in but we are where we need to be in terms of the businesses we want to compete.
And at this stage.
So going to the.
The.
Other part of your question Neal around buyback, so I'm not going to go into a lot of details, but generally speaking.
We'll look at buybacks as being a level loaded through 2023, which will obviously top of in terms in order to make sure that we meet our overall target of 50% or more so.
We're thinking about buybacks really as a mechanism to return cash to shareholders, we're not really trying to trading our shares.
Yes, let me just add to that as well I mean I think the.
No surprises from us our outlook on M&A hasn't changed and it will stay that way.
As we look at.
Yes.
The capital allocation, we also want to continue as Eric mentioned the opportunity.
Opportunistically take out debt.
We don't want to be sloppy about it but kind of in the current market that we see we have the opportunities to do things that are.
That make returns for the company, but we wanted to be crystal clear around what our minimum return was thats clearly.
Work through that but yes.
I would expect that by setting that minimum I think he is clarity to the marketplace, though we will.
Only do things that we believe add meaningful returns to the company.
Thanks, Jeff and Eric.
Thank you.
And our next question comes from Luca <unk> with Piper Sandler Your line is open.
Hey, good morning, Jeff Eric.
Good morning, Jeff Your EBITDA margins firmly hopped in that kind of low 20% range.
14 levels, which was the target for 'twenty three.
Totally get perseverance sales tier that skewed it is higher than <unk>.
But you are on the cusp of hitting 14 margins on an annual basis in 'twenty three.
Even lance kind of gave us it to your outlook almost two years ago.
Just wanted to see if maybe you could refresh this or expand upon it.
And how you see margins evolving over the next couple of years.
Yes. Thank you.
When we did that a couple of years ago.
Yes, when we looked at published estimates.
Clearly we thought they were.
Uh huh.
Too low and so we've made some clear commentary in an effort to.
Correct that now as we look at the published Street estimates today, they seem about right.
And so.
Don't want to try to.
<unk> to do that.
Over and over what I am is super excited about our outlook.
Margins from here are up revenue is up I'm as confident in our outlook and our business as I have ever been.
But I just wanted to be clear yellow or Q2 of 'twenty one.
We wanted to be clear that we were pointing out what we felt was missing in the fee interest rate estimates.
And today as I said I think.
Street estimates today are about right for the years ahead.
Top line and profitability.
Okay got it I appreciate it.
Okay.
Okay.
Thank you just one moment.
Our next question comes from Chase Mulvehill with Bank of America. Your line is open.
Hey, good morning, everyone.
Yes, Jeff.
A quick follow up or question, maybe we can dig in a little more on the international side, we spoke a little bit about this at dinner.
We get a lot of questions around confidence and multi year growth on the international side. Obviously, we saw a strong growth last year and expectations are for another year showed growth.
I guess could you speak to what you see for continued growth on the international side. Once you get past 'twenty, three and kind of what gives you confidence that we will continue to see growth on the international side post.
This year.
Well I would just start with the Underinvestment that we've seen.
For the last roughly eight years and really haven't caught up with that and so if I just look broadly at.
Kind of reserve replacement and availability.
Portends a lot of years of recovery and we're in the early stages of that and a lot of ways. It takes time to get international projects up and underway.
A lot has to be renegotiated with different partners and so I think that.
What we see building as the <unk>.
Tender backlog and these are tender backlogs that go beyond a year well beyond the year.
And thats consistent with sort of the slower.
Recovery in spend that we typically see internationally, but I am.
Confident that Thats basically what's required to.
Recover and produce enough oil to meet demand.
Beyond that specifically dialog with customers target set by countries outlooks.
That nearly all.
The international countries that produce oil have targets that are certainly above where they are today less clarity about how they get there, which actually really does.
Indicate more service intensity in terms of how they get there which is more activity certainly for us.
Okay perfect.
Pivot a little bit and follow up on some of the North America questions.
Obviously here you have stated you talked about there's probably upside to North America that you don't see pricing pressure.
Folding in pressure pumping.
Supply chain constraints, probably upside to demand.
And but we.
We do get a lot of questions around.
Well around pressure pumping and the rest of pricing and really those questions revolve around kind of lower tier fleets.
In Canada.
Investors kind of asking about who has the high end fleets at the lower end fleets.
So I don't know if you could take a moment and just talk about.
How many what percentage of your fleets are kind of tier two diesel.
There if you were to see some pricing pressure, that's maybe where you would see it if you would see any.
Look I don't see that in our business today at any level of equipment packed all equipment is called for.
Clearly we have a strong.
Environmentally.
Our low emissions fleet as well, that's probably at the higher end of the price deck, but even at the bottom end of the price deck, our equipment, we've systematically replace equipment over time and so we're really pleased with the fleet that we have.
And even the tier two dual fuel equipment is in demand most certainly.
But what I'm, most impressed with actually a sort of a strong market pull that we see around our.
Our equally.
Yeah, we've got strong customer demand and especially I am seeing repeat customers, which is terrific for its not one but two to the same customer are all fully contracted.
And I think Thats, just an indication of the strength of our.
Technology its proven proven technology.
I believe it's a better mousetrap and quite frankly, we have a very strong IP portfolio and I think that is going to continue to.
Be importing.
Okay Awesome I appreciate the color I'll turn it back over thanks, Jeff.
Thank you.
Our next question will come from Roger read with Wells Fargo. Your line is open.
Hey, Thank you good morning, and well done on the quarter.
I'd like to come back to some of your guidance and expectations for the international market.
We look at 'twenty three.
Kind of 15% the bias to the upside of that I was just curious what.
<unk> finished the year strong in 'twenty two.
Maybe better than expectations and sort of feeds into that expectation of let's say at least mid teens to higher as we think about international in 'twenty three.
Yes look I think.
It's sort of like everything's pointing at busier 23, then 22.
That comes in the form of tender pipeline that comes in form of sort of backlog increasing.
Product backlog that we've seen strengthened throughout the year and all of that sort of point I mean, all of it points at 23 may be even into 'twenty four.
Discussions with customers.
Sort of the intensity of customers you have.
Staying busy and you know.
Producing more barrels sooner rather than later, it's a very favorable market.
And so that just gives me a lot of confidence in the outlook for 'twenty, three and particularly from our standpoint.
Where we sit with technology and our global footprint.
Thanks, and then also the supply chain side, not just yours, but the one you see for the industry.
Any areas you say.
Could you to have.
So it's got headwinds broadly as we look at 'twenty three something that would slow project.
Development or acceleration in 'twenty three.
Yes.
Yes, I don't see anything that slows things down.
Things that have extended lead times today, we're still working through some of that but I don't think anything.
Meaning full gets in the way of getting started.
I think we still see inflation in the marketplace. So that's one of the ways that we saw.
All forward getting things, but.
I don't think that is going to be a headwind unnecessarily, we're starting to see rigs come back.
It'll be a lot of work around getting those ready in some places.
But clearly motivated customers and.
There'll be some as I said, some inflation to get all of that done.
I don't see those as headwinds.
Okay. That's great. Thank you.
Yeah.
Thank you one moment for our next question.
Yeah.
Our next question comes from Scott Gruber from Citi. Your line is open.
Yes, good morning.
Sorry, Scott Scott.
Yes, you mentioned that very full completion calendar here in the U S.
Quick question on that topic does that pertain to the fleet that the new Frac fleets will be.
Coming in to replace.
As it relates to is there work already lined up that would keep the legacy fleet slowly deployed or those fleets need to be bid on to new jobs.
But know that we've got everything is spoken for in 'twenty three.
Whether replacement or not.
I think over time equally to replace fleet, but they don't do it.
Initially and so there'll be some period of time.
We're <unk>.
Equally take the place of legacy fleet, but thats not what we see in 'twenty three we see everything busy in 2003.
Sure.
Got you that's encouraging.
And then turning to DNA margins is another nice year of expansion there.
And obviously you guys have had.
Our internal initiatives destruction lift those margins.
We also have a number of tailwind today from pricing to mix.
Should we think about any incremental this year.
Willing to provide some color there and overall how should we think about what are you to take DNA margins over the.
In the medium to longer term I was looking back at our modeling.
Danny margins basically match, where they were last cycle. So think about whether you guys can get to the 20% plus margin that you witnessed back in the late two thousands with this upcycle sustained.
Well look I think that.
Yes, I've always said, we've invested in technology and <unk>.
DNA in a meaningful way, we expect those margins to continue to move up as you just mentioned they have consistently moved up and that's on the back of technology and footprint and where we are and I expect that.
Trajectory to continue.
Beyond where we are today or where we were last cycle.
And so.
The outlook would be to continue to stack year on year quarters that are better than the last year.
And so have a lot of confidence in our outlook for DNA and where that could go 'twenty three and beyond.
Great I appreciate the color. Thank you. Thank.
Thank you.
Thank you.
And our next question one moment.
From.
Stephan Zingaro from Stifel. Your line is open.
Hi, Thanks, good morning, everybody.
Hi, good morning.
So I think two things from me if you don't mind can you talk a little bit.
On the domestic pressure pumping side just.
Obviously I know you guys are pretty much sold out for the year what are you seeing.
In the market as far as Newbuild supply demand fundamentals as we look three or four or five quarters out because.
I know you guys are you've got your.
Finger on the pulse there I'm just curious what your take is on the overall market growth or lack thereof in supply.
Yes look I think the market is certainly under supplied today.
And I think that attrition is happening every day, even if it doesn't happen necessarily at the fleet level, but it does happen at the unit level and part of the way that got solved in 2022 was through industry.
Consolidation. So that's one method of dealing with attrition is bringing in more inventory and equipment.
And so and then the other as I look out throughout the year.
All of 'twenty three.
Half the capacity additions that we've heard about.
Our electric and I think what's been realized in the field today are electric is harder to do than it looks.
And from our perspective, we have proven technology, we have technology with a track record and we have a very strong IP portfolio around bracket, so I think that.
That combination gives me a lot of confidence in where we are and also that the market won't be oversupplied.
Great. Thank you and just as a follow up.
We've seen consolidation in the U S pressure pumping space.
Some of the larger competitors are doing things to kind of make themselves.
Have a higher revenue content at the well site right different types of vertical integration or where I'll say integration have you seen any change in the competitive landscape at the well site I mean, obviously now everybody's busy but just in general has there been any change in the way your competitors are competing with Halliburton.
No I don't see any change there.
Yeah, when I think about sand you are talking about sand and when I think about sand.
Got very good suppliers in the sand business, we work well with them.
And then I think about competitive advantage I mean real competitive advantage what are things that we do to create competitive advantage and we want to spend our dollars on things, where we do have clear competitive advantage, which is in this.
This case pumping technology.
And then drilling technology software things, where we clearly have competitive advantage abuse and clearly as an input it's an important input we need access to it.
But at the same time.
I don't want to over invest in that part of the business.
Okay, great. Thank you for the details.
Yes.
Yes.
Thank you.
I'd now like to turn the conference back to management for closing remarks.
Thank you Catherine.
As we close out today's call, let me just close out with this.
This strong market for oilfield services I am confident that Halliburton will execute on our strategic priorities and deliver financial outperformance I look forward to speaking with you next quarter.
You can close out the call.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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