Good day and thank you for standing by. Welcome to the Halliburton Company Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. 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 Fourth Quarter 2023 Conference Call. We will make the recording of today's webcast available for 7 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 September 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 fourth quarter earnings release and in the Quarterly Results & Presentation section of our website. Now I'll turn the call over to Jeff.

Thank you, David, and good morning, everyone. 2023 was a great year for Halliburton. Both of our divisions achieved their highest operating margins in over a decade, and we returned $1.4 billion to shareholders. Here are the highlights. We delivered full year total company revenue of $23 billion, an increase of 13% year-over-year; and operating income of $4.1 billion, an increase of 33% compared to 2022 adjusted operating income. Our international business demonstrated strong growth with our revenue up 17% year-over-year despite our exit from Russia in August of 2022, completing 2 consecutive years of high teens growth. Our North America business showed strength with revenue up 9% year-over-year despite rig count declines. Completion and Production revenue grew 18% year-over-year and margins expanded 312 basis points. Drilling and Evaluation grew 7% year-over-year and margins expanded 171 basis points. Turning now to Q4, where Halliburton delivered exceptional margin performance supported by better-than-anticipated completion tool sales globally, strong performance across multiple high-margin product lines and favorable weather in North America. Completion and Production margins finished the year almost 100 basis points higher than Q4 of 2022. International revenue grew 12% year-over-year, led by the Europe-Africa region, which grew revenue 17%. Finally, during the fourth quarter, we generated $1.4 billion of cash from operations, $1.1 billion of free cash flow and repurchased approximately $250 million of common stock and $150 million of debt. Before we continue, I want to take a moment and thank the Halliburton employees around the world who made these results possible. Our success last quarter and throughout 2023 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. Let me begin with my views on the strength of the oilfield services market. As…

Thank you, Jeff, and good morning. 2023 was a strong year for Halliburton. Multiple financial and operational metrics showed the best business performance in recent memory, any one of which are worthy of highlighting. More important than any single metric, however, the overall business performance demonstrated the effectiveness of our strategy. Here are a few highlights. In our C&P division, our 2023 margins of 20.7% were the highest since 2011. In our D&E division, 2023 margins of 16.5% were the highest since 2008. In North America, our strategy to maximize value is about structurally changing the risk and return profile of our business. We delivered steady margins through the year despite lower activity driven by the rollout of our Zeus fleet and their associated contract terms and the strength of our well construction business. Internationally, our profitable growth strategy drove revenue and margin improvement across all of our geographies. Revenue was the highest in the last 8 years, and profit margins were the highest in over a decade. Beyond pricing and activity, this is the result of the multiyear investment in our drilling business and technology differentiation across multiple product lines. Our focus on capital efficiency allowed this revenue growth and structural margin improvement, while capital spending remained within our target range of 5% to 6% of revenue. Collectively, these results generated about $2.3 billion of free cash flow, the highest cash generation in the last 15 years. Let's turn now to our fourth quarter results. Our Q4 reported net income per diluted share was $0.74. Net income per diluted share, adjusted for losses in Argentina primarily due to the currency devaluation, was $0.86. Total company revenue for the fourth quarter of 2023 was $5.7 billion. Operating income was $1.1 billion and the operating margin was 18.4%, a 95 basis…

Thanks, Eric. Let me summarize our discussion today. 2023 was a great year for Halliburton. We generated about $2.3 billion of free cash flow and returned over 60% of free cash flow to shareholders through dividends and stock repurchases. We're committed to return over 50% of our free cash flow to shareholders in 2024. For our international business, we expect low double-digit growth driven by the power of our value proposition, global competitiveness across all product lines and our profitable growth strategy. In North America, we expect a continued strong business driven by stable activity, our differentiated technical position with our Zeus electric frac solution and the increasingly contracted nature of our business. And now let's open it up for questions.

[Operator Instructions]. First question comes from David Anderson with Barclays.

So a question on the C&P margins that held flat during the quarter, and you said U.S. land was holding flat. I was hoping you could talk a little bit about the influence of your growing e-frac fleet on the bottom line. We know the operational advantages, but I was wondering if you could talk about how it impacts financially. How does e-frac, say -- compared to, say, your Tier 4 dual fuel, the diesel fleets just in terms of pricing and operating costs, trying to get a sense of how accretive the new equipment is. And sort of secondarily on that, with E&P consolidation well underway and we look out, say, 12 to 24 months, would you expect the majority of your e-frac fleets to be with these larger operators under multiyear contracts?

Yes. Well, thanks, Dave. Look, e-fleets are accretive. They're accretive for a couple of reasons. Number one, highly efficient to operate from our standpoint. And so that makes them more accretive. Clearly, the are bringing a lot of value to clients, and therefore, they're priced and thought about differently in the marketplace. And so look, I expect that, that will continue into the future. But I think what's most important is the contracted nature of the fleets, which mean a couple of things also. Number one, that the pricing is sticky, but it's sticky because it's contracted over time and the value is thought about. And so sophisticated procurers can look at that and model that, and we can model it as well and comfortable with the value created. But I think the second thing, as we think about what types of customers look at e-fleets, these aren't a spot market solution. I mean the companies that are interested in e-fleets are those that have steady programs, work through cycles, have a clear vision of where their business needs to go and are willing to commit to the technology to deliver that over the long term. And so -- and really, it's an entire system. If we think about an electric fleet, it's -- obviously, it's an efficient, lowest-TCO electric solution, but it's also automated, which drives the level of precision around fracking that I've never seen before. And so the clients know that they're delivering what they expect to deliver, and then finally, the subsurface measurement. But I bring all of that up because that's part of what drives it being accretive: a, it creates a lot more value, therefore, is more accretive than a Tier 4 diesel fleet clearly; and then also a different set of conditions, which also changes the return profile of these assets as we go into the market. I hope that helps, Dave.

It does. A clear differentiation there. So a separate question here. I noticed in your release, you announced 2 new collaborations with other service companies: one in reservoir analysis, the other MPD. It sort of effectively fills a few of your weaker spots of your portfolio. And if I just think back to last cycle, we saw a number of acquisitions, but I don't recall too many collaborations out there. I mean, on the one hand -- I guess, from my point of view, on the one hand, maybe you're testing the waters a bit, but on the other, it seems like it's a pretty good way to fill product lines without spending a lot of capital. I was wondering if you could talk about the strategy and why it's different during the current cycle. And would you expect to enter more collaborations in the coming years?

Well, look, I think it's more a function of the technology that we have and when we see -- we've developed some things around digital cores and the ability to evaluate them digitally, for example, but trying to buy our way into the entire core space. We'd rather partner with who we think the premier core analysis company is. And so we're able to bring our technology to that. And effectively, it's a complementary strategy where we make better returns doing the things that we've developed and know how to do. And obviously, we believe Core Labs is a fantastic company. And so we're able to bring something to that, that we believe creates more value rather than trying to enter into a different type of arrangement. You mentioned the other one was Oil State. Similar kind of thing, got terrific technology, but we don't know that we want to try to plow that much capital into the rest of their business. But we do know where we can generate outsized returns for Halliburton. Yes, I would throw in another similar type thing is subsea with TechniqueFMC, who -- I really believe TechnipFMC is the absolute premier subsea company in the world. And we work closely with them, developing joint IP, delivering on electric completions, all electric completions. And so there are a lot of things we're able to do where we can mine what I think is our core competency or competitive advantage along with others without trying to broaden our way into things that aren't really strategically fit. Hope that helps, Dave.

Our next question comes from Neil Mehta with Goldman Sachs.

The first question is around a more macro question, which is one of the things that surprised us last year was the exit to exit of U.S. oil production, which came in above, I think, where consensus expectations were. You have unique visibility into U.S. completion and volumes. What do you think happened there? And as we think about 2024, how do you think about exit rate of U.S. growth? And maybe talk about the moving pieces, including DUCs.

Yes. Look, if I'm thinking about production growth in '24, production is a function of service intensity. So simply put, more sand, more barrels. And we saw peak levels of service intensity throughout last -- really in the first half of last year, and a lot of that comes on in the latter half. And I think some of this is efficiency in the sense that we are delivering more sand to the reservoir. And that comes in a lot of forms. E-fleets are part of that and some of the technology that we brought to market. But I also think that the market that we see for next year, it's hard for me to forecast at this point exactly what operators will do because every operator plays their own game. But at the same time, I would probably be over on rigs because I think that we'll run out of DUCs at some point. I think I would take the under only production only because whatever you think it is, I'll take the under only because what we see are stable customers delivering to their plans. But what we don't see as a lot of the smaller companies coming into the market in an effort to really ramp up production. So I think from our perspective at Halliburton, very stable market. But from a production standpoint, as we watch it unfold, it will be a matter of how much incremental sand gets pumped to overcome what is clearly going to be a decline rate that comes with when we add barrels rapidly, obviously, they fall off rapidly.

Good color there. And then you made a comment that you feel like you have international visibility through the end of the decade. Can you expand there and help give the market a little more confidence about what the post 2024-2025 file looks like?

Well, look, I mean we are working on tenders today for work all of next year and the following year. I mean when we talk with customers, I think about what's going to happen. Really, I don't think the North Sea and West Africa even really wake up until 2025. We've seen strong in those markets. However, the real growth we're working on planning today doesn't even start until '25. And all of these things are 3- and 4-year-type efforts. I mean these aren't individual wells in places like that. These are programs. And so we spent -- we're actually on contract with a client working on just the planning of logistics for '25-'26 and beyond. And so I've just got a lot of confidence in terms of what we see in hand, the tender pipeline and then the pipeline of work that we are planning with customers that may or may not even be tendered. It's just more a matter of it will be done. And we've got clarity on that in '25 and beyond.

Our next question comes from Arun Jayaram with JPMorgan.

Jeff, you mentioned that 40% of your contracted fleets this year will be Zeus going to 50% or more in '25. I was wondering if you could give us a sense of how your commercial model for Zeus has evolved. And one of the things we get questions on is just the significant amount of completion efficiency gains that the industry is generated. And what is the sharing of that between E&P and service company?

Well, look, I think, number one, it's the value created by Zeus is what drives the contracting nature. A couple of things. When we started to develop Zeus, we started, like I said, quite a while back, our view was we want to maximize value to North America, number one. And in order to do that, we just had to -- we believe that the technology created enough value, so much value that we aren't going to build it unless it's demonstrated for customers. And I think the contracting nature of the longer-term contracts, 3-year-type contracts is because we let the market pull rather than trying to push thing into the market. It is that different and special. And as that system continues to develop and evolve, meaning automation, measurement, all of these things that drive really meaningful value, that is what's creating, I think, the different dialogue around Zeus with our customers because it will become more and more integral to how they create value as well. And then from an efficiency standpoint or like volume standpoint, our equipment is very efficient. So as we go from zipper frac to simo frac to, in this case, trial frac with the customer, that is not a one-to-one increase in horsepower requirements. So we become more efficient as those volumes go up. But that is also a unique feature, though, of Zeus and its ability to scale up, but it's not 1 one for one. And so from Halliburton perspective, we do create outsized value for Halliburton and also for our clients because we're using less equipment than we would had we gone at it in a traditional fashion. So I think that the combination of reliability but also automation, because it's -- as those fracs -- as fracs get larger, the precision gets more important. There are a whole lot of things that start to happen. And so very collaborative efforts with our clients to utilize that technology. In the case of a trial frac, really groundbreaking type work, super excited to do it with this customer.

Great. Jeff, my follow-up, natural gas is on people's minds in North America. Just given the contango in the market, 2024 is just above 2 50. I was wondering if you could give us a sense of how much of your activity is levered just to dry gas. And what are some of the risks to the earnings picture from a soft market for gas this year?

Look, we've got very little gas exposure in our business. Today, the ones -- the exposure that we do have is contracted under -- is sort of the Zeus solution somewhat and then we've got, I guess, a little bit of other things. But look, the gas work that we have is not a significant part of our overall portfolio. And so we plan for what we can see. I think legitimately, there could be equal upside on gas as LNG comes on. But we haven't baked it into our outlook today. But I would say that's clearly one of the upsides to North America, maybe more so than a downside to North America.

Our next question comes from Roger Read with Wells Fargo.

And actually, to last week to visit a tribal frac site and saw the e-fleet. So pretty impressive setup. One of the things the customer mentioned was a slightly different, I guess, sort of price-to-value contract structure. Looks like from a margin standpoint, you're doing fine on that. But is there anything you can kind of enlighten us on, on maybe how we thought about traditional pressure pumping contracting and a lot of spot exposure versus kind of how this is going through? What does it mean in terms of sharing gains with the customer? What's the right way for us to think about that on kind of a price...

Look, from our standpoint, our -- Roger, thank you. We won't create value for our customers. I think you have to create meaningful value for customers in order to be a long-term supplier and partner to a customer. So we start from that position. And as you said, solid contract for us over the very long term. We went into this focused on maximize value, which in our view, means maximize returns, which we're able to do under these types of environments. And so rather than play sort of the spot -- we don't intend to play the spot game. That spot game is kind of a -- it's a win-lose on either side of the market. Really, when the market is getting tight, probably operators are losing. When it's going the other direction, service companies lose a lot. And our strategy is to stay out of that. And so right contracts with customers that, in our view, are fair and deliver a lot of value both in terms of pumping value and also recovery value. And I think that we're uniquely positioned to do that. And so improving recovery per foot or production per foot is a long-term game, and we want to play that long-term game with customers that are working on that long-term game. And we're ecstatic about the customers we have and who we get to work with, try to solve what we think are the real pressing issues of the future in North America frac. And so we don't get to play that game. That game doesn't get played successfully if it's the frac is sure. We need to be part of that process, and our clients allow us to do that.

Appreciate that. The follow-up question I have, it's unrelated, but I think kind of critical to the announcement this morning raising the dividend. What is the right way for us to think about your uses of free cash flow between, as you did in the fourth quarter, sort of elective repurchases of debt as opposed to maturities? But as we're thinking debt, dividend is pretty fixed here and then share repurchases. What way do you want us to think about the return of free cash flow?

Yes. Thanks, Roger. It's Eric. So think about it in a fairly similar way as what we did in 2023, except higher. So we increased the dividend 6%. We're now back to about 95% of where we were pre-COVID. In terms of buyback, we intend to continue buying back share. Our intention today is to buy back more share in dollar terms in 2024 than we did in 2023. At the same time, as we did also in 2023, we intend to continue to retire debt and continue to strengthen the balance sheet. So overall, fairly similar structure in '24 as what we did in '23 but kind of bump up everything a bit higher.

Our next question comes from James West with Evercore ISI.

So Jeff, it -- you talked about West Africa, North Sea not awakening until '25. A lot of tendering or just conversations about '25-'26. I know some of the -- your partners like FTI are bidding for deliveries that wouldn't happen until '29 and '30. The offshore rig companies, they're getting locked up into '26-'27. I mean the visibility this cycle seems to me to be somewhat unprecedented. And I'm curious if that's consistent with your view of how things are playing on how customers are behaving and how your conversations are going. Because it seems like the industry is on board with -- is it going to be a long cycle? What we recognize, of course, macroeconomic events could derail things. But at least for now, with this oil price range that we're in, it's kind of all systems go for a long time.

Look, I'm careful speaking for the entire industry. But I would say I have this, including Halliburton, very focused on running return -- businesses for strong returns over the long term, which is precisely what we all do. And I think that's good for our clients and it's good for us as well. And so that level of visibility is not inconsistent with companies planning a future around how to make money for shareholders. And that's what we're doing as well. And so I think it's a very good setup for the rest of this decade, quite frankly, just because, a, we know there's demand; b, we are able to -- our whole value proposition around is how we collaborate and engineer solutions to maximize asset value for our customers. And this type of setup allows us to do that. The other thing that happens, though, when we run a business for returns is we don't overinvest in the business. And so we've told you kind of where our CapEx will fall and level of growth that we're looking at. And so we're very thoughtful about the growth because we are keeping profitable international growth firmly in hand. And so I think assets are tight and they'll remain tight for those very reasons. It's very natural economic reasons for an industry that's running their businesses for return, which is clearly what we're doing. And then I think our level of CapEx, the way that structured drives that level of thoughtful investment and manages the contracts that we win indirectly. And it also maximizes returning cash to shareholders. So it's a very good environment in my view.

Okay. That's -- we certainly agree with that. And then maybe a follow-up for me and potentially, I don't know if Eric is going to take this one. But the D&E margins, which I know are more levered towards international, where a lot of the volume growth is certainly going to come from, and you're going to have natural operating leverage from that and inflation. It seems to be cooling somewhat so you should -- incremental should improve here. Where are you anticipating? I know you gave this quarter guidance, but that's seasonal. Where do you anticipate margins? Or maybe if you want to talk about incrementals, however you want to discuss it for D&E going forward as we go through '24 and into '25?

Yes, Jim. So to your point, if you just look at Q1, obviously you get seasonal effect. So -- but more importantly, looking at the year-on-year and the general trend of the D&E margins. So first, I think it's worth noting, as Jeff mentioned in the script, that we had our best D&E margins in 15 years. So it means that a lot of the investment we have done in the last few years are paying off. So what to watch really is the general trajectory of margins in the business. And for us, it's a matter of balancing revenue growth, improvements in margin, improvements in returns as we continue to invest in the D&E business. So all of that to say that expect margins to continue to firm up as we get into '24. And we're expecting our margins to be materially higher in D&E in 2024 than they were in 2023. Now there might be some bumps along the road from 1 quarter to the next, et cetera. It's a business that typically tends to have a lot of moving parts. But directionally, margins will be higher in 2024 than they were in 2023.

Our next question comes from Scott Gruber with Citigroup.

So Jeff, as I step back and think about the outlook for your U.S. business, it appears that you're on a pathway to establishing a business that will deliver more consistent and better free cash flow in the years ahead than we've seen historically, in part that's given the e-frac investment investment across the portfolio. So I'm wondering if you'd just give some color kind of around that. We're seeing the consistency now. If I heard correctly, the CapEx color doesn't suggest a material reduction in domestic CapEx into '24. So curious kind of around kind of bending that curve lower and just kind of overall helping this business model that's much more consistent and less CapEx-intensive ultimately.

Yes. Thanks. And that is precisely what we set out to do, and that's what's playing out now. And so in terms of a consistent business that generates strong free cash flow through the cycle, and that's been our intent all along. With the way we bring Zeus fleets to market, the way we invest in North America broadly, we are very deliberate about how we maximize value over the long term in North America. And I think you saw that play out in the last 2 quarters as we've seen the market moving around. But nevertheless, steady drumbeat of execution and cash flow delivery by Halliburton. And I expect to continue that because that is precisely our strategy. And so when it comes to cash flow, our capital allocation of our capital budget, we're going to allocate it to those things where we see that opportunity, which we certainly see that with Zeus fleets. But remember, that's a demand pull, not a push strategy. So we don't build fleets until we have contracts for fleets. And so that's a different -- completely different environment than maybe we would have seen in prior cycles from Halliburton, anything else we do in North America. Like we've developed some very good, in my view, fit-for-purpose drilling technology for North America. But we're not going to overbuild it. We're selling it into the market as the market will take it. It's a lot of excitement about it, but our approach is still going to be consistent delivery of margins and free cash flow in North America. And so I think you'll see us continue to do that. And that means we put e-fleets in the market, we retire sort of the fleets that are at the bottom of the stack and continue that march forward.

Got it. Okay. Appreciate the color. Unrelated follow-up here. Leverage is down to about 1x now, which is good to see. And it sounds like the cash return could step up a bit. Can you just kind of walk us through your thoughts as you move forward in time, the cycle continues, you'll generate more free cash flow, leverage continues to come down. Outside of any M&A, should we think about that shareholder return as a percentage of free cash flow moving higher given that you will be trending somewhat on leverage on a go-forward basis?

Yes, yes. I mean just starting with free cash flow, I think that you can expect 2024 free cash flow to be at least 10% over '23. So that is going to basically help us return -- increase returns on a dollar basis. Now in terms of the percentage, we're still guided by our overall 50% return to shareholder. But directionally, it would make sense to believe that we'll do at least what we did in 2023 in terms of the percentage return.

Our next question comes from Luke Lemoine with Piper Sandler.

Jeff, your North America rev significantly outperformed the U.S. land rig count in '24. And I would guess some of the factors were Zeus fleet, service quality, more stable customer base and a pickup in the Gulf of Mexico. But could you talk about any other factors that drove this? And then with the U.S. land rig count most likely down in '24, do you think North America revs could be up in '24 for you?

Yes. Look, the outperformance is just the stability of the business as I described it. And so a big part of that is 40% of our fleet by the end '24 under long-term contracts. That creates a steady environment. So the rig count is going to move around and do what it does, but our largest part of our business, very stable. And the reality is the North America business is very big. We saw growth Gulf of Mexico and other offshore environments. However, a very large, stable North America business -- land business is going to mute some of that. And as we go into '25, I expect the same kind of performance out of our North America business sort of in spite of what rigs do. Now I do believe a repoint where DUCs are drawn down, they're largely drawn down. And I think that we'll see rig count increase only because it's supplying the inventory of DUCs required to run a very smooth, stable-type business. And I would say our customers largely plan their business around turning wells into production more than they do numbers of rigs in the air. And so I think there's a lot of planning that goes on to deliver a very stable business of completing wells. And so I think one of the reasons I would say I'd take the over on rig count, I don't think -- I won't try to forecast rig count at this point. But I do think there's upside in North America. We plan the business for what we can see, and we expect it to be stable. But that being said, I think there are obviously factors that could push that up. Like gas activity is clearly out there and I would pull the pace at which LNG plants come online, but we know that they will. Is it '24 event or a '25? I think we'll get to that point and see that Halliburton participates in that upside, and that could happen this year. But at this point, we're planning the business around returns.

Okay. And I guess a follow-up with this more stable North American business, you talk about your North American land margins you're ascribing flat in 4Q. Could you talk about how you see this progressing in '24 kind of with that stable business?

Well, look, let's just leave it at steady and stable moving forward. I think that we've got a very strong international business as well that contributes, and I think that continues to grow and expand margins. But we're really pleased with where we are. But U.S. revenue and margins flattish through any cycle, I think, is where we wanted to get this business. Clearly, there's upside. And I do expect from a C&P standpoint, we're going to see the benefit of our market leadership positions in PE, cementing, baroid and other things that we do around the world. So I think that we're going to continue to participate in that meaningfully, particularly from a margin standpoint. But again, our key in North America is stability through cycles. And I think we're demonstrating -- I don't think, I know we're demonstrating that now.

Our next question comes from Stephen Gengaro with Stifel.

Two for me. Wanted just to follow up on the prior question around sort of margins in C&P and the Zeus fleets. When you talk about these assets being contracted, are there any difference in sort of the pricing dynamic versus sort of prior cycles and price openers quarterly? And how should we just think about the pricing for those assets in an environment where maybe there's a little excess capacity near term from some, quite honestly, maybe not as competitive assets but older assets in the market? Does it matter -- is pricing pretty stable? Can you talk about that a bit?

Look, these are long-term deals that we go into knowing the cost of the asset and knowing what the return needs to be. So now it just becomes a bit of a math problem around duration. And so there are variable costs in the market that we don't control and we don't try to own. We just pass through to customers, whether it's sand cost and many other things. But for -- where we create competitive advantage for our equipment is we go into these long-term vehicles. We don't need price opener and all of that sort of jazz. There's no reason for it. We literally sit down and work through what is the return for client, return for Halliburton, and then we fix that and move forward. That doesn't change over time. And so -- well, the rest of the market, the spot-type market, all of that is going to do what it's going to do. But I think that's when we take a long view of the market in value creation, that's math that both clients and how can do. And I think that's what makes it so very different, our approach in North America. It's not particularly differentiated, if at all, in the spot market. And as a result, it's just kind of does what it does. It's on a free for all. But I would say, in the market where we want to play, which is technology-driven, lowest total cost of ownership and working on, I think, most important, which is productivity per foot. That's a different game. That's a long-term game.

Great. And then just one quick one, probably for Eric, on the cash flow statement. Anything we should know about working capital parameters in '24 versus '23 that would be much different as we kind of build out the models, whether it's DSOs or payables, et cetera?

No. I think what's important around free cash flow is, as I mentioned earlier, is we're expecting the free cash flow to be at least 10% over '23. That's going to be on the back of improved income. It's going to be on the back also of improved efficiencies around working capital. So we spend a lot of time working on improving DSOs, working on improving DIOs. And when I speak like this, I don't mean just pushing the organization, I mean implementing different initiatives. For example, I'll give you a couple of examples on DSO. We spend a lot of time on automating the invoicing process on integrated services. For example, invoicing on integrated service is extremely complicated. We have multiple product lines, multiple parts of our organization, customer organization, so it takes a lot of time. And to the extent that you can automate that and then remove -- reduce cycle time, then you improve DSO. We just rolled out 18 months ago a company-wide demand planning software, which when combined with the rollout of S/4 in the future is going to give us totally different capabilities to plan our business and reduce inventory while not increasing the risk from an operation perspective. So these are the things where we're spending a lot of our time to basically structurally improve the efficiency of working capital. So that's going to be the other component of why we're expecting our free cash flow to improve next year.

Our next question comes from Marc Bianchi with TD Cowen.

I just wanted to first clarify on the North America outlook that you provided for it to be flat. That's a comment for the full year. Is that correct? Or was that a comment from where run rates are today?

Look, we think that Q1 is up from Q4. So there's activity that comes back to seasonal in Q4. As we look at the balance of the year, I think that there are -- as we plan the business for what we got visibility of and we can see our fleets are largely contracted for '24, that's what we know. Are there factors that may add to that? I think -- if you have to do that, I think if production levels are low, clients may speed up. There's a lot of variables that could happen that, I think, are to the positive. But nevertheless, as we look out to '24 and we plan a business that generates the kind of returns we expect to generate, that's what we see.

Okay. The other question I had was on D&E in the first quarter here. I think historically, there have been some onetime sales that continue for D&E in the first quarter. And then margin could be down in the second quarter. Is that sort of the base case outlook here? Or is there something unusual going on this year versus the prior years?

No, there's nothing unusual. I think if you -- actually, if you were to go back and look at the Q1 '24 over Q4 '23 guidance that we just gave, it is very much in line with the typical Q4 to Q1 seasonality that we saw prior to COVID, so you go back to 2020, 2019, 2018. So what we're seeing here is really a business that's fully in line with historical trend. What's happening on the D&E side, the influence of software sales in Q4 typically is maintained in Q1. But we're having a lot of weather-related issues in the Eastern Hemisphere and the North Sea, et cetera, that is influencing our D&E margins. But again, very much in line in terms of quarter-on-quarter guidance as we have had historically in our business, nothing unusual.

[Operator Instructions]. Our next question comes from Kurt Hallead with Benchmark.

A lot of good stuff to digest here to make. Jeff, appreciate all that color. I think my question here, kind of what piqued my curiosity was, again, a couple of things that you -- one of which you put in the press release, which was a kind of AI-driven dynamic that you have going on with ADNOC. And maybe start with that one in the context of how you are seeing AI evolving as a tool for the customer base as a tool for your company. The -- how do you see the adoption of that? And how do you see the financial impact of that evolving over the course of the next couple of years?

Yes. Thanks, Kurt. Look, I think software and automation, and I say it that way because software business is strong and focused on enterprise solutions, which will adopt all sort of AI and generative AI as we continue to move forward. And that will create efficiency and [indiscernible] in a lot of ways for our customers. Internally, as we adopt automation and AI into our tools and service delivery, I expect that it will have a meaningful impact. Probably over the next 2, 3 to 5 years, just as those things are adopted, it's going to reduce service costs, it's going to drive demanding. And it's also going to improve service quality, and I think will actually improve the capability of tools, which I think is so fundamental to how we generate long-term returns.

Appreciate that color. Also just that Halliburton Labs entered into a venture to some direct lithium extraction. So curious as to how you might see Halliburton involved in that process as well.

Well, look, that's one of our labs companies. We're excited to have them here. We make a very, very small investment in companies that join our labs, but it's very small. It's around $100,000. So it's -- we're a tiny piece of their Series B, which we're excited for them. But Hal Labs continues to attract, in my view, more quality investable companies over time. We're watching them enter Series As, and in some cases, Series B. And it's a journey. We're doing a lot different industries, but we're careful. This is clearly not corporate venture capital. We are not investing in the companies that join Hal Labs other than small 3% to 5% stake that we get from them generally for the services that we provide to them as a member of Halliburton Labs. So super excited about where that's going. But we just need to let that continue to progress on its own.

I would now like to turn the call back over to Jeff for any closing remarks.

Yes. Thank you, Josh. Let me close the call with this: I'm excited about 2024. I mean our outlook for oilfield services is strong, and I expect Halliburton will generate significant free cash flow for shareholders in 2024. Look forward to speaking with you next quarter. Let's close out the call.

Thank you for your participation. You may now disconnect.