Good day and thank you for standing by. Welcome to the Halliburton Company, Third Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions]. 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.

Hello! And thank you for joining the Halliburton third quarter 2023 conference call. We will make a recording of today's webcast available for seven days on Halliburton's website after this call. Joining me today are Jeff Miller, Chairman, President and CEO and Eric Carre, 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, 2022, Form 10-Q for the quarter ended June 30, 2023, 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. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our third quarter earnings release and in the 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 delivered an impressive third quarter. Our margin strength demonstrated the power of our strategy. I am pleased with the stability of our North America business and the profitability of our international growth. Let's jump right into the highlights. Total company revenue increased 8% year-over-year, while operating income grew 23%. International revenue grew 17% year-over-year with strong activity in all geographic markets. North America revenue was roughly flat year-over-year and down 3% sequentially. Our completion and production division grew revenue 11% year-over-year, while margins expanded 280 basis points, margins expanded 105 basis points sequentially driven by international operations, while North American C&P margins remained approximately flat the last quarter. Our drilling and evaluation division grew revenue 4% year-over-year, while margins expanded 168 basis points. Finally, we generated $874 million of cash from operations, $511 million of free cash flow and repurchased approximately $200 million of common stock and $150 million of debt during the quarter. To our over 45,000 employees globally. Thank you for another outstanding quarter, you executed our strategy and delivered excellent financial results. I'll begin with what I see in the macro environment. Reliable and affordable energy remains at the very center of global economic growth and security. The most recent world oil outlook from OPEC expects 10 million barrels of oil demand growth before the end of the decade and further demand growth through 2045. Maintaining production while adding incremental supply requires meaningful long-term investment in both short and long cycle barrels to meet demand. This challenge is reflected in our customers' activity levels and future development plans. Consistent with this outlook, we expect continued demand growth for oilfield services in 2024 and beyond. Everything I see today strengthens my conviction in the long duration of this upcycle. Against…

Thank you, Jeff, and good morning. Our Q3 reported net income per diluted share was $0.79. Total company revenue for the quarter was $5.8 billion flat sequentially, while operating income was $1 billion a sequential increase of 3%. Operating margin for the company was 17.9% in Q3, a 207 basis point increase over Q3 2022. Beginning with our completion and production division, revenue in Q3 was $3.5 billion flat sequentially, while operating income was $746 million, an increase of 6% sequentially. C&P delivered an operating income margin of 21%. These results were primarily due to increased stimulation activity internationally, higher cementing activity in the eastern hemisphere, and improved completion tool sales globally. These increases were partially offset by lower pressure pumping services in North America. In our drilling and evaluation division, revenue in Q3 was $2.3 billion flat sequentially, while operating income was $378 million, which was also flat from Q2. D&E delivered an operating income margin of 16%, an increase of 168 basis points over Q3 last year. Sequential changes were driven by higher fluid services in Middle East Asia, and Latin America, and increased wireline activity in Latin America and Europe/Africa. These were offset by decreased drilling related services, lower project management activity and software sales in Mexico. Now let's move on to geographic results. Our Q3 international revenue increased 3% sequentially. Latin America revenue in Q3 was $1 billion, a 5% increase sequentially. This increase was primarily due to increased pressure pumping services, and drilling fluids in Argentina, improved completion tool sales in Brazil, and higher project management and drilling related services in Colombia and Ecuador. Partially offsetting these increases were lower software sales, decreased project management and lower well construction services in Mexico. Europe/Africa revenue in Q3 was $734 million, a 5% increase sequentially. This increase…

Thanks, Eric. Let me summarize our discussion today. Halliburton delivered an impressive third quarter. Our margin strength demonstrated the power of our strategy. I'm pleased with the stability of our North America business and the profitability of our international growth. Our North America business performed exactly as I expected, delivering our strategy to maximize value in North America. Our international results clearly demonstrate Halliburton's strong global competitiveness in both divisions and the successful execution of our strategy for profitable international growth. Execution of our value proposition has created a strong offshore business, and our ability to compete in all parts of the business has never been better. And now let's open it up for questions.

Thank you. [Operator Instructions] Our first question is from Dave Anderson with Barclays. Please proceed.

So Jeff, the duration story internationally is very compelling with the capacity expansion in Middle East, offshore FIDs and offshore work that you were talking about. So I wonder if you could talk a little bit about how that translates into the cadence of international growth over the next 12 to 24 months. International sale looks a little sluggish this quarter, MENA was flat. I know Kuwait's been a bit slow, but I'm just wondering, should we start to see the region accelerate in 2024?

Yes. Thank you, Dave. And look, I expect that it will. And I've talked about growth for 2024 double digits. But to frame that, our strategy is profitable international growth. And we've grown 20% in '22, high teens this year, double digits next year. So I'm comfortable with the growth and expect we will continue to see strong growth, certainly above market growth. But we're doing that while improving margins and expanding margins. And so I think that our strategy is crystal clear around what we're going about. There's plenty of market there to do that and expect we will continue to do that in '24 and beyond.

And if I could just shift over to kind of one of the big topics out there is M&A, Chevron, Exxon, [indiscernible] EPs in North America. Can you talk a bit about what this means to Halliburton. On the one hand, I'm thinking this should provide you really significant visibility on your development programs. On the other hand, perhaps your pricing levers might be a bit compromised if you only have a handful of large customers. Could you just kind of big picture, talk about what's leading to your business, please?

Yes. Big picture, good for Halliburton. I think it does a couple of things what we're seeing. Certainly, it demonstrates the long-term importance of oil and gas and more specifically, worldwide and more importantly, the long-term importance of North America. I mean what we're seeing are big players that take a really long view, and these are the kind of customers that clearly work through cycles. And so I think we'll see a much more stable North America I really like our position with our customer mix today is clearly biased. Most of our work is with very large privates and publics. And so I like our position there. And then more importantly, these are customers that care about the kinds of things we work on at Halliburton. So when we work on, I think important things like productivity, efficiency and recovery. And we talk about all 3 of those in our business. And I think we're unique in the way that we approach those. So I think it will be good for Halliburton.

And what this accelerated adoption of e-frac, you think, with both of those two customers?

Look, I think that's exactly the kind of tool that customers like this want to have in their hands, and we're seeing pretty good adoption. I would say north of 60% of our business today are repeat customers. So these aren't science projects. This is things that are being baked into workflows.

It comes from the line of Neil Mehta with Goldman Sachs. Please proceed.

One of the notable things about the quarter was the return of capital, the $200 million of share repurchases. Maybe you could just frame out for the market, how you're thinking about your share repurchase strategy and setting us up for your framework as we go into 2024?

Yes. Good morning, Neil. So look, dividends and it's clearly part of our return strategy. But directionally nothing has changed in our overall policy of returning about 50% or over 50% of our free cash flow to shareholders. I mean right now, we like the flexibility that buybacks give us, and we're thinking similarly as we get into next year. If we look at what we've done this year, we've returned $1 billion already to shareholders so far this year. As our business continues to grow and our margins continue to improve as well. I would expect that these overall returns would be higher as we get into 2024.

Okay. That's helpful. And we appreciated a little bit of color on 4Q, but I was wondering if you could kind of unpack some of that guidance a little bit more, talk about what you're thinking about from a regional perspective? And any comments that we need to keep in mind as we think about the next quarter sequentially.

Yes. I think, Neil, we're typically giving guidance on a division basis, which is the way we report numbers, and I think we will leave it at that.

Well, maybe just a little bit of color around North America, we're going to see some seasonality as we've described it in the last few years. We've had really strong tailwinds into Q4. I would expect this year, we'll see what I would describe as more normal seasonality. And then, clearly, there will be completion tools and other sales in there that help internationally, we'll probably see software sales in Q4, probably Q1 and more activity and more pricing. And hopefully, that's helpful color.

And it comes from the line of James West with Evercore ISI.

If I could, I'd love, Jeff, as you would talk a little bit about the competitive environment that you see in front of you now. It seems to me that we've had a big change in the overall market over the last decade or so with one competitor kind of dropping back, one moving into other non-oil and gas businesses and so kind of leaving the oil and gas side is somewhat about a duopoly for yourself and your main competitor but both of you are focused on returns. And so it's not a pricing fight or a market share fight, it's kind of, hey, we're in the same game, let's generate cash, let's generate free cash flow to get back to shareholders. Let's get pricing up for returns. Is that kind of how you see '24, '25, '26 unfolding or am I mistaken in my view, we've got a different competitive environment.

Well, James, it's highly competitive in the marketplace. And we are absolutely focused on our strategy at Halliburton and I've been really clear about that. And so independent of what anyone does in the marketplace from a Halliburton standpoint, we are maximizing value in North America. We are growing profitably internationally and driving capital efficiency. And I think some of the cash flows that you see and improving cash flow that you see is driven out of our fundamental strategy to develop R&D that is more capital efficient. And so this has been a strategy underway for probably 5 or 6 years, maybe longer. And today, we're seeing the fruits of that. But from a competitive perspective, highly competitive marketplace and we're always continuing to lower total cost of ownership for our customers and also drive the three things. And the outcome of that is clearly better free cash flow, more cash flow return to customers, but it starts with that basic strategy.

Right. Got it. Okay. And then, if we think about North America as this cash machine, as I think about it for you guys, with some seasonality here in the fourth quarter, do you anticipate pricing degradation? Or do you think that everything kind of holds up here and we're in just kind of this continued harvesting period.

Well, look, I think that North America, as we look forward into '24, the consolidation activity that we've seen is clearly a demonstration of how important North America is. In the kind of environment that we're in today, it's hard for me to imagine operators who want to be smaller rather than bigger given the $85, $90 commodity price. So I think that will drive certain amount of activity up from here. From our perspective, we see largely a steady market from as you described it, just partly because we are focused on retiring diesel fleets and transitioning to electric. We've got a very clear strategy around North America. And we believe that our service quality performance and technology, those get better every day, and they drive margins. So this is an important component. They drive margins. And I think our customers understand the level of investment required in order to deliver service quality, performance and technology. So we've seen what this market looks like when we burn up equipment at very low returns that don't allow for that reinvestment, probably we've seen that, that's not a good outcome certainly not for service companies, but it's also not a good outcome for operators. So I think that's what gives me confidence in sort of the stability of this. And to that point, we're mostly I'd say, mostly contracted for 2024.

And it comes from the line of Roger Read with Wells Fargo Securities. Please proceed.

Yes. Good morning. Probably just to follow up on a couple of the questions already been asked, maybe slightly differently. As you think about the outlook here for the fourth quarter and maybe in the first half of '24, I was just curious where you feel like you're being properly cautious, maybe slightly overly cautious and where you think things actually need to come through to sort of hit the numbers, right? I'm just sort of looking for some guidelines maybe of what to pay attention to as the quarter unfolds.

Look, I think the guidance we've given you is fairly clear, and we've got a lot of confidence in the way we looked at the market. And as I described, seasonality in North America, it's something we've certainly seen before and we know what that looks like. I expect our international business continues to do, continues to grow, and we've already sort of laid out what we expect this year to look like. So I feel confident in our outlook. And then, as we go into the first half of next year, I think that we're going to clearly see North America up from here. Maybe that's the color that wasn't clear when I answered the last question. But in terms of sort of where the commodity price is and also not as dependent on that, but really what we're seeing in terms of customers' plans. And also, just the decline rates in North America. So the reality is you have to do more work in order to stay flat. And so I suspect that we'll see some of that as well. As the rest of next year plays out, it's too early to call that. We don't have budget numbers from customers but the customers operating in North America today are the kinds of folks that execute their plans and so those plans will be executed. I hope that's helpful.

Yes, it is. My follow-up question is a little bit different tack. But it gets back to some of your opening comments about adjusting your cost structure and less fixed, more variable, we've typically thought of the way to measure performance with service companies in Halliburton, off the incremental margins. But if the fixed costs are becoming more variable, then maybe we don't see quite the same change in the incremental margin, but we'd still pay attention to the absolute margin. So maybe just as a way to ask about where you think the absolute margin can go relative to what we've seen over the last several quarters, any expectations there. I mean, is it -- these margins with revenue growth or margin expansion from here?

Well, look, I tend to always think more about margin expansion just because it's sort of core to how we're operating the business. But I think that the cost reductions have been super important. And I think a lot of what we've seen has been off the back of that but that's critical to how we run the business. And as I've said, maximizing value in North America is our fundamental strategy, and that will translate into strong incrementals, which we've seen. And I don't expect those have gone away, but that's partly because of the type of equipment we're putting in the market as much as anything. And so as we continue to pivot from diesel to electric, I would expect to see over time as those go into the marketplace, stronger incrementals. I would also say the same about what we're doing sort of quietly but equally important with drilling tools in North America. So we have been able to put together much better capital efficiency around our drilling business, and it's gaining traction. So those are the kind of things that drive incrementals even off of a fairly low fixed cost base.

And it comes from the line of Scott Gruber with Citigroup. Please proceed.

Yes. Good morning. Jeff, the trends in the U.S. certainly seem positive for Halliburton. So my question is, if we experience just a half recovery in market activities, so let's just say we get back about 50% of the rigs that we lost in the U.S. In that scenario, can Halliburton get back close to operating your peak frac fleet count from earlier this year. Can you get back close to peak numbers in that scenario?

Yes. Thanks. So I mean, look, we've got a really good position in North America. And I think as we look at '24, a couple of things, even beyond activity is, I view we have asymmetric sort of opportunity in North America. So I've said, I expect activity to be up, not down as we go into '24, just given where we are and as you described it. But the opportunity is around demand we see for [indiscernible]. So that's an opportunity that is largely unique to us in terms of the way we're approaching that. And certainly, our drilling business is equally an asymmetric opportunity for Halliburton just given the fundamental change in technology and the ability to put that to work in North America. And I think that will benefit on its own just from the technology, but equally so, maybe from any growth in rig count will only accelerate the uptake on that technology.

Got it. And another unique opportunity for Halliburton has been on the production side of the business, particularly outside of the U.S. as you take in the [indiscernible] business internationally and build the chemical facility in the Middle East. Can you just update us on the outlook for continued share gains within production outside of the U.S. in 2024?

Yes, thanks. The lift business continues to grow. I mean, this is a fantastic technology. And the reason it's leading in North America is because of its execution and its technology. And those are the same reasons that we're seeing the growth internationally. And so also an initial really solid contract in Kuwait that has continued to expand in the Middle East with trials and opportunities and actually getting meaningful traction. Similarly, in Latin America, where we had quite a bit of success in a variety of countries, including Ecuador and others. And look, lift is becoming -- our ESPs are becoming more resilient, the technology continues to improve. The summit team is at the leading edge of that. And so look, very high expectations for where they go and expect that, that is, again, another unique international growth opportunity for Halliburton, very resilient in the North America sort of independence of activity rig count activity. And then, the chemical business is it continues to get traction. We're on pace, we're on plan, I would say, with the plant in the Middle East. So it's doing what we had expected it to do. And so pleased with where we are.

And it comes from the line of Luke Lemoine with Piper Sandler.

Jeff, you talked last quarter about a record number of these fleets that you signed in 2Q. I wanted to see if you could give us a qualitative update on incremental these fleets maybe interest from customers and how you see your, this program shaping up for 24? And then, if you could provide any commentary on conventional equipment displacements, that would be helpful, too.

Look, we've continued on the track we were on. We've continued to see very strong demand. Yes, we've signed up new fleets. This quarter, we put a couple of work. I believe that trajectory is unchanged. And so very pleased with the trajectory that we see around e-fleets and they're performing very, very well. So that continues to sort of build up the confidence of the market and that technology. I think that the fact that they are lower TCO than existing equipment is a big part of why they are successful. From a displacement standpoint, we've described as we bring out electric equipment, we would retire diesel equipment. And I've always said, it's not a perfect science of 1:1. But we've had an opportunity this year to retire diesel fleets, which we've described. And by doing that has effectively accelerated the marketplace. And what we're really pleased to see a repeat customer. And I think that's an important component of confidence in the technology, customers come back for a second one.

And it comes from the line of Stephen Gengaro with Stifel. Please proceed.

Two things for me. The first, when you think -- you mentioned this I think a little bit earlier, Jeff, but when you think about U.S. production levels, where do you think frac fleet activity needs to be. Are we around that level, do you think to keep production flat under or over.

Look, I think that's going to be unique to different and certainly the different operators and levels of efficiency and many other things. Look, I think that we'll know a lot more as we go into next year and start to see where production levels are. Clearly, this year saw a lot of broad activity by a lot of operators early in the year, and I suspect North America is getting the benefit of that right now. The private market was super busy the first part of the year 2023. You saw that group not really drill wells as we got into the late summer, which is the time they normally would. And so I think that will weigh on probably production as we go into '24. That said, we've got a commodity market that is probably quite supportive. And so it'd be hard to imagine less, not more. But in terms of production going into 2024, it would seem that a big chunk of what was added in '23 is not repeating right now with good weigh on production. That said, as I've said before, I think we'll see activity up, not down from here for those reasons.

Great. Thanks. And then my follow-up question was around sort of the maybe lesser Tier 1 acreage out there and sort of the impact that you think it has on how's business from both the pressure pumping but also across C&P in North America as far as, does it help, do you think efficiencies are slowing on the completion side. So how does that phenomena play into sort of demand and service intensity of sort of on a per production or per well basis.

Look, it drives service intensity up without question. And that's good for Halliburton. It also drives technology in terms of things like our downhole diagnostics, which we call SmartFleet. But I mean I think addressing productivity per foot which comes in the form of efficiency, and placement, reconciling all of those things between well design and production, having the tools to do that, and that's precisely what we introduced to the marketplace in the form of SmartFleet, which is a critical building block in my view, solving for that. And I think that's why we're seeing uptake on that technology. So I think that never bet against this industry ever. I mean our customers in North America are very smart, very good, very competitive. And the history of this industry broadly is improving recovery factors, whether it's through process and methodology or automation or in many cases, just physics and science. And I think that what that does do is it drives more reps for Halliburton. It will drive more sand in wells that will do a lot of things. But I also expect, as we've done for so many years, that we'll see the actual breakeven cost or the cost of producing oil and gas in North America continue to come down on the back of technology.

It comes from the line of Marc Bianchi with TD Cowen. Please proceed.

Thank you. I wanted to ask about the C&P performance here in the third quarter and the outlook for fourth quarter. If I look at sort of the original guidance for third quarter, it was for margins to be flat, but they ended up growing by 100 basis points. And then as we look to fourth quarter, the decline is kind of guided to 100 basis points. Was there a pull forward of some completion tool sales that would usually occur in the fourth quarter? Is that explaining it? Or are there some other elements that we should be thinking about as we bridge from where we were in the second quarter?

Look, I expect to see strong performance from C&P, Q4 and beyond. Look, I think that I've described some seasonality. But I think what you're really seeing is the quantity and the quality of the development work that's happening around the world. I mean, you saw equipment is clearly tight moving up. We've got a leadership position. And several things in C&P whether it's production enhancement, which is very important internationally as well, cementing and completion tools. And then, certainly, it helps that North America executed very well. So we've seen flat margins despite the rig count being down.

Okay. Thanks for that Jeff. The other one I had was on kind of the international growth. So if I look at your Middle East and Africa, it was flat this quarter. I'm curious how you're thinking about that region and maybe the other regions if we're going to get to sort of a low double digits for the year. are any regions leading that or would you expect them all to grow at a similar type rate?

Well look, as I said, I expect we finished this year at high double digits, not low double digits. And so look, expect to see growth, but we're seeing growth everywhere. I mean, growth can be lumpy at different times. It depends on what's happening in a particular region on any given day or set of quarters. But I would say this quarter, we've grown 17% overall and would expect to see solid growth in '24. And so that will be in bright region, but I am not concerned at all about quarter-to-quarter where growth happens to be. We've seen very strong in Middle East earlier this year, and we'll probably see growth for the full year. So I think that quarter-to-quarter, trying to measure that is not as impactful as sort of year-on-year. And I think we take a set of assets and we put them to work where we see the best returns on them. And some of those C&P margins that you're seeing are at the root of that.

It comes from the line of Jim Rollyson with Raymond James. Please proceed.

Jeff, I just had one question. On the pricing front, you've talked about this, obviously, over the past few quarters. And my recollection historically is international pricing kind of takes a longer cycle to roll over. I'm kind of curious what you think -- what inning you think we're in from a pricing perspective if we're truly in this longer duration cycle and just how you think about that impact from here on margins since your margins are pretty strong relative to historical cycles already.

Look, I think that continue to strengthen. [Technical Difficulty]. We expect margins to continue to strengthen. The asset feedback, let's see. We expect margins to continue to strengthen internationally because they tend to move 1/3, 1/3, 1/3. However, what's important is, we're also seeing growth in offshore at the same time. And so we've got a tightening of capacity that sort of comes at a higher rate from offshore work just because it requires more capital offshore than it does onshore. And so the type of activity that we're seeing is continuing to tighten the market. At the same time, so that's driving pricing to a large degree. And I think the type of activity that we see planned that is either underway or being tendered or just being planned that clearly extends well into the decade is going to serve to drive our pricing.

And it comes from the line of Kurt Hallead with Benchmark. Please proceed.

I'm kind of curious here, Jeff, right, you given mentioned a number of different positive factors, right, that are driving your business, both internationally and domestically. And on the domestic front, right, your fleet mix, technology, service quality, et cetera. So with that dynamic and with that kind of mix, right, are you confident or comfortable enough to suggest that you think your North America revenue could grow in 2024, even if overall activity is flat or down?

Yes. Yes. I mean, again, I think we've got some unique opportunity. Asymmetric sort of positioning with Halliburton in terms of electric fleets that we're able to do that the market wants and that we can produce that is unique to Halliburton. And also, as I've described, our drilling technology as that grows in North America that will be, again, an opportunity for growth for Halliburton that probably won't be consistent across the broader piece of that. So yes, I am confident that Halliburton has the ability and will grow.

Okay. Good. Great. Now I have a follow-up. I think in your prior conversations, I understood this correctly that when you're being approached by customers to talk about e-fleet opportunities. You guys are kind of looking at contractual commitments that maybe could be as long as 3 years. Is that still the case?

Yes. Look, it's a very good technology. We've talked about maximizing value in North America. That is what we're doing. And part of maximizing value in North America is building technology that customers want and creates value for customers. And for that, this is a fairly low risk decision by an operator realistically. The operators that we're talking to about e-fleets are the kind of operators that will always have equipment working. The reality is the first question is describe a scenario where you won't be fracking at all and the answer to that is there is no scenario where a large operator will not be fracking. Then it becomes, why wouldn't you want that one fleet at least to be your lowest cost operating fleet because it's burning natural gas, it's emitting less and it's working at the highest performance. At that point, this becomes a much easier discussion because it is the lowest cost operating fleet. It is extremely high efficiency and it lowers their overall cost. And so all of a sudden, that type of commitment isn't a huge hurdle to get over for customers that are committed to the long term in this business and that's been our experience. And I think that new capital should earn a return as part of maximizing value and we've got something that creates value for customers.

Thank you. And this concludes the Q&A answer period. I will now turn the call back over to Jeff Miller.

Thank you, Carmen. Before we close out, Halliburton delivered an impressive third quarter. And our margin strength demonstrated the power of our strategy. Everything I see today strengthens my conviction and the long duration of this up cycle. So I look forward to speaking with you next quarter, Carmen will close out the call.

Thank you. And with that, we thank you for participating in today's conference. You may now disconnect.