Ladies and gentlemen, thank you for standing by and welcome to Halliburton First Quarter 2020 Earnings Call. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Abu Zeya, Head of Investor Relations. Please go ahead, sir.

Thank you, Gigi. Good morning and welcome to the Halliburton first quarter 2020 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, 2019; recent current reports on Form 8-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures that exclude the impact of impairments and other charges as well as expenses related to the early extinguishment of debt. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our first quarter press release and can also be found in the Quarterly Results & 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 will turn the call over to Jeff.

Well. Thank you, Abu, and good morning, everyone. We're speaking with you today as billions of people are under some form of quarantine in their homes. Businesses and schools are disrupted and worldwide travel has generally come to a halt. The human and economic impact from the COVID-19 pandemic is being felt globally. At the same time, our industry is facing the dual shock of a massive drop in global oil demand, coupled with a resulting oversupply. As the world is battling the pandemic, I thank our employees for their continued focus during these difficult times. We are a critical part of the global energy infrastructure and an essential service to satisfy both immediate and long-term energy needs. On our customers' work sites and within our facilities, Halliburton people are getting the job done, while taking the appropriate steps to protect themselves and others. Our tiered crisis response model has been road tested in the past through hurricanes and other catastrophic events and it is working well in the current circumstances. Globally, our corporate crisis team monitors the evolving situation across all of our core functions from health and safety to IT infrastructure to supply chain, and provides guidance to support our local response plans. Locally, every country has reviewed their emergency response plans, assessed them for business continuity and activated them in alignment with local authorities. To ensure the safety for all, who must go to a work location, we've provided specific direction about how to work in a COVID-19 world and elevated cleaning protocols for our facilities and equipment. We've adjusted shifts and rotations to maximize social distancing, as well as implemented varying levels of medical screenings as appropriate. We are maximizing remote work where possible and are encouraging our employees and customers to collaborate virtually using information…

Thank you, Jeff, and good morning. Let's begin with an overview of our first quarter results compared to the first quarter of 2019. Today, our total company revenue for the quarter was $5 billion, a decrease of 12% year-over-year, while adjusted operating income was $502 million, an 18% increase. As Jeff mentioned, during the quarter, we accomplished the remaining $100 million of the announced $300 million in annualized cost reductions. In the first quarter, we recognized approximately $1.1 billion of pre-tax impairments and other charges to further adjust our cost structure to current market conditions. These charges consisted primarily of non-cash asset impairments, mostly associated with pressure pumping equipment, as well as severance and other costs. In addition, based on the current market environment and its expected impact on our business outlook, we recognized a $310 million non-cash tax adjustment to our deferred tax assets. Now let me take a moment to discuss our divisional results in more detail. In our Completion and Production division, revenue was $3 billion, a decrease of $700 million or 19% when compared to the first quarter of 2019. Operating income was $345 million, a decrease of $23 million or 6%. These results were primarily due to the lower pressure pumping activity and pricing and reduced completion tool sales in North America partially offset by increased cementing activity and completion tool sales in the Eastern Hemisphere. In our Drilling and Evaluation division revenue was $2.1 billion which was flat from the first quarter of 2019, while operating income was $217 million, an increase of $94 million or 76%. Higher activity for drilling related services in the North Sea and Asia more than offset reduced activity and pricing for multiple product service lines in North America land and lower fluids activity in Latin America. Moving on…

Thanks, Lance. Before we close, there are two important themes that I see accelerating in the depths of this downturn. Both will be helpful today, but more importantly, they will create strong competitive advantages for us in the future. First, we are fast-tracking the implementation of our service delivery improvement strategy in North America, as we restructure our overall North America business. We launched the strategy to lower the cost -- the overall cost of service delivery in the U.S. last year, and we will accelerate these efforts in the current market. Next, this downturn accelerates the adoption of digital technologies by our customers and by Halliburton internally. We are far along the road to delivering the next frontier of digital solutions that will help drive efficiencies in our workforce and reduce capital investments through automation and self-learning processes. In this environment, digitalization will unlock the potential to structurally lower costs and enhance performance across the entire value chain. I have never been more convinced that digital is the future and Halliburton is leading the way. With that, let me summarize our discussion today. To the Halliburton team, the path ahead will be challenging, but I have the utmost confidence in our ability to maintain focus and execute on our value proposition in this extremely difficult environment. Our balance sheet and liquidity positions are solid, and we plan to continue taking actions to strengthen them. We know what buttons to push and what levers to pull, and we will do so quickly around cost, CapEx and working capital, and we will continue to proactively adjust our business to current market conditions. We know that the industry will recover. It may look different when it does, but we believe the actions we are taking will ensure that we are in a strong position, financially and structurally, to take advantage of the market’s eventual recovery. And now, let’s open it up for questions.

[Operator Instructions]. Our first question comes from the line of Sean Meakim from JP Morgan. Your line is now open.

So, Jeff, I hope we could start with capital allocation and the dividend. Given the forward outlook, the uncertainties, $600 million a year staying on the balance sheet seems pretty useful. I appreciate you have no intention to take on leverage to fund the dividend. You probably have pretty decent free cash this year to cover the dividend, I think especially with working capital benefit. But on a run rate basis, maybe that looks a lot harder exiting 2020. Just I appreciate any additional comments you have about the Board’s decision making on the dividend. And with respect to timing, how to think about that?

Well, look -- thank you, Sean. Yes, I've described how we think about the dividend in the prepared remarks. And so, look, we will review the dividend with our Board, we do that quarterly. We have a Board meeting coming up in May and we'll update you on any decisions, when we get to that point.

Okay. Fair enough. And then on the $1 billion cost out plan, maybe could you just compare and contrast this initiative relative to the prior $300 million program? I'm just thinking about variable versus fixed costs that you referenced that I think largely this is an overhead cost reduction so perhaps that's more fixed -- maybe the split between North America and international. It would be great to get any more detail you can offer us on that program please?

Yes. Look, quite -- it's fixed costs that are coming out. I guess to compare and contrast, we took out $300 million in the fourth quarter of last year. That was largely -- that was fixed cost as we approached the business. I described this cost reduction similarly, because it is not the variable item. So I guess it's overhead and it’s things that are fixed, it’s things that take big steps down when you take them out, you don't necessarily add them back, in contrast to crews and the equipment on location and the supplies and all of the things that go with that. So a lot of that -- a lot of our strategy around North America really had been to accelerate our ability to make those decisions and take costs out quickly. These types of fixed costs, again, it's a layer of management, it's a lot of the discretionary things that we take out that we don't -- that aren't required to add back at any point.

And I would add, Sean, that these costs, as you asked about the split between sort of North America and international, I think these are predominantly aimed at North America, but they also include international cost-cutting as well.

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

Hey, Jeff, I wanted to touch on more of a bigger picture question and it relates to something you said right at the end of your prepared comments. And I certainly agree with you that the industry is going to look a whole lot different as you get through this downturn in the next couple of quarters. While that’ll be interesting to watch, are going to cause a major shakeout, which will be a net winner of. I think there are two things and maybe we touched on a little bit in prepared comments but I would like to explore a little more is your deceleration of your delivery strategy in North America and the digital transformation of the industry. Because those things I think are the most important for Halliburton and for the industry quite frankly going forward on what the industry looks like, whether it's a couple quarters or more from today's levels and then?

Thanks, James. A fantastic question. And the current environment really accelerates or allows us to really test the art of the possible with respect to how we work and digital is front and center. And I can see, when we embrace that wholeheartedly as opposed to incrementally, we're able to do things quite differently in terms of less people, less footprint, actually working more effectively in my view. But it really does require divorcing the mind of what a lot of us grew up doing to make that step to, wow, this is all possible without you fill in the blank. All of the things we thought were required to actually execute this work. And so, look, this whole period is awful on a lot of different fronts. But I am an optimist and I think we take advantage of an -- time like this and say “Okay, forget everything you thought you knew.” First and foremost, service quality and safety. Everything else, let's go relook at given the robust set of tools that we have. And a lot of these are tools that we've invented at Halliburton or they're built off of our own native cloud platforms. And so from that respect, that makes it very, very sticky as it -- we come out of this.

And Jeff, are you seeing a embrace from the -- I mean I know it’s early days in the downturn but are inbounds from customers around the digital offerings you have, have they already started to show an increase as they look to lower their costs or embrace this new paradigm? Or is it happening yet?

Actually it is. We've seen a meaningful uptick just in the last 30 days in demand for native cloud services and apps and things that would allow not just working remotely but take the same kind of cost removal that I'm describing, our customers do that when they adopt cloud technology, a lot of what Landmark and our digital organization has been building and has on the shelf. And so it's really -- it's accelerated the demand for that. And obviously necessity is the mother of demand creation in that regard. But quite encouraging to me and actually as I said in my remarks, I'm actually more convinced today than ever that digitalization and the Landmark and then the broader digital platform we have will just serve us better in the future.

Our next question comes from the line of Bill Herbert from Simmons. Your line is now open.

Hey Lance, with regard to working capital, if I looked at the last couple of downturns or actually the last downturn, 2015, a huge source of cash with regard to working capital, harvest about a $1 billion, it was front and loaded. 2016 was another $1.2 billion backend loaded. Question is, is that order of magnitude expected to be this time around in 2020? And when does -- and walk us through in terms of the sort of evolution of the working capital harvest this year. Is it second half weighted or does it start to inflect in the second quarter?

Yes, Bill. Thanks for the question. You're right. Historically we have generated cash from working capital during the last three downturns. I would say on the absolute amounts probably a little bit different profile than particularly the 2015 comparison that you were referencing, just given the fact that on an absolute basis our receivables and inventory are at levels that they were coming off of 2014 record level of revenue. So that's a little bit different, but I still expect the relative behavior to be the same. We should continue to see as the business shrinks over the next three quarters that we continue to generate a cash from working capital in the unwind.

And then Jeff with regard to pulling forward the art of the possible in terms of digital automation, remote operations, what percentage reduction do you think that would result in with regard to your average crew size?

Well, I think it could be in the range of half. I mean it is meaningful. But it's not the crews, it's partly crew size, but it's really all of the things that are in between the crew and sort of the overhead of the company. There are a lot of steps that involve designing work and how work gets actually prepared for delivery, the delivery of products and materials. The ability to embrace the automation of all of that is pretty meaningful. I think crew size can come down as well because there are a few things around the crew that are required to deliver all of that input. But I think the more impactful part will be all of the sort of transaction friction between sort of the top of the organization in there.

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

So Lance, maybe I'll start with you. I -- it’s impressive the debt reduction and I know it's a focus of both you and Jeff, so maybe you could talk a little bit further about the steps that you're taking around showing up your balance sheet? Obviously you've reduced the $500 million, you pushed out maturities. I think you have another $685 million due in '21. So maybe you can talk about tendering maturities and just talk about free cash flow?

Yes, Angie. As we said sort of on the prepared remarks, our expectation is that we retire the $685 million that comes due next year through the free cash flow generation that we would expect to achieve this year, but roughly a $200 million coming due in February of next year and the remainder in November. And so we think that we've got ample capacity to pay debt down. And the focus philosophically for Jeff and I is to continue to reduce debt at this company and that's what we're going to continue to chase.

And then maybe Jeff, I mean you made a remark in your prepared comments around flight to quality and clearly we've seen this bifurcation in the market. So maybe you could talk a little bit about the flight to quality in North America and what you're seeing so far? Are you seeing that actually playing out in Q2 or is that a bigger factor there when you see a recovery? And just incremental color around C&P and D&E with regard to Q2 and Q3 in the case of the downturn as we go through the rest of the year?

Yes, Angie, look, I fully expect we see a flight to quality, but at this very moment there's just not a lot of thought going into anything other than reducing capital spend right now. And so in that kind of environment, there isn't much flight because there's not a lot of new things being added. I’m fully confident and our operating capability and the quality of the service we deliver and we maintain that front and center and fully expect the sort of after the industry is able to take a collective breath, we will be extremely well positioned and see the same flight to quality that we've always seen.

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

How should we think about your strategic initiatives in expanding international share in lifts, chemicals, directional and information evaluation in light of the CapEx cuts and market conditions?

Well, we -- look, we think that's an important avenue of growth about those businesses to do that. The early work around trials in a number of countries continues on. It doesn't take much capital to get that going and continue that strategic push into those markets albeit I don't think we'll see the same growth that we had anticipated. It's more a matter of pushing those services or delivering those services through the existing infrastructure that we have. So, to continue that strategic initiative is one that we bought those businesses in order to do that. Obviously, we'd like to see better market for those services as we do this. But it doesn't change the fundamental interest and actually opportunity to continue to do the things required to grow those businesses. It takes many steps to grow those businesses internationally and we don't have to stop those.

And just circling back to Angie's question, I know the outlook internationally is very opaque, but could you see the vast majority of that annual activity hit in 2Q, and then the second half maybe be more flattish just given a fading impact from COVID offset by the growing impact from the customer CapEx reductions where we’re likely to see activity continue to step down in the second half of the year?

Yes. I mean, I think we will see most of the U.S. impact in Q2. I mean that's just -- it's moving so quickly that our view on the U.S. is that we see dramatic reduction in Q2, though not able to call a precise number or timing and then likely kind of works off the rest of the year, the -- flattish. The international market reacts a little differently and I just say that because taking a frac holiday is a lot different than taking a deepwater rig holiday. They just happen at different paces. And so, we've got a view of slowing activity internationally. It doesn't necessarily slow at the same pace that we see it, just because they pick a day, it's like we're going to stop on X date, but it's not today. It's at a point in time. And so, I think that unwind is over more than just Q2, albeit the COVID-19 disruption part should get behind us quickly. It's the same operators that are conserving capital in the U.S., in many cases are the operators that will look to conserve capital internationally. NOCs, if we had a grade level of how effective or impactful, NOCs would be less impacted, probably IOCs more so internationally over the balance of the year. But all of that, we'll have better visibility of that as we go through Q2.

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

So, I guess if we can kind of come back to the U.S. a little bit, obviously 2Q is -- you’re going to take a significant step down. But if we think about your overall strategy for U.S. onshore during this downturn, do you think that you may be focused a little bit more or a little bit less on market share this downturn relative to kind of how you were thinking a couple of months ago?

Look, our playbook doesn't change going into this current environment. By that I mean, returns are front and center, albeit challenged, but we're not chasing market share, don't intend to. I don't think that the dynamics have changed. The things that form our view on our strategy for North America haven't changed, the bigger full cycle type things. And so therefore, we're going to manage our costs. We're going to look at the returns on equipment, the best utilization of equipment, whether that's to stack it or work at. But we don't believe that anyone working below EBIT or EBITDA is not going to be successful in the long-term and we plan to be very successful in the long-term. And so, we haven't changed our view there. Flight to quality may result in more market share at some point, but trust me that is not -- and we don't go-to-market thinking about that.

If I can kind of a switch over to international a little bit, and this has kind of been touched on throughout the Q&A session. But you talked about international CapEx, E&P CapEx being down about 10% year-over-year. OPEC+ members are talking about actually holding 6 million barrels a day of production offline through basically April 2022. So, if they end up doing this, can you talk about the medium term activity outlook for international? Last cycle we were down kind of 40%, it seemed like on international Drilling and Completion spending. Do you think that it will be better or worse, all set and done if OPEC+ does hold this amount of production offline through 2022?

Chase, look, I think that's the kind of clarity we will likely get as we work through Q2. But we just don't -- with respect to OPEC+, I think overall they will be more resilient than the rest of the market, almost independent of what impact the recent agreements have or don't have on activity. The market never really recovered from ‘16 other than nominally. So if it would be hard to follow the same distance. Though, like I said, I think we'll get that clarity as we work through Q1, I said in the range of 10% simply because it can be plus or minus something around that band. I think we've got -- we'll have a better sense in North America as we get through Q2. I think we'll have visibility, but without all of the certainty as we get through Q2. Again, just because those are slower developing, the decisions are slower developing internationally to a degree just because they have to and there's too many partners, nations, governments, things involved to move at the same pace that a North America nimble independent operator can move.

Our next question comes from the line of David Anderson from Barclays. Your line is now open.

A question on sort of -- I certainly appreciate the lack of visibility in North America. I don't think that's a surprise to anybody. But your customers are all in various states of health as well, if I think about the majors versus E&Ps versus these privates that are out there. Can you just talk about how those discussions are going and maybe the differences that you see in how those customers are behaving now? I know it just seems like to us on the other side it's all sort of coming at as fast and furious, but if you could maybe segregate how those different customers are behaving and what they're talking to you about that'd be very helpful?

Look, I think, they're all behaving in the very near term quite similarly. I think they all have a view and I'm not going to just differentiate between the financial position of the market or the different parts of the market. So I would say that's an incredibly aggressive group of competitors. My clients I'm talking about in North America and they're going to each aggressively act independently. The dialogue with them at least with me has been disappointment over the near term, but all, they bit firmly in their teeth looking ahead to what it looks like on the other side. And the dialogue is always that we're going to need to be super competitive and work with Halliburton when we get to the other side. We've had many discussions about what does a recovery or how do we implement the things we're talking about on the other side. So that's generally been a consistent conversation with all customers.

And a separate question on the international side. You said in your remarks, it sounds like the direct impact from the pandemic is mostly to international operations, supply chain, kind of quarantine, having trouble moving people around. Are you seeing the same thing in the U.S.? I haven't really heard that much about that or is it just the fact that the equip activity is falling so fast that you're not really seeing it, it’s somewhat irrelevant? Can you just talk about kind of the more direct impacts of this pandemic to your operations on the U.S. side?

Yes, we’re seeing less of the direct impact just because the workforce is all U.S. Most of the travel can be done in a car, not on a plane. So most of the supply chain is North America based. It's a very little that we actually source outside the U.S. and so I think that's the reason more than any other that we don't see the disruption in the U.S. and obviously we see the commodity price impact in the U.S. But internationally, even if it's not a U.S.-based workforce, we have a very globally based workforce with 140 nations that work for Halliburton and most of those international. So that's where we get into some of that supply chain. Well, people interruption though, let me compliment our international folks and operations. I mean they ramped up very quickly. The interruptions to this point have been very limited and it’s because that group has literally sprung to action to manage. I just can't tell you how many people moves and supply chain moves that they've overcome.

So does that give you a little bit of comfort in the second part of the year for international that if you are more impacted today from the pandemic, but as that eases, maybe that gives you a little bit of help in the back part of the year?

Well I think the COVID interruption part, it gives me a lot of confidence around our ability to find an operating rhythm which our team typically does and does quite well. But I would say that, that does -- the commodity price impact is what we will see as I’ve described earlier, Dave, working through Q2 and what it might mean. Again, I think in the range of 10% which our initial thoughts had been up and now we're talking about down 10% or so in that range. But I think that clarity -- we really don't get that clarity until it settles in.

Thank you. Our next question comes from the line of Kurt Hallead from RBC. Your line is now open.

So, Jeff, you spent quite a bit of time on the last conference call talking about the digital dynamic, obviously a reference again and emphasized it today. I think last time we had a discussion, you indicated maybe the digital dynamic might not have a very near-term -- big near-term impact on revenue generation. So just wanted to kind a touch base again and given all the disruption that's happened in the industry, given the commentary you’ve made about a number of different discussions now being had and rethinking and reshaping the industry going forward, any updates or any thoughts on how much revenue digital could potentially push, whether it's this year or whether you think it's going to get accelerated as you go into next year as well?

Well, look, I think it accelerates as I have described. I don't think any revenue is accelerating at this very moment, albeit we are seeing a meaningful uptick in new users just over the last 30 days. As I said, in our iEnergy cloud, which has been meaningful, but overall hard to describe revenues up in a meaningful way at least right now. That said, though, the ability to reduce cost by implementing these things is in the here and the now. I mean that is like here and the now this week having an impact. And so I think the ability, for example, on our integrated projects as we -- this accelerates the acceptance by customers and the demand even by our own people to implement those tools that de-man rigs, work remotely, all of those are tools that we've been building over the last several years. We've implemented them or we've talked about them, in the North Sea, with Aker BP and some others who've been quite vocal but we've done it with many others. So it's hard to look at that set of tools today and not ask yourself, “Why am I not using those tools today?” And so I'm really encouraged about the pace we will see. I think we'll actually see -- its impact will be still over the next few years as that continues to grow, but the existing tools get adopted quite quickly I think in this market.

Great. Thanks for that color Jeff. And maybe a follow-up here for Lance. In prior cycle downturns, typically the decremental margin associated with this down cycle could be anywhere in, let's just call it 40% or so. I know you guys aren’t giving any specific guidance and I appreciate that dynamic. But just trying to think through this element of, if we're coming through this down cycle at kind of lower price points for U.S. frac, didn't really kind of get the same pricing on the international dynamic through this last upturn. Should we still be thinking about maybe baseline to 40% decrementals or should it be lower? And then in that same context, once we come up with that decremental dynamic, I'm assuming we add back $1 billion of that cost savings to whatever we calculate. Is that -- Lance, is that a fair way to think about it?

Yes, I think it is a fair way to think about it. And I won't try to pick an exact number in terms of decrementals in this cycle. But what I will tell you is, is that we're taking out cost now to buoy those decrementals, to soften those decrementals throughout the full cycle of this downturn. I mean, that's the purpose, that's what we're aiming toward. That comes in the form of lowering our unit costs and ultimately doing everything that we can to improve our operating leverage. So, yes, I mean I think that the way that you're thinking about it, if you had an assumption around decrementals, the fit -- the overhead and other costs that we announced, the $1 billion, which is an addition to the $300 million that we've already taken out in the fourth quarter and first quarter of this year-- fourth quarter of last year, first quarter of this year --we expect those to be impactful and to soften the decrementals in this downturn.

Thank you. That concludes our question-and-answer session for today. I would like to turn the conference back over to Jeff Miller for closing remarks.

Yes. Thank you, Gigi. Before we wrap up the call, I'd like to leave you with a few closing comments. First, I thank the Halliburton employees for their dedication to safe, reliable service through these difficult times. I have the utmost confidence in their ability to deliver our value proposition, under any conditions. Second, our balance sheet and liquidity position are solid, and we plan to continue taking actions to strengthen them. We are taking swift actions to address cost, CapEx and working capital, and we'll continue to proactively adjust our business to current market conditions. Finally, we know the industry will recover and believe the actions we are taking will ensure that we are in a strong position, financially and structurally, to take advantage of the markets eventual recovery. Look forward to speaking with you next quarter. Gigi, please close out the call.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining, and have a wonderful day.